MIAMI, Nov. 16, 2020 (GLOBE NEWSWIRE) -- 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 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 | $ | 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-based Compensation | 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-based Compensation | 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 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. 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 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 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) 923-0502
Media@NetElement.com
www.netelement.com