MIAMI, FL — (Marketwired) — 04/01/17 — (NASDAQ: NETE) (“Net Element” or the “Company”), a provider of global multi-channel payment technology solutions and value-added transactional services, today reported financial results for the fiscal year ended December 31, 2016 and provided an update on recent strategic and operational initiatives.
The Company will host a conference call to discuss 2016 financial results and business highlights on April 3, 2017 at 8:30 AM ET. 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 1118558. It is recommended that participants dial in approximately 10 minutes prior to the start of the 8:30AM Eastern call.
The call will also be webcast live from . Following completion of the call, a recorded replay of the webcast will be available on the website.
Total US Dollar volume processed globally in 2016 exceeded $2.45 billion, an increase of 40% compared to $1.75 billion in 2015.
Total transactions processed for 2016 exceeded 187 million, an increase of 16% compared to 161 million in 2015.
Revenues increased to $54.3 million, an increase of 35% compared to $40.2 million in 2015.
United States accounted for 78% of our total revenues, while international revenues were 22% in 2016.
The $14.0 million increase in revenues is primarily due to organic revenue growth in North American Transaction Solutions. Online Solutions also posted a strong year over year increase (PayOnline acquired May 2015):
Continued organic growth of SMB merchants with emphasis on value-added offerings. Revenues for this segment were $42.1 million, a 54% increase over the prior year
Continued organic growth of international merchants in this segment with expansion to international growth markets. Revenues for this segment were $6.2 million, a 63% increase over the prior year
Revenues for this segment were $6.0 million, a 34% decrease over the prior year. We continue to explore financing options for this business as well as expansion to markets that do not require us to advance capital to content providers prior to getting paid from mobile network operators.
“I am pleased to say that 2016 was a successful year for Net Element. Our achievements provided growth, and positioned us for continued success as we continue to expand our global transaction services in the United States and select international markets” commented Oleg Firer, CEO of Net Element.
Net Element named one of the fastest growing technology companies in South Florida Business Journal–s 2016 Technology Awards
PayOnline was named the best processing gateway in 2016 by Tagline
PayOnline recognized for its payment services by Markswebb Rank & Report, ranked as a Top 5 payment acceptance company
Esquire Bank (US) – this multi-year contract includes transaction clearing services and sponsorship to payment networks
Merrick Bank (US) – On November 1, 2016, we moved all of our processing that utilized BMO Harris Bank for clearing to Merrick Bank
Mashreqbank (UAE) – this new partnership expands Net Element–s processing capabilities in the region
Round Bank (RU) – under this collaboration agreement, we integrated the first 70 online merchants to the PayOnline platform
Continued expansion into Central Asia
Launched payment processing and mobile payments in Azerbaijan
Launched payment acceptance module for Telegram instant messenger application
Launched proprietary gift card software application for Smart Payment Terminals
PayOnline payments module became available for popular e-commerce and CMS platforms
PayOnline introduced a new multi-channel payment interface based on the user experience of more than 10 million shoppers
Unified Payments launched Mobile Point of Sale for Apple–s iOS
Launched fully integrated omni-channel gift and loyalty platform
Launched Aptito in Russia, aiming to lead in the underserved POS software market
Released Aptito POS solution for retail stores with inventory management and analytics
Launched SalesCentral On-the-Go to expedite merchant approval and boarding
Dunkin– Donuts became a client in Russia; PayOnline enabled online ordering and payments acceptance
ExLine became a client in Kazakhstan; PayOnline enabled secure online payments for Kazakhstan–s market-leading courier service
ESET NOD32, one of the world–s leaders in the field of anti-virus software, became a client of PayOnline in Kazakhstan
Digital Provider enabled mobile payments at Vnukovo Airport; full integration with the airport–s infrastructure
Sony Brand Stores became a client of PayOnline in Russia
During 2016 we were successful in raising capital utilizing debt exchange and equity financing instruments
We reported a net loss attributable to common stockholders of $13.5 million or $1.03 per share loss for the year ended December 31, 2016 as compared to a net loss attributable to common stockholders of $14.8 million or ($2.32) per share for the year ended December 31, 2015. Our net loss from operations for the years ended December 31, 2016 and 2015 are discussed further below.
Adjusting for non-cash compensation and other non-recurring items, we have a non-GAAP adjusted net loss attributable to common stockholders of $7.9 million, or $0.60 loss per share, for the year ended December 31, 2016 as compared to a non-GAAP adjusted net loss attributable to common stockholders of $11.3 million, or $1.77 loss per share, for the year ended December 31, 2015. The net loss attributable to common stockholders for 2015 includes preferred stock dividends paid in the amount of $1.6 million.
The following table sets forth our sources of revenues, cost of revenues and gross margins for the years ended December 31, 2016 and 2015.
Revenues consist primarily of service fees from transaction processing. Revenues were $54.3 million for the year ended December 31, 2016 as compared to $40.2 million for the year ended December 31, 2015. The increase in net revenues is primarily due to organic growth of merchants in our North America Transaction Solutions segment. This was partially offset by a $3.0 million decrease primarily from our Mobile Solutions branded content. During May of 2015, we acquired and began consolidating revenues from our Online Solutions segment consisting of PayOnline. Additionally, we began generating revenues for branded content in our Mobile Solutions segment during the quarter ending September 30, 2015. Branded content revenues are presented gross versus net fees recorded for all other mobile business.
Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, purchases of short numbers, interchange expense and processing fees. Cost of revenues for the twelve months ended December 31, 2016 were $45.7 million as compared to $34.0 million for the twelve months ended December 31, 2015. The year over year increase in cost of revenues of $11.7 million was due to a $12.8 million increase due to increased North American Transaction Solutions volume. There was also a $1.7 million increase in cost of revenues resulting from Online Solutions segment (PayOnline) as 2015 was only a partial year since business was acquired in May 20, 2015. This was offset by a $2.8 million decrease in Mobile Solutions costs of revenues.
Gross Margin for the twelve months ended December 31, 2016 was $8.6 million, or 16% of net revenue, as compared to $6.3 million or 16% of net revenue, for the twelve months ended December 31, 2015. The primary reasons margin percentages stayed the same was an increase in net revenue from our North American Transaction Solutions and Online Solutions segments. This was offset by a $0.3 million decrease in gross margin from our Mobile Solutions segment.
The components of our general and administrative expenses are discussed below.
General and administrative expenses for the years ended December 31, 2016 and 2015 consisted of operating expenses not otherwise delineated in our Consolidated Statements of Operations and Comprehensive Loss, including non-cash compensation expense, salaries and benefits, professional fees, rent, filing fees and other expenses required to run our business, as follows:
Transaction gains and losses represent changes in exchange rates between our functional currency and the foreign currency in which the transaction is denominated. Excluding transaction gains, our general and administrative expenses were relatively flat to the prior year despite large increases in revenues.
Non-cash compensation expense was $3.5 million for the year ended December 31, 2016 as compared to $4.3 million for the year ended December 31, 2015. Non-cash compensation for 2016 and 2015 was primarily due to incentive stock and options granted to our employees.
We recorded a provision for bad debt in the amount of $1.7 million for the year ended December 31, 2016, compared to provision for bad debts of $0.6 million for the year ended December 31, 2015. For the twelve months ended December 31, 2016 we recorded a loss provision which was primarily comprised of $1.3 million in net ACH rejects, attributable to the normal course of our North America Transaction Solutions segment, and a $0.4 million loss, which was to reserve for potential accounts receivable losses from our Mobile Solutions business. For the twelve months ended December 31, 2015 we recorded a loss provision which was primarily comprised of $0.8 million in ACH rejects, attributable to the normal course of our North America Transaction Solutions segment, offset by $0.1 million bad debt recovery from our Mobile Solutions segment.
Depreciation and amortization expense consists primarily of the amortization of merchant portfolios, trademarks and domain names plus depreciation expense on fixed assets, client acquisition costs, capitalized software expenses and employee non-compete agreements. Depreciation and amortization expense was $3.5 million for the year ended December 31, 2016 as compared to $2.5 million for the year ended December 31, 2015. The primary reason for the $1.0 million increase is a $0.8 million increase attributed to Online Solutions segment, primarily because we took a full year–s depreciation in 2016 versus a partial year in 2015. We purchased PayOnline in May of 2015. In addition, we had a $0.3 million increase in North American Transaction Solutions due to increased customer acquisition costs, offset by $0.1 million amortization decrease as many of our merchant portfolios became fully amortized during 2015.
Interest expense was $1.5 million for the year ended December 31, 2016 as compared to $3.6 million for the year ended December 31, 2015, representing a decrease of $2.1 million as follows:
Interest for 2016 was primarily attributed to RBL Notes. Of the $1.3 million in interest attributable to the RBL Notes, $0.8 million was non-cash and attributed to discounts off current value from common stock that was provided in exchange for debt. In addition, $0.5 million resulted from the payment of interest on the notes. Other interest consisted primarily of $0.1 million due to a third party relating to the PayOnline stock price guarantee obligation, offset by interest earned by our Mobile Solutions segment.
Interest for 2015 was primarily attributed to corporate of which $3.0 million was due to the accretion of interest on the debt discounts attributed to the convertible notes payable that were extinguished during the fourth quarter of 2015. Additionally, $0.5 million was for our RBL Notes.
During 2016, we recorded a $3.7 million loss from stock value guarantee and other charges from PayOnline acquisition, related to Online Solutions segment. This loss includes a stock price guarantee charge in the amount of $2.3 million, due to a make-whole provision arising from a decrease in the stock value purchase consideration paid and a reserve for merchant liabilities assumed in the amount of $1.4 million pursuant to an amendment to the PayOnline acquisition agreement. Included in other income was a gain of $0.5 million from the transfer and settlement of merchant reserves.
During 2015, we recorded a loss on the change in fair value on the beneficial conversion derivative related to convertible preferred stock and the related note payable in the amount of $27.0 million. During the fourth quarter, we extinguished the note payable and convertible preferred stock and recognized a $28.0 million gain on these extinguishments which were attributable to our corporate expenses.
To supplement its consolidated financial statements presented in accordance with United States generally accepted accounting principles (“GAAP”), the Company provides additional non-GAAP measures of its operating results by disclosing its adjusted net loss. Adjusted net loss is calculated as net loss attributable to Net Element, Inc. common shareholders excluding non-cash share based compensation and other non-recurring items. Net Element discloses this amount on an aggregate and per share basis. Historically, we began this reconciliation calculation with Net Loss (for our 2015 annual results) and Net Loss attributable to Net Element, Inc. stockholders (for our 2016 quarterly results) but we now start with Net Loss Attributable to Net Element, Inc. common stockholders in order to present more comparable earnings per share numbers. Adjustments to the net loss presented remain the same under all scenarios. 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.
Pursuant to Regulation G promulgated by the Securities and Exchange Commission, a reconciliation of the non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP for the twelve months ended December 31, 2016 and 2015 is presented in the following Non-GAAP Financial Measures Table.
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, Russian Federation and other international 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, India and Latin America where initiatives have been recently launched. It maintains offices in Miami, FL and in Russia. Further information is available at .
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 Net Element can secure any additional financing, if such additional financing will be adequate to meet the Company–s objectives and whether the company will be successful in its endeavors in expanding its global transaction services in the United States and international markets. 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.
+1 (786) 923-0502
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