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OTC Markets Group Reports Third Quarter 2019 Results

Delivers Continued Revenue Growth

NEW YORK, Nov. 5, 2019 /PRNewswire/ --

Third Quarter 2019 Highlights:

  • Gross revenues of $15.8 million for the quarter, up 7% versus the prior year quarter
  • Operating income of $4.7 million for the quarter, down 11% versus the prior year quarter
  • Net income of $4.0 million for the quarter, down 8%, driving an 11% decrease in GAAP diluted EPS to $0.33
  • Announcing special dividend of $0.65 per share, and fourth quarter dividend of $0.15 per share
  • 14 graduates to a national securities exchange during the quarter
  • In September 2019, submitted comments to the Securities and Exchange Commission's ("SEC") Concept Release on Harmonization of Securities Offering Exemptions
  • In September 2019, the SEC published for comment proposed amendments to Exchange Act Rule 15c2-11, which governs the publication of quotes for securities on interdealer quotation systems such as our OTC Link ATS 
  • In October 2019, announced our strategic alliance with North Capital Investment Technology Inc. to provide companies with access to a technology platform that enables them to cost effectively raise capital online 
  • In October 2019, started providing access to U.S. Bank Quarterly Call Reports on our corporate website

OTC Markets Group Inc. (OTCM), operator of the OTCQX® Best Market, the OTCQB® Venture Market and the Pink® Open Market for 10,000 U.S. and global securities, today announced its financial results for the third quarter of 2019.

"We achieved record revenues in the third quarter and have continued to focus our efforts on generating value from the significant investments we have made during 2019 - in our facilities, in our technology platform and in our people.  During the third quarter, we completed upgrades to our primary and secondary data centers ahead of schedule and with no interruption to our business," said R. Cromwell Coulson, President and Chief Executive Officer.  "We remain committed to enhancing our value proposition and continuing to deliver public markets that efficiently serve the needs of brokers, banks, companies and investors."

"We were pleased to deliver our 11th consecutive quarter of revenue growth.  All three of our business lines contributed quarter over quarter revenue growth, with more companies trading on our OTCQX Best Market, more users of our industry leading compliance analytics products and continued growth in volumes traded on our OTC Link ECN the primary drivers." said Bea Ordonez, Chief Financial Officer.

Third Quarter 2019 compared to Third Quarter 2018



Three Months Ended September 30,





(in thousands, except shares and per share data)


2019


2018


% change


$ change

OTC Link


$                 2,989


$                 2,807


6%


182

Market data licensing


6,085


5,763


6%


322

Corporate services


6,682


6,195


8%


487

Gross revenues


15,756


14,765


7%


991

Net revenues


15,154


14,171


7%


983

Revenues less transaction-based expenses


14,935


14,037


6%


898

Operating expenses


10,211


8,745


17%


1,466

Income from operations


4,724


5,292


(11%)


(568)

Operating profit margin


31.2%


37.3%





Income before provision for income taxes


4,750


5,343


(11%)


(593)

Net income 


$                 4,020


$                 4,385


(8%)


(365)










Diluted earnings per share


$                   0.33


$                   0.37


(11%)



Adjusted diluted earnings per share


$                   0.48


$                   0.51


(6%)



Weighted-average shares outstanding, diluted


11,691,106


11,632,363


1%




Financial Highlights

  • Gross revenues increased $1.0 million, or 7%, to $15.8 million.
  • Corporate Services delivered 8% growth, driven by an increase in the number of companies on our OTCQX market, as well as price increases for renewing subscribers on the OTCQB market, which offset a slight decline in the number of companies on that market.
  • Market Data Licensing revenues saw a 6% increase, with increased usage of our suite of data license products, including our compliance and compliance analytics products, driving a 19% increase in revenues from those products. Additionally, new sales of broker dealer enterprise level licenses drove a 15% quarter over quarter increase in related revenues.
  • OTC Link revenues increased 6% over the prior year quarter. The increase was driven by revenues from our OTC Link ECN as well as an increase in revenues from quotes and messages on our OTC Link ATS.
  • Operating expenses increased 17%, to $10.2 million, primarily due to a 15% increase in compensation costs and a 20% increase in costs related to IT infrastructure and information services.
  • With expansion in our operating expense base outpacing revenue growth, operating income decreased 11% while net income decreased by 8%, with a decrease in the company's effective tax rate for the quarter partially offsetting the operating income contraction.
  • Adjusted EBITDA, which excludes non-cash stock-based compensation expense, decreased 6%, to $5.7 million, or $0.48 per adjusted diluted share.

Business Developments and News

  • In October 2019, announced our strategic alliance with North Capital Investment Technology Inc. to provide companies with access to a technology platform that enables them to cost effectively raise capital online. Through this strategic alliance, we will provide OTCQX and OTCQB companies with access to a technology solution that will allow them to efficiently conduct and manage a range of securities offerings online.
  • In October 2019, made Quarterly Call Report data on U.S. banks available via our corporate website. This data set provides critical financial and operating information for the more than 550 U.S. community banks trading on the OTCQX, OTCQB, and Pink markets.
  • In September 2019, submitted our comment letter in response to the SEC's Concept Release on Harmonization of Securities Offering Exemptions, which sought comments on various registration exemptions under the Securities Act and other federal securities laws. Our comment letter suggests a number of modernizations to public secondary market regulation and the exempt offering framework. The SEC's Concept Release has not yet resulted in any formal SEC proposals.
  • In September 2019, the SEC published a Proposed Rule and Concept Release on Publication or Submission of Quotations without Specified Information, proposing amendments to Rule 15c2-11 under the Exchange Act, which governs the publication of quotes in interdealer quotation systems such as our OTC Link ATS. The amended rule would require, among other things, that current information about a company be publicly available in order for that company to become, or remain, publicly quoted on OTC Link ATS. Unsolicited quotes from investors not affiliated with the company may continue to be permitted. We intend to submit comments on the Proposed Rule by the December 30, 2019 deadline.
  • As of November 1, 2019, the OTCQX market is exempt from state Blue Sky laws regarding secondary trading in thirty-six states and the OTCQB market is exempt in thirty-three states.
  • As of November 1, 2019, 41 subscribers use the company's compliance data products to enhance and automate their compliance processes in the OTC and the small-cap exchange listed space including many of the largest custodians, banks and broker-dealers in the U.S. equities markets.
  • OTC Link ECN has continued to gain traction with 51 subscribers as of November 1, 2019.

Dividend Declaration – Quarterly and Special Cash Dividend

OTC Markets Group announced today that its Board of Directors authorized and approved a special cash dividend of $0.65 per share of Class A common stock and a quarterly cash dividend of $0.15 per share of Class A common stock.  The special dividend is payable on December 4, 2019 to stockholders of record on November 20, 2019. The ex-dividend date is November 19, 2019. The quarterly cash dividend is payable on December 19, 2019 to stockholders of record on December 5, 2019.  The ex-dividend date is December 4, 2019.

Stock Buyback Program

The Company is authorized to purchase shares from time to time on the open market and through block trades, in compliance with applicable law.  The Company did not repurchase any shares during the third quarter of 2019.

On March 7, 2019, the Board of Directors refreshed the Company's stock repurchase program, giving the Company authorization to repurchase up to 300,000 shares of the Company's Class A common stock.  As at September 30, 2019, there are 300,000 shares remaining to be purchased under our plan.

Non-GAAP Financial Measures

In addition to disclosing results prepared in accordance with GAAP, the Company also discloses certain non-GAAP results of operations, including adjusted EBITDA and adjusted diluted earnings per share that either exclude or include amounts that are described in the reconciliation table of GAAP to non-GAAP information provided at the end of this release.  Non-GAAP financial measures do not replace and are not superior to the presentation of GAAP financial results but are provided to improve overall understanding of the Company's current financial performance.  Management believes that this non-GAAP information is useful to both management and investors regarding certain additional financial and business trends related to the operating results.  Management uses this non-GAAP information, along with GAAP information, in evaluating its historical operating performance.

Third Quarter 2019 Conference Call and Webcast

The Company will host a conference call and webcast on Wednesday, November 6, 2019, at 8:30 a.m. Eastern Time, during which management will discuss the financial results in further detail.  The conference call and replay of the conference call may be accessed as follows:

Dial-in Numbers: (877) 665-5564 (Domestic); (470) 495-9522 (International); Dial-in PIN: 9328729

Replay Dial-in Numbers (Available until November 31, 2019): 855-859-2056 (Domestic); 404-537-3406 (International); Replay PIN Number: 9328729

Participants can access the conference via Internet webcast at the following link (available until November 6, 2020:

https://edge.media-server.com/mmc/p/yish999m

The earnings release, transcript of the earnings call and presentation will also be available in the Investor Relations section of the corporate website at www.otcmarkets.com/investor-relations/overview.

OTC Markets Group's Quarterly Report for the period ended September 30, 2019 is available publicly at www.otcmarkets.com.

About OTC Markets Group Inc.

OTC Markets Group Inc. (OTCM) operates the OTCQX® Best Market, the OTCQB® Venture Market and the Pink® Open Market for 10,000 U.S. and global securities.  Through OTC Link® ATS and OTC Link ECN, we connect a diverse network of broker-dealers that provide liquidity and execution services.  We enable investors to easily trade through the broker of their choice and empower companies to improve the quality of information available for investors.

To learn more about how we create better informed and more efficient markets, visit www.otcmarkets.com.

OTC Link ATS and OTC Link ECN are SEC regulated ATSs, operated by OTC Link LLC, member FINRA/SIPC.

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Investor Contact:

Bea Ordonez
Chief Financial Officer
Phone: 212-220-2215
Email: ir@otcmarkets.com

 

OTC MARKETS GROUP INC. 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)






Three Months Ended September 30,


2019


2018

OTC Link

$                 2,989


$                 2,807

Market data licensing

6,085


5,763

Corporate services

6,682


6,195

Gross revenues

15,756


14,765

Redistribution fees and rebates

(602)


(594)

Net revenues

15,154


14,171

Transaction-based expenses

(219)


(134)

Revenues less transaction-based expenses

14,935


14,037

Operating expenses




Compensation and benefits

6,533


5,672

IT Infrastructure and information services

1,650


1,377

Professional and consulting fees

489


590

Marketing and advertising

256


164

Occupancy costs

569


436

Depreciation and amortization

384


259

General, administrative and other

330


247

Total operating expenses

10,211


8,745

Income from operations

4,724


5,292

Other income




Interest income

26


22

Other income, net 

-


29

Income before provision for income taxes

4,750


5,343

Provision for income taxes

730


958

Net income 

$                 4,020


$                 4,385





Net income per share 




Basic

$                   0.35


$                   0.37

Diluted

$                   0.33


$                   0.37





Basic weighted average shares outstanding

11,353,189


11,260,143

Diluted weighted average shares outstanding

11,691,106


11,632,363





Non-GAAP Reconciliation





Three Months Ended September 30,


2019


2018

Net Income

$                 4,020


$                 4,385

Excluding:




Interest Income

(26)


(22)

Provision for income taxes

730


958

Depreciation and amortization

384


259

Stock-based compensation expense

617


523

Adjusted EBITDA

$                 5,725


$                 6,103





Adjusted diluted earnings per share

$                   0.48


$                   0.51





Note: We use non-GAAP financial measures of operating performance. Non-GAAP measures do not replace and are not superior to the presentation of our GAAP financial results, but are provided to improve overall understanding of the Company's current financial performance.


 

OTC MARKETS GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares)

(Unaudited)






September 30,


December 31,


2019


2018

Assets




Current assets




Cash

$                        25,802


$                        28,813

Short-term restricted cash

-


160

Accounts receivable, net of allowance for doubtful accounts of $184 and $169

4,752


4,942

Prepaid income taxes

1,272


478

Prepaid expenses and other current assets

1,635


2,360

Total current assets

33,461


36,753

Property and equipment, net 

6,252


1,980

Operating lease right-of-use assets

16,303


-

Deferred tax assets, net

734


1,043

Goodwill

251


251

Intangible assets, net

40


61

Long-term restricted cash

1,560


1,561

Total Assets

$                        58,601


$                        41,649





Liabilities and stockholders' equity




Current liabilities




Accounts payable

$                              508


$                             693

Accrued expenses and other current liabilities

7,066


6,018

Income taxes payable

1


-

Deferred revenue

10,835


16,070

Total current liabilities

18,410


22,781

Deferred rent

-


1,001

Income tax reserve

1,724


1,458

Operating lease liabilities

15,815


-

Total Liabilities

35,949


25,240

Commitments and contingencies




Stockholders' equity




Common stock - par value $0.01 per share




Class A - 14,000,000 authorized, 12,185,437 issued, 11,651,741 outstanding at




September 30, 2019; 12,035,941 issued, 11,548,956 outstanding at December 31, 2018

122


120

Additional paid-in capital 

17,505


15,772

Retained earnings

13,622


7,724

Treasury stock - 533,696 shares at September 30, 2019 and 486,985 shares at December 31, 2018

(8,597)


(7,207)

Total Stockholders' Equity

22,652


16,409

Total Liabilities and Stockholders' Equity

$                        58,601


$                        41,649


 

(PRNewsfoto/OTC Markets Group Inc.)


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