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OTC Markets Group Reports Second Quarter 2018 Results

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OTC Markets Group Reports Second Quarter 2018 Results

Delivers Continued Revenue and Earnings Growth

PR Newswire

NEW YORK, Aug. 14, 2018 /PRNewswire/ --

Second Quarter 2018 Highlights:

  • Gross revenues of $14.8 million for the quarter, up 7% versus the prior year quarter 
  • Operating income of $5.0 million for the quarter, an increase of 4% over the prior year quarter
  • Net income of $4.0 million, up 28% over the prior period, driving a 31% increase in GAAP diluted EPS to $0.34
  • Announcing increase in quarterly dividend for the third quarter 2018 to $0.15 per share
  • 20 graduates to a national securities exchange during the quarter
  • Continued progress in achieving state Blue Sky recognition for our OTCQX and OTCQB markets, with OTCQX reaching 31 states and NASAA announcing a proposed model rule recognizing the OTCQX and OTCQB markets 
  • 22 Transfer Agents participating in the Transfer Agent Verified Shares Program, further enhancing the timeliness and reliability of company share information on our markets
  • Launched new Stock Promotion File and enhanced our Compliance Analytics File, with 26 of the largest banks, financial institutions and clearing brokers now using our suite of products to drive their compliance processes

OTC Markets Group Inc. (OTCQX: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 second quarter of 2018.

"We are pleased to report another quarter of solid growth in topline revenue.  Notably, our Corporate Services business line achieved its first ever $6 million revenue quarter, while increasing the total number of companies on our OTCQX and OTCQB markets that provide an efficient public trading experience for their investors," said R. Cromwell Coulson, President and Chief Executive Officer.  "We continue to make being public less painful, by focusing on providing innovative technology solutions that inform investors, make trading easier for broker-dealers and deliver a more efficient market for public companies."

"In the second quarter, we continued to deliver top line revenue growth across all of our three business lines, with our OTC Link ECN gaining traction, and new sales across a diverse range of products and services helping to drive quarter over quarter revenue gains. We remain focused on organic growth initiatives as well strategic corporate development opportunities that will position us to deliver strong returns for our shareholders while creating enhanced opportunities for our colleagues," said Bea Ordonez, Chief Financial Officer.

Second Quarter 2018 compared to Second Quarter 2017




Three Months Ended June 30,





(in thousands, except shares and per share data)


2018


2017


% change


$ change

OTC Link


$                 2,799


$                 2,497


12%


$             302

Market data licensing


5,830


5,522


6%


308

Corporate services


6,137


5,750


7%


387

Gross revenues


14,766


13,769


7%


997

Net revenues


14,056


13,143


7%


913

Operating expenses


9,060


8,319


9%


741

Income from operations


4,996


4,824


4%


172

Operating profit margin


36%


37%





Income before provision for income taxes


5,007


4,846


3%


161

Net income 


$                 3,987


$                 3,105


28%


$             882










Diluted earnings per share


$                   0.34


$                   0.26


31%



Adjusted diluted earnings per share


$                   0.49


$                   0.48


2%



Weighted-average shares outstanding, diluted


11,600,830


11,519,683


1%



 

Financial Highlights

  • Gross revenues increased $1.0 million, or 7%, to $14.8 million.
  • Corporate Services delivered 7% growth in revenues, driven by reduced churn as well as price increases for existing subscribers on our OTCQB market, and an uptick in new companies joining and decrease in downgrades on our OTCQX market.
  • Market Data Licensing revenues saw a 6% increase over the prior period, with price increases affecting certain data licence products and end of day pricing data, and increased usage of our data file products, including our compliance data products, contributing.
  • OTC Link revenues increased 12% over the prior year quarter, with higher U.S. trading volumes driving an increase in revenues from messages and growing revenues from our OTC Link ECN, offsetting continued but slowing attrition in our OTC Link ATS subscriber base.
  • Operating expenses increased 9%, to $9.1 million, primarily due to a 12% increase in compensation and benefit costs.
  • Net income increased 28%, to $4.0 million, driven by the increase in operating income and a decrease in the company's effective tax rate for the quarter, from 36% to 20%, a result of the enactment in 2017 of the Tax Cuts and Jobs Act.
  • Adjusted EBITDA, which excludes non-cash stock-based compensation expense, increased 2%, to $5.8 million, or $0.49 per adjusted diluted share.

Business Developments and News

  • In connection with our Blue Sky initiative, in July 2018, the North American Securities Administrators Association, the national organization of state securities regulators, announced a proposed model rule recognizing OTC Markets Group as a "securities manual" with respect to securities included on the OTCQX and OTCQB markets. As of August 1, 2018, our OTCQX market is exempt from state Blue Sky laws regarding secondary trading in thirty-one states and our OTCQB market is exempt in twenty-eight states.
  • In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law which, among other things, requires the SEC to allow SEC Reporting companies to offer securities using Regulation A+. This section was based in large part on our 2016 SEC Petition for Rulemaking.
  • In April 2018, we launched our new Promotion Data File and enhanced our Compliance Analytics File, to provide broker-dealers and investment managers with efficient tools to track promotion activity in the OTC market. As of August 1, 2018, 26 of the largest banks, financial institutions and clearing brokers are using our suite of products to drive their compliance processes.
  • As of August 1, 2018, 22 transfer agents have joined the Transfer Agent Verified Shares Program, covering approximately 85% of the U.S. companies on the OTCQX and OTCQB markets. The continued expansion of the program further enhances the availability and reliability of company share information in the OTC space.
  • Since its launch in December 2017, our OTC Link ECN has added 8 new broker-dealer subscribers and enabled 27 existing OTC Link ATS subscribers for access to the OTC Link ECN.

Dividend Declaration – Quarterly Cash Dividend

OTC Markets Group announced today that its Board of Directors authorized a quarterly cash dividend of $0.15 on its Class A common stock.  The quarterly cash dividend is payable on September 26, 2018, to stockholders of record on September 12, 2018.  The ex-dividend date is September 11, 2018.

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 second quarter of 2018.

On March 6, 2018, 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 June 30, 2018, 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.

Second Quarter 2018 Conference Call

The Company will host a conference call on Wednesday, August 15, 2018, 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) 407-9124 (Domestic); (201) 689-8584 (International);

Replay Dial-in Numbers (Available until September 15, 2018): 877-481-4010 (Domestic); 919-882-2331 (International); Replay PIN Number: 36528

Participants can access the conference via Internet webcast at the following link:

http://www.investorcalendar.com/event/36528

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 June 30, 2018 is available publicly at www.otcmarkets.com.

 

About OTC Markets Group Inc.

OTC Markets Group Inc. (OTCQX: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 financial markets, visit https://www.otcmarkets.com/stock/OTCM/disclosure.

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

Subscribe to the OTC Markets RSS Feed

 

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 share and per share information)

(Unaudited)






Three Months Ended June 30,


2018


2017

Gross revenues

$               14,766


$               13,769

Redistribution fees and rebates

(710)


(626)

Net revenues

14,056


13,143

Operating expenses




Compensation and benefits

5,879


5,243

IT Infrastructure and information services

1,353


1,426

Professional and consulting fees

595


399

Marketing and advertising

269


227

Occupancy costs

452


451

Depreciation and amortization

271


399

General, administrative and other

241


174

Total operating expenses

9,060


8,319

Income from operations

4,996


4,824

Other income




Interest income

10


4

Other income, net 

1


18

Income before provision for income taxes

5,007


4,846

Provision for income taxes

1,020


1,741

Net income 

$                 3,987


$                 3,105





Net income per share 




Basic

$                   0.35


$                   0.27

Diluted

$                   0.34


$                   0.26





Basic weighted average shares outstanding

11,240,863


11,134,758

Diluted weighted average shares outstanding

11,600,830


11,519,683





Non-GAAP Reconciliation





Three Months Ended June 30,


2018


2017

Net Income

$                 3,987


$                 3,105

Excluding:




Interest Income

(10)


(4)

Provision for income taxes

1,020


1,741

Depreciation and amortization

271


399

Stock-based compensation expense

552


456

Adjusted EBITDA

$                 5,820


$                 5,697





Adjusted diluted earnings per share 

$                   0.49


$                   0.48



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 share information)

(Unaudited)






June 30,


December 31,


2018


2017

Assets




Current assets




Cash

$               24,976


$               23,683

Short-term restricted cash

80


-

Accounts receivable, net of allowance for doubtful accounts of $192 and $146

6,064


6,450

Prepaid expenses and other current assets

1,402


1,013

Prepaid income taxes

558


1,303

Total current assets

33,080


32,449

Property and equipment, net 

1,676


2,018

Deferred tax assets, net

787


796

Goodwill

251


251

Intangible assets, net

86


111

Long-term restricted cash

500


500

Security deposits

112


192

Total Assets

$               36,492


$               36,317





Liabilities and stockholders' equity




Current liabilities




Accounts payable

$                    601


$                    786

Accrued expenses and other current liabilities

3,471


4,858

Income taxes payable

16


-

Deferred revenue

13,160


15,531

Total current liabilities

17,248


21,175

Deferred rent

53


246

Income tax reserve

1,234


1,105

Total Liabilities

18,535


22,526

Commitments and contingencies




Stockholders' equity




Common stock - par value $0.01 per share




Class A - 14,000,000 authorized, 12,018,281 issued, 11,531,296 outstanding at




June 30, 2018; 11,891,366 issued, 11,444,706 outstanding at December 31, 2017

120


119

Additional paid-in capital 

14,854


14,150

Retained earnings

10,190


5,682

Treasury stock - 486,985 shares at June 30, 2018 and 446,660 shares at December 31, 2017

(7,207)


(6,160)

Total Stockholders' Equity

17,957


13,791

Total Liabilities and Stockholders' Equity

$               36,492


$               36,317





 

OTC Markets Group logo. (PRNewsFoto/OTC Markets Group)

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SOURCE OTC Markets Group Inc.

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