2014

OTC Markets Group Announces Second Quarter 2013 Financial Results

NEW YORK, Aug. 7, 2013 /PRNewswire/ --

Second Quarter 2013 Highlights:

  • Unaudited second quarter 2013 GAAP diluted EPS of $0.13 and second quarter 2013 Adjusted diluted EPS of $0.25
  • Second quarter operating profit margin of 22%
  • Quarterly dividend of $0.06 per share
  • CEO Cromwell Coulson testified on June 12, 2013 at a hearing of the House Financial Services Subcommittee entitled "Reducing Barriers to Capital Formation"

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 three and six month periods ended June 30, 2013.

(Logo: http://photos.prnewswire.com/prnh/20110118/MM31963LOGO )

"The Company achieved major milestones towards upgrading our data center during the second quarter of 2013, and our technology is now running on a more reliable and scalable network that can expand to a wider range of securities," said R. Cromwell Coulson, President and Chief Executive Officer. "Trading activity on OTC Link ATS increased during the second quarter of 2013, resulting in an increase in Quote Access Payments charged by our broker-dealer subscribers and increased trade messages per active security on OTC Link ATS. Market Data Licensing continues to expand as customer demand for Level 1 data products grows, and Issuer Services added 24 new companies to the OTCQX marketplace during the second quarter of 2013, while losing 16 companies."

"Revenue growth during the quarter was driven by an increase in market data professional Level 1 user licenses and subscription revenue from the OTCQX marketplace and premium issuer services. Slower revenue growth than in prior years, increased headcount, investment in our infrastructure and the timing of marketing and advertising projects contributed to contraction in our operating profit margin during the second quarter and first half 2013 to ~22% during both periods, although the Company is focused on long-term scalability," said Wendy Fraulo, Chief Financial Officer.

Second Quarter 2013 Results compared to Second Quarter 2012

Revenues

Gross revenues during the second quarter of 2013 totaled $8.9 million, an increase of $0.1 million, or 1%.  The moderate growth in OTCQX subscription revenue and Market Data Licensing subscription revenue was partially offset by decreases in OTC Link ATS subscription revenue and revenue from quote positions. In the Market Data Licensing business line, greater subscriber demand of user license subscriptions and broker-dealer enterprise licenses subscriptions contributed to the increase in revenue of $97 thousand to $3.6 million.  Issuer Services revenues increased $54 thousand, or 2%, to $2.3 million primarily due to increases in OTCQX subscription revenue and premium services subscription revenue.  OTC Link ATS Trading Services revenue decreased by $47 thousand, or 2%, to $3.0 million, which was mainly attributable to a decrease in subscription revenue from OTC Dealer licenses, FIX connection fees and OTC Link subscriptions, partially offset by an increase in revenues from QAP One Statement service fees, which was primarily related to increased trading activity on OTC Link ATS.      

Operating Expenses

Operating expenses increased $0.6 million, or 11%, to $6.6 million, primarily related to increases in compensation and benefits costs and marketing and advertising expenses.  On a year over year basis, increased headcount of 6 employees and 2013 annual compensation increases directly increased salary expense $0.3 million, or 13%. Other employee benefits costs that increased during the second quarter of 2013 include higher medical insurance costs and tuition reimbursement costs. Marketing and advertising costs increased $0.3 million, or 80%, related to internal and external marketing initiatives.  IT infrastructure and data communications costs increased $0.1 million, or 11%, primarily related to continued work on an updated data center.  

Income from Operations and Net Income

Income from operations decreased $0.6 million, or 23%, to $1.9 million, and operating profit margin contracted to 22% from 29% during the same time frame. The decrease in income from operations and operating profit margin is primarily attributable to the increase in compensation and benefits expenses and marketing and advertising expenses. 

Net income decreased $31 thousand, or 2%, to $1.4 million.  The reduction in income from operations was offset by a reduction in the Company's provision from income taxes.  The Company's effective tax rate decreased to 24% primarily related to a benefit from Research and Development ("R&D") tax credits for 2012 and 2013 that was recognized during the second quarter of 2013. Net income per weighted average diluted shares outstanding decreased to $0.13 for the second quarter of 2013, as compared to $0.14 during the second quarter of 2012.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, for the second quarter of 2013 decreased 16% to $2.6 million, primarily due to an increase in compensation and benefits and marketing and advertising expenses, partially offset by a slight increase in net revenue.

Year to Date June 2013 Results compared to Year to Date June 2012

Revenues

Gross revenues increased $161 thousand, or 1%, to $17.6 million. Consistent with our results for the second quarter, growth in Market Data Licensing subscription revenue and OTCQX subscription revenue was partially offset by decreases in OTC Link ATS subscription revenue and revenue from quote positions. In the Market Data Licensing business line greater subscriber demand of user license subscriptions and broker-dealer enterprise license subscriptions contributed to the increase in revenue of $141 thousand, or 2%, to $7.2 million.  Issuer Services revenues increased $231 thousand, or 5%, to $4.5 million primarily due to increased OTCQX subscription revenue and premium services subscription revenue from OTC Disclosure & News Service and Real Time Level 2 Quote Display. OTC Link ATS Trading Services revenue decreased by $211 thousand, or 4%, to $5.8 million, which was mainly attributable to a decrease in subscription revenue from OTC Dealer licenses, FIX connection fees and OTC Link subscriptions, partially offset by an increase in revenues from QAP One Statement service fees and revenue from trade messages on OTC Link ATS, which was primarily related to increased trading activity on OTC Link ATS.

Operating Expenses

Operating expenses increased $1.1 million, or 9%, to $13.0 million, primarily related to expense trends consistent with our results from the second quarter such as higher headcount, increases in marketing and advertising expenses and increases in IT Infrastructure and data communications costs.  Increases to compensation and benefits comprised approximately 70% of the total increase in operating expenses.  IT infrastructure and data communications costs increased $0.2 million, or 13%, primarily related to costs from continued work on the updated data center.  Marketing and advertising costs increased $0.1 million, or 18%, due to internal and external marketing initiatives.  

Income from Operations and Net Income

Income from operations decreased $1.0 million, or 22%, to $3.6 million and operating profit margin contracted to 22%.  The decrease was primarily attributable to the increases in headcount, costs associated with the new data center, and marketing and advertising expenses.   

Net income decreased $0.1 million, or 4%, to $2.6 million.  The reduction in income from operations was partially offset by a reduction in the Company's provision from income taxes.  The Company's effective tax rate decreased to 27% primarily due to a benefit from Research and Development ("R&D") tax credits for 2012 and 2013 that was recognized during the first half of 2013. Net income per weighted average diluted shares outstanding decreased to $0.24 for the first six months of 2013, as compared to $0.25 during the same period in 2012.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, for the first half of 2013 decreased 17% to $5.0 million, primarily due to an increase in compensation and benefits and IT infrastructure and data communications expenses, partially offset by a slight increase in net revenue.

Dividend Declaration – Quarterly Cash Dividend

OTC Markets Group also announced today that its Board of Directors authorized a quarterly cash dividend on its Class A Common Stock of $0.06 per share.  The dividend is payable on September 26, 2013 to stockholders of record on September 12, 2013.  The ex-dividend date is September 10, 2013.  

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 2013 Conference Call

The Company will host a conference call on Thursday, August 8, 2013 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); Call Confirmation Number 418831. Replay Dial-in Numbers (Available until August 22, 2013): 1-877-870-5176 (Domestic); 1-858-384-5517 (International); Replay PIN Number: 418831.

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 Quarterly Report for the three and six months ended June 30, 2013 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 with Qualified Companies; OTCQB®, The Venture Stage Marketplace with U.S. Reporting Companies; and OTC Pink®, The Open Marketplace with Variable Reporting Companies. 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.

 

OTC MARKETS GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(Unaudited)










Three Months Ended June 30,


Six Months Ended June 30,


2013


2012


2013


2012

OTC Link ATS Trading 

$               2,955


$               3,002


$               5,805


$               6,016

Market data licensing

3,647


3,550


7,214


7,073

Issuer services

2,332


2,278


4,540


4,309

   Gross revenues

8,934


8,830


17,559


17,398

Redistribution fees and rebates

( 449 )


( 409 )


( 924 )


( 893 )

   Net revenues

8,485


8,421


16,635


16,505

Operating expenses








   Compensation and benefits

$               3,632


$               3,293


$               7,316


$               6,523

   IT Infrastructure and data communications

921


830


1,835


1,627

   Professional and consulting services

550


590


1,059


1,098

   Marketing and advertising

605


336


947


805

   Occupancy costs

338


335


679


688

   Depreciation and amortization

443


420


873


829

   General, administrative and other

104


153


321


339

      Total operating expenses

6,593


5,957


13,030


11,909

   Income from operations

1,892


2,464


3,605


4,596

Other income/(expense)








      Interest income

-


4


-


11

      Miscellaneous income (expense)

( 3 )


-


( 7 )


( 2 )

   Income before provision for income taxes

1,889


2,468


3,598


4,605

Provision for income taxes

456


1,004


965


1,861

   Net Income 

$               1,433


$               1,464


$               2,633


$               2,744









Net income per share 








   Basic

$                 0.13


$                 0.14


$                 0.24


$                 0.26

   Diluted

$                 0.13


$                 0.14


$                 0.24


$                 0.26









Basic weighted average shares outstanding

10,659,225


10,529,313


10,657,198


10,522,857

Diluted weighted average shares outstanding

10,659,225


10,529,313


10,731,421


10,575,416









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 our current financial performance and our prospects for the future.









Non-GAAP Reconciliation

















Three Months Ended June 30,


Six Months Ended June 30,


2013


2012


2013


2012

Net Income

$               1,433


$               1,464


$               2,633


$               2,744

Excluding:








Provision for income taxes

456


1,004


965


1,861

Interest, net

-


(4)


-


(11)

Depreciation and amortization

443


420


873


829

Stock-based compensation expense

274


259


568


476

Adjusted EBITDA

$               2,606


$               3,143


$               5,039


$               5,899









Adjusted diluted earnings per share

$                 0.25


$                 0.30


$                 0.47


$                 0.56

 

OTC MARKETS GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares)

(Unaudited)






June 30,


December 31,


2013


2012

Assets




Current assets




   Cash

$             12,286


$             13,611

   Accounts receivable, net of allowance for doubtful accounts of $200 and $221

5,117


6,481

   Prepaid income taxes

1,749


345

   Prepaid expenses and other current assets

755


744

   Deferred tax assets, net

321


203

      Total current assets

20,228


21,384

   Property and equipment, net 

4,560


5,066

   Goodwill

251


251

   Intangible assets, net

40


40

   Security deposits

209


209

      Total Assets

$             25,288


$             26,950





Liabilities and stockholders' equity




Current liabilities




   Accounts payable

$                  785


$                  721

   Accrued expenses and other

2,206


2,868

   Deferred revenue

4,812


7,670

      Total current liabilities

7,803


11,259

   Deferred rent

705


786

   Deferred tax liabilities, net

-


113

   Income tax reserve

315


277

      Total Liabilities

8,823


12,435





Stockholders' equity




   Common stock - par value $0.01 per share




      Class A - 14,000,000 authorized, 10,981,578 issued, 10,867,003 outstanding at June 30, 2013;




         10,814,622 issued, 10,700,047 outstanding at December 31, 2012

108


108

      Class C - 130,838 shares authorized, issued and outstanding at June 30, 2013 and December 31, 2012

1


1

   Additional paid-in capital 

6,669


6,050

   Retained earnings

10,280


8,951

   Treasury stock - 114,575 shares at June 30, 2013 and December 31, 2012

( 595 )


( 595 )

      Total Stockholders' Equity

16,463


14,515

      Total Liabilities and Stockholders' Equity

$             25,286


$             26,950

 

 

SOURCE OTC Markets Group Inc.



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