NETE: Q3 2020 Revenues Improve Despite Continued Shutdowns in NY and California
BREA, California, December 15, 2021 - Net Element (NASDAQ:NETE) is showing surprising business strength despite lockdowns persisting in New York where it has a numerous customers in the restaurant business. Management claims the US economy is running on the Sunbelt and business could be gangbusters if shut down states would just open up. While it is impossible to predict when this might happen, it will someday at which point we expect Net Element business to rebound sharply. With 45% of its customers in the restaurant business this is the most important factor to improvements at Net Element’s card processing volumes. Another meaningful factor is tourism, especially in Florida, which is impacted by people’s perception of the safety of travel as well as the quarantine requirements in various states.
Revenues did however improve sequentially despite these headwinds. Q3 revenues came in at $16.7 million down slightly from $16.7 million a year ago but up from $13.7 million in Q2 2020. North American sales were up1% year over year at $16.1 million, while international was down 26.1% to $662,000 from Q3 2019’s $896,000 and Q2 2020’s $741,000.
Margins for North America declined to 12.4% versus 15.8% a year ago. International sales margins improved to 28.0% versus 25.8% a year ago. Total gross margin was 13.0% versus 16.3% a year ago. The operating loss was $1.9 million versus a loss of $0.9 million last year caused mostly by the $1.1 million in stock-based compensation in this year’s quarter.
The GAAP loss to common stockholders was $2.3 million versus last year’s $1 million. All of the increase was due to stock-based compensation of $1.1 million in the 2020 quarter. The company always has one quarter with large stock-based comp and this year it was in Q3 while last year it was in Q2. The non-GAAP loss declined to $1.2 million versus $1.0 in Q3 2019. All of the other expense lines were down (other than stock-based compensation) as the company cut staff earlier in the year, except for loan loss provisions, which was $169,000 higher this year.
The GAAP loss per share was $0.52 versus $0.24 while the non-GAAP loss per share was $0.28 per share compared with a loss of $0.24 per share last year.
This quarter there were 4.5 million average primary shares outstanding versus 4.2 million last year. On November 11, 2020, the share count was 4.8 million shares.
On September 30, Net Element had $2.1 million in cash, working capital of $1.9 million and $10.2 million in debt up from $10.0 million last quarter. In the quarter Net Element received cash in three tranches of RBL promissory notes:
• On August 11, 2020, a gross amount of $707,000 in exchange for 66,190 shares of common stock.
• On August 21, 2020, a gross amount of $401,000 in exchange for 45,654 shares of common stock.
• On September 25, 2020 a gross amount of $426,000, in exchange for 50,000 shares of common stock.
In Q3 2020, Net Element had negative cash flow of $892,000, and negative free cash flow of $1.5 million. The free cash flow was affected by changes in the lease and leasehold improvements as the company moved office space from one part of the building to another.
Update on Mullen Technologies Transaction
Net Element is still diligently working on completing the transaction with Mullen Technologies. Mullen is still in process of an audit and the S-4 document is being drafted. We expect to see it filed by year-end.
Mullen Technologies itself has been progressing on its plans to sell and produce electric vehicles in the US. It started on construction of its pilot manufacturing facility in October and started also taking pre-orders on its $55,000 MX-05 fully electric SUV then. It is repurposing its high voltage battery R&D center as a pilot facility for its line of SUVs. The construction is planned for completion by April 2021 and we have no information that that timeline has changed. There the MX-05 SUVs will be assembled to be delivered to customers by the second quarter of 2022. The facility is designed to assemble as many as a thousand SUVs annually with other models possible later. The company said it plans to hire 100 people to assemble the SUV, the battery, conduct R&D, and provide warehousing. Once completed the plant will build prototypes that will we used to get government approval and certification, a process that should take 16 months. After that, the company could begin deliveries to consumers. Customers can also pre-order the imported Dragonfly K50 super sports car from Mullen
About Mullen Technologies:
Mullen Technologies is a Southern California-based licensed vehicle manufacturer that operates in various verticals of the businesses, focusing in the automotive industry: Mullen Automotive, Mullen Energy, Mullen Auto Sales, Mullen Funding Corp. and CarHub. Each of these divisions provide Mullen with diversity of different products and services within the automotive industry. For more information, please visit: www.MullenUSA.com.
This press release contains "forward-looking statements." Words such as "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," and similar expressions, as well as statements in future tense, often signify forward-looking statements. These forward-looking statements include, without limitation, statements relating to the proposed production date of the MX-05 midsize and perceived advantages and future deployment of the solid-state polymer battery technology. These forward-looking statements are, by their nature, subject to significant risks and uncertainties.
Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information that the Company has when those statements are made or management's good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, including any changes in the laws, rules and regulations relating to any aspects of the Company's business operations, general economic, market and business conditions, including capital market developments, the actions and developments of the Company's competitors and the effects of competition in the EV industry on the demand for, and price of, the Company's current and proposed products and services, various business opportunities that the Company, and factors beyond the Company's control. As a result of these and other risks, uncertainties and assumptions, forward-looking events and circumstances discussed herein might not occur in the way the Company expects, or at all. Accordingly, you should not place reliance on any forward-looking information or statements. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise. All forward-looking statements herein are qualified by reference to the cautionary statements set forth in this section.
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