via NEWMEDIAWIRE --
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 multi-channel environment
including point-of-sale (“POS”), e-commerce and mobile devices,
today reports its financial results for the fourth quarter and the
calendar year ended December 31, 2019.
2019 Full Year Financial Results
- Total transaction processing volume of $3.67 billion, an
increase of 10.2% compared with $3.33 billion in 2018
- Net revenues of $65.0 million, a decrease of 1.2% as compared
to $65.8 million in 2018
- Gross margin of $10.3 million, an increase of 1.0% as compared
to $10.2 million in 2018
- Operating expenses were $15.9 million, an increase of 9.4% as
compared to $14.5 million in 2018
- Net loss per share increased to ($1.60), an increase of 25.2%
as compared to ($1.28) in 2018 primarily due to non-cash
compensation expense and the impact of the Goodwill impairment
charge
Fourth Quarter 2019 Financial Results
- Total transaction processing volume increased 10.4% to $973.4
million, as compared to $881.8 million for the same comparable
period
- Net revenue increased 3.7% to $16.7 million as compared to
$16.1 million for the same comparable period
- Revenue from value added services increased 61.5% to $0.84
million from $0.52 million for the same comparable
period
- North American Transactions Solutions revenue increased 3.9% to
$15.8 million as compared to $15.2 million for the same comparable
period
- International Transaction Solutions revenue decreased 4.3% to
$0.89 million as compared to $0.93 million for the same comparable
period
- Operating expenses decreased 2.8% to $3.5 million as compared
to $3.6 million for the same comparable period
- Gross margin decreased 12.6% to $2.16 million as compared to
$2.47 million for the same comparable period in 2018 due to an
increase in processing costs
- Net loss per share increased to ($0.67) as compared to ($0.39)
for the same comparable period
"While the current COVID-19 pandemic is affecting us and the
industries we serve, we are focused on executing on strategies that
will benefit the Company, our clients, sales partners and
shareholders over the long-term,” commented Oleg Firer, CEO of Net
Element. “We believe that our platform is now more important than
ever for our merchants during these turbulent times as it allows
them to accept payments in a multi-channel environment including
online and contactless payments.”
The outbreak of the novel COVID-19
coronavirus
While Net Element’s annual results focus on its fiscal year
ended December 31, 2019, the Company is actively monitoring and
responding to the rapidly developing worldwide situation regarding
the outbreak and continuing spread of the novel coronavirus
(“COVID-19”). The World Health Organization declared the
COVID-19 outbreak as a pandemic, as the virus has continued to
expand globally, with many countries and jurisdictions declaring
state of emergencies and implementing public safety actions in an
attempt to contain further spread.
The Company has taken commensurate actions outlined by U.S
health agencies, as well as, complying with country-specific
mandates. We are unable to accurately predict the impact that
COVID-19 will have on our results of operations, due to
uncertainties including the ultimate geographic spread of the virus
within and outside of the United States, the severity of the
disease, the duration of the outbreak, and actions that may be
taken by governmental authorities to contain COVID-19 or to treat
its impact. However, while it is premature to accurately predict
the ultimate impact of these developments, we expect our results
for the quarter ending March 31, 2020 to be adversely impacted with
potential continuing adverse impacts beyond March 31, 2020.
Results of Operations for the Year Ended December 31,
2019 Compared to the Year Ended December 31, 2018
We reported a net loss attributable to common stockholders of
approximately $6.5 million or ($1.60) loss per share for the year
ended December 31, 2019 as compared to a net loss of approximately
$4.9 million or ($1.28) loss per share for the year ended December
31, 2018. This resulted in an increase in net loss attributable to
stockholders of approximately 31% primarily due to non-cash
compensation of approximately $1.9 million, an impairment of
Goodwill relating to our International Transaction Solutions
segment of approximately $1.3 million as compared to $636,000 in
the prior year, an increase in amortization expense of
approximately $700,000 from the comparable prior period, and an
increase in interest expense of approximately $300,000 from the
comparable prior period, which was off-set by a decrease in bad
debt expense of approximately $800,000, and an increase in other
income of approximately $700,000.
The following table sets forth our sources of revenues, cost of
revenues and gross margins for the years ended December 31, 2019
and 2018.
YTD |
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve |
|
|
|
Twelve |
|
|
|
|
|
|
Months Ended |
|
|
|
Months Ended |
|
|
|
Increase / |
Source
of Revenues |
|
December 31, 2019 |
|
Mix |
|
December 31, 2018 |
|
Mix |
|
(Decrease) |
North American Transaction
Solutions |
|
$ 61,778,002 |
|
95.0% |
|
$ 59,138,552 |
|
89.9% |
|
$ 2,639,450 |
International
Transaction Solutions |
|
3,221,609 |
|
5.0% |
|
6,648,265 |
|
10.1% |
|
(3,426,656) |
Total |
|
$ 64,999,611 |
|
100.0% |
|
$ 65,786,817 |
|
100.0% |
|
$ (787,206) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve |
|
|
|
Twelve |
|
|
|
|
|
|
Months Ended |
|
% of |
|
Months Ended |
|
% of |
|
Increase / |
Cost of
Revenues |
|
December 31, 2019 |
|
revenues |
|
December 31, 2018 |
|
revenues |
|
(Decrease) |
North American Transaction
Solutions |
|
$ 52,395,752 |
|
84.8% |
|
$ 50,545,759 |
|
85.5% |
|
$ 1,849,993 |
International
Transaction Solutions |
|
2,325,958 |
|
72.2% |
|
5,071,412 |
|
76.3% |
|
(2,745,454) |
Total |
|
$ 54,721,710 |
|
84.2% |
|
$ 55,617,171 |
|
84.5% |
|
$ (895,461) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve |
|
|
|
Twelve |
|
|
|
|
|
|
Months Ended |
|
% of |
|
Months Ended |
|
% of |
|
Increase / |
Gross
Margin |
|
December 31, 2019 |
|
revenues |
|
December 31, 2018 |
|
revenues |
|
(Decrease) |
North American Transaction
Solutions |
|
$ 9,382,250 |
|
15.2% |
|
$ 8,592,793 |
|
14.5% |
|
$ 789,457 |
International
Transaction Solutions |
|
895,651 |
|
27.8% |
|
1,576,853 |
|
23.7% |
|
(681,202) |
Total |
|
$ 10,277,901 |
|
15.8% |
|
$ 10,169,646 |
|
15.5% |
|
$ 108,255 |
|
|
|
|
|
|
|
|
|
|
|
QTD |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three |
|
|
|
Three |
|
|
|
|
|
|
Months Ended |
|
|
|
Months Ended |
|
|
|
Increase / |
Source
of Revenues |
|
December 31, 2019 |
|
Mix |
|
December 31, 2018 |
|
Mix |
|
(Decrease) |
North American Transaction
Solutions |
|
$ 15,752,693 |
|
94.6% |
|
$ 15,161,975 |
|
94.2% |
|
$ 590,718 |
International
Transaction Solutions |
|
892,739 |
|
5.4% |
|
934,973 |
|
5.8% |
|
(42,234) |
Total |
|
$ 16,645,432 |
|
100.0% |
|
$ 16,096,947 |
|
100.0% |
|
$ 548,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three |
|
|
|
Three |
|
|
|
|
|
|
Months Ended |
|
% of |
|
Months Ended |
|
% of |
|
Increase / |
Cost of
Revenues |
|
December 31, 2019 |
|
revenues |
|
December 31, 2018 |
|
revenues |
|
(Decrease) |
North American Transaction
Solutions |
|
$ 13,768,606 |
|
87.4% |
|
$ 12,968,417 |
|
85.5% |
|
$ 800,189 |
International
Transaction Solutions |
|
712,351 |
|
79.8% |
|
656,603 |
|
70.2% |
|
55,748 |
Total |
|
$ 14,480,957 |
|
87.0% |
|
$ 13,625,020 |
|
84.6% |
|
$ 855,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three |
|
|
|
Three |
|
|
|
|
|
|
Months Ended |
|
% of |
|
Months Ended |
|
% of |
|
Increase / |
Gross
Margin |
|
December 31, 2019 |
|
revenues |
|
December 31, 2018 |
|
revenues |
|
(Decrease) |
North American Transaction
Solutions |
|
$ 1,984,087 |
|
12.6% |
|
$ 2,193,557 |
|
14.5% |
|
$ (209,470) |
International
Transaction Solutions |
|
180,388 |
|
20.2% |
|
278,370 |
|
29.8% |
|
(97,982) |
Total |
|
$ 2,164,475 |
|
13.0% |
|
$ 2,471,927 |
|
15.4% |
|
$ (307,452) |
Net revenues consist primarily of service fees from transaction
processing. Net revenues were approximately $65.0 million for the
year ended December 31, 2019 as compared to approximately $65.8
million for the year ended December 31, 2018. The decrease in net
revenues was primarily related to our International Transaction
Solutions segment which experienced competition, certain economic
challenges, and the loss of a major customer. In addition, growth
in our North American Transaction Solutions segment was offset by
the wind- down of certain merchant categories due to the
industry-wide changes for enhanced card association and sponsoring
compliance.
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 year
ended December 31, 2019 were approximately $54.7 million as
compared to approximately $55.6 million for the year ended December
31, 2018. The decrease in cost of revenues in 2019 as compared to
2018 of approximately $0.9 million was primarily driven by the
reorganization of assignments from our International Transaction
Solutions segment due to economic challenges facing this
segment.
Gross Margin for the year ended December 31, 2019 was
approximately $10.3 million, or 15.8% of net revenue, as compared
to approximately $10.2 million, or 15.5% of net revenue, for the
year ended December 31, 2018. The primary reason for the increase
in the gross margin percentage was the result of North American
Transaction Solutions segment processing of transactions utilizing
our self-designated BIN/ICA and further acceptance of value-added
services by the merchants, and an increase in merchants
boarded.
Operating Expenses Analysis:
Total operating expenses were approximately $15.8 million for
the year ended December 31, 2019, as compared to total operating
expenses of approximately $14.5 million for the year ended December
31, 2018. Total operating expenses for the year ended December 31,
2019 consisted of selling, general and administrative expenses of
approximately $9.3 million, non-cash compensation of approximately
$2.1 million, bad debt expense of approximately $1.4 million, and
depreciation and amortization expense of approximately $3.1
million. For the year ended December 31, 2018, total operating
expenses consisted of general and administrative expenses of
approximately $9.8 million, non-cash compensation of approximately
$100,000, bad debt expense of approximately $2.1 million, and
depreciation and amortization expense of approximately $2.5
million.
The components of our selling, general and administrative
expenses are reflected in the table below.
Selling, general and administrative expenses for the years ended
December 31, 2019 and 2018 consisted of operating expenses not
otherwise delineated in the accompanying audited consolidated
statements of operations and comprehensive loss, as follows:
YTD |
|
|
|
|
|
|
|
|
Twelve months ended December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North American Transaction Solutions |
|
International Transaction Solutions |
|
Corporate Expenses & Eliminations |
|
Total |
Salaries, benefits, taxes and
contractor payments |
|
$ 1,230,858 |
|
$ 516,737 |
|
$ 3,021,665 |
|
$ 4,769,260 |
Professional
fees |
|
520,019 |
|
259,349 |
|
1,607,185 |
|
2,386,553 |
Rent |
|
- |
|
80,107 |
|
221,987 |
|
302,094 |
Business development |
|
226,633 |
|
1,747 |
|
44,452 |
|
272,832 |
Travel expense |
|
133,300 |
|
46,403 |
|
105,422 |
|
285,125 |
Filing fees |
|
- |
|
- |
|
103,760 |
|
103,760 |
Transaction gains |
|
- |
|
(61,200) |
|
- |
|
(61,200) |
Office expenses |
|
302,764 |
|
23,981 |
|
64,897 |
|
391,642 |
Communications expenses |
|
151,033 |
|
199,862 |
|
84,651 |
|
435,546 |
Insurance expense |
|
- |
|
- |
|
150,408 |
|
150,408 |
Other expenses |
|
22,804 |
|
10,308 |
|
272,652 |
|
305,764 |
Total |
|
$ 2,587,411 |
|
$ 1,077,294 |
|
$ 5,677,079 |
|
$ 9,341,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North American Transaction Solutions |
|
International Transaction Solutions |
|
Corporate Expenses & Eliminations |
|
Total |
Salaries, benefits, taxes and
contractor payments |
|
$ 1,431,806 |
|
$ 1,205,885 |
|
$ 2,760,334 |
|
$ 5,398,025 |
Professional
fees |
|
350,100 |
|
346,084 |
|
1,556,497 |
|
2,252,681 |
Rent |
|
- |
|
90,456 |
|
204,143 |
|
294,599 |
Business development |
|
134,862 |
|
4,636 |
|
14,961 |
|
154,459 |
Travel expense |
|
151,098 |
|
12,789 |
|
138,316 |
|
302,203 |
Filing fees |
|
- |
|
- |
|
49,339 |
|
49,339 |
Transaction losses |
|
- |
|
94,573 |
|
- |
|
94,573 |
Office expenses |
|
307,593 |
|
35,646 |
|
51,997 |
|
395,236 |
Communications expenses |
|
112,510 |
|
162,444 |
|
107,475 |
|
382,429 |
Insurance expense |
|
- |
|
- |
|
136,643 |
|
136,643 |
Other expenses |
|
2,842 |
|
18,244 |
|
277,415 |
|
298,501 |
Total |
|
$ 2,490,811 |
|
$ 1,970,757 |
|
$ 5,297,120 |
|
$ 9,758,688 |
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category |
|
North American Transaction Solutions |
|
International Transaction Solutions |
|
Corporate Expenses & Eliminations |
|
Total |
Salaries, benefits, taxes and
contractor payments |
|
$ (200,948) |
|
$ (689,148) |
|
$ 261,331 |
|
$ (628,765) |
Professional
fees |
|
169,919 |
|
(86,735) |
|
50,688 |
|
133,872 |
Rent |
|
- |
|
(10,349) |
|
17,844 |
|
7,495 |
Business development |
|
91,771 |
|
(2,889) |
|
29,491 |
|
118,373 |
Travel expense |
|
(17,798) |
|
33,614 |
|
(32,894) |
|
(17,078) |
Filing fees |
|
- |
|
- |
|
54,421 |
|
54,421 |
Transaction gains |
|
- |
|
(155,773) |
|
- |
|
(155,773) |
Office expenses |
|
(4,829) |
|
(11,665) |
|
12,900 |
|
(3,594) |
Communications expenses |
|
38,523 |
|
37,418 |
|
(22,824) |
|
53,117 |
Insurance expense |
|
- |
|
- |
|
13,765 |
|
13,765 |
Other income |
|
19,962 |
|
(7,936) |
|
(4,763) |
|
7,263 |
Total |
|
$ 96,600 |
|
$ (893,463) |
|
$ 379,959 |
|
$ (416,904) |
The total decrease of approximately $400,000 in selling, general
and administrative expenses for the year ended December 31, 2019 as
compared to the prior year was primarily due to the Company’s
continued monitoring of operations and the labor costs necessary to
maintain or increase revenues, and the reorganization of
assignments in the International Transaction Solutions segment,
which resulted in a decrease of approximately $900,000. These
objectives were also responsible for the decrease of approximately
$600,000 in salaries and contractor expense associated with the
consolidated operations.
Reconciliation of Non-GAAP Financial Measures and
Regulation G Disclosure
To supplement its consolidated financial statements presented in
accordance with United States generally accepted accounting
principles (“GAAP”), the Company provides additional measures of
its operating 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 loss
attributable to Net Element stockholders excluding non-cash
share-based compensation and other non-operating, non-recurring
items. Net Element 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 by the Company’s investors of 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 year ended December 31,
2019, and December 31, 2018 is presented in the following
tables.
|
GAAP |
Share-based Compensation |
Impairment Charge Relating to
Goodwill |
Adjusted Non-GAAP |
Twelve
Months Ended December 31, 2019 |
|
|
|
|
Net loss attributable to Net
Element Inc. stockholders |
$ (6,458,382) |
$ 2,050,862 |
$ 1,326,566 |
$ (3,080,954) |
Basic and
diluted loss per share |
$ (1.60) |
$ 0.52 |
$ 0.34 |
$ (0.74) |
Basic and diluted shares used in computing loss per
share |
4,041,957 |
|
|
4,041,957 |
Twelve
Months Ended December 31, 2018 |
|
|
|
|
Net loss attributable to Net
Element Inc. stockholders |
$ (4,936,182) |
$ 142,017 |
$ 636,000 |
$ (4,158,165) |
Basic and
diluted loss per share |
$ (1.28) |
$ 0.04 |
$ 0.16 |
$ (1.08) |
Basic and diluted shares used in computing loss per
share |
3,868,324 |
|
|
3,868,324 |
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 ElementNet 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. In the U.S. it
aims to grow transactional revenue by innovating SME productivity
services using blockchain technology solutions and Aptito, our
cloud-based, restaurant and retail point-of-sale solution.
Internationally, Net Element's strategy is to leverage its
omni-channel platform to deliver flexible offerings to emerging
markets with diverse banking, regulatory and demographic
conditions. Net Element was ranked as one of the fastest growing
companies in North America on Deloitte's 2017 Technology Fast 500™.
In 2017 we were recognized by South Florida Business
Journal's as one of 2016's fastest growing technology companies.
Further information is available at www.NetElement.com.
Forward-Looking StatementsSecurities 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 whether the Company
will be successful in executing strategies that will benefit the
Company, its clients, sales partners and shareholders; what the
ultimate impact of the COVID-19 pandemic will have on the Company
and its operations, whether the Company will achieve further
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; (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; and Net
Element's ability (or inability) to continue as a going concern.
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.
Contact:Net Element, Inc.Tel. +1 (786)
923-0502Media@NetElement.comwww.netelement.com
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