Net Element, Inc.
Q1 2018 Earnings Call Transcript

Published: 15 May 2018

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Net Element 2018 First Quarter Financial Results and Business Update Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. [Operator Instructions] I'd like to remind listeners that during the call, management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties. Management may make additional forward-looking statements in response to your questions today. Therefore, the Company claims protection under Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today, and therefore, we refer you to a more detailed discussion of these risks and uncertainties in the Company's filings with the SEC. Any projections as to the Company's future performance represented by management may include estimates today, as of May 15, 2018, and the Company assumes no obligation to update these projections in the future as market conditions change. The recording and certain financial information provided during the call is available at www.netelement.com on the Investor Relations page. At this time, I would like to turn the call over to Oleg Firer, CEO. Oleg, please go ahead

[Oleg Firer:]

Good morning, everyone. Thanks to everyone for joining our call today, to discuss the results from the first quarter of 2018, as well as give an opportunity for those of you listening into ask questions during the Q&A session. I would like to begin today's conference call by highlighting our accomplishments during the first quarter ended March 31, 2018. Our net revenues for the quarter have increased with $16 million, an increase of 18% compared to the first quarter of 2017. The increase in net revenues is primarily due to organic growth in our North America Transaction Solutions segment, which has experienced 27% growth over the prior period. Total transactions dollars profit globally during the first quarter of 2018 were $839 million, an increase of 51% compared to $557 million in the first quarter of 2017. North American Transaction Solutions segment continued organic growth of small medium sized business merchant with emphasis on value-added offerings. Revenues for this segment were $14 million, an increase of 27% over the prior year. International Transaction Solutions segment, as a result of the consolidate of online solutions and mobile solution segment during 2017, revenues for the international Transaction Solutions segment were $2 million, a decrease of 22% over the prior year. During the first quarter of 2018, we have appointed CNBC cast member of Halftime Report and "Fast Money", Jon Narjarian to the Board, appointed seasoned fintech executive Jonathan Fichman to the Board, myself and Jon Narjarian were interviewed by Jane King, at the NASDAQ market site on the subject of blockchain of cryptocurrency, to be join Enterprise Ethereum Alliance. We have launched of Netevia, our proprietary multi-channel payments platform. Netevia, to provide same base supplement as well as provide a turnkey solution for developers looking to add payments to project [ph] the full spec API and everything, We are pleased to have made a strong start to the year. Becoming more competitive, for our sales partners and merchants who are continuing to deliver growth. As we continue to deliver revenue growth, we expect to improve margin across whole segments during the year, while being focused on delivering sustainable future growth to our shareholders. Now, I would like to introduce Jonathan New, our Chief Financial Officer, who will provide comments on our financial. Jon, please proceed.

[Jonathan New:]

Thanks, Oleg. We have moved to a new condense financial results press release and conference call, versus going through the whole MD&A that we published in our 10-Q. Our goal is to be more efficient with year time and present the highlights and color for the period. We hope, do you like the new format and any comments would be appreciated. We reported a net loss attributable to common stockholders $1.6 million or $0.42 per share as compared to $2.5 million or $1.51 per share from the three months ended March 31, 2017. This resulted in a decrease in our net loss attributable to stockholders of almost of $1 million. Primarily due to increased revenues, decreases in G&A expense, non-cash compensation and bad debt expense. Adjusting for non-cash compensation, our non-GAAP adjusted track similar to the GAAP, we produced 1.5 million of net loss or $0.40 loss per share for the quarter ended March 31, 2018 as compared to a non-GAAP adjusted net loss of 1.9 million or $1 per share for the quarter ended March 31, 2017. So, both the GAAP and the non-GAAP show a very good bottom-line improvement. Net revenues were almost $16 million for the three months ended March 31, 2018 as compared to $14 million for the three months ended March 31, 2017. The increase was driven by $3 million in revenues from North American Transaction Solutions segment, that was organic growth and that was partially offset by about 600,000 in net revenues from International Transaction Solutions segment as we reorganized our international business and consolidated our mobile payments operations with PayOnline. Gross margin for the three months ended March 31, 2018 was $2.4 million, 14.8% of net revenue as compared to $2.1 million or 15.5% of net revenue after the three months ended March 31, 2017, primary reason in gross margin percentage decreased was due to the increase mixed from North America and decrease in the international segments business again as we consolidated our mobile operations and put it together with PayOnline. General administrative expenses for the three months ended March 31, 2018 were $2.4 million as compared to $2.8 million for the three months ended March 31, 2017, almost 400,000 reductions in G&A was primarily due to decreases in salaries and benefits professional fees and rents. G&A decreases increases included salaries and benefits $1.3 million compared to $1.7 million last year, a $300,000 reduction in discretionary bonus and an increase in sales incentives they were charged to cost of sales versus salaries were the primary reason for the decrease, there was some increases due to the increase portfolio size offsetting these decreases. Professional fees were $567,000 from three months ended March 31, 2018 as compared to $674,000 for the same period of last year. This was primarily due to a decrease from international professional fees, again as we consolidated and reorganized our business and drove expenses out of it. Rent expense was $81,000 for the three months ended March 31, 2018 as compared to $153,000 for the three months ended March 31, 2017. The decrease of $72,000 was primarily due to reduction of $56,000 in rent again as international moved to a less expensive office space, a smaller states and consolidated operations. We also had some decreases in the U.S. Other general administrative expense was $93,000 for the three months ended March 31 as compared to $9,000 same period of last year. Basically, we have a higher in corporate franchise tax driving that and that's the other expense section. To wrap it up, we had a good quarter of improved results and we encourage you to review our 10-Q on our website or on sec.gov for all the details. I will now turn the call back over to our moderator.

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Lisa Thompson from Zacks investment Research. Your line is open.

[Lisa Thompson:]

Good morning.

[Oleg Firer:]

Good morning, Lisa.

[Lisa Thompson:]

So, Oleg had a very good first quarter as expecting some seasonality from Q4 to Q1 that didn't happen, what do you attribute such a good quarter to?

[Oleg Firer:]

Right, so we have obviously been - had a lot of sales initiatives in the pipeline that require capital which we now have. And that allow us to press I guess a little bit heavier and get from the production going which not only weather the seasonality, but also as you just mentioned showed impressive results for the quarter. And we anticipate that's only going to get better. We are very active in our marketing initiatives. We have great sales networks and partners. They're producing for us and are continuing to produce for us a long term. And we hope that this result will only prove overtime.

[Lisa Thompson:]

So, do you expect that North America and international both increased sequentially throughout the year?

[Oleg Firer:]

Yes, we have on the North American side, yes, it's the biggest driving force today. With respect to international, we have successfully consolidated all of the efforts into under one roof. And we're focused and growing sales channels and sales partner initiatives internationally as well. And we believe that you're going to see improved results in the quarters to come. And U.S. will continue to grow and continually - we hope that will grow faster than growing right now.

[Lisa Thompson:]

Just curious you said that in the quarter, the number of transactions increased far less than the dollar amount. So, it looks like you're having larger and larger size transactions. Is there any explanation for that?

[Oleg Firer:]

It's really the target that we are, that our sales partners are driving. If you're looking at the U.S. business, we have a big focus on the retail and restaurants. So that's despite the fact that we also have a focus on quick sequestration [ph] / Our bigger focus is on larger average ticket to down restaurant which is a larger ticket item. And internationally, we're also seeing a larger average ticket for the business that are coming through the doors. It's more of a shift in demographic, it's not necessary that we're focusing a different sales avenue. It's more of much coming through those sales relationships that we have. And it shifts time to time and as you saw in the past, that quarter where average ticket grows south or north. So, I wouldn't see it as a key measure for us.

[Lisa Thompson:]

Okay. And on that one, I'm thinking, whatever happened to bringing Aptito to Russia. Is that going to happen or is that been put aside?

[Oleg Firer:]

Well, we have put it aside when we didn't have the capital to do so. Now, we're looking at it again. And not only to Russia, we're looking to bring them to keep at to some other markets, some other international markets, we're in talks with several relationships that we hope could bring to close soon. And they include either white label version of Aptito or a full Aptito version. And we're very optimistic that that's going to happen relatively soon. We've been in negotiations with several key players internationally that could help them bring their product to the market internationally. We're not looking to build direct sales force around it. We're looking to partner with existing sales infrastructure that could help us chunk in the product. And as I said, there will be you will see most likely few different views, one will be white label and the other will be using that Aptito brand.

[Lisa Thompson:]

Great. So, just to clarifying that, your statement was international had a payment facilitator solution. Can you describe what that means?

[Oleg Firer:]

Right. If we want to use the U.S. language at Paysack [ph]. So, we launched the Paysack Solutions in Russia, which is one of the first Paysack Solutions available in Russia. We have signed an exclusive relationship with the Sputnik Bank. other technology partnership, which enabled us to get all the proper licenses news for that. And by introducing Paysack Solutions to the market we'll be able to onboard client much faster. Historically, it would take upward to the month to onboard this single client in Russia because of all the documents and integrations that we need to take place. With Paysack, we could turn on the client within 24 to 48 hours from start to finish. And we believe that having the Paysack 2 will enable us to bring a bigger 5-point merchants through the doors and get them up and running relatively quick.

[Lisa Thompson:]

All right, thank you. Okay, one for Jonathan. What's your cash burn now, a lot of you've been reducing expenses?

[Jonathan New:]

Well, our expenses have come down, but we are growing and so we are also engaged in some incremental expenses for SOCs [ph] project that we were involved in, we engaged county phone call [ph] from Rosen and we're going to spending $300,000 to clear our internal control issues, get everything documented, get all the procedures in place and eliminate the disclosures that we're making now, and we have disclosures on 9A. So, the short answer is the cash burn is actually up in the short term so we're up where we were 450 to 500, now we're up another 100,000 dues to the SOCs project and we also have some late fees from registration statement filing for the pipe which max at 300,000 but they are also impacting the current cash burn.

[Oleg Firer:]

But there is a one-time our expenses that are net recurring expenses to our business and we hope to get over it relatively quick.

[Jonathan New:]

That's true, so you can see we went through about $3 million in cash for the quarter and…

[Lisa Thompson:]

That - 450,000 what was that again?

[Jonathan New:]

Which one?

[Lisa Thompson:]

Other expense?

[Jonathan New:]

Other expense was a mix of cash payment on another one-time charge, one-time write-off, but yeah so, we expect the cash burn to be consistent pretty much in the second quarter is what we're projecting this quarter and then as Oleg said, these are one-time expenses what you're going to have as a drawing portfolio throwing off more cash and then these things are going to come off. We also paid down some debt this quarter, so that's part of 2 million spend, about $0.5 million, 550.

[Lisa Thompson:]

Okay, great. Thank you.

[Operator:]

Thank you. [Operator Instructions]. And I am showing no further questions from our phone line. I would now like to turn the conference back over to Mr. Firer for any closing remarks.

[Oleg Firer:]

Again, I want to thank everyone for participating in our call today. Please do not hesitate to contact us with any follow-up questions, so we're here to answer any of them. Thank you.

[Operator:]

Ladies and gentlemen, that does conclude the Net Element's 2018 first quarter results and business update conference call. Thank you for your participation and you may now disconnect.