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 third quarter ended Sept. 30, 2020.

Third Quarter 2020 Financial Results

  • Total transaction volume increased to $956.2 million, as compared to $953.7 million for the same comparable period in 2019.
  • Net revenues decreased to $16.7 million, as compared to $16.8 million for the same comparable period in 2019.
  • North American Transaction Solutions revenue increased to $16.07 million, as compared to $15.9 million for the same comparable period in 2019.
  • International Transaction Solutions revenue decreased to $0.67 million, as compared to $0.90 million for the same comparable period in 2019.
  • Operating expenses increased to $4.1 million, as compared to $3.6 million for the same comparable period.
  • Gross margin decreased to $2.2 million, as compared to $2.7 million for the same comparable period in 2019.

“We continue working diligently in an effort to finalize the Mullen merger for the benefit of our shareholders,” commented Oleg Firer, Executive Chairman of Net Element.

Results of Operations for the Three Months Ended Sept. 30, 2020, Compared to the Three Months Ended Sept. 30, 2019

The Company reported a net loss attributable to common stockholders of approximately $2.3 million or $0.52 per share loss for the three months ended Sept. 30, 2020 as compared to a net loss of approximately $1.0 million or $0.24 per share loss for the three months ended Sept. 30, 2019. The increase in net loss attributable to stockholders of approximately $1.3 million was primarily due to an increase in non-cash compensation of approximately $1.1 million and an increase in bad debt expense of approximately $200,000.

The following tables set forth the Company’s sources of revenues, cost of revenues and the respective gross margins for the three months ended Sept. 30, 2020 and 2019.

QTD      
                           
    Three       Three              
    Months Ended       Months Ended       Increase /      
Source of Revenues   September 30, 2020   Mix   September 30, 2019   Mix   (Decrease)   % change  
North American Transaction Solutions   $ 16,072,518   96.0 %   $ 15,923,805   94.7 %   $ 148,713     0.93 %  
International Transaction Solutions     661,856   4.0 %     895,881   5.3 %     (234,025 )   -26.12 %  
   Total   $ 16,734,374   100.0 %   $ 16,819,686   100.0 %   $ (85,312 )      
                           
    Three       Three              
    Months Ended   % of   Months Ended   % of   Increase /      
Cost of Revenues   September 30, 2020   revenues   September 30, 2019   revenues   (Decrease)      
North American Transaction Solutions   $ 14,083,449   87.6 %   $ 13,414,334   84.2 %   $ 669,115     4.99 %  
International Transaction Solutions     476,741   72.0 %     664,907   74.2 %     (188,166 )   -28.30 %  
   Total   $ 14,560,190   87.0 %   $ 14,079,241   83.7 %   $ 480,949        
                           
    Three       Three              
    Months Ended   % of   Months Ended   % of   Increase /      
Gross Margin   September 30, 2020   revenues   September 30, 2019   revenues   (Decrease)      
North American Transaction Solutions   $ 1,989,069   12.4 %   $ 2,509,471   15.8 %   $ (520,402 )   -20.74 %  
International Transaction Solutions     185,115   28.0 %     230,974   25.8 %     (45,859 )   -19.85 %  
   Total   $ 2,174,184   13.0 %   $ 2,740,445   16.3 %   $ (566,261 )      
                           
                           
YTD      
                           
    Nine       Nine              
    Months Ended       Months Ended       Increase /      
Source of Revenues   September 30, 2020   Mix   September 30, 2019   Mix   (Decrease)   % change  
North American Transaction Solutions   $ 44,204,134   95.5 %   $ 46,025,308   95.2 %   $ (1,821,174 )   -3.96 %  
International Transaction Solutions     2,086,415   4.5 %     2,328,871   4.8 %     (242,456 )   -10.41 %  
   Total   $ 46,290,549   100.0 %   $ 48,354,179   100.0 %   $ (2,063,630 )      
                           
    Nine       Nine              
    Months Ended   % of   Months Ended   % of   Increase /      
Cost of Revenues   September 30, 2020   revenues   September 30, 2019   revenues   (Decrease)      
North American Transaction Solutions   $ 37,923,749   85.8 %   $ 38,627,147   83.9 %   $ (703,398 )   -1.82 %  
International Transaction Solutions     1,473,635   70.6 %     1,613,607   69.3 %     (139,972 )   -8.67 %  
   Total   $ 39,397,384   85.1 %   $ 40,240,754   83.2 %   $ (843,370 )      
                           
    Nine       Nine              
    Months Ended   % of   Months Ended   % of   Increase /      
Gross Margin   September 30, 2020   revenues   September 30, 2019   revenues   (Decrease)      
North American Transaction Solutions   $ 6,280,385   14.2 %   $ 7,398,161   16.1 %   $ (1,117,776 )   -15.11 %  
International Transaction Solutions     612,780   29.4 %     715,264   30.7 %     (102,484 )   -14.33 %  
   Total   $ 6,893,165   14.9 %   $ 8,113,425   16.8 %   $ (1,220,260 )      
                           

Net revenues consist primarily of service fees from transaction processing. Net revenues were approximately $16.8 million for the three months ended Sept. 30, 2020 and 2019. 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 Sept. 30, 2020 were approximately $14.6 million as compared to approximately $14.1 million for the three months ended Sept. 30, 2019.

The gross margin for the three months ended Sept. 30, 2020 was approximately $2.2 million, or 13.0% of net revenues, as compared to approximately $2.7 million, or 16.3% of net revenues, for the three months ended Sept. 30, 2019. The primary reason for the decrease in the overall gross margin percentage was primarily the result of the competitive pressure in our industry, relating to costs that can be passed through to our merchants.

Operating Expenses Analysis:

Operating expenses were approximately $4.1 million for the three months ended Sept. 30, 2020, as compared to $3.6 million for three months ended Sept. 30, 2019. Operating expenses for the three months ended Sept. 30, 2020, primarily consisted of selling, general and administrative expenses of approximately $1.6 million, non-cash compensation of approximately $1.1 million, bad debt expense of approximately $600,000, and depreciation and amortization expense of approximately $750,000. Operating expenses for the three months ended Sept. 30, 2019, primarily consisted of selling, general and administrative expenses of approximately $2.4 million, bad debt expense of approximately $400,000, and depreciation and amortization expenses of approximately $750,000. The increase in operating expenses was primarily related to the non-cash compensation with a corresponding decrease in selling, general, and administrative expenses due to the reduction of the labor force and the compensation of certain employees and executives of the Company, as compared to the previous corresponding quarter.

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 Sept. 30, 2020 and 2019 consisted of operating expenses not otherwise delineated in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss, as follows:

QTD                     YTD                  
Three months ended September 30, 2020                     Nine months ended September 30, 2020                  
                                         
Category   North American TransactionSolutions   International TransactionSolutions   Corporate Expenses & Eliminations   Total     Category   North American TransactionSolutions   International Transaction Solutions   Corporate Expenses & Eliminations   Total  
                                                                     
Salaries, benefits, taxes and contractor payments $ 563,948     $ 95,254     $ 84,688     $ 743,890       Salaries, benefits, taxes and contractor payments $ 1,649,488     $ 300,221     $ 753,983     $ 2,703,692    
Professional fees     91,468       29,523       251,262       372,253       Professional fees     253,046       117,951       748,210       1,119,207    
Rent     16,664       16,183       10,568       43,415       Rent     34,307       46,341       102,076       182,724    
Business development     42,198       2,500       2,929       47,627       Business development     153,547       2,517       8,836       164,900    
Travel expense     1,306       12,396       39,506       53,208       Travel expense     6,615       46,892       135,032       188,539    
Filing fees     -       -       18,916       18,916       Filing fees     -       -       56,254       56,254    
Transaction gains     -       12,641       -       12,641       Transaction gains     -       89,140       -       89,140    
Office expenses     65,208       2,961       18,091       86,260       Office expenses     184,692       13,688       63,065       261,445    
Communications expenses     33,387       32,210       25,707       91,304       Communications expenses     122,158       121,574       61,578       305,310    
Insurance expense     -       -       46,772       46,772       Insurance expense     -       -       127,457       127,457    
Other expenses     2,561       2,065       126,684       131,310       Other expenses     2,990       4,168       142,991       150,149    
   Total   $ 816,740     $ 205,733     $ 625,123     $ 1,647,596          Total   $ 2,406,843     $ 742,492     $ 2,199,482     $ 5,348,817    
                                         
                                         
Three months ended September 30, 2019                     Nine months ended September 30, 2019                  
                                         
Category   North American Transaction Solutions   International Transaction Solutions   Corporate Expenses & Eliminations   Total     Category   North American Transaction Solutions   International Transaction Solutions   Corporate Expenses & Eliminations   Total  
                                                                     
Salaries, benefits, taxes and contractor payments $ 304,391     $ 124,921     $ 729,426     $ 1,158,738       Salaries, benefits, taxes and contractor payments $ 926,868     $ 400,943     $ 2,294,391     $ 3,622,202    
Professional fees     125,713       58,478       486,984       671,175       Professional fees     400,058       186,440       1,334,367       1,920,865    
Rent     -       23,048       51,795       74,843       Rent     -       57,144       157,086       214,230    
Business development     75,414       540       18,707       94,661       Business development     168,582       1,655       28,821       199,058    
Travel expense     36,337       10,553       18,466       65,356       Travel expense     95,984       24,038       83,833       203,855    
Filing fees     -       -       37,213       37,213       Filing fees     -       -       78,125       78,125    
Transaction losses     -       7,169       -       7,169       Transaction losses     -       (36,923 )     -       (36,923 )  
Office expenses     91,051       4,460       12,093       107,604       Office expenses     249,232       14,485       38,406       302,123    
Communications expenses     39,530       61,428       17,710       118,668       Communications expenses     119,233       158,495       59,584       337,312    
Insurance expense     -       -       42,418       42,418       Insurance expense     -       -       112,932       112,932    
Other expenses     15,073       1,672       4,196       20,941       Other expenses     12,639       7,610       108,693       128,942    
   Total   $ 687,509     $ 292,269     $ 1,419,008     $ 2,398,786          Total   $ 1,972,596     $ 813,887     $ 4,296,238     $ 7,082,721    
                                         
Variance                     Variance                  
                                         
Category   North American Transaction Solutions   International Transaction Solutions   Corporate Expenses & Eliminations   Total     Category   North American Transaction Solutions   International Transaction Solutions   Corporate Expenses & Eliminations   Total  
                                                                     
Salaries, benefits, taxes and contractor payments $ 259,557     $ (29,667 )   $ (644,738 )   $ (414,848 )     Salaries, benefits, taxes and contractor payments $ 722,620     $ (100,722 )   $ (1,540,408 )   $ (918,510 )  
Professional fees     (34,245 )     (28,955 )     (235,722 )     (298,922 )     Professional fees     (147,012 )     (68,489 )     (586,157 )     (801,658 )  
Rent     16,664       (6,865 )     (41,227 )     (31,428 )     Rent     34,307       (10,803 )     (55,010 )     (31,506 )  
Business development     (33,216 )     1,960       (15,778 )     (47,034 )     Business development     (15,035 )     862       (19,985 )     (34,158 )  
Travel expense     (35,031 )     1,843       21,040       (12,148 )     Travel expense     (89,369 )     22,854       51,199       (15,316 )  
Filing fees     -       -       (18,297 )     (18,297 )     Filing fees     -       -       (21,871 )     (21,871 )  
Transaction gains     -       5,472       -       5,472       Transaction gains     -       126,063       -       126,063    
Office expenses     (25,843 )     (1,499 )     5,998       (21,344 )     Office expenses     (64,540 )     (797 )     24,659       (40,678 )  
Communications expenses     (6,143 )     (29,218 )     7,997       (27,364 )     Communications expenses     2,925       (36,921 )     1,994       (32,002 )  
Insurance expense     -       -       4,354       4,354       Insurance expense     -       -       14,525       14,525    
Other (income) expenses     (12,512 )     393       122,488       110,369       Other (income) expenses     (9,649 )     (3,442 )     34,298       21,207    
   Total   $ 129,231     $ (86,536 )   $ (793,885 )   $ (751,190 )        Total   $ 434,247     $ (71,395 )   $ (2,096,756 )   $ (1,733,904 )  
                                         

Salaries, benefits, taxes and contractor payments decreased by approximately $0.4 million on a consolidated basis for the three months ended Sept. 30, 2020 as compared to the three months ended Sept. 30, 2019. This was primarily due to necessary reductions in staffing and the reduction of compensation of certain employees and executives of the Company, due to the effects of the COVID-19 pandemic on Net Element’s 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 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 quarter ended Sept. 30, 2020, and Sept. 30, 2019, is presented in the following tables.

       
   GAAP  Share-basedCompensation  Adjusted Non-GAAP
Three Months Ended September 30, 2020      
Net loss attributable to Net Element Inc stockholders $ (2,329,570 ) $ 1,089,113 $ (1,240,457 )
Basic and diluted earnings per share $ (0.52 ) $ 0.24 $ (0.28 )
Basic and diluted shares used in computing earnings per share   4,498,510       4,498,510  
Three Months Ended September 30, 2019      
Net loss attributable to Net Element Inc stockholders $ (1,010,627 ) $ 15,008 $ (995,619 )
Basic and diluted earnings per share $ (0.24 ) $ - $ (0.24 )
Basic and diluted shares used in computing earnings per share   4,152,433       4,152,433  
       
   GAAP  Share-basedCompensation  Adjusted Non-GAAP
Nine Months Ended September 30, 2020      
Net loss attributable to Net Element Inc stockholders $ (4,021,057 ) $ 1,135,013 $ (2,886,044 )
Basic and diluted earnings per share $ (0.94 ) $ 0.27 $ (0.67 )
Basic and diluted shares used in computing earnings per share   4,264,624       4,264,624  
Nine Months Ended September 30, 2019      
Net loss attributable to Net Element Inc stockholders $ (3,668,921 ) $ 2,035,855 $ (1,633,066 )
Basic and diluted earnings per share $ (0.91 ) $ 0.50 $ (0.41 )
Basic and diluted shares used in computing earnings per share   4,033,521       4,033,521  

Use of Non-GAAP Financial MeasuresNon-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. On Aug. 5, 2020, Net Element announced the execution of a definitive agreement (the “Merger Agreement”) to merge with privately-held Mullen Technologies, Inc. (“Mullen”), a Southern California-based electric vehicle company in a stock-for-stock reverse merger in which Mullen’s stockholders will receive a majority of the outstanding stock in the post-merger company (the “contemplated merger”). That contemplated merger is subject to customary closing conditions, regulatory approvals and shareholder approval for both companies.

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 what the ultimate impact of the COVID-19 pandemic will have on the Company and its operations, whether the proposed merger with Mullen will be consummated, including the receipt and timing of required approvals and satisfaction of other conditions 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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