NETE Net Element Inc

via InvestorWire -- Net Element, Inc. (NASDAQ: NETE) (“Net Element” or the “Company”), a global technology and value-added solutions group that supports electronic payments acceptance in a multichannel environment including point-of-sale (“POS”), e-commerce and mobile devices, today reports its financial results for the second quarter ended June 30, 2021.

Second Quarter 2021 Financial Results

• Net revenue increased to $33.3 million, as compared to $13.7 million for the same comparable period in 2020.
• North American Transactions Solutions revenue increased to $32 million, as compared to $13 million for the same comparable quarter in 2020.
• International Transaction Solutions revenue increased to $1.3 million, as compared to $0.74 million for the same comparable quarter in 2020.
• Operating expenses increased to $3.1 million, as compared to $2.2 million for the same period in 2020.
• Gross margin increased to $3.7 million, as compared to $2.2 million for the same comparable quarter in 2020.
• Net income per share increased to $0.21, as compared to a net loss of $0.08 per share for the same comparable period in 2020.
• Reflected in net income attributable to common stockholders for the quarter ended June 30, 2021, are two nonrecurring other income transactions totaling approximately $1.0 million. It was comprised of $0.4 million for the PPP Note debt forgiveness and $0.6 million in late fees due from Mullen in connection with the Mullen Merger Agreement.

Results of Operations for the Three Months Ended June 30, 2021, Compared to the Three Months Ended June 30, 2020

The Company reported a net income attributable to common stockholders of approximately $1.3 million or $0.21 per share income for the three months ended June 30, 2021, as compared to a net loss of approximately $325,000 or $0.08 per share loss for the three months ended June 30, 2020. The decrease in net loss attributable to stockholders of approximately $1.6 million was primarily due to an increase in net revenues of approximately $19.6 million and approximately $500,000 in late fees owed by Mullen during the three months ended June 30, 2021.

The following tables set forth the Company’s sources of revenues, cost of revenues and the respective gross margins for the three months ended June 30, 2021, and the same period in 2020.

		Three						Three
		Months Ended						Months Ended						Increase /
Source of Revenues		June 30, 2021			Mix			June 30, 2020			Mix			(Decrease)
North American Transaction Solutions		$	32,015,097		96.2	%		$	12,977,536		94.6	%		$	19,037,561
International Transaction Solutions		1,276,838			3.8	%		741,073			5.4	%		535,765
Total		$	33,291,935		100.0	%		$	13,718,609		100.0	%		$	19,573,326
		Three						Three
		Months Ended			% of			Months Ended			% of			Increase /
Cost of Revenues		June 30, 2021			revenues			June 30, 2020			revenues			(Decrease)
North American Transaction Solutions		$	28,561,909		89.2	%		$	11,016,028		84.9	%		$	17,545,881
International Transaction Solutions		1,020,689			79.9	%		520,759			70.3	%		499,930
Total		$	29,582,598		88.9	%		$	11,536,787		84.1	%		$	18,045,811
		Three						Three
		Months Ended			% of			Months Ended			% of			Increase /
Gross Margin		June 30, 2021			revenues			June 30, 2020			revenues			(Decrease)
North American Transaction Solutions		$	3,453,188		10.8	%		$	1,961,508		15.1	%		$	1,491,680
International Transaction Solutions		256,149			20.1	%		220,314			29.7	%		35,835
Total		$	3,709,337		11.1	%		$	2,181,822		15.9	%		$	1,527,515

Net revenues consist primarily of service fees from transaction processing. Net revenues were approximately $33.3 million and $13.7 million for the three months ended June 30, 2021, and the same period in 2020, respectively. The Company’s revenues, which are largely tied to processing volumes, were materially impacted beginning in the final two weeks of March 2020. Since the quarter ended Dec. 31, 2020, the Company has seen a significant recovery in its end-to-end payment volumes as some merchants began resuming their normal operations.

Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, interchange expense, processing and non-processing fees. Cost of revenues for the three months ended June 30, 2021, were approximately $29.6 million, as compared to approximately $11.5 million for the three months ended June 30, 2020. The increase in cost of revenues was primarily due to a significant increase in net revenues.

The gross margin for the three months ended June 30, 2021, was approximately $3.7 million, or 11.1% of net revenues, as compared to approximately $2.2 million, or 15.9% of net revenues, for the three months ended June 30, 2020. The decrease in the overall gross margin percentage was primarily the result of the competitive pressure in the industry and a large wholesale client converting their merchant processing relationship to the Company’s platform. Net Element’s wholesale platform generally provides for lower margins compared to the Company’s other products and services.

Operating Expenses Analysis:

Operating expenses were approximately $3.1 million for the three months ended June 30, 2021, as compared to $2.2 million for three months ended June 30, 2020. Operating expenses for the three months ended June 30, 2021, primarily consisted of selling, general and administrative expenses of approximately $2.1 million; bad debt expense of approximately $500,000; and depreciation and amortization expense of approximately $500,000. Operating expenses for the three months ended June 30, 2020, primarily consisted of selling, general and administrative expenses of approximately $1.4 million; bad debt expense of approximately $33,000; and depreciation and amortization expense of approximately $800,000. The net increase was primarily due to additional personnel retained to meet the demand of growth, the increase in bad debt expense due to the increase in net revenues, and fees connected with the Company’s Form S-4 filing, which were partially offset by the reduction of compensation of certain employees, consultants and executives of the Company.

The components of the Company’s selling, general and administrative expenses are reflected in the tables below.

Selling, general and administrative expenses for the three months ended June 30, 2021, and the same period in 2020 consisted of operating expenses not otherwise delineated in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss, as follows:

Six months ended June 30, 2021
Category		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments		$	912,201			$	299,609			$	645,363			$	1,857,173
Professional fees		368,954				64,137				612,976				1,046,067
Rent		152,933				33,142				9,765				195,840
Business development		84,601				13,335				38,055				135,991
Travel expense		7,734				62,375				94,216				164,325
Filing fees		-				-				46,502				46,502
Transaction gains		-				(41,986		)		-				(41,986		)
Office expenses		104,598				11,403				45,648				161,649
Communications expenses		63,739				57,552				76,588				197,879
Insurance expense		-				-				83,832				83,832
Other expenses		742				13,964				100,732				115,438
Total		$	1,695,502			$	513,531			$	1,753,677			$	3,962,710
Six months ended June 30, 2020
Category		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments		$	1,085,541			$	204,967			$	669,295			$	1,959,803
Professional fees		161,578				88,428				496,948				746,954
Rent		17,643				30,158				91,508				139,309
Business development		111,349				17				5,907				117,273
Travel expense		5,309				34,496				95,526				135,331
Filing fees		-				-				37,338				37,338
Transaction losses		-				76,499				-				76,499
Office expenses		119,485				10,728				44,975				175,188
Communications expenses		88,770				89,364				35,871				214,005
Insurance expense		-				-				80,685				80,685
Other expenses		428				2,103				16,305				18,836
Total		$	1,590,103			$	536,760			$	1,574,358			$	3,701,221
Variance
Category		North American Transaction Solutions				International Transaction Solutions				Corporate Expenses & Eliminations				Total
Salaries, benefits, taxes and contractor payments		$	(173,340	)		$	94,642			$	(23,932	)		$	(102,630	)
Professional fees		207,376				(24,291		)		116,028				299,113
Rent		135,290				2,984				(81,743		)		56,531
Business development		(26,748		)		13,318				32,148				18,718
Travel expense		2,425				27,879				(1,310		)		28,994
Filing fees		-				-				9,164				9,164
Transaction gains		-				(118,485		)		-				(118,485		)
Office expenses		(14,887		)		675				673				(13,539		)
Communications expenses		(25,031		)		(31,812		)		40,717				(16,126		)
Insurance expense		-				-				3,147				3,147
Other (income) expenses		314				11,861				84,427				96,602
Total		$	105,399			$	(23,229	)		$	179,319			$	261,489

Salaries, benefits, taxes and contractor payments increased by approximately $200,000 on a consolidated basis for the three months ended June 30, 2021, as compared to the same three-month period ended June 30, 2020. The net increase was primarily due to additional personnel retained to meet the demand of growth offset by the reduction of compensation of certain employees, consultants and executives of the Company.

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

To supplement its consolidated financial statements presented in accordance with United Statesgenerally accepted accounting principles (“GAAP”), the Company provides additional measures of itsoperating results by disclosing its adjusted net loss attributable to Net Element, Inc. stockholders.Adjusted net loss attributable to Net Element stockholders is calculated as net income (loss) attributable to Net Element stockholders excluding noncash share-based compensation and other nonoperating, nonrecurring items. The Company discloses this amount on an aggregate and per-share basis. These measures meet the definition of non-GAAP financial measures. The Company believes that application of these non-GAAP financial measures is appropriate to enhance the understanding of the Company’s investors regarding its historical performance through the use of a metric that seeks to normalize period-to-period earnings. A reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP for the three and six months ended June 30, 2021, and June 30, 2020, is presented in the following tables.

	GAAP			Share-basedCompensation			Gain on DebtForgiveness			Late Fee Income			Adjusted Non-GAAP
Three Months Ended June 30, 2021
Net income attributable to Net Element Inc stockholders	$	1,263,875		$	11,237		$	(441,492	)	$	(559,986	)	$	273,634
Basic and diluted earnings per share	$	0.21		$	-		$	(0.07	)	$	(0.09	)	$	0.05
Basic and diluted shares used in computing earnings per share		5,966,123												5,966,123
Three Months Ended June 30, 2020
Net loss attributable to Net Element Inc stockholders	$	(324,690	)	$	7,500		$	-		$	-		$	(317,190	)
Basic and diluted earnings per share	$	(0.08	)	$	-		$	-		$	-		$	(0.08	)
Basic and diluted shares used in computing earnings per share		4,175,148												4,175,148
	GAAP			Share-basedCompensation			Gain on DebtForgiveness			Late Fee Income			Adjusted Non-GAAP
Six Months Ended June 30, 2021
Net loss attributable to Net Element Inc stockholders	$	1,568,440		$	22,494		$	(441,492	)	$	(1,559,961	)	$	(410,519	)
Basic and diluted earnings per share	$	0.26		$	-		$	(0.07	)	$	(0.26	)	$	(0.07	)
Basic and diluted shares used in computing earnings per share		5,944,636												5,944,636
Six Months Ended June 30, 2020
Net loss attributable to Net Element Inc stockholders	$	(1,691,488	)	$	45,900		$	-		$	-		$	(1,645,588	)
Basic and diluted earnings per share	$	(0.41	)	$	0.01		$	-		$	-		$	(0.40	)
Basic and diluted shares used in computing earnings per share		4,146,396												4,146,396

 

Use of Non-GAAP Financial Measures

Non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP measures exclude significant expenses that are required by GAAP to be recorded in the Company's financial statements and are subject to inherent limitations.

About Net Element

Net Element, Inc. (NASDAQ: NETE) operates a payments-as-a-service transactional and value-added services platform for small to medium enterprise ("SME") in the U.S. and selected emerging markets.   

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements. Words such as "continue," "will," "may," "could," "should," "expect," "expected," "plans," "intend," "anticipate," "believe," "estimate," "predict," "potential" and similar expressions are intended to identify such forward-looking statements. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, many of which are generally outside the control of Net Element and are difficult to predict. Examples of such risks and uncertainties include, but are not limited to, what the ultimate impact of the COVID-19 pandemic and its variants, including the significantly more contagious Delta variant, will have on the Company, its business and its operations; whether the Company will obtain shareholder or other regulatory approvals for the consummation of the merger with Mullen Automotive, Inc., including the receipt and timing of required approvals and satisfaction of other conditions precedent to the closing of the proposed merger and the related transactions contemplated in the merger agreement; whether the Company will achieve growth or achieve its goals; and when the Company will reach profitability. Additional examples of such risks and uncertainties include, but are not limited to: (i) Net Element's ability (or inability) to obtain additional financing in sufficient amounts or on acceptable terms when needed; (ii) Net Element's ability to maintain existing, and secure additional, contracts with users of its payment processing services; (iii) Net Element's ability to successfully expand in existing markets and enter new markets; (iv) Net Element's ability to successfully manage and integrate any acquisitions of businesses, solutions or technologies; (v) unanticipated operating costs, transaction costs and actual or contingent liabilities; (vi) the ability to attract and retain qualified employees and key personnel; (vii) adverse effects of increased competition on Net Element's business; (viii) changes in government licensing and regulation that may adversely affect Net Element's business; (ix) the risk that changes in consumer behavior could adversely affect Net Element's business; (x) Net Element's ability to protect its intellectual property; (xi) local, industry and general business and economic conditions; and (xii) adverse effects of potentially deteriorating U.S.-Russia relations, including, without limitation, over a conflict related to Ukraine, including a risk of further U.S. government sanctions or other legal restrictions on U.S. businesses doing business in Russia. Additional factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements can be found in the most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed by Net Element with the Securities and Exchange Commission. Net Element anticipates that subsequent events and developments may cause its plans, intentions and expectations to change. Net Element assumes no obligation, and it specifically disclaims any intention or obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law. Forward-looking statements speak only as of the date they are made and should not be relied upon as representing the Company’s plans and expectations as of any subsequent date.

Contact:Net Element, Inc.Tel. +1 (786) 923-0502Media@NetElement.comwww.netelement.com

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