Market Overview

OTC Markets Group Reports Second Quarter 2020 Results

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NEW YORK, Aug. 12, 2020 /PRNewswire/ --

Second Quarter 2020 Highlights:

  • Gross revenues of $17.1 million for the quarter, up 9% over the prior year quarter
  • Operating income of $4.8 million for the quarter, up 8% versus the prior year quarter
  • Net income of $4.2 million, up 19% versus the prior period, driving a 20% increase in GAAP diluted EPS to $0.36
  • Announcing second quarter 2020 dividend of $0.15 per share
  • Nine graduates to a national securities exchange during the quarter
  • In the context of the COVID-19 pandemic, focused on safeguarding our colleagues, serving our clients and ensuring our short-term financial stability, while continuing to drive towards our long-term strategic goals
  • During the second quarter, hosted eight Virtual Investor Conferences, with 101 companies participating, reaching more than 8,000 investors 
  • Announced Canadian Transfer Agents added to our Transfer Agent Verified Shares Program
  • Announced Enhancements to our Small Cap Listed Compliance File
  • Introduced Enhanced Data Availability related to U.S. Banks

OTC Markets Group Inc. (OTCQX:OTCM), operator of the OTCQX® Best Market, the OTCQB® Venture Market and the Pink® Open Market for 11,000 U.S. and global securities, today announced its financial results for the second quarter of 2020.

"I want to recognize the commitment and dedication of my colleagues at OTC Markets," said R. Cromwell Coulson, President and Chief Executive Officer.  "The team has remained focused on serving our subscriber base and keeping our markets open and operating efficiently through these unprecedented times, as we continue to prudently navigate the pandemic.   Our results this quarter demonstrate the critical role we play in the capital markets landscape and the resilience of our business model, and underscore our ability to continue investing in our people and platform." 

"We continue to evaluate the evolving challenges presented by the difficult macro-economic environment." said Bea Ordonez, Chief Financial Officer.  "We remain focused on operating our core businesses, supporting our subscribers and providing the issuers we serve with public markets that efficiently serve their needs.  We were pleased to deliver solid quarter over quarter revenue and earnings performance and remain confident that we are well positioned to deliver long-term value for our subscribers, customers and shareholders."

Second Quarter 2020 compared to Second Quarter 2019



Three Months Ended June 30,





(in thousands, except shares and per share data)


2020


2019


% change


$ change

OTC Link


$                 3,659


$                 2,898


26%


761

Market data licensing


6,858


6,077


13%


781

Corporate services


6,582


6,695


(2%)


(113)

Gross revenues


17,099


15,670


9%


1,429

Net revenues


16,393


15,033


9%


1,360

Revenues less transaction-based expenses


15,786


14,861


6%


925

Operating expenses


10,994


10,434


5%


560

Income from operations


4,792


4,427


8%


365

Operating profit margin


29.2%


29.4%





Income before provision for income taxes


4,802


4,450


8%


352

Net income 


$                 4,231


$                 3,567


19%


664










Diluted earnings per share


$                   0.36


$                   0.30


20%



Adjusted diluted earnings per share


$                   0.50


$                   0.46


9%



Weighted-average shares outstanding, diluted


11,587,268


11,678,560


(1%)



Financial Highlights

  • Gross revenues increased $1.4 million, or 9%, to $17.1 million.
  • OTC Link revenues increased $761 thousand, or 26%, with increased trading volumes across the U.S. equity market driving increases in transactional revenues on our OTC Link ECN and in revenues from messages on our OTC Link ATS.
  • Market Data Licensing revenues grew $781 thousand, or 13%, with price increases for professional subscribers combined with growth in reported usage driving a 16% increase in related revenues. Growth in the number of users of our data file products, including our compliance data products, contributed to a 16% increase in related revenues. Price increases for broker-dealer enterprise licenses drove a 17% increase in related revenues.
  • Corporate Services revenue decreased $113 thousand, or 2%, with revenues from our OTCQB market down 7% and revenues from our OTCQX market flat. On the OTCQB market, a drop in first quarter sales, combined with an uptick in voluntary non-renewal rates, contributed to contraction in the number of companies on the market.
  • Operating expenses increased $560 thousand, or 5%, primarily due to a $626 thousand, or 9%, increase in compensation and benefits costs, reflecting higher headcount, the impact of annual salary raises, an increase in incentive compensation accrued and increases in share based compensation expenses, partially offset by a drop in sales commissions.
  • Net income increased 19% to $4.2 million, driven by an increase in operating income and a decrease in the company's effective tax rate for the quarter, from 19.8% to 11.9%, a result of the release in the current quarter of reserves established in relation to uncertain state tax liabilities.
  • Adjusted EBITDA, which excludes non-cash stock-based compensation expense, increased 8%, to $5.9 million, or $0.50 per adjusted diluted share.

Business Developments and News

  • Considerable uncertainty still surrounds the likely trajectory of the COVID-19 pandemic and its impact on the macroeconomic environment, and the full scope and extent of the potential impact to our business is dependent on a number of highly uncertain factors.
  • Our framework for managing through this challenging environment is grounded in four key principles: supporting our colleagues and prioritizing their safety and well-being; continuing to serve our subscribers and customers; ensuring that we take the measures necessary in the short-term to protect our current operations and remain financially strong; and remaining focused on the critical long-term strategic initiatives that position our business for future growth.
  • In early July 2020, we permitted a very small number of employees to return to our offices on an entirely voluntary basis. We have implemented health and safety protocols at our offices, including ensuring reduced density is maintained, instituting temperature checks, and other policies. We have, and will continue to, evaluate the unfolding situation and plan to take a conservative and measured approach to returning to our offices that balances the health and safety of our colleagues, our operational effectiveness and our ability to serve our subscribers.
  • We have continued to operate our businesses remotely, including facilitating and supporting the trading of securities on our two ATSs. We continue to provide ongoing support to our broker-dealer community, to users of our market data and to the diverse community of U.S. and global issuers that we serve.
  • The COVID-19 pandemic did not materially adversely affect our financial results for the quarter ended June 30, 2020, with strong growth in transaction based revenues in our OTC Link business and the impact of price increases and user growth in our Market Data Licensing business line, offsetting contraction in our Corporate Services business.
  • We expect that our financial results in future quarters are likely to be adversely impacted by the challenging macro-economic conditions caused by the COVID-19 pandemic and related containment measures, perhaps materially so. Factors that could affect the scope and extent of the potential impact are discussed in more detail in the Risk Factors and Trends sections of our First Quarter Report.
  • In March and April 2020, we announced measures designed to provide temporary relief to issuers on our OTCQX and OTCQB markets from certain of our market standards and requirements through June 30, 2020. We have continued to provide issuers on our OTCQB market with additional relief in the form of extended payment terms upon renewal.
  • In April 2020, we announced that transfer agents in Canada are now participating in our Transfer Agent Verified Shares Program. As of August 1, 2020, participating firms provide reliable and current share data on approximately 89% of the Canadian companies traded on our OTCQX and OTCQB markets. Participating transfer agents include Computershare Canada, AST Trust Company Canada and TSX Trust.
  • In April 2020, we introduced a "Hot Sector" designation assigned to companies engaged in activities connected to COVID-19. The new COVID-19 flag is included in our Compliance Analytics and Small Cap Listed Compliance Files.
  • In April 2020, we submitted our third comment letter in response to the SEC's Proposed Rule and Concept Release on Securities Exchange Act Rule 15c2-11, which governs the publication of quotes in interdealer quotation systems such as our OTC Link ATS. Our comment letter provides concrete solutions in line with recommendations in our prior comment letters. We continue to engage with the SEC regarding the Proposed Rule and its impact on our markets.
  • In June and July 2020, we submitted two comment letters on a proposal by the National Securities Clearing Corporation (NSCC), urging the SEC to disapprove the proposal and describing how an increase in the applicable clearing costs would disproportionately impact smaller broker-dealers and increase fees for investors seeking to settle and clear transactions in OTC securities as well as certain exchange traded securities.
  • In June 2020, we announced the introduction of "Risk Scoring" to our Small Cap Listed Compliance File. This enhancement provides users of this product with quantitative metrics to analyze the over 2,300 exchange listed securities with a market capitalization below $500 million.
  • In July 2020, we made Bank Holding Company corporate data available on our website. This latest enhancement provides more robust financial data for the majority of the U.S. community banks traded on our markets.
  • We have continued to devote internal resources to growing our Virtual Investor Conferences® business. Against the backdrop of restrictions on travel and a global business environment that continues to adopt online and virtual workflows, we see the VICSM offering as an important tool for issuers to communicate and engage with their investor base. During the second quarter, we hosted eight Virtual Investor Conferences, with 101 companies participating, reaching more than 8,000 investors. Since the end of the reporting period we have hosted a further three events, including an OTCQB Venture Company event and have an additional seven events already scheduled through the rest of the year.
  • As of August 1, 2020, the OTCQX market is exempt from state Blue Sky laws regarding secondary trading in 37 states and the OTCQB market is exempt in 33 states.
  • As of August 1, 2020, 44 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. Subscribers include many of the largest custodians, banks and broker-dealers in the US equities markets.
  • We have seen increased transactional volume on our OTC Link ECN, a result of the active market environment as well as continued growth in our subscriber base, with 65 subscribers connected to our ECN as of August 1, 2020.

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 25, 2020, to stockholders of record on September 11, 2020.  The ex-dividend date is September 10, 2020.

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 2020.

On March 4, 2020, 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 of June 30, 2020, 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 2020 Conference Call

The Company will host a conference call and webcast on Thursday, August 13, 2020, 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: 1-877-665-5564 (Domestic); 1-470-495-9522 (International); Conference ID: 9588469
Call Replay Dial-in Numbers (available until August 27, 2020): 1-855-859-2056 (Domestic);
1-404-537-3406 (International); Replay ID Number: 9588469
Participants can access the conference via webcast at the following link (replay available until August 12, 2021):

https://edge.media-server.com/mmc/p/ma5i2xso
The earnings release, transcript to 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.   

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 11,000 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 www.otcmarkets.com.

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

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,


2020


2019

OTC Link

$                 3,659


$                 2,898

Market data licensing

6,858


6,077

Corporate services

6,582


6,695

Gross revenues

17,099


15,670

Redistribution fees and rebates

(706)


(637)

Net revenues

16,393


15,033

Transaction-based expenses

(607)


(172)

Revenues less transaction-based expenses

15,786


14,861

Operating expenses




Compensation and benefits

7,380


6,754

IT Infrastructure and information services

1,560


1,614

Professional and consulting fees

725


546

Marketing and advertising

167


242

Occupancy costs

534


605

Depreciation and amortization

415


380

General, administrative and other

213


293

Total operating expenses

10,994


10,434

Income from operations

4,792


4,427

Other income




Interest income

2


19

Other income, net 

8


4

Income before provision for income taxes

4,802


4,450

Provision for income taxes

571


883

Net income 

$                 4,231


$                 3,567





Net income per share 




Basic

$                   0.36


$                   0.31

Diluted

$                   0.36


$                   0.30





Basic weighted average shares outstanding

11,386,717


11,353,189

Diluted weighted average shares outstanding

11,587,268


11,678,560





Non-GAAP Reconciliation





Three Months Ended June 30,


2020


2019

Net Income

$                 4,231


$                 3,567

Excluding:




Interest Income

(2)


(19)

Provision for income taxes

571


883

Depreciation and amortization

415


380

Stock-based compensation expense

718


660

Adjusted EBITDA

$                 5,933


$                 5,471





Adjusted diluted earnings per share

$                   0.50


$                   0.46





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,


2020


2019

Assets




Current assets




Cash

$               25,007


$               28,217

Accounts receivable, net of allowance for doubtful accounts of $154 and $168

6,307


5,157

Prepaid income taxes

33


318

Prepaid expenses and other current assets

1,572


1,338

Total current assets

32,919


35,030

Property and equipment, net 

5,716


6,418

Operating lease right-of-use assets

15,438


16,018

Deferred tax assets, net

273


771

Goodwill

251


251

Intangible assets, net

40


40

Long-term restricted cash

1,561


1,561

Other assets

467


266

Total Assets

$               56,665


$               60,355





Liabilities and stockholders' equity




Current liabilities




Accounts payable

$                    460


$                    321

Accrued expenses and other current liabilities

7,185


9,154

Income taxes payable

850


99

Deferred revenue

12,128


15,815

Total current liabilities

20,623


25,389

Income tax reserve

898


1,764

Operating lease liabilities

14,948


15,529

Total Liabilities

36,469


42,682

Commitments and contingencies




Stockholders' equity




Common stock - par value $0.01 per share




Class A - 14,000,000 authorized, 12,297,664 issued, 11,661,030 outstanding at




June 30, 2020; 12,189,022 issued, 11,655,326 outstanding at December 31, 2019

123


122

Additional paid-in capital 

19,490


18,042

Retained earnings

12,700


8,106

Treasury stock - 636,634 shares at June 30, 2020 and 533,696 shares at December 31, 2019

(12,117)


(8,597)

Total Stockholders' Equity

20,196


17,673

Total Liabilities and Stockholders' Equity

$               56,665


$               60,355

 

(PRNewsfoto/OTC Markets Group Inc.)

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/otc-markets-group-reports-second-quarter-2020-results-301111292.html

SOURCE OTC Markets Group Inc.

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