SOURCE: Net Element, Inc.

Net Element, Inc.

May 17, 2016 16:13 ET

Net Element Reports First Quarter 2016 Results

Company Demonstrates Revenue Growth of 103% Year-Over-Year -- Positioned for Strong Growth Going Forward

MIAMI, FL--(Marketwired - May 17, 2016) -  Net Element, Inc. (NASDAQ: NETE) ("Net Element" or the "Company"), a provider of global mobile payment technology solutions and value-added transactional services, reported financial results for its quarter ended March 31, 2016.

Recent Highlights:

  • Net revenues were $11,261,059 for the three months ended March 31, 2016 as compared to $5,540,207 for the three months ended March 31, 2015. Revenues increased 103% year over year
  • Announced $15 million credit facility and agreement to exchange up to $5 million of existing debt
  • Unified Payments launched mobile point of sale solution for iOS
  • Launched fully integrated omni-channel gift and loyalty platform
  • Aptito restaurant point of sale solution launched in Russia: aims to lead in underserved POS software market
  • Released Aptito point of sale solution for retail stores
  • Unified Payments partnered with Esquire Bank, as a result of this partnership we are able to accept a wider range of merchant types in United States.
  • Digital Provider entered Azerbaijan's rising mobile payments market; signed national TV network as one of the first customers.
  • Launched "Sales Central On the Go" to expedite merchant approval and boarding. Sales partners and agents can now complete the on-boarding process from mobile devices and personal computers to get merchants processing immediately without completing paper applications.

"We're pleased with the result of the first quarter, which is typically one of the slowest quarters of the year," commented Oleg Firer, CEO of Net Element. "We remain focused on growth and innovation."

In an effort to present a more comparative period on period analysis, we have adjusted net loss to remove the effects of non-cash share based compensation.

Results of Operations for the Three Months Ended March 31, 2016 Compared to the Three Months Ended March 31, 2015

We reported an adjusted net loss of $1,524,611, or $0.01 per share for the three months ended March 31, 2016 as compared to an adjusted net loss of $1,646,584, or $0.04 per share, for the three months ended March 31, 2015. This resulted in a net loss decrease of $121,973 which is discussed further below.

Net revenues consist primarily of payment processing fees. Net revenues were $11,261,059 for the three months ended March 31, 2016 as compared to $5,540,207 for the three months ended March 31, 2015. The increase in net revenues is primarily a result of organic net increases in merchants. In addition, we consolidated online payments revenue for PayOnline and began reporting mobile commerce revenues for branded content.

Gross margin for the three months ended March 31, 2016 was $1,875,818 or 17% of total revenue, as compared to $949,683, or 17% of net revenue, for the three months ended March 31, 2015. Although the total gross margin remained flat at 17%, there were margin improvements in our U.S. transaction processing business and an increase from our online transaction processing business (purchased May 20, 2015), offset by lower margins from mobile solutions branded content that were not offered in the first quarter of 2015.

                           
Source of Revenues   Three Months Ended March 31, 2016   Mix     Three Months Ended March 31, 2015   Mix     Increase / (Decrease)  
                           
  North America Transaction Solutions   $ 7,852,648   70 %   $ 5,177,180   93 %   $ 2,675,468  
  Mobile Solutions     1,993,504   18 %     363,027   7 %     1,630,476  
  Online Solutions     1,414,907   12 %   $ -   0 %     1,414,907  
    Total   $ 11,261,059   100 %   $ 5,540,207   100 %   $ 5,720,852  
                                 
Cost of Revenues                                
                                 
  North America Transaction Solutions   $ 6,653,033   85 %   $ 4,600,433   89 %   $ 2,052,600  
  Mobile Solutions     1,814,588   91 %     13,639   0 %     1,800,949  
  Online Solutions     917,620   65 %     -   0       917,620  
    Total   $ 9,385,241   83 %   $ 4,614,072   83 %   $ 4,771,169  
                                 
Gross Margin                                
                                 
  North America Transaction Solutions   $ 1,199,615   15 %   $ 576,747   11 %   $ 622,868  
  Mobile Solutions     178,916   9 %     349,388   96 %     (170,473 )
  Online Solutions     497,287   35 %     -   0 %     497,287  
    Total   $ 1,875,818   17 %   $ 926,135   17 %   $ 949,683  
                                     

Adjusted general and administrative expenses increased by $52,215 to $2,088,313 for the three months ended March 31, 2016 as compared to $2,036,098 for the three months ended March 31, 2015. This was primarily due to an increase in salaries (corporate salaries were down offset by a salary increase due to acquisition of PayOnline in May 2015), realized transaction losses and other expenses offset by decreases in professional fees and travel. 

                 
Category   Three months ended March 31, 2016   Three months ended March 31, 2015     Increase / (Decrease)  
Salaries, benefits, taxes and contractor payments     1,092,073     884,674       207,399  
Professional fees     524,387     790,228       (265,841 )
Rent     136,244     110,506       25,738  
Business development     33,443     21,532       11,911  
Travel expense     57,009     86,686       (29,677 )
Filing fees     16,499     17,909       (1,410 )
Transaction (gains) losses     14,966     (47,728 )     62,694  
Other expenses     213,692     172,291       41,401  
  Total   $ 2,088,313   $ 2,036,098     $ 52,215  
                       

Interest expense was $150,438 for the three months ended March 31, 2016 as compared to $117,594 for the three months ended March 31, 2015, representing an increase of $32,844 as follows:

Funding Source   Three months ended March 31, 2016   Three months ended March 31, 2015   Increase / (Decrease)  
  RBL Note   $ 147,784   $ 91,253     56,531  
  Other     2,654     26,341     (23,687 )
    Total   $ 150,438   $ 117,594   $ 32,844  
                     

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. Adjusted net loss is calculated as net loss excluding non-cash share based compensation and other one-time, non-recurring items not present in this year or last year results. 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 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, 2016 and 2015 is presented in the following Non-GAAP Financial Measures Table.

                 
    GAAP     Share-based Compensation   Adjusted Non-GAAP  
Three Months Ended March 31, 2016                
  Net (loss) income   $ (1,885,595 )   $ 360,984   $ (1,524,611 )
  Basic and diluted earnings per share   $ (0.02 )   $ 0.01   $ (0.01 )
  Basic and diluted shares used in computing earnings per share     112,934,343             112,934,343  
                       
    GAAP     Share-based Compensation   Adjusted Non-GAAP  
Three Months Ended March 31, 2015                
  Net (loss) income   $ (2,247,955 )   $ 601,371   $ (1,646,584 )
  Basic and diluted earnings per share   $ (0.05 )   $ 0.01   $ (0.04 )
  Basic and diluted shares used in computing earnings per share     46,057,972             46,057,972  
                         

Additional information regarding Net Element's results for its first quarter ended March 2016 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 16, 2016 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 US and selected emerging markets. In the US it aims to grow transactional revenue by innovating SME productivity services such as its cloud based, restaurant point-of-sale solution Aptito. 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 such as UAE, Kazakhstan, Kyrgyzstan and Azerbaijan where initiatives have been recently launched. Further information is available at www.netelement.com.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the 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. These forward-looking statements include, without limitation, whether the Company will experience growth on a go forward basis, whether Net Element can secure any additional financing and if such additional financing will be adequate to meet the Company's objectives. 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: (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. 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 and the subsequently filed 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, 2016     December 31, 2015  
ASSETS            
Current assets:            
  Cash   $ 724,509     $ 1,025,747  
  Accounts receivable, net     4,424,761       5,198,993  
  Prepaid expenses and other assets     1,311,979       1,106,016  
      Total current assets, net     6,461,249       7,330,756  
Fixed assets, net     151,212       162,123  
Intangible assets, net     4,969,863       5,423,880  
Goodwill     9,643,752       9,643,752  
Other long term assets     389,680       353,050  
      Total assets     21,615,756       22,913,561  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable     5,075,959       5,858,837  
  Deferred revenue     572,002       743,910  
  Accrued expenses     3,131,234       2,975,066  
  Notes payable (current portion)     570,017       518,437  
  Due to related parties     1,239,856       329,881  
      Total current liabilities     10,589,068       10,426,131  
  Notes payable (net of current portion)     3,469,983       3,446,563  
      Total liabilities     14,059,051       13,872,694  
                 
STOCKHOLDERS' EQUITY                
  Series A Convertible Preferred stock ($.0001 par value, 1,000,000 shares authorized, no shares issued and outstanding at March 31, 2016 and December 31, 2015)     -       -  
  Common stock ($.0001 par value, 300,000,000 shares authorized and 113,168,685 and 112,619,596 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively)     11,317       11,262  
  Paid in capital     154,782,677       154,351,558  
  Accumulated other comprehensive loss     (1,595,563 )     (1,565,822 )
  Accumulated deficit     (145,802,767 )     (143,955,048 )
  Non-controlling interest     161,041       198,917  
  Total stockholders' equity     7,556,705       9,040,867  
  Total liabilities and stockholders' equity   $ 21,615,756     $ 22,913,561  
                   
                   
NET ELEMENT, INC.            
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS        
             
    Three months ended March 31,  
    2016     2015  
             
Net revenues            
  Service fees   $ 9,363,820     $ 5,540,207  
  Branded content     1,897,239       -  
Total Revenues     11,261,059       5,540,207  
                 
  Costs and expenses:                
  Cost of service Fees     7,598,184       4,614,072  
  Cost of branded content     1,787,057       -  
  General and administrative (includes $360,984 and $601,371 of share based compensation for the three months ended March 31, 2016 and 2015 respectively)     2,449,297       2,637,469  
  Bad debt expense     251,741       9,331  
  Depreciation and amortization     888,118       438,769  
    Total costs and operating expenses     12,974,397       7,699,641  
Loss from operations     (1,713,338 )     (2,159,434 )
  Interest expense, net     (150,438 )     (117,594 )
  Other (expense) income     (21,819 )     29,073  
  Net loss before income taxes     (1,885,595 )     (2,247,955 )
  Income taxes     -       -  
Net loss     (1,885,595 )     (2,247,955 )
Net loss attributable to the non-controlling interest     37,876       8,747  
Net loss attributable to Net Element, Inc. stockholders     (1,847,719 )     (2,239,208 )
                 
Foreign currency translation     (29,741 )     (108,167 )
Comprehensive loss attributable to common stockholders   $ (1,877,460 )   $ (2,347,375 )
                 
Loss per share - basic and diluted   $ (0.02 )   $ (0.05 )
                 
Weighted average number of common shares outstanding - basic and diluted     112,934,343       46,057,972  
                 
                 
NET ELEMENT, INC.            
CONSOLIDATED STATEMENT OF CASH FLOWS            
    Three months ended March 31,  
    2016     2015  
Cash flows from operating activities            
Net loss   $ (1,847,719 )   $ (2,239,208 )
Adjustments to reconcile net loss to net cash used in operating activities                
    Non controlling interest     (37,876 )     (8,747 )
    Share based compensation     360,984       601,371  
    Deferred revenue     (171,908 )     (34,858 )
    Depreciation and amortization     888,118       438,769  
Changes in assets and liabilities                
    Accounts receivable     436,453       131,020  
    Prepaid expenses and other assets     334,291       278,319  
    Accounts payable     (865,158 )     667,819  
    Accrued expenses     (44,186 )     356  
    Net cash used in operating activities     (947,001 )     (165,159 )
                 
Cash flows from investing activities                
  Purchase of fixed and other assets     (396,819 )     (6,849 )
    Net cash used in investing activities     (396,819 )     (6,849 )
                 
Cash flows from financing activities                
  Proceeds from indebtedness     75,000       650,000  
  Repayment of indebtedness     -       (8,710 )
  Related party advances     910,045       125,000  
  Net cash provided by financing activities     985,045       766,290  
                 
  Effect of exchange rate changes on cash     57,537       (331,346 )
  Net (decrease) increase in cash     (301,238 )     262,936  
                 
  Cash at beginning of period     1,025,747       503,343  
  Cash at end of period   $ 724,509     $ 766,279  
                 
Supplemental disclosure of cash flow information                
  Cash paid during the period for:                
    Interest   $ 150,438     $ 118,910  
    Taxes   $ 86,770     $ 30,505  
                     

Contact Information