via NetworkWire -- 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, 2020.
Second Quarter 2020 Financial
Results
- Total transaction volume decreased
to $717.9 million, as compared to $950.2 million for the same
comparable period.
- Net revenue decreased to $13.7
million, as compared to $16.5 million for the same comparable
period in 2019.
- North American Transactions
Solutions revenue decreased to $13.0 million, as compared to $15.7
million for the same comparable period.
- International Transaction Solutions
revenue decreased slightly to $0.74 million, as compared to $0.75
million in 2019.
- Operating expenses decreased to
$2.2 million, as compared to $5.2 million for the same comparable
period.
- Gross margin decreased to $2.2
million, as compared to $2.6 million for the same comparable
period.
"The COVID-19 pandemic continued to negatively
impact our financial results during the second quarter of this
year. Our ability to adapt quickly by implementing safety protocols
to protect our employees has been successful so far, and we are
happy to report we have had zero cases of COVID-19 among our
employees. We also implemented cost-cutting initiatives while
boosting support for our merchants through e-commerce solutions,
contactless payment alternatives and online food ordering for
restaurants," commented Oleg Firer, CEO of Net Element. "We
continue working diligently to increase shareholder value as we
continue to work toward the proposed merger with Mullen
Technologies Inc.”
Results of Operations for the Three Months Ended June
30, 2020, Compared to the Three Months Ended June 30,
2019
We reported a net loss attributable to common
stockholders of approximately $300,000 or $0.08 per share loss for
the three months ended June 30, 2020, as compared to a net loss of
approximately $1.5 million or $0.37 per share loss for the three
months ended June 30, 2019. The decrease in net loss attributable
to stockholders of approximately $1.2 million was primarily due to
the reorganization of the labor force, including layoffs, which
reduced our selling, general and administrative expenses.
The following table sets forth our sources of revenues, cost of
revenues and the respective gross margins for the three months
ended June 30, 2020, and 2019.
|
ThreeMonths Ended |
|
ThreeMonths Ended |
|
Increase / |
Source of Revenues |
June 30, 2020 |
Mix |
June 30, 2019 |
Mix |
(Decrease) |
North American Transaction Solutions |
$ |
12,977,536 |
94.6% |
$ |
15,737,998 |
95.5% |
$ (2,760,462 |
) |
International Transaction Solutions |
|
741,073 |
5.4% |
|
749,313 |
4.5% |
(8,240 |
) |
Total |
$ |
13,718,609 |
100.0% |
$ |
16,487,311 |
100.0% |
$ (2,768,702 |
) |
|
SixMonths Ended |
% of |
SixMonths Ended |
% of |
Increase / |
Cost of Revenues |
June 30, 2020 |
revenues |
June 30, 2019 |
revenues |
(Decrease) |
North American Transaction Solutions |
$ |
23,840,300 |
84.7% |
$ |
25,212,812 |
83.8% |
$ (1,372,512 |
) |
International Transaction Solutions |
|
996,895 |
70.0% |
|
948,700 |
66.2% |
48,195 |
|
Total |
$ |
24,837,195 |
84. |
$ |
26,161,512 |
83.0% |
$ (1,324,317 |
) |
|
ThreeMonths Ended |
% of |
ThreeMonths Ended |
% of |
Increase / |
Gross Margin |
June 30, 2020 |
revenues |
June 30, 2019 |
revenues |
(Decrease) |
North American Transaction Solutions |
$ |
1,961,508 |
15.1% |
$ |
2,293,924 |
14.6% |
$ (332,416 |
) |
International Transaction Solutions |
|
220,314 |
29.7% |
|
292,022 |
39.0% |
(71,708 |
) |
Total |
$ |
2,181,822 |
15.9% |
$ |
2,585,946 |
15.7% |
$ (404,124 |
) |
Net revenues consist primarily of service fees
from transaction processing. Net revenues were approximately $13.7
million for the three months ended June 30, 2020, as compared to
$16.5 million for the three months ended June 30, 2019. The
decrease in net revenues in our North American Transaction
Solutions segment was primarily driven by the adverse impact of the
COVID-19 pandemic on our end-to-end payment volumes and gateway
transactions.
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, 2020, were
approximately $11.5 million as compared to approximately $13.9
million for the three months ended June 30, 2019. This decrease is
in line with the decrease in revenues for the three months ending
June 30, 2020.
The gross margin for the three months ended June
30, 2020, was approximately $2.2 million, or 15.9%, as compared to
approximately $2.6 million, or 15.7%, for the three months ended
June 30, 2019. The gross margin percentage was in line with the
results from the previous comparable period.
Operating Expenses Analysis:
Operating expenses were approximately $2.2
million for the three months ended June 30, 2020, as compared to
$5.2 million for three months ended June 30, 2019. Operating
expenses for the three months ended June 30, 2020, primarily
consisted of selling, general and administrative expenses of
approximately $1.4 million and depreciation and amortization of
approximately $0.8 million. Operating expenses for the three months
ended June 30, 2019, primarily consisted of selling, general and
administrative expenses of approximately $2.3 million; non-cash
compensation of $2.0 million; and depreciation and amortization
expense of approximately $0.7 million.
The components of our selling, general and
administrative expenses are reflected in the table below.
Selling, general and administrative expenses for
the three months ended June 30, 2020, and 2019 consisted of
operating expenses not otherwise delineated in our Condensed
Consolidated Statements of Operations and Comprehensive Loss, as
follows:
|
|
Three months ended June 30, 2020 |
|
Category |
North American Transaction Solutions |
International Transaction Solutions |
Corporate Expenses & Eliminations |
Total |
Salaries, benefits, taxes and contractor payments |
$ |
536,915 |
|
$ |
91,825 |
|
$ |
118,574 |
|
$ |
747,314 |
|
Professional fees |
|
55,336 |
|
|
39,537 |
|
|
241,288 |
|
|
336,161 |
|
Rent |
|
13,070 |
|
|
13,325 |
|
|
39,093 |
|
|
65,488 |
|
Business development |
|
32,228 |
|
|
- |
|
|
3,805 |
|
|
36,033 |
|
Travel expense |
|
638 |
|
|
9,373 |
|
|
39,894 |
|
|
49,905 |
|
Filing fees |
|
- |
|
|
- |
|
|
15,525 |
|
|
15,525 |
|
Transaction gains |
|
- |
|
|
(80,512 |
) |
|
- |
|
|
(80,512 |
) |
Office expenses |
|
41,976 |
|
|
3,759 |
|
|
16,879 |
|
|
62,614 |
|
Communications expenses |
|
40,083 |
|
|
46,374 |
|
|
15,863 |
|
|
102,320 |
|
Insurance expense |
|
- |
|
|
- |
|
|
42,000 |
|
|
42,000 |
|
Other expenses |
|
292 |
|
|
2,104 |
|
|
6,085 |
|
|
8,481 |
|
Total |
$ |
720,538 |
|
$ |
125,785 |
|
$ |
539,006 |
|
$ |
1,385,329 |
|
Three months ended June 30, 2019 |
|
|
|
|
Category |
North American Transaction Solutions |
International Transaction Solutions |
Corporate Expenses & Eliminations |
Total |
Salaries, benefits, taxes and contractor payments |
$ |
318,487 |
|
$ |
95,231 |
|
$ |
799,417 |
|
$ |
1,213,135 |
|
Professional fees |
|
133,316 |
|
|
72,497 |
|
|
345,723 |
|
|
551,536 |
|
Rent |
|
- |
|
|
15,277 |
|
|
51,277 |
|
|
66,554 |
|
Business development |
|
56,184 |
|
|
489 |
|
|
4,944 |
|
|
61,617 |
|
Travel expense |
|
35,511 |
|
|
5,084 |
|
|
33,299 |
|
|
73,894 |
|
Filing fees |
|
1,078 |
|
|
- |
|
|
17,704 |
|
|
18,782 |
|
Transaction losses |
|
- |
|
|
(12,974 |
) |
|
- |
|
|
(12,974 |
) |
Office expenses |
|
83,122 |
|
|
4,147 |
|
|
12,990 |
|
|
100,259 |
|
Communications expenses |
|
41,746 |
|
|
65,717 |
|
|
18,447 |
|
|
125,910 |
|
Insurance expense |
|
- |
|
|
- |
|
|
36,267 |
|
|
36,267 |
|
Other (income) expenses |
|
286 |
|
|
2,745 |
|
|
61,059 |
|
|
64,090 |
|
Total |
$ |
669,730 |
|
$ |
248,213 |
|
$ |
1,381,127 |
|
$ |
2,299,070 |
|
Variance |
|
|
|
|
Category |
North American Transaction Solutions |
International Transaction Solutions |
Corporate Expenses & Eliminations |
Total |
Salaries, benefits, taxes and contractor payments |
$ |
218,428 |
|
$ |
(3,406 |
) |
$ |
(680,843 |
) |
$ |
(465,821 |
) |
Professional fees |
|
(77,980 |
) |
|
(32,960 |
) |
|
(104,435 |
) |
|
(215,375 |
) |
Rent |
|
13,070 |
|
|
(1,952 |
) |
|
(12,184 |
) |
|
(1,066 |
) |
Business development |
|
(23,956 |
) |
|
(489 |
) |
|
(1,139 |
) |
|
(25,584 |
) |
Travel expense |
|
(34,873 |
) |
|
4,289 |
|
|
6,595 |
|
|
(23,989 |
) |
Filing fees |
|
(1,078 |
) |
|
- |
|
|
(2,179 |
) |
|
(3,257 |
) |
Transaction gains |
|
- |
|
|
(67,538 |
) |
|
- |
|
|
(67,538 |
) |
Office expenses |
|
(41,146 |
) |
|
(388 |
) |
|
3,889 |
|
|
(37,645 |
) |
Communications expenses |
|
(1,663 |
) |
|
(19,343 |
) |
|
(2,584 |
) |
|
(23,590 |
) |
Insurance expense |
|
- |
|
|
- |
|
|
5,733 |
|
|
5,733 |
|
Other (income) expenses |
|
6 |
|
|
(641 |
) |
|
(54,974 |
) |
|
(55,609 |
) |
Total |
$ |
50,808 |
|
$ |
(122,428 |
) |
$ |
(842,121 |
) |
$ |
(913,741 |
) |
|
Salaries, benefits, taxes, contractor payments
and professional fees decreased by approximately $0.7 million on a
consolidated basis for the three months ended June 30, 2020, as
compared to the three months ended June 30, 2019. This was due to
the staffing reductions necessary due to the effects of the
COVID-19 pandemic on our 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. 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
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 quarter ended
June 30, 2020, and June 30, 2019, is presented in the following
tables.
|
|
GAAP |
Share-basedCompensation |
Adjusted Non-GAAP |
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 |
|
Three Months Ended June 30, 2019 |
|
|
|
Net loss attributable to Net Element, Inc. stockholders |
$ |
(1,537,447 |
) |
$ |
2,005,840 |
$ |
468,393 |
|
Basic and diluted earnings per share |
$ |
(0.37 |
) |
$ |
0.48 |
$ |
0.11 |
|
Basic and diluted shares used in computing earnings per share |
|
4,199,076 |
|
|
|
4,199,076 |
|
|
GAAP |
Share-based Compensation |
Adjusted Non-GAAP |
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 |
|
Six Months Ended June 30, 2019 |
|
|
|
Net loss attributable to Net Element, Inc. stockholders |
$ |
(2,658,292 |
) |
$ |
2,020,847 |
$ |
(637,445 |
) |
Basic and diluted earnings per share |
$ |
(0.68 |
) |
$ |
0.52 |
$ |
(0.16 |
) |
Basic and diluted shares used in computing earnings per share |
|
3,908,872 |
|
|
|
3,908,872 |
|
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 enterprises ("SMEs") 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, the Company’s
cloud-based restaurant and retail point-of-sale solution.
Internationally, Net Element's strategy is to leverage its
omnichannel 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, the Company was recognized by South Florida Business
Journal as one of 2016's fastest-growing technology
companies. Further information is available at
www.NetElement.com.
Forward-Looking Statements
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, whether the proposed merger with Mullen
Technologies Inc. will materialize and, if so, whether that will
result in increased shareholder value; whether the Company will be
successful in executing cost savings and other alternative
strategies and whether these measures will benefit the Company;
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;
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 our plans and
expectations as of any subsequent date.
Contact:
Net Element, Inc.Tel. +1 (786) 923-0502Media@NetElement.com
www.netelement.com
Corporate Communications:InvestorBrandNetwork
(IBN) Los Angeles, California www.InvestorBrandNetwork.com
310.299.1717 Office Editor@InvestorBrandNetwork.com
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