NETE
$7.78
Net Element
$.07
.91%
Earnings Details
1st Quarter March 2018
Monday, May 14, 2018 5:26:00 PM
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Summary

Net Element (NETE) Recent Earnings

Net Element (NETE) reported a 1st Quarter March 2018 loss of $0.42 per share on revenue of $16.0 million. The consensus estimate was a loss of $0.43 per share on revenue of $14.2 million. Revenue grew 17.8% on a year-over-year basis.

Net Element Inc is a financial technology-driven group specializing in mobile payments and value-added transactional services in emerging countries and in the United States.

Results
Reported Earnings
($0.42)
Earnings Whisper
-
Consensus Estimate
($0.43)
Reported Revenue
$16.0 Mil
Revenue Estimate
$14.2 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Net Element Reports First Quarter 2018 Financial Results and Provides Business Update

MIAMI, May 14, 2018 (GLOBE NEWSWIRE) -- 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 reported financial results for the first quarter ended March 31, 2018 and provided an update on recent strategic and operational initiatives.

Conference Call:

On May 15, 2018, at 8:30 a.m. EST the Company will host a conference call to discuss 2018 first quarter financial results and business highlights. The conference call can be accessed live over the phone by dialing +1 (877) 303-9858, or for international callers +1 (408) 337-0139, and referencing conference code 9977817. It is recommended that participants dial in approximately 10 minutes prior to the start of the call.

The call will also be webcast live from https://edge.media-server.com/m6/p/xq5chuwu. Following completion of the call, a recorded replay of the webcast will be available on the www.netelement.com/en/ir website.

First Quarter 2018 Results:

Net revenues for the first quarter ended March 31, 2018 increased to $16 million, an increase of 18% compared to $14 million in the first quarter ended March 31, 2017. The increase is primary due to organic growth in the North American Transaction segment, which experienced 27% growth over the prior year.

  • Total transactions dollars processed globally during the first quarter of 2018 were $839 million, an increase of 51% compared to $557 million in the first quarter of 2017
    • Total transactions dollars processed geographically in North America in Q1 2018 were $642 million, an increase of 37% compared to $470 million in Q1 2017
    • Total transactions dollars processed in international markets in Q1 2018 were $197 million, an increase of 140% as compared to $82 million in Q1 2017
  • Total number of transactions processed during the first quarter of 2018 was approximately 30 million, an increase of 11% as compared to 27 million transactions processed during the first quarter of 2017.

United States accounted for 87% of our total revenues, while international revenues were 13% in the first quarter of 2018. Growth across all categories was organic:

  • North American Transaction Solutions segment: Continued organic growth of small- and medium-sized business (“SMB”) merchants with emphasis on value-added offerings. Revenues for this segment were $14 million, an increase of 27% over the same period of the prior year
  • International Transaction Solutions segment: As a result of the consolidation of Online and Mobile Solutions segments during 2017, revenues for the International Solutions segment were $2 million, a decrease of 22% over the same period of the prior year

“We are pleased to have made a strong start to the year, becoming more competitive for our sales partners and merchants while continuing to deliver growth,” commented Oleg Firer, CEO of Net Element. “We expect to continue to improve growth across all segments during the year.”

First Quarter 2018 Highlights:

  • CNBC cast member of “Halftime Report” and “Fast Money”, Jon Narjarian joins Board of Directors
  • Appointed seasoned fintech executive Mr. Jonathan Fichman to the Board of Directors
  • CEO, Oleg Firer, joined the Advisory Board of CoinBoost and presented at NASDAQ Market Site
  • Prestigious Enterprise Ethereum Alliance welcomed Net Element to its network of innovative companies
  • Launched Netevia, our proprietary multi-channel payments platform; Netevia to provide same business-day settlement and funding for merchants

Outlook

On February 7, 2018, Net Element launched a future-ready multi-channel payments platform, Netevia. Connecting and simplifying payments across sales channels through a single integration point, Netevia delivers end-to-end payment processing though easy-to-use APIs. This model complements Net Element’s ability to perform in a multi-channel environment, including point-of-sale (POS), e-commerce, and mobile devices.

Netevia will form part of the recently-announced technology solution to connect with merchants and customers via an efficient blockchain technology enabled transaction processing ecosystem with an ability to build value added service for platforms users.

North America Transaction Solutions segment will continue to lead our growth with focus on improving margin through value-added offerings.

International Transaction Solutions segment will see improvement through its newly launched payment facilitator solution offering for SMB segment.

As previously stated in our recent press releases and our filings, the Company is in the best financial position in its history and poised for continued growth. We are pleased to present the progress we have made during the first quarter and are working diligently to increase shareholder value by growing revenues, reducing expenses and creating proprietary payment services technology and services that benefit our merchants and their customers.

Results of Operations for the Three Months Ended March 31, 2018 compared to the Three Months Ended March 31, 2017

We reported a net loss attributable to common stockholders of $1,610,847 or ($0.42) per share for the three months ended March 31, 2018 as compared to a net loss of $2,487,498 or ($1.51) per share for the three months ended March 31, 2017. This resulted in a decrease in net loss attributable to stockholders of $876,651 primarily due to an increase in revenues and decreases in general and administrative expenses, non-cash compensation, and bad debt expenses.

Adjusting for non-cash compensation, we have a non-GAAP adjusted net loss attributable to common stockholders of $1,528,836, or $0.40 loss per share, for the quarter ending March 31, 2018, as compared to a non-GAAP adjusted net loss attributable to common stockholders of $1,891,094, or $1.00 loss per share, for the quarter ended March 31, 2017.

Source of Revenues Three
Months Ended
March 31, 2018
 Mix Three
Months Ended
March 31, 2017
 Mix Increase /
(Decrease)
           
North American Transaction Solution $13,966,617   87.4% $10,964,919   80.9% $3,001,698 
International Transaction Solutions  2,015,777   12.6%  2,597,022   19.1%  (581,245)
Total $15,982,394   100.0% $13,561,941   100.0% $2,420,453 

Net revenues were $15,982,394 for the three months ended March 31, 2018 as compared to $13,561,941 for the three months ended March 31, 2017. The increase was driven by a $3,001,698 increase in net revenues from our North American Transaction Solutions segment due to organic growth, which was partially offset by a $581,245 decrease in net revenues from our International Transaction Solutions segment as we reorganized our international business and consolidated our mobile payments operations with Pay Online.

Gross Margin Three
Months Ended
March 31, 2018
 % of
revenues
 Three
Months Ended
March 31, 2017
 % of
revenues
 Increase /
(Decrease)
           
North American Transaction Solution $1,902,545   13.6% $1,503,469   13.7% $399,076 
International Transaction Solutions  461,515   22.9%  598,480   23.0%  (136,965)
Total $2,364,060   14.8% $2,101,949   15.5% $262,111 

Gross Margin for the three months ended March 31, 2018 was $2,364,060, or 14.8% of net revenue, as compared to $2,101,949, or 15.5% of net revenue, for the three months ended March 31, 2017. The primary reason gross margin percentage decreased was due to increased business mix from our North American Transaction Solutions segment offset by a decrease in our mobile payments business in our International Transaction Solutions segment that typically had higher margins than North America.

General and administrative expenses for the three months ended March 31, 2018 were $2,446,480 as compared to $2,831,160 for the three months ended March 31, 2017. The $384,680 reduction in general and administrative expenses was primarily due to decreases in salaries and benefits ($338,787), professional fees ($106,582) and rent ($72,010).

General and administrative variances increase / (decrease) for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 were as follows:

Category North
American
Transaction
Solutions
  International Transaction
Solutions
  Corporate
Expenses & Eliminations
  Total 
Salaries, benefits, taxes and contractor payments $(103,076) $(72,143) $(163,568) $(338,787)
Professional fees  (54,238)  (156,664)  104,320   (106,582)
Rent     (56,036)  (15,974)  (72,010)
Business development  51,990   (9,271)  (1,045)  41,674 
Travel expense  13,500   (8,798)  (20,931)  (16,229)
Filing fees        5,009   5,009 
Transaction (gains) losses     60,591   (698)  59,893 
Office expenses  29,853   (11,197)  (61,580)  (42,924)
Communications expenses  1,214   7,652   6,170   15,036 
Insurance expense     (2,537)  (12,008)  (14,545)
Other expenses  (1,326)  1,703   84,408   84,785 
Total $(62,083) $(246,700) $(75,897) $(384,680)

Salaries and benefits were $1,328,923 for the three months ended March 31, 2108 as compared to $1,667,710 for the three months ended March 31, 2018. A $300,000 reduction in discretionary bonus and an increase in sales incentives charged to cost of sales versus salaries were the primary reason for the decrease.

Professional fees were $567,108 for the three months ended March 31, 2018 as compared to $673,690 for the three months ended March 31, 2017. The reduction in professional fees was primarily due to a decrease of $156,664 from the re-organization of our International Transaction Solutions segment operations.

Rent expense was $81,054 for the three months ended March 31, 2018 as compared to $153,064 for the three months ended March 31, 2017. The decrease of $72,010 was primarily due to reduction of $56,036 in rent as International Transaction Solutions moved to less expensive office space.

Other general and administrative expenses were $93,713 for the three months ended March 31, 2018 as compared to $8,928 for the three months ended March 31, 2017, representing an increase of $84,785. The increase was caused primarily by an $83,155 increase in corporate franchise taxes in 2018 due to a higher assessment and a credit taken in 2017.

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, Inc. stockholders is calculated as net loss attributable to Net Element, Inc. stockholders excluding non-cash share-based compensation. 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 use of a metric that seeks to normalize period-to-period earnings.

This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Pursuant to Regulation G, a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP for the three months ended March 31, 2018 and 2017 is presented in the following Non-GAAP Financial Measures Table.

  GAAP Share-based
Compensation
 Adjusted Non-GAAP
Three Months Ended March 31, 2018      
Net (loss) income attributable to Net Element Inc stockholders $(1,610,847) $82,011  $(1,528,836)
Basic and diluted earnings per share $(0.42) $0.02  $(0.40)
Basic and diluted shares used in computing earnings per share  3,853,130       3,853,130 


  GAAP Share-based
Compensation
 Adjusted Non-GAAP
Three Months Ended March 31, 2017      
Net (loss) income attributable to Net Element Inc stockholders $(2,487,498) $596,404  $(1,891,094)
Basic and diluted earnings per share $(1.32) $0.32  $(1.00)
Basic and diluted shares used in computing earnings per share  1,890,961       1,890,961 

Additional information regarding Net Element’s results for its three months ended March 31, 2018 may be found in Net Element’s quarterly report on Form 10-Q, which was filed with the Security and Exchange Commission (SEC) on May 14, 2018 and may be obtained from the SEC’s Internet website at http://www.sec.gov.

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. 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 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 blockchain technologies will in fact play a key role in future commerce in the payments industry; whether the Company will be successful in the development of a decentralized crypto-based ecosystem to act as a framework for a number of value-added services that can connect merchants and consumers directly utilizing blockchain technology whether through its platform called Netevia or otherwise, wheter the Company will continue to improve growth across all segments going forward. 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.

NET ELEMENT, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

  March 31,
2018
  December 31,
2017
 
ASSETS    
Current assets:        
Cash $9,190,957  $11,285,669 
Accounts receivable, net  5,133,698   5,472,856 
Prepaid expenses and other assets  1,881,628   2,282,614 
Total current assets, net  16,206,283   19,041,139 
Fixed assets, net  51,218   58,268 
Intangible assets, net  2,898,765   3,127,760 
Goodwill  9,643,752   9,643,752 
Other long term assets  462,980   460,511 
Total assets  29,262,998   32,331,430 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable  6,375,505   6,785,459 
Accrued expenses  3,478,918   3,674,430 
Deferred revenue  1,176,843   1,712,591 
Notes payable (current portion)  1,455,376   2,493,973 
Total current liabilities  12,486,642   14,666,453 
Notes payable (net of current portion)  5,044,211   4,521,449 
Total liabilities  17,530,853   19,187,902 
         
STOCKHOLDERS’ EQUITY        
Series A convertible preferred stock ($.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding at March 31, 2018 and December 31, 2017)      
Common stock ($.0001 par value, 100,000,000 shares authorized and 3,855,833 and 3,853,100 shares issued and outstanding at March 31, 2018 and December 31, 2017  386   385 
Paid in capital  183,201,232   183,119,222 
Accumulated other comprehensive loss  (2,490,923)  (2,530,238)
Accumulated deficit  (168,966,916)  (167,356,070)
Stock subscriptions receivable     (50,585)
Noncontrolling interest  (11,634)  (39,186)
Total stockholders’ equity  11,732,145   13,143,528 
Total liabilities and stockholders’ equity $29,262,998  $32,331,430 

NET ELEMENT, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

  Three Months Ended March 31, 
  2018  2017 
     
Net revenues        
Service fees $15,982,394  $12,729,663 
Branded content     832,278 
Total Revenues  15,982,394   13,561,941 
         
Costs and expenses:        
Cost of service fees  13,618,334   10,650,748 
Cost of branded content     809,244 
General and administrative  2,446,480   2,831,161 
Non-cash compensation  82,011   596,404 
Bad debt expense  121,274   279,759 
Depreciation and amortization  703,538   657,363 
Total costs and operating expenses  16,971,637   15,824,679 
Loss from operations  (989,243)  (2,262,738)
Interest expense, net  (243,238)  (269,688)
Other income (expense)  (350,813)  (5,773)
Net (loss) before income taxes  (1,583,294)  (2,538,199)
Income taxes      
Net loss  (1,583,294)  (2,538,199)
Net (income) loss attributable to the noncontrolling interest  (27,553)  50,701 
Net loss attributable to Net Element, Inc. stockholders  (1,610,847)  (2,487,498)
Foreign currency translation  39,315   12,103 
Comprehensive loss attributable to common stockholders $(1,571,532) $(2,475,395)
         
Loss per share - basic and diluted $(0.42) $(1.51)
         
Weighted average number of common shares outstanding - basic and diluted  3,853,130   1,647,606 

NET ELEMENT, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

  Three Months Ended March 31, 
  2018  2017 
Cash flows from operating activities        
Net loss attributable to Net Element, Inc. stockholders $(1,610,847) $(2,487,498)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities        
Noncontrolling interest  27,553   (50,701)
Share based compensation  82,011   596,404 
Depreciation and amortization  703,538   657,363 
Non cash interest  16,759   46,135 
Changes in assets and liabilities        
Accounts receivable  1,032,930   510,498 
Deferred revenue  (535,748)  (445,953)
Prepaid expenses and other assets  (308,648)  (231,755)
Accounts payable and accrued expenses  (545,306)  449,284 
Net cash used in operating activities  (1,137,758)  (956,223)
         
Cash flows from investing activities        
         
Purchase of portfolios and client acquisition costs  (401,980)  (403,585)
Purchase of fixed and changes in other assets  (2,393)  355 
Net cash used in investing activities  (404,373)  (403,230)
         
Cash flows from financing activities        
Proceeds from common stock     1,437,132 
Proceeds from indebtedness     92,000 
Repayment of indebtedness  (515,834)  (92,680)
Related party advances  (33,027)  57,159 
Net cash (used in) provided by financing activities  (548,861)  1,493,611 
         
Effect of exchange rate changes on cash  (3,720)  57,288 
Net decrease (increase) in cash  (2,094,712)  191,446 
         
Cash at beginning of period  11,285,669   621,635 
Cash at end of period $9,190,957  $813,081 
         
Supplemental disclosure of cash flow information        
Cash paid during the period for:        
Interest $226,479  $166,394 
Taxes $4,140  $64,314 

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

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New York, New York 
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Source: Net Element, Inc.