OTC Markets Group Announces Second Quarter 2014 Financial Results

NEW YORK, Aug. 13, 2014 /PRNewswire/ --

Second Quarter 2014 Highlights:

  • Unaudited second quarter 2014 GAAP diluted EPS of $0.14 and adjusted diluted EPS of $0.29
  • Second quarter operating profit margin of 28%
  • Quarterly dividend increased 67% to $0.10 per share
  • New OTCQB marketplace standards introduced on May 1, 2014

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, 2014.

"During the second quarter, solid revenue growth in the Market Data Licensing business line led to the expansion of our operating profit margin.  We made several exciting enhancements to our service offerings for corporate clients during the second quarter of 2014, which resulted in 12 U.S. community and regional banks joining the OTCQX best marketplace and 36 companies joining the OTCQB venture marketplace as of July 31, 2014," said R. Cromwell Coulson, President and Chief Executive Officer.

"We substantially completed the upgrade of our secondary data center in the second quarter.  Upgrades to our primary and secondary data centers and improvements to our technology platform over the last two years will improve stability and increase the scalability of our network so we can continue to expand our offerings to OTC Link subscribers, Market Data Licensing users and Corporate Services clients," continued Coulson. 

"Revenue growth during the second quarter was concentrated in our Market Data Licensing business line.  Approximately 60% of the $1.5 million increase in the Market Data Licensing revenue was driven by price increases for the majority of our market data licenses, while the remaining 40% reflects the expansion of our distribution network and end-user numbers," said Wendy Fraulo, Chief Financial Officer. "Operating profit margin expanded to 28%, primarily due to the increase in Market Data Licensing revenue and management's focus on balancing increases in costs related to headcount and IT infrastructure with reductions in other operating expenses, such as consulting fees and marketing expenses."

Second Quarter 2014 Results compared to Second Quarter 2013

Revenues

Gross revenues during the second quarter of 2014 increased $1.3 million, or 15%, to $10.2 million, driven by a $1.5 million, or 41%, increase in Market Data Licensing revenue.  This increase was the result of January 1, 2014 price increases for the majority of market data licenses, retention of existing subscribers and expansion in professional users and enterprise license subscriptions.  OTC Link ATS revenue decreased $0.2 million, or 6%, to $2.8 million, primarily related to a decline in revenue from quote positions, lower subscription revenue due to fewer broker-dealers and OTC Dealer users active on OTC Link ATS and lower trading activity on OTC Link ATS, which generated lower QAP service fees and trade message revenue.  Corporate Services revenues decreased 1%, to $2.3 million, due to a 10% decrease in OTCQX subscription revenue, partially offset by a 16% increase in premium service subscription revenue, primarily related to improved retention rates and an increase in the Disclosure & News Service corporate client base. 

Operating Expenses

Operating expenses increased $0.4 million, or 6%, to $7.0 million during the second quarter of 2014, primarily related to increases in compensation and benefits and IT infrastructure expenses.  Compensation and benefits costs increased $0.5 million, or 14%, primarily due to higher headcount and annual salary increases.  IT infrastructure and information services costs increased $0.2 million, or 21%, due to higher costs associated with operating our primary and secondary data centers.  These increases were partially offset by decreases in marketing and advertising expenses and professional and consulting fees.  Marketing and advertising costs decreased 41%, primarily related to an 87% decrease in outside agency fees and less sponsorship of certain industry events.  Professional and consulting fees decreased 18% primarily due to a 90% reduction in IT consulting work, partially offset by an increase in fees related to other technical specialists and advisors. 

Income from Operations and Net Income

Income from operations increased $0.8 million, or 41%, to $2.7 million during the second quarter of 2014, and operating profit margin expanded to 28% from 22% 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 $1.6 million during the second quarter of 2014 increased $0.2 million, or 13%, over the second 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 was 40% during the second quarter of 2014, primarily due to the exclusion of the benefit from R&D tax credits that were included in the tax provision for the second quarter of 2013 and resulted in an effective tax rate of 24% during that period.  Net income per diluted share was $0.14 during the second quarter of 2014, as compared to $0.13 during the second quarter of 2013.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, was $3.3 million, or $0.29 per adjusted diluted share, during the second quarter of 2014, as compared to $2.6 million, or $0.24 per adjusted diluted share during the second quarter of 2013.  The 27% increase in Adjusted EBITDA during the second quarter of 2014 was directly correlated with the increase in income from operations.

Year to Date June 2014 Results compared to Year to Date June 2013

Revenues

Gross revenues increased $2.6 million, or 15%, to $20.2 million. Consistent with our results for the second quarter, growth in revenues was primarily driven by the $2.9 million increase in revenue generated by the Market Data Licensing business line.  OTC Link ATS revenue decreased by $0.1 million, or 2%, primarily due to a decline in revenue from quote positions and subscription revenue, partially offset by an increase in QAP service fees and trade message revenue.  Revenue in Corporate Services decreased $0.1 million, or 2%, primarily due to a 10% decrease in OTCQX subscription revenue due to a decline in corporate clients in the OTCQX marketplace, partially offset by an 11% increase in premium service subscriptions, related to improved retention rates and an increase in the Disclosure & News Service corporate client base. 

Operating Expenses

Operating expenses increased $0.5 million, or 4%, to $13.6 million.  Compensation and benefits costs increased 10%, to $8.1 million, although these costs decreased to 40% of gross revenues during the first half of 2014 from 42% during the same prior year period.  IT Infrastructure and data communications costs increased 14% to $2.1 million, related to increases in software maintenance and other costs associated with operating our primary and secondary data centers.  Costs associated with marketing campaigns and corporate client outreach efforts were higher during the first half of 2013, which contributed to the 30% reduction in marketing and advertising expenses during the first half of 2014 to $0.7 million.  Professional and consulting fees decreased 12%, primarily related to a 93% reduction in IT consulting fees that was partially offset by an increase in the use of other technical specialists and advisors.      

Income from Operations and Net Income

Income from operations increased $1.9 million, or 52%, to $5.5 million and operating profit margin expanded to 29% from 22% during the same prior year period.  The increase was primarily attributable to the increase in Market Data Licensing revenues and controlled increases in operating expenses.     

Net income increased $0.7 million, or 25%, to $3.3 million.  The increase in income from operations was partially offset by a $1.2 million increase in the Company's provision from income taxes.  The Company's effective tax rate increased to 40%, primarily due to an exclusion of the benefit from R&D tax credits that to date have not been enacted for the 2014 tax year.  During the six months ended June 30, 2013, a benefit was recognized from R&D tax credits for both the 2012 and 2013 tax years, as the 2012 R&D tax credit was not enacted until January 2013.  Net income per diluted share was $0.29 during the six months ended June 30, 2014, as compared to $0.24 during the same period in 2013.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, for the first half of 2014 increased 34% to $6.8 million, or $0.59 per adjusted diluted share, as compared to $5.0 million, or $0.46 per adjusted diluted share during the same period in 2013, primarily due to an increase in income from operations that was partially offset by less stock based compensation recorded during the period.

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 $0.10 per share, which represents a 67% increase over the prior quarter cash dividend.  The dividend is payable on September 25, 2014 to stockholders of record on September 11, 2014. The ex-dividend date is September 9, 2014.

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 2014 Conference Call

The Company will host a conference call on Thursday, August 14, 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 August 28, 2014): 1-877-870-5176 (Domestic); 1-858-384-5517 (International); Replay PIN Number: 13587162.

A live webcast and webcast replay of the call will also be available in the Investor Relations section of the corporate web site at www.otcmarkets.com.

For more information, contact Wendy Fraulo, Chief Financial Officer, at (212) 220-2215 or by email at ir@otcmarkets.com.

OTC Markets Group's Quarterly Report for the three and six months ended June 30, 2014 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 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 registered 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 June 30,


Six Months Ended June 30,


2014


2013


2014


2013

OTC Link ATS Trading services

$               2,772


$               2,955


$               5,674


$               5,805

Market data licensing

5,148


3,647


10,107


7,214

Corporate services

2,319


2,332


4,429


4,540

  Gross revenues

10,239


8,934


20,210


17,559

Redistribution fees and rebates

(581)


(449)


(1,185)


(924)

Net revenues

9,658


8,485


19,025


16,635

Operating expenses








Compensation and benefits

4,128


3,632


8,051


7,316

IT Infrastructure and information services

1,112


921


2,095


1,835

Professional and consulting fees

451


550


933


1,059

Marketing and advertising 

358


605


661


947

Occupancy costs

370


338


715


679

Depreciation and amortization

373


443


743


873

General, administrative and other

190


104


361


321

  Total operating expenses

6,982


6,593


13,559


13,030

Income from operations

2,676


1,892


5,466


3,605

Other income (expense)








Other income (expense)

6


(3)


7


(7)

Income before provision for income taxes

2,682


1,889


5,473


3,598

Provision for income taxes

1,063


456


2,189


965

Net Income 

$               1,619


$               1,433


$               3,284


$               2,633









Net income per share 








  Basic

$                 0.15


$                 0.13


$                 0.29


$                 0.24

  Diluted

$                 0.14


$                 0.13


$                 0.29


$                 0.24









Basic weighted average shares outstanding

10,813,086


10,659,225


10,801,177


10,657,198

Diluted weighted average shares outstanding

11,077,636


10,659,225


11,044,825


10,731,421









Non-GAAP Reconciliation









Three Months Ended June 30,


Six Months Ended June 30,


2014


2013


2014


2013

Net Income

$               1,619


$               1,433


$               3,284


$               2,633

Excluding:








  Provision for income taxes

1,063


456


2,189


965

  Depreciation and amortization

373


443


743


873

  Stock-based compensation expense

253


274


560


568

Adjusted EBITDA

$               3,308


$               2,606


$               6,776


$               5,039









Adjusted diluted earnings per share

$                 0.29


$                 0.24


$                 0.59


$                 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 number of shares)

(Unaudited)










June 30,


December 31,


2014


2013

Assets




Current assets




  Cash

$             17,518


$             18,936

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

5,260


4,980

  Prepaid expenses and other current assets

1,546


711

  Prepaid income taxes

376


179

  Deferred tax assets

173


173

     Total current assets

24,873


24,979

  Property and equipment, net 

4,441


4,184

  Non-current deferred tax assets, net

515


314

  Goodwill

251


251

  Intangible assets, net

40


40

  Security deposits

210


210

     Total Assets

$             30,330


$             29,978





Liabilities and stockholders' equity




Current liabilities




  Accounts payable

$                  704


$                  509

  Accrued expenses and other current liabilities

2,567


3,400

  Deferred revenue

4,926


6,391

     Total current liabilities

8,197


10,300

  Deferred rent

508


608

  Income tax reserve

425


366

     Total Liabilities

9,130


11,274

Commitments and contingencies




Stockholders' equity




  Common stock - par value $0.01 per share




  Class A - 14,000,000 authorized, 11,175,076 issued, 11,047,195 outstanding at




  June 30, 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 June 30, 2014




  and December 31, 2013

1


1

  Additional paid-in capital 

7,860


7,243

  Retained earnings

13,931


11,971

  Treasury stock - 127,881 shares at June 30, 2014 and 117,895 shares at December 31, 2013

(704)


(621)

     Total Stockholders' Equity

21,200


18,704

     Total Liabilities and Stockholders' Equity

$             30,330


$             29,978

 

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SOURCE OTC Markets Group Inc.



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