Q2 2019 Earnings Call

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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 and the company's filings with the FCC.

Any projections as to the Companys future performance represented by management include estimates today as of August 15th 2019, 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 Dot net element dot com on the Investor Relations page at this time I would like to turn the call over to Oleg firing CEO Oleg. Please go ahead.

Good morning, everyone. Thanks to everyone for joining our call. This morning to discuss the results from the second quarter of 2018.

During the second quarter of 2019, we are focused on optimizing scalable for sure Scott scalable operating expenses are launching proprietary value added services. The outdoor revenues and margin going forward example of one of our one of our initiatives launched Blake, we launch a blade Oh propriety proprietary who'll be automated artificial intelligence forward intelligent forwards.

Underwriting solution would predictive, scoring which optimizes resources needed to perform underwriting and risk management functions on North American transaction solution slugging continues to grow our revenues for the segment for the second quarter were $16.7 million at north of 9% as compared to the same period last year.

We transact international transaction solution revenue decreased $749000 in revenue from $2 million in revenue, we have on board a new relationships, which are complete with its integration. We begin contributing to revenue as of this week. So we expect these new relationships to yield significant revenues for the international segment. During the second coupled with your reversed the negative trend we have experienced.

Net revenues for the first quarter were flat 16, and a half million dollars as compared to the same period last year. The decrease in our international transaction Social fund.

Doubled transaction processing volume for the first quarter increased approximately $960 million an increase of breaking that helped your son compared to $787 million for the same comparable period.

Total transactions processed for the quarter increased to 20.8 million an increase of 99.7% over the same comparable period.

Our North American transaction solution. So again has shown positive trends on the business development side, how do we continue to add definitely well integrated solutions and value out of the vacation for technologies that are built around the CTO of proprietary things pick up.

We are excited about our momentum going into the second half and the ongoing crosses our team has made to improve gross margins fusion scalable infrastructure integration of value added technologies, we remain focused on reaching profitability as it can kick and kill or business into select markets now I'd like to introduce Jeffry Ginsburg, that's almost chief financial Officer to review our financial results in more detail.

Jeff. Please proceed.

Thank you all leg and good morning, everyone.

We reported a net loss attributable to common stockholders of approximately $1.5 million or a loss of 37 cents per share for the three months ended June Thirtyth 2019.

As compared to a net loss of approximately 900000 or 23 cents per share.

For the three months ended June Thirtyth 2018.

The increase in the net loss was attributable to stock to stock on.

Approximately 600000 was primarily due to an issuance of noncash compensation.

Valued at the date of grant of approximately $2 million.

Which was offset by an increase of $1.1 million as a result of a reversal of accrued expenses. During the three months ended June Thirtyth 2019, as compared to the three months ended June Thirtyth 2018.

Reported a net loss attributable to common stockholders of approximately $2.7 million was 66 cents per share.

Oh for the six months ended June Thirtyth 2019, as compared to a net loss of approximately $2.5 million or 65 cents per share.

For the six months ended June Thirtyth 2018.

The increase in net loss attributable to stockholders was primarily due to the issuance of noncash compensation valued at the date of grant at approximately $2 million. During the three three months ended June Thirtyth, 2019, which was partially offset by decreases of approximately $262000 and selling and general and administrative expenses and approximately 517000 in bad debt expenses and the reversal of $1.1 million in accrued expenses relating to merchant reserves recorded in a previous year deemed not to be an obligation at June Thirtyth 2019.

Net revenues consist primarily of severance fees from transaction processing net revenues were primarily.

Were approximately 16.5 million.

Oh for each of the three months ended.

June Thirtyth 2019, and 2018 it should be noted that dollar volume of transactions processed by international segment has been showing improvement due to the boarding of large merchant account in the beginning of the year.

Well the integration was completed during the second quarter of this year in June of 2019, the dollar volume processed.

For international operations increased 7% from the previous month.

This trend significantly improve them, but in the month of July 2019, and the dollar volume processed increased 46% from the previous month. We believe this trend will continue and improve the overall performance of the strategic vision of our international segment.

Net revenues consist primarily of service fees from transaction processing.

Net revenues were approximately $31.6 million for the six months ended June Thirtyth 2019, as compared to approximately $32.4 million for the six months ended June Thirtyth 2018.

The decrease in net revenues for the comparable period were primarily related to our international transaction segment, which experienced competition instead, it certain economic challenges.

The gross margin for the three months ended June Thirtyth 2019 was approximately $2.6 million.

Or 15.7% as compared to.

Approximately $2.7 million or 16.1% for the three months ended June Thirtyth 2018, the primary reason for the decrease.

Overall.

Was.

The result of North American transaction solution fees associated with the processing transactions utilizing a southern due to an increase in volume as compared to prior comparable quarter.

The gross margin for the six months ended June Thirtyth, 2019, with approximately 5.4 million or 17% as compared to.

<unk> to approximately 5 million or 15.5% for the six months ended the primary reason for the increase.

And the gross margin percentage was a result of the North American transactions solutions processing of transactions utilizing our self designated Ben recurring profitable cash flows from portfolios acquired in prior year and further acceptance of value added services by the merger.

Operating expenses were approximately 5.2 million for the three.

Month ended June Thirtyth, two 2019 as compared to $4.1 million for the three months ended June Thirtyth 2018.

Operating expenses for the three months ended June Thirtyth 2019, primarily consisted of selling and general maintenance straight <unk> expenses of approximately $2.3 million.

Noncash compensation of approximately $2.2 million.

Bad debt expense of approximately $8.1 million and depreciation and amortization of approximately <unk> point $7 million operating expenses for the three months ended June 32018, primarily consisted of selling and general administrative expenses of $2.5 million bad debt expense of $8.9 million.

And depreciation amortization expense of approximately $8.7 million.

Operating expenses were approximately $8.8 million for the six months ended June Thirtyth 2019, as compared to 7.4 million for the six months ended June Thirtyth 2018.

Operating expenses for the six months ended June Thirtyth 2019, primarily consisted of selling and general administrative expenses of approximately $4.7 million noncash compensation of $2 million bad debt expense of $8.5 million and depreciation and amortization of approximately $1.6 million operating expenses for the six months ended June thirtyth.

Primarily can 2018, primarily consisted of selling general and administrative expenses of approximately $4.9 million bad debt expense of approximately $1 million and depreciation and amortization of approximately $1.4 million.

With that we conclude our formal comments for today operator, we're now ready to open the call for questions.

Thank you.

Ladies and gentlemen, well now begin the question and answer session. As a reminder, if you have a question. Please press the star followed by the one on your Touchtone phone if he would like to withdraw your question. Please press the pound key and if you are using speaker equipment, you'll need to lift the handset before making your selection and again, ladies and gentlemen that star one to ask a question.

And our first question comes from Lisa Thompson from Zacks. Your line is open.

Good morning, Oh look into.

I'm wondering we saw good morning, Lisa.

So this is kind of an exciting quarter Oh, it regardless of your two one time sort of things like stock based comp and the reversal.

It it looks like you are on the trend that you are getting in striking distance of operating breakeven.

With your reduction in expenses does that seem almost possible next quarter.

Well, we're working hard to achieve Doug Oh, we discussed in the previous calls and so we're doing everything in our power solution, we are growing or even below that so you know might seem like were flat, but so north America is still showing oh, the girl and we'll continue to show positive growth and doesn't use. So why are you. So margin is also in line with what we expected and we're only see improving from here.

[laughter] looks great, especially in international I was surprised that helped margins picked up.

Do you think the gross margin continued to grow from there and international.

No International it's actually we will not you will be in line with what we have experienced a we cleaned up the portfolio. So we cleaned up everything but have not been producing them and well any revenues. So there's no dormant mass merchants of any kind. So everything that we know well produces a decent margin and so with the addition of these a few merchant so we just thought.

On the previous call. That's already started so contributing to revenues, we see only positive trends from here or are these just explained in June of $2018 dollar volume.

Processed increased 7% from the previous month six month over month. So some for some girls, they're either doing business direct only in Oh, yes, I'm looking for Oh, well coordinate the greatest to help them.

She would be tough here Oh, an open some value added services are needed such as risk management school integration Gatwick and I'm, sorry, and on the multinational side are these merchants, who look to to us to open other areas to them like a United States from the <unk> and Europe .

Oh that sounds really good.

Of all the things that you introduced this quarter.

You talked about and a partnership with HP, but the AI, scoring.

Adding crypto and the new Mastercard product, which is which of these is it going to get a little systems decreased and Oh, we don't need to hire as many people looking to Oh, that's up a couple of occasions anymore and I'm not going to be so quickly, but so on operational side of late <unk> definitely a country. We can already see the results of blade.

On the sales side, we believe the Mastercard could be an interesting product. We already started the deployment of Mastercard using our Oh, let me see domestic or were able to offer rebates to our our merchants are poor, making payouts to discard rebates upwards of 1%, which could be significant saving for small to medium sized businesses North America I'm there I'm on their processing and also had some other volume done such a discount hotels and so we believe that the and added value that you didn't think mostly pretty well. So are those two product duck on are going to contribute in your future.

A longer term play some HP partnership <unk> known to do the people and we are going to be making announcements about some of the changes that we made in the Pico whereby we're already seeing some great people.

Wow that sounds great.

Okay. So I just wanted to clarify that reversal you took on the reserves.

How exactly certain charge back indemnity and so we have done many tests Oh, we together working with the legal and accounting we believe.

But those are potential liabilities I'm older at play and we together with the accounting and legal Oh after doing extensive testing could well have made a determination to write them up.

Okay. That's so going forward what is that due to your provision for loan losses. It's is it where is that going to be.

Said have anything that you don't have shot we don't do this this is not alone or we don't this has nothing to do with this with this was earmarked for panel on this was strictly tied just purely on down the line.

Mhm.

All right.

Okay. So that explains that one.

Hi, Thank you.

And kill could just.

Yeah, just just talk a little bit about NIM. This quarter, what to expect continued growth in North America would you continue while we continued gross margin can come up several basis points on that so it's going to pick up so it's going to be in line. What we have experienced before and we're looking to increase that would somebody other products I discuss like Mastercard them and some other initiatives that though there will be a announcing your future well after we complete the tough.

With respect to international Oh, we demonstrated a few months ago. We will we will turn the trend of what would the contribution of these merchant that we have signed up and fully integrated so we expect their contribution to the revenues are we reversed the trend.

Okay. So you should see revenue growth next quarter this quarter.

Yes, yes, yes.

Great. Thank you.

Thank you.

Thank you.

And I am showing no further questions from our phone lines I'd now like to turn the conference back over to Oleg Farr for any closing remarks.

Thank you to everyone for being on the call. This morning, please do not hesitate to contact booked with any quick questions that you might go and have a great day.

Ladies and gentlemen that does conclude the net element second quarter 2019 financial results and business update conference call. Thank you for your participation you may now disconnect.