NETE - Earnings call transcript Q2 2018

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Operator

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

Oleg Firer

the quarter of segment expected organic growth of over Solutions Good growth increase $X.XX of increased today, an experienced call XX% due same compared prior the of Solutions of $XX.XX Geographically, revenues Transactions XX.X% quarter Net Normalizing XX% joining revenues XXXX. period increased second increase prior experienced morning, to over year. Transaction first the for XXXX. everyone to in in first quarter discuss the which branded Normalizing in segment in to revenues content in branded half expected Transaction Thanks across X.X% in the net due decline for of content in branded elimination and everyone. the elimination growth year. accounted International increase XX% the primarily net million, the segment, second all the resulted the revenues for of States revenues which to decline of and business accounted X% the revenues North American segments an X% million from XXXX. growth Solutions business, of an The the due International same business X.X% XX% increase year. due the the Solutions of X% to total of over primarily United to prior half segment the XX% all for our resulted XX% elimination of Total accounted year. of experienced and XX% net revenues were which period first quarter XXXX, for prior elimination results the of half International of of our for to for the second and for The billion. the robust branded segments XXXX Net in $X.X for growth second is $XX.XX first growth half over $X.XX of of International content revenues to $XXX,XXX for across the American dollars business, subsidiary year. content Transaction Solutions XX% segment the of largest which Transaction and quarter while international million, Unified processed the first to XXXX. Solutions Transaction an for to increase second prior in the the of segment, is by American increased organic led XX% XXXX billion, Payments, North of of North our over net saw growth experienced XX% from Transaction to segment Solutions XXXX. half in

increase to from American increased XX% XX% While, International Solutions during primarily XX.X North million. came transactions XXXX Transaction the to processed an saw of Solutions XX% Total in first of to segment, increased Transaction which The half $XXX million. XX.X processed increase transactions million.

segment. XX% million. saw increase an segment segment International These into the International payments results of Transaction Solutions to the of include Solutions reorganization While XX mobile Transactions

product will have internal corporate stronger governance this be quarter governance, and enhanced operational enhanced controls team differentiate our businesses. side, to out also very and continues deliver offerings medium-sized important products work our and this and to our small-and to this R&D With the our believe value-added corporate procedures step to set established forward. respect commitment. a On implemented we development, that going We

second Solutions, enter global market. dollars multi-trillion XXXX, Payment Smart to the launched payments BXB Vendor Netevia a quarter During we

that Netevia, processing X, gained We over the XX, August processing next subscription-based we're payment XXXX, immediately million in add I'm Payment a intelligent cash on profits over portfolio Club, launch continue projected launched year. businesses, years. is and $X.X the traction for have our to projected four this profit partnership in also to the XXXX, we future-ready services years. agreement set to to omni-channel work services. which launched payments to early which small recurring the that on launched these gross over strategic gross with to solution industry. Combined, meetings growth through to an blockchain years. And and was very technology events over track to next pleased profit on flow initiatives do that solutions are four results another we continue our financial over and multi-channel in we are $X in we million value-added multibillion-dollar platform on next out as plans. long-term year growth deliver track add on the We're including improvement, We this for is to with And happy expected report focus of and gross $X.X acquired over million year, July four

our our and are in technologies invest to comfortable continue commerce-enabled are shareholders. strategic in value We significant creating initiatives for

Officer. been results Financial I'd Now more Element's proceed. review Chief role Jeff to inception, financial the to Net has please introduce and in detail. Chief recently our assumed us like since Officer, Jeff? Ginsburg, with Jeffrey Financial Jeff, of

Jeff Ginsburg

administrative the of per Adjusting loss XXXX amortization. half per loss compared XXXX, non-cash $XXX,XXX, for first per loss loss for XXXX. we a non-GAAP share, $XXX,XXX the per good which or as Solutions per as to XXXX. revenues compensation loss and International and per adjusted operations resulted and $X,XXX,XXX, net mobile by offset months we stockholders stockholders by loss the attributable of minus and compared revenues loss decreases share, in share, of for depreciation a of of in XXXX loss loss for or our $X.XX to were XX% and to reorganized $X.XX general $X,XXX,XXX, net American and net common the general $X.XX other loss the was decrease of expenses, decrease driven well share, to The quarter to $X.XX and XXXX, the increases of as of increase a non-cash increase to due the to $X.XX stockholders XX, the income, was as amortization growth, and for And $XXX,XXX of net an XXXX compared This a as quarter quarter or have stockholders to income, as compared segment share, of resulted of compensation decreases to or revenues payments $X.XX $XXX,XXX net decrease due increase Transaction in as in were attributable segment of of to XXXX. or net six per or the increases attributable compensation, a This were adjusted was second of $X,XXX,XXX, of in expenses. business partially second for $X,XXX,XXX, second Net due in the first revenues for net compared by for in X% revenues a an Net attributable per depreciation $X.XX of Oleg. a primarily for as XXXX. as or primarily share $X,XXX,XXX, $XXX,XXX well expenses, consolidated of our reported $X.XX our to for in of offset North adjusted in $XX,XXX,XXX non-GAAP to for second June ended half a net with the from to Solutions XXXX second which second common first $XX,XXX,XXX, of loss first quarter PayOnline. international loss was or for loss increase a a or to administrative or common in We stockholders non-cash net organic stockholders which quarter $X,XXX,XXX adjusted in XXXX. by you, non-GAAP attributable of our in an other Non-GAAP net share, half attributable morning share, and from Thank Transaction everyone. as half $X,XXX,XXX, quarter offset net loss

Transaction Solutions first net first from XXXX, organic International was branded is our PayOnline. of half XXXX. revenue partially first a segment branded Net for American quarter were business there we resulted for North operations of reorganized XXXX. offset in increase consolidated from net $XX,XXX,XXX payment which mobile content operations $X,XXX,XXX the no The an payments of in was revenues revenues in American increase the Solutions to of of Transaction Solutions For mobile half to the half merchants segment, international North the growth in for with compared as Transaction $X,XXX,XXX and our XXXX $XX,XXX,XXX, primarily our compared to decrease of the of due revenue of second in quarter revenue This our content XXXX. of by second our $XXX,XXX in as as segment revenue

there our XXXX, revenue in content the content mobile of $X,XXX,XXX branded half of no of from was operations compared half XXXX. branded to first first the payment For revenue as

relating XXXX, in payments for of XXXX, decreases quarter as of Transaction as in Margin of of administrative in other to revenue, yet administrative the and compared reduced revenue, general first the we are new of The the our of expenses from revenue, due payment processing $X,XXX,XXX Transactions compared half our taxes acceptable a or and operators bonus, $XXX,XXX, $XX,XXX, the partnership will transaction Zell our compared North litigation were XX.X% BIN/ICA. XXXX. arrangements, quarter fees due decreased mobile were expenses primarily Margin expenses half in for second Solutions but joint-venture of primarily administrative salaries net Aptito.com that or XX.X% was with percentage communications $XX,XXX. that $XX,XXX in estimated as quarter general is as half revenue, and Transaction XXXX. segment second half because of certain variances for of the of of and fees Rent of was the a costs net the fees of commission by in business compared quarter first switch in benefits of expenses for to and as in for $XX,XXX decreases transaction fees Transaction an $XX,XXX Solutions of taxes to produce because that of to our by cost corporate, a by increases XXXX. Solutions our meet legal General of half legal half for fees. payments payments segment, offset for North also as commission first fees commission, in for XXXX in the our operations segment explore we rent opportunities Salaries to utilizing to as $XXX,XXX, and rent This half the $X,XXX,XXX $XXX,XXX reason arrangement. requirements of lower first substantially volume for fees we reduction for $XX,XXX. a to administrative of quarter functional reduction $XX,XXX $XXX,XXX included: – of $XXX,XXX, salaries rates American versus Transaction our primary increased this increases transaction $XX,XXX due second salaries for was half and compared decrease offset $XXX,XXX $XXX,XXX salary – XXXX to of general decrease margins the the half the for XX.X% XXXX payroll. We International an due was in decreased decreased XXXX first $X,XXX,XXX second and due the and net this to as the to quarter second as of of International decrease in sales XXXX. in was primarily salaries decreased mobile $XX,XXX to for the expense can gain in $X,XXX,XXX losses business of second was Solutions space. $X,XXX,XXX gross of seek of in and transaction segment’s decreased offset quarter fees Salaries XXXX. salaries. and fees to or second had The half $XX,XXX to – $XX,XXX we a and in to XX.X% Gross of to segment International reduction the because XXXX compared currency, $XX,XXX and $XXX,XXX Professional XXXX XXXX. reduction segment. the benefits margin to first compared was in structure. in transaction was of of the quarter corporate primarily and partially by reduce XXXX, by quarter normalize $XXX,XXX. net as monetize for for and and and Corporate, Transaction increase decrease reorganize Rent due an in compared between by primarily International was first partner office which first to relationships and this the and America in a $X,XXX,XXX, of of half was rent second Transaction in due of XXXX, first Transaction in of benefits, of decrease of margin sales quarter the International for General first due XXXX in increase offices gain second office other $XX,XXX the continue compared transactions. of third-party and by higher which North $X,XXX,XXX $X,XXX,XXX were The $X,XXX,XXX, to expenses than continue of and general benefits losses $X,XXX,XXX, as margin and expenses The and our the mobile transactions and administrative other American in or compared contractor and professional of to and the general of discretionary Professional decrease Professional cases, for The XXXX. $X,XXX,XXX, in for XXXX. a first We of by $XXX,XXX space our expense XXXX of and and increases not denominated. quarter segment, rent because to of consulting typically on $XX,XXX changes in charged represent and second to were to contracts have incentives in Solutions foreign identified $XXX,XXX $X,XXX,XXX International $XXX,XXX $XX,XXX began decrease of Segment. Salaries by was general administrative of fixed or increase fees legal reduction The The professional fees Gross of to half XXXX. payments Solutions the for $XX,XX. $X,XXX,XXX have offset and legal Gross self-designated of through – Transaction was XXXX. Solutions first for and contracted increased second expenses in and due $XXX,XXX the of is financing of increased exchange to currency as $X,XXX,XXX, quarter activity of while second or primarily

of $XX,XXX, XXXX, and During currency business XXXX incurred and and expenses taxes, gained $XX,XXX include half Other transaction foreign the loss licenses. of and we administrative utilities respectively, general we gains. first

Delaware XXXX, and For call Operator, franchise our the the to a for half With these or XXXX the questions. our were by we we comments taxes for an a was we and half $XX,XXX higher by now taken XXXX. are ready website XXXX. driven XXXX, as further encourage increase $XX,XXX our sec.gov State due first first of in $XXX,XXX for details. you good compared primarily half The to caused that, open expenses of of of for increase to formal today. in assessments to review XX-Q first conclude We had the quarter of and on credit

Operator

[Operator you. Thompson begin Instructions] question Zacks gentlemen, we’ll session. line first now is and of Thank Lisa from Ladies the the Our Investment. with question-and-answer

Your open. is line

Lisa Thompson

Good morning, Oleg and Jeff.

Oleg Firer

you? morning, How are Good Lisa.

Lisa Thompson

Good.

that a deal things the Club? it than also, seems said ended, question portfolio, be talk Oleg, couple the of – broader this interesting Payment cryptically, about a So little ahead. was. with was I bit that more could the portfolio, you first, quarter on since and But have the quarter about to happened what go you

Oleg Firer

Go ahead, ahead. no. go No,

Lisa Thompson

it cryptically, gross million profits over in that said, this years. generate said bought I $X next four No. you something would

does revenue? how So into that translate

Oleg Firer

Right.

a portfolio So acquired of from been business. a we that submitting partner have ours has

As you recurring residual business on know, pay we agents revenues the partner source that and basis. to way works, of our the the business portion our a our

that amount. back, we the that to say means to really going bottom are we payout this gross to by bought now So when drop partner we profit, that reducing And which line. it's a

bought the not have against We it. money new

of issued his is to will be guarantee it. against a $X we're we in – Instead commission, million We the time, going certain profit we an gross have for revenues and period. the then have restructured deal, projecting, And period the us. the enhanced and in stock partner over the what because which not our production we guarantees in any some results of which have is attrition paying way commission

– be But least to it's $X million. projecting going it's at a be to it's more. So we're going

Lisa Thompson

get… you And So this? revenues that Do work? how get then does you from

Oleg Firer

Right.

Lisa Thompson

book it? you Like, increase your the own margin's because it? XX% it That's now going Or how just to is margin? you

Oleg Firer

– that comes going increase our one is out partners. pay way we then our revenues partners. of margin the Our know, have and our to as referral it's we have is in because referral now, done This you we –

in this increase. that that will we're margin already payout those which a paying increase we of our revenue will The to means margins partners, out increase. cash will a revenues not instead our just flows, making – because So have line, our repaying our referral

Jeff Ginsburg

of cost will Our decrease. sales

Lisa Thompson

Okay.

in all that's right? and North America, – that So

Jeff Ginsburg

Yes.

Oleg Firer

will said, Yes. cost our Like of Jeff decrease. sales

Lisa Thompson

you deal Who a this to about And And then, trying reseller you Payment just them can like now? that. was What do with I understand they do? talk are they? good. Okay, are Club? for

Oleg Firer

rates transparent Right. of brand interchange, have to our a margins the to valued resellers the which purpose offering such subscribe a this as rates of will charging top The Payment brand, of merchants, that's merchants one of having it's plan on processes. the And new subscription-based get reseller Instead their to, to payment Club and be is valued launched is bill. launched. for flat

meet which forth have release. new We like with which not long-term signed certain penalty will in profit, we has our in gross is translates period set bought and time, a we don't Payment said in of something a a agreement platform. commitment already Club, they over on if commitment result that's existing This this that revenue. our This

in revenues profits. So this result and additional will also gross

However, side This of with did holds is revenues the the increase profits. guarantee, deal. will portion revenue only the release, we gross side. press when profit come – and gross both the will the reported the deal the But we have profit gross what this increase

Lisa Thompson

is Or margins, And the higher XX%? is or like it same at it lower?

Oleg Firer

will – going No. about we the less the or This It's deal will not more the be be bigger. to margin when same. talk revenues,

be gross stated, the the be will probably will that margin, as but profits However, XX%. around

Lisa Thompson

All question Okay. I one Jeff. then, right. have And for

there? a bit strange thing, quarter report second the that's the Can thing one-time a talk in assume I little income, $XXX,XXX. other which So about was you right? in what's only is

Jeff Ginsburg

made that amount to because decrease. wound off against that non-reoccurring them our a was stock we One write was all obligations. were we certain it netting to because some possible been for of accrual And no And off. This off. on we primary also then was income. we them But decided wrote for to that – that around It wrote SDV, all, time years, Yes. them in decided contractual the we guarantee or it decrease accrue $XXX,XXX after – against and and was was all wrote due other so is Bunker payables in the that books $XXX,XXX. there two claim income, this quite – prepaids, that to we was have sorry, That contributed – $XXX,XXX. three anything legacy then, up Capital off there factors in that

to netted comprehensive So all in see the in statement all, other that and income our of you operations $XXX,XXX loss. it

Lisa Thompson

there see I Didn't about though? something in PayOnline

Jeff Ginsburg

PayOnline, yes, the stock guarantee the was acquisition. related PayOnline to

to we was and of we yes, there and But After wrote we when obligation a no so bought price there accrue us, that claim so guarantee, because period, issued a no longer stock that it PayOnline, and that off. So period. that GAAP look-back a look-back liability there liability, it. had from was the was upon was we

Lisa Thompson

That’s That good. that. questions great. my explains right, Okay, now. for All all

Oleg Firer

Lisa. you, Thank

Jeff Ginsburg

you, Thank Lisa.

Operator

Instructions] the for management questions call [Operator turn no to now I'd remarks. showing at further back time. closing this And I'm over like to

Oleg Firer

hesitate Thank on being Thank you questions. to Please to this morning. everyone you. do a us any with good contact follow-up call for not the Have day.

Jeff Ginsburg

Thank you.

Operator

conclude that Net you gentlemen, Thank Element Call. First Operator Update you. for Conference and Financial does Second XXXX and Half your Ladies and the Thank Business Results Quarter participation.

disconnect. now may You

Mullen Automotive (MULN) 15 Aug 182018 Q2 Earnings call transcript