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Net Element Reports Third Quarter 2019 Financial Results and Provides Business Update

November 14, 2019 GMT

Revenue from Value-added Solutions Increased Over 58%

Miami, FL - ( ) - November 14, 2019 - Net Element, Inc. (NASDAQ:  ) (“ ” 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 reports its financial results for the third quarter ended September 30, 2019, and provides a business update.Conference Call:The Company will host a conference call on November 15, 2019, at 8:30 a.m. EST to discuss third quarter 2019 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 3086210. It is recommended that participants dial in approximately 10 minutes prior to the start of the call.The call will also be webcast live via  . Following completion of the call, a recorded replay of the webcast will be available on the   website.Highlights for the third quarter 2019 financial results as compared with the third quarter of 2018 include:Total transaction processing volume increased 14% to approximately $954 million, 20% of the total transaction volume is attributed to value-added solutions which increased 103% over the same comparable period last yearNet revenues of approximately $16.82 million, a decrease of 2.4% as compared to $17.24 million for the same period last yearNorth American Transactions Solutions revenue increased to $15.92 million a slight increase from $15.59 million for the same comparable periodInternational Transaction Solutions revenue decreased to approximately $900,000 from $1.65 million for the same comparable period. Transaction processing revenues in this segment have shown an improvement of over 29% over the second quarter of this yearOperating expenses were $3.6 million, an increase of approximately 5.9% as compared to $3.4 million for the same comparable period, primarily driven by an increase in depreciation and amortization expense from $500,000 to $800,000Gross margin of approximately $2.74 million or 16.3% of net revenue, a slight increase from $2.68 million or 15.6% of net revenue for the same comparable periodValue-added solutions attributed $572,000 of net revenues for the quarter, up 58% over the same comparable period last year and $226,000 of gross margin or 39.5% of net revenues, an increase of 47% over the same comparable periodNet loss per share increased to $0.24 from $0.23 for the same comparable period”Our quarterly results demonstrate a demand for our suite of value-added payment acceptance solutions, fueled by the continued growth in transactions processed utilizing our proprietary Netevia platform,” commented Oleg Firer, CEO of Net Element. “Despite the challenges we have experienced as part of the industry changes and wind-down of certain merchant category codes we serviced, in addition to the loss of revenue in our International Transaction Solutions segment, we have demonstrated a continued increase in gross margin for our North America Transaction Solutions segment and our ability to replace lost business. We continue to execute our strategy with a focus on delivering long term value to our shareholders, as such we will be exploring strategic alternatives for certain markets in our International Transaction Solutions segment.”Discussions of Third Quarter ResultsThe comparative revenue and gross margin for the third quarter was negatively affected by the wind-down of accounts with certain merchant category codes. The wind-down of merchants in this channel was due to industry-wide changes for enhanced card association compliance. This revenue, which is included entirely within the North American Transaction Solutions segment, was $211,052 and $560,279 in the third quarters of 2019 and 2018, respectively. The corresponding gross margin associated with this revenue was $28,097 and $122,988 in the third quarters of 2019 and 2018, respectively.OutlookOur strategy is to ensure that our business remains successful in a rapidly changing market, creating sustainable value for all our stakeholders, including our clients, distribution partners and shareholders. We aim to achieve superior results for our clients by having a deep understanding of their payment acceptance needs, extensive market reach, strong product development and technology enablement.Results of Operations for the Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018We reported a net loss attributable to common stockholders of approximately $1 million or $0.24 per share loss for the three months ended September 30, 2019 compared to a net loss of approximately $900,000 or $0.23 per share loss for the three months ended September 30, 2018. The increase in net loss attributable to stockholders of approximately $100,000 was primarily due to a decrease in service fees of approximately $423,000, a corresponding increase of approximately $362,000 in the amortization of client acquisition costs, and the reversal of an over accrued liability of approximately $153,000 reflected as other income.The following tables set forth our sources of revenues, cost of revenues and the respective gross margins for the three months ended September 30, 2019 and 2018.       Source of RevenuesThreeMonths EndedSeptember 30,2019MixThreeMonths EndedSeptember 30,2018MixIncrease /(Decrease)North American Transaction Solutions$15,923,80594.7%$15,590,83290.4%$332,973 International Transaction Solutions 895,8815.3% 1,651,9269.6% (756,045)Total$16,819,686100.0%$17,242,758100.0%$(423,072) ThreeMonths Ended September 30,% ofThreeMonths EndedSeptember 30,% ofIncrease /Cost of Revenues 2019revenues 2018revenues(Decrease)North American Transaction Solutions$13,414,33484.2%$13,286,21085.2%$128,124 International Transaction Solutions 664,90774.2% 1,273,59877.1% (608,691)Total$14,079,24183.7%$14,559,80884.4%$(480,567) ThreeMonths EndedSeptember 30,% ofThreeMonths EndedSeptember 30,% ofIncrease /Gross Margin 2019revenues 2018revenues(Decrease)North American Transaction Solutions$2,509,47115.8%$2,304,62214.8%$204,849 International Transaction Solutions 230,97425.8% 378,32822.9% (147,354)Total$2,740,44516.3%$2,682,95015.6%$57,495              Net revenues consist primarily of service fees from transaction processing. Net revenues were approximately $16.8 million and approximately $17.2 million for the three months ended September 30, 2019 and 2018, respectively. The decrease in net revenues was primarily related to our International Transaction Solutions segment which experienced competition, certain economic challenges, and the loss of a major customer. In addition, growth in our North American Transaction Solutions segment was offset by the wind-down of certain merchant categories due to the industry-wide changes for enhanced card association and sponsoring compliance.Cost of revenues represents direct costs of generating revenues, including commissions, mobile operator fees, interchange expenses, processing, and non-processing fees. Cost of revenues for the three months ended September 30, 2019 were approximately $14.1 million as compared to approximately $14.6 million for the three months ended September 30, 2018.The gross margin for the three months ended September 30, 2019 was approximately $2.7 million, or 16.3% of net revenues, as compared to approximately $2.7 million, or 15.6% of net revenues, for the three months ended September 30, 2018. The primary reason for the increase in the overall gross margin percentage was the result of North American Transaction Solutions fees associated with the processing of transactions utilizing our self-designated BIN/ICA due to an increase in the dollar volume processed as compared to the prior comparable quarter.Operating Expenses Analysis:Operating expenses were approximately $3.6 million for the three months ended September 30, 2019, as compared to $3.4 million for three months ended September 30, 2018. Operating expenses for the three months ended September 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 expense of approximately $800,000. Operating expenses for the three months ended September 30, 2018 primarily consisted of selling, general and administrative expenses of approximately $2.3 million, bad debt expense of approximately $600,000, and depreciation and amortization expense of approximately $500,000.The components of our selling, general and administrative expenses are reflected in the tables below.Selling, general and administrative expenses for the three months ended September 30, 2019 and 2018 consisted of operating expenses not otherwise delineated in our Condensed Consolidated Statements of Operations and Comprehensive Loss, as follows:            Three months ended September 30, 2019         Category North AmericanTransactionSolutions InternationalTransactionSolutions CorporateExpenses Eliminations Total Salaries, benefits, taxes and contractor payments$304,391$124,921$729,426$1,158,738 Professional fees 125,713 58,478 486,984 671,175 Rent - 23,048 51,795 74,843 Business development 75,414 540 18,707 94,661 Travel expense 36,337 10,553 18,466 65,356 Filing fees - - 37,213 37,213 Transaction gains - 7,169 - 7,169 Office expenses 91,051 4,460 12,093 107,604 Communications expenses 39,530 61,428 17,710 118,668 Insurance expense - - 42,418 42,418 Other expenses 15,073 1,672 4,196 20,941 Total$687,509$292,269$1,419,008$2,398,786 Three months ended September 30, 2018         Category North AmericanTransactionSolutions InternationalTransactionSolutions CorporateExpenses Eliminations Total Salaries, benefits, taxes and contractor payments  $369,734$286,377$622,844$1,278,955 Professional fees 29,626 79,853 487,623 597,102 Rent - 22,935 51,222 74,157 Business development 29,949 1,063 3,619 34,631 Travel expense 28,736 2,338 32,863 63,937 Filing fees - - 5,608 5,608 Transaction losses - 18,021 - 18,021 Office expenses 54,924 7,035 10,510 72,469 Communications expenses 33,073 42,966 33,227 109,266 Insurance expense - - 38,587 38,587 Other (income) expenses   1,354 4,948 47,774 54,076 Total  $547,396$465,536$1,333,877$2,346,809 Variance     Category North AmericanTransactionSolutionsInternationalTransactionSolutionsCorporateExpenses EliminationsTotalSalaries, benefits, taxes and contractor payments $(65,343$(161,456$106,582$(120,217)Professional fees  96,087 (21,375 (639 74,073 Rent  - 113 573 686 Business development  45,465 (523 15,088 60,030 Travel expense  7,601 8,215 (14,397 1,419 Filing fees  - - 31,605 31,605 Transaction gains  - (10,852 - (10,852)Office expenses  36,127 (2,575 1,583 35,135 Communications expenses  6,457 18,462 (15,517 9,402 Insurance expense  - - 3,831 3,831 Other (income) expenses  13,719 (3,276 (43,578 (33,135)Total $140,113$(173,267$85,131$51,977  Salaries, benefits, taxes and contractor payments remained relatively steady on a consolidated basis for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. This was primarily due to the Company’s continued monitoring of operations and labor costs necessary to maintain or increase revenues, the boarding of quality merchants, and the reduction of the labor force in our International Transaction Solutions segment.        SegmentSalaries and benefitsfor the three months endedSeptember 30, 2019 Salaries and benefitsfor the three monthsendedSeptember 30, 2018 Increase /(Decrease)North American Transaction Solutions$304,391$369,734$(65,343)International Transaction Solutions 124,921 286,377 (161,456)Corporate Expenses Eliminations 729,426 622,844 106,582 Total$1,158,738$1,278,955$(120,217)  GAAP  Share-basedCompensation AdjustedNon-GAAPThree Months Ended September 30, 2019      Net loss attributable to Net Element Inc stockholders$(1,010,627)$15,008$(995,619)Basic and diluted loss per share$(0.24)$-$(0.24)Basic and diluted shares used in computing loss per share 4,152,433    4,152,433 Three Months Ended September 30, 2018      Net loss attributable to Net Element Inc stockholders$(910,414)$22,500$(887,914)Basic and diluted loss per share$(0.23)$-$(0.23)Basic and diluted shares used in computing loss per share 3,901,218    3,901,218   GAAP  Share-basedCompensation AdjustedNon-GAAPNine Months Ended September 30, 2019      Net loss attributable to Net Element Inc stockholders$(3,668,921)$2,035,855$(1,633,066)Basic and diluted loss per share$(0.91)$0.51$(0.40)Basic and diluted shares used in computing loss per share 4,033,521    4,033,521 Nine Months Ended September 30, 2018      Net loss attributable to Net Element Inc stockholders$(3,424,989)$127,011$(3,297,978)Basic and diluted loss per share$(0.88)$0.03$(0.85)Basic and diluted shares used in computing loss per share 3,870,134    3,870,134           About Net ElementNet Element, Inc. (NASDAQ:  ) 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  , our cloud-based, restaurant and retail point-of-sale solution. Internationally, Net Element’s strategy is to leverage its omnichannel 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   Technology Fast 500™.  In 2017, Net Element was recognized by South Florida Business Journal as one of 2016′s fastest-growing technology companies. Further information is available at Forward-Looking StatementsSecurities 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 the Company will achieve further 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.Contact:Net Element, Inc.Tel. +1 (786) 923-0502