OTC Markets Group Announces First Quarter 2014 Financial Results

NEW YORK, May 6, 2014 /PRNewswire/ --

First Quarter 2014 Highlights:

  • Unaudited first quarter 2014 GAAP diluted EPS of $0.15 and adjusted diluted EPS of $0.32
  • First quarter operating profit margin of 30%
  • Quarterly dividend of $0.06 per share

OTC Markets Group Inc. (OTCQX: OTCM), operator of Open, Transparent and Connected financial marketplaces for 10,000 U.S. and global securities, today announced its financial results for the first quarter ended March 31, 2014.

"We achieved solid revenue growth and an expansion of our operating profit margin during the first quarter of 2014.  Price increases for the majority of our market data licenses and a greater number of professional user licenses were the primary drivers behind the first quarter revenue growth," said R. Cromwell Coulson, President and Chief Executive Officer.

"We are excited about the recent enhancements to the OTCQX® and OTCQB® premium marketplaces," continued Coulson. "In February 2014, we created a new set of OTCQX Rules for U.S. Banks and introduced amendments to the OTCQX Rules for U.S. companies, which are intended to streamline the OTCQX process.  On May 1, 2014, we began implementing the new OTCQB standards and verification process to make OTCQB a better venture stage, premium marketplace with fee based services."

"Revenue growth during the first quarter of 2014 was concentrated in our Market Data Licensing business line.  Approximately 60% of the $1.4 million increase in the Market Data Licensing business line was due to price increases and the remaining 40% reflects the expansion of our distribution network and end-user base.  Revenue from Corporate Services declined 4%, primarily due to the lower number of OTCQX companies," said Wendy Fraulo, Chief Financial Officer. "Operating profit margin expanded to 30% during the first quarter of 2014 from 21% during the first quarter of 2013."

First Quarter 2014 Results compared to First Quarter 2013

Revenues

Gross revenues during the first quarter of 2014 totaled $10.0 million, a $1.4 million, or 16%, increase over the first quarter of 2013.  Market Data Licensing revenue increased $1.4 million, or 39%, to $5.0 million due to the impact of price increases for the majority of market data license subscriptions, retention of existing subscribers and increases in professional users and enterprise license subscriptions.  Revenue generated from OTC Link® ATS increased $0.1 million, or 2%, to $2.9 million, primarily related to increases in revenue from QAP® service fees and trade message revenue due an increase in activity on OTC Link ATS.  These increases were partially offset by decreases in subscription revenue and revenue from quote positions due to a continued decline in the number of broker-dealers and OTC Dealer® users active on OTC Link ATS.  Corporate Services revenues decreased $0.1 million, or 4%, to $2.1 million, due to a 10% decrease in OTCQX subscription revenue, partially offset by a 5% increase in premium subscription revenue primarily related to improved retention rates.

Operating Expenses

Operating expenses increased $0.1 million, or 2%, to $6.6 million during the first quarter of 2014, primarily related to increases in compensation and benefits and IT infrastructure expenses.  Compensation and benefits costs increased $0.2 million, or 6%, due to higher headcount and annual salary increases.  IT infrastructure and information services costs increased $0.1 million, or 8%, due to higher costs associated with the updates to our primary and secondary data centers.  These increases were partially offset by decreases in marketing and advertising expenses and general and administrative costs.  The timing of internal and external marketing initiatives and a decrease in the level of spending for sponsorship of certain industry events resulted in an 11% decrease in marketing and advertising costs.  A faster collections cycle resulted in a reduction in bad debt expense and contributed to a 21% decrease in general and administrative expenses.

Income from Operations and Net Income

Income from operations increased $1.1 million, or 63%, to $2.8 million, during the first quarter of 2014 and operating profit margin expanded to 30% from 21% during the same period in 2013.  These increases were primarily attributable to the increase in market data licensing revenues and controlled increases in operating expenses.

Net income of $1.7 million during the first quarter of 2014 increased $0.5 million, or 39%, over the first quarter of 2013, primarily due to the increase in operating income, partially offset by an increase in the Company's provision for income taxes.  The Company's effective tax rate increased to 40% during the first quarter of 2014 primarily due to the exclusion of the benefit from certain tax credits which were included in the tax provision for the first quarter of 2013 and resulted in an effective tax rate of 30%.  Net income per diluted share was $0.15 during the first quarter of 2014, as compared to $0.11 during the first quarter of 2013.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, was $3.5 million, or $0.32 per adjusted diluted share, during the first quarter of 2014, as compared to $2.4 million, or $0.23 per adjusted diluted share during the first quarter of 2013.  The increase in Adjusted EBITDA is directly correlated with the increase in income from operations.

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.

First Quarter 2014 Conference Call

The Company will host a conference call on Wednesday, May 7, 2014 at 8:00 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: 1-877-407-0789 (Domestic); 1-201-689-8562 (International)

Replay Dial-in Numbers (Available until May 21, 2014): 1-877-870-5176 (Domestic); 1-858-384-5517 (International); Replay PIN Number: 13581337.

A live webcast and webcast replay of the call will also be available in the Investor Relations section of the corporate web site at http://www.otcmarkets.com/investor-relations/overview.

OTC Markets Group's 2013 Annual Report is available publicly at www.otcmarkets.com.

About OTC Markets Group Inc.

OTC Markets Group Inc. (OTCQX: OTCM) operates Open, Transparent and Connected financial marketplaces for 10,000 U.S. and global securities.  Through our OTC Link® ATS, we directly link a diverse network of broker-dealers that provide liquidity and execution services for a wide spectrum of securities.  We organize these securities into marketplaces to better inform investors of opportunities and risks – OTCQX®, The Best Marketplace; OTCQB®, The Venture Stage Marketplace; and OTC Pink®, The Open Marketplace.  Our data-driven platform enables investors to easily trade through the broker of their choice at the best possible price and empowers a broad range of companies to improve the quality and availability of information for their investors.  To learn more about how we create better informed and more efficient financial marketplaces, visit www.otcmarkets.com.

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

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OTC MARKETS GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except earnings per share and number of shares)

(Unaudited)


Three Months Ended March 31,


2014


2013

OTC Link ATS Trading services

$               2,902


$               2,850

Market data licensing

4,959


3,567

Corporate services

2,109


2,208

  Gross revenues

9,970


8,625

Redistribution fees and rebates

(603)


(475)

Net revenues

9,367


8,150

Operating expenses




  Compensation and benefits

3,923


3,684

  IT Infrastructure and information services

983


914

  Professional and consulting fees

482


510

  Marketing and advertising 

303


342

  Occupancy costs

345


341

  Depreciation and amortization

370


430

  General, administrative and other

171


217

 Total operating expenses

6,577


6,438

Income from operations

2,790


1,712

Other income (expense)




  Other income (expense)

1


(4)

Income before provision for income taxes

2,791


1,708

Provision for income taxes

1,127


509

Net Income 

$               1,664


$               1,199





Net income per share 




  Basic

$                 0.15


$                 0.11

  Diluted

$                 0.15


$                 0.11





Basic weighted average shares outstanding

10,789,136


10,655,149

Diluted weighted average shares outstanding

10,842,769


10,696,206





Non-GAAP Reconciliation





Three Months Ended March 31,


2014


2013

Net Income

$               1,664


$               1,199

Excluding:




  Provision for income taxes

1,127


509

  Depreciation and amortization

370


430

  Stock-based compensation expense

307


294

Adjusted EBITDA

$               3,468


$               2,432





Adjusted diluted earnings per share

$                 0.32


$                 0.23





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)


March 31,


December 31,


2014


2013

Assets




Current assets




Cash

$             17,425


$             18,936

Accounts receivable, net of allowance for doubtful accounts of $131 and $130

5,598


4,980

Prepaid income taxes

48


179

Prepaid expenses and other current assets

1,245


711

Deferred tax assets

173


173

Total current assets

24,489


24,979

Property and equipment, net 

4,009


4,184

Non-current deferred tax assets, net

419


314

Goodwill

251


251

Intangible assets, net

40


40

Security deposits

210


210

Total Assets

$             29,418


$             29,978





Liabilities and stockholders' equity




Current liabilities




Accounts payable

$                  946


$                  509

Accrued expenses and other current liabilities

1,612


3,400

Income taxes payable

208


-

Deferred revenue

5,632


6,391

Total current liabilities

8,398


10,300

Deferred rent

558


608

Income tax reserve

409


366

Total Liabilities

9,365


11,274

Commitments and contingencies




Stockholders' equity




Common stock - par value $0.01 per share




Class A - 14,000,000 authorized, 11,171,363 issued, 11,053,468 outstanding at




March 31, 2014; 11,006,405 issued, 10,888,510 outstanding at December 31, 2013

112


110

Class C - 130,838 shares authorized, issued and outstanding at March 31, 2014




and December 31, 2013

1


1

Additional paid-in capital 

7,589


7,243

Retained earnings

12,972


11,971

Treasury stock - 117,895 shares at March 31, 2014 and December 31, 2013

(621)


(621)

Total Stockholders' Equity

20,053


18,704

Total Liabilities and Stockholders' Equity

$             29,418


$             29,978

 

SOURCE OTC Markets Group Inc.



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