2014

OTC Markets Group Announces Third Quarter 2013 Financial Results Announces Appointment of Neal Wolkoff as Non-Executive Board Chairman

NEW YORK, Nov. 12, 2013 /PRNewswire/ --

Third Quarter 2013 Highlights:

  • Unaudited third quarter 2013 GAAP diluted EPS of $0.13 and adjusted diluted EPS of $0.27
  • Third quarter operating profit margin expanded to 27%
  • Quarterly dividend of $0.06 per share
  • Director Neal Wolkoff, former Chairman and Chief Executive Officer of the American Stock Exchange, appointed Chairman of OTC Markets Group Board

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 nine month periods ended September 30, 2013.

"The Company delivered consistent revenue and earnings during the third quarter of 2013, and through the first nine months of the year, as we continue to invest in our platform," said R. Cromwell Coulson, President and Chief Executive Officer. "Our Market Data Licensing business line saw solid revenue growth during the quarter, with buy-side firms representing nearly 60% of all new Level 1 Professional User Licenses in 2013, which reflects increased institutional investor interest in securities traded on our marketplaces." 

"Revenue growth during the third quarter was concentrated on our Market Data Licensing business line.  Subscription revenue from enterprise licenses and user licenses for our market data continued to grow, and an audit of a market data redistributor resulted in additional revenue that was recorded in September 2013.  Revenue from the OTC Link® ATS and Issuer Services business lines was flat during the third quarter of 2013," said Wendy Fraulo, Chief Financial Officer. "The improvement of our operating profit margin to 27% during the third quarter resulted from reductions in marketing and advertising expenses, due to the timing of marketing initiatives during the current and prior year quarters, and professional consulting fees, from less use of external technical and professional specialists. These targeted reductions were partially offset by increases in compensation and benefits expenses as well as higher IT infrastructure costs incurred to deliver a robust and reliable platform to our subscribers."

"We are delighted to announce that Neal Wolkoff has been appointed non-executive Chairman of the Board, as we enhance our corporate governance structure to become a more successful and sustainable organization," continued Coulson. "Neal has been an invaluable member of the Board for the past year, and the Company has benefited greatly from his insight and his thoughtful analysis. Neal's vast experience leading U.S. stock exchanges combined with his independent leadership and knowledgeable advice makes him the ideal choice as non-executive Chairman."

Mr. Wolkoff added, "OTC Markets Group has built an exciting platform for broker-dealers, and dynamic marketplaces for global, growth and smaller companies.  I am delighted to work with the Company as it enters its next phase of growth."

Third Quarter 2013 Results compared to Third Quarter 2012

Revenues

Gross revenues during the third quarter of 2013 totaled $9.0 million, an increase of $0.3 million, or 3%, primarily due to an 8% increase in Market Data Licensing revenue to $3.8 million.  During the third quarter of 2013, revenue from user license subscriptions increased $65 thousand, or 3%, to $2.4 million, and revenue from enterprise license subscriptions increased $90 thousand, or 20%, to $0.4 million.  The Company also recovered $114 thousand as the result of an audit of a market data redistributor.  OTC Link ATS revenue of $2.8 million and Issuer Services revenue of $2.4 million remained flat during the third quarter of 2013 as compared to the third quarter of 2012.  A decline in the number of broker-dealers and OTC Dealer® users active on OTC Link ATS contributed to an $84 thousand, or 8% decrease in OTC Link subscription revenue and a $24 thousand, or 3%, decrease in revenue from quote positions.  This decrease was offset by an increase in revenues from QAP One Statement service fees of $78 thousand, or 113%, and trade messages of $37 thousand, or 6%, due to increased trading activity on OTC Link ATS.  A decrease in OTCQX® subscription revenue of $78 thousand, or 5%, was primarily due to the lower number of OTCQX subscribers and was partially offset by an increase in premium service subscription revenue of $66 thousand, or 8%.

Operating Expenses

Operating expenses decreased $0.1 million, or 2%, to $6.2 million, primarily related to a reduction in marketing and advertising expenses and consulting fees during the third quarter of 2013.  The timing of internal and external marketing initiatives during 2013 versus 2012 and a reduction in search engine optimization costs contributed to a decrease in marketing and advertising expenses of $0.4 million, or 55%.  Professional and consulting fees decreased $0.2 million, or 25%, mainly due to a reduction in fees related to IT consulting work and other professional and technical specialists.  These decreases were partially offset by an increase in compensation and benefits costs of $0.3 million, or 9%, and an increase in IT infrastructure expenses of $0.2 million, or 19%.  The increase in compensation and benefits costs was primarily related to an increase of 9 employees to 81 as of September 30, 2013 and the impact of 2013 annual compensation increases.  The increase in IT infrastructure expenses was primarily due to higher data center costs and hardware maintenance costs associated with our updated primary data center.     

Income from Operations and Net Income

Income from operations increased $0.4 million, or 21%, to $2.3 million, during the third quarter of 2013 and operating profit margin expanded to 27% from 23% during the same period in 2012.  The increase in income from operations and expansion of operating profit margin was primarily attributable to the increases in market data license revenue and decreases in marketing and advertising expenses and consulting fees. 

Net income increased $0.3 million, or 24%, to $1.4 million, primarily due to the $0.4 million increase in income from operations, which was partially offset by a $0.1 million increase in the Company's provision for income taxes.  The Company's effective tax rate decreased to 37% primarily related to a benefit from Research and Development ("R&D") tax credits for the 2012 and 2013 tax years that was recognized during the three months ended September 30, 2013.  Net income per diluted share increased $0.02 during the third quarter of 2013 to $0.13 as compared to $0.11 during the third quarter of 2012.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, for the third quarter of 2013 increased 15% to $2.9 million, or $0.27 per adjusted diluted share, primarily due to an increase in income from operations during the third quarter of 2013, as compared to $2.5 million, or $0.24 per adjusted diluted share, during the third quarter of 2012.

Year to Date September 2013 Results compared to Year to Date September 2012

Revenues

Gross revenues during the nine months ended September 30, 2013 increased $0.4 million, or 2%, to $26.5 million primarily due to growth in Market Data Licensing subscription revenue and subscription revenue from the OTCQX marketplace and premium services, which was partially offset by decreases in OTC Link ATS subscription revenue and revenue from quote positions.  During the first nine months of 2013, Market Data Licensing revenue increased $0.4 million, or 4% to $11.0 million, primarily due to greater demand for user license subscriptions and enterprise license subscriptions, as well as a market data audit recovery that was recorded in September 2013.  Issuer Services revenues increased $0.2 million, or 3%, to $6.9 million, primarily due to increases in OTCQX subscription revenue and premium services subscription revenue from OTC Disclosure News Service® and Real Time Level 2 Quote Display Service.  As a result of fewer new companies joining the OTCQX marketplace and subscribing to premium services, as well as attrition in the current subscriber base, the Issuer Services growth curve flattened on a year-over-year basis.  OTC Link ATS Trading Services revenue decreased by $0.2 million, or 2%, to $8.6 million, primarily due to a decrease in subscription revenue from OTC Dealer licenses, OTC FIX connection fees and OTC Link subscriptions, which was partially offset by an increase in revenues from QAP One Statement service fees and revenue from increased trade messages on OTC Link ATS.

Operating Expenses

Operating expenses during the first nine months of 2013 increased $1.0 million, or 5%, to $19.3 million, primarily related to increases in compensation and benefit expenses and IT infrastructure costs that were partially offset by decreases in professional fees and marketing and advertising expenses.  Compensation and benefits costs increased $1.1 million, or 11%, to $10.9 million, primarily due to an increase in headcount, salaries, and other employee benefits, such as medical insurance costs and annual discretionary bonuses.  IT infrastructure and data communications costs increased $0.4 million, or 15%, primarily related to increases in data center costs and hardware maintenance costs associated with our updated primary data center.  Marketing and advertising expenses decreased $0.2 million, or 15%, primarily due to the timing of internal and external marketing initiatives and lower search engine optimization costs.  Professional and consulting fees decreased $0.2 million, or 12%, primarily related to a decrease in the use of product development consultants and lower payroll service fees.    

Income from Operations and Net Income

Income from operations during the first nine months of 2013 decreased $0.6 million, or 9%, to $5.9 million and operating profit margin contracted to 23% from 26% during the same period in 2012.  The decrease was primarily attributable to the increases in headcount and costs associated with our updated data center, which were partially offset by increases in Market Data Licensing subscription revenue.    

Net income increased $0.2 million, or 4%, to $4.1 million, primarily due to a $0.8 million reduction in the Company's provision for income taxes, partially offset by a $0.6 million decrease in income from operations.  The Company's effective tax rate decreased to 31%, primarily due to a benefit from R&D tax credits for the 2012 and 2013 tax years that were recognized during the nine months ended September 30, 2013.  Net income per diluted share increased to $0.37 for the nine months ended September 30, 2013, as compared to $0.36 during the same period in 2012.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, during the nine months ended September 30, 2013 decreased 6% to $8.0 million, or $0.74 per adjusted diluted share, primarily due to the decrease in operating income during the period, as compared to $8.4 million, or $0.80 per adjusted diluted share, during the same period in 2012.

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 December 26, 2013 to stockholders of record on December 12, 2013.  The ex-dividend date is December 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.

Appointment of Neal Wolkoff as Board Chairman

OTC Markets group is pleased to announce that on Monday, November 11, the Company's Board of Directors appointed Neal Wolkoff as non-executive Chairman.  Mr. Wolkoff will be the first Board Chairman in the Company's history.

Mr. Wolkoff is a former executive of three exchanges and an independent business consultant focusing on futures and securities markets, exchanges, market regulation, operations and clearinghouses.  From 2008 to February 2012, Mr. Wolkoff was the Chief Executive Officer of ELX Futures, L.P.  From 2005 to 2008, he served as Chairman and Chief Executive Officer of the American Stock Exchange (AMEX).  Prior to the AMEX, Mr. Wolkoff was an executive officer at the New York Mercantile Exchange (NYMEX) from 1981 to 2003, over time serving as Acting President, Chief Operating Officer, and Senior Vice President for Regulation and Clearing.  From 1980 to 1981, Mr. Wolkoff was employed as an Honors Program Trial Attorney in the Division of Enforcement of the Commodity Futures Trading Commission.  Mr. Wolkoff is a non-executive director of World Gold Trust Services, the sponsor of the Exchange Traded Fund "GLD."  Mr. Wolkoff is also a member of the not-for-profit board of The Golda Och Academy in West Orange, NJ.  Mr. Wolkoff received a B.A. from Columbia University and a J.D. from Boston University School of Law, and is a member of the Bar of the State of New York. 

Third Quarter 2013 Conference Call

The Company will host a conference call on Wednesday, November 13, 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 13572630. Replay Dial-in Numbers (Available until November 27, 2013): 1-877-870-5176 (Domestic); 1-858-384-5517 (International); Replay PIN Number: 13572630.

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 nine months ended September 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.

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OTC MARKETS GROUP INC. 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME 

(in thousands, except per share data)

(Unaudited)










Three Months Ended September 30,


Nine Months Ended September 30,


2013


2012


2013


2012

OTC Link ATS Trading 

$                 2,815


$                 2,821


$                 8,620


$                 8,837

Market data licensing

3,778


3,503


10,993


10,576

Issuer services

2,367


2,379


6,906


6,688

Gross revenues

8,960


8,703


26,519


26,101

Redistribution fees and rebates

(477)


(474)


(1,401)


(1,367)

Net revenues

8,483


8,229


25,118


24,734

Operating expenses








Compensation and benefits

$                 3,569


$                 3,260


$               10,885


$                 9,783

IT Infrastructure and data communications

969


817


2,804


2,444

Professional and consulting services

513


682


1,572


1,780

Marketing and advertising

287


643


1,234


1,448

Occupancy costs

368


364


1,047


1,052

Depreciation and amortization

403


406


1,276


1,235

General, administrative and other

114


191


435


530

Total operating expenses

6,223


6,363


19,253


18,272

Income from operations

2,260


1,866


5,865


6,462

Other income/(expense)








Interest income

1


2


2


13

Miscellaneous income (expense)

-


20


(7)


18

Income before provision for income taxes

2,261


1,888


5,860


6,493

Provision for income taxes

829


734


1,795


2,595

Net Income 

$                 1,432


$                 1,154


$                 4,065


$                 3,898









Net income per share 








Basic

$                   0.13


$                   0.11


$                   0.37


$                   0.36

Diluted

$                   0.13


$                   0.11


$                   0.37


$                   0.36









Basic weighted average shares outstanding

10,675,567


10,541,505


10,663,389


10,529,119

Diluted weighted average shares outstanding

10,704,377


10,574,281


10,742,417


10,582,661









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 September 30,


Nine Months Ended September 30,


2013


2012


2013


2012

Net Income

$                 1,432


$                 1,154


$                 4,065


$                 3,898

Excluding:








Provision for income taxes

829


734


1,795


2,595

Interest, net

(1)


(2)


(2)


(13)

Depreciation and amortization

403


406


1,276


1,235

Stock-based compensation expense

246


248


817


724

Adjusted EBITDA

$                 2,909


$                 2,540


$                 7,951


$                 8,439









Adjusted diluted earnings per share

$                   0.27


$                   0.24


$                   0.74


$                   0.80

















 

OTC MARKETS GROUP INC. 

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares)

(Unaudited)






September 30,


December 31,


2013


2012

Assets




Current assets




Cash

$             13,685


$             13,611

Accounts receivable, net of allowance for doubtful accounts of $143 and $221

4,434


6,481

Prepaid income taxes

1,102


345

Prepaid expenses and other current assets

854


744

Deferred tax assets, net

409


203

Total current assets

20,484


21,384

Property and equipment, net 

4,251


5,066

Goodwill

251


251

Intangible assets, net

40


40

Security deposits

210


209

Total Assets

$             25,236


$             26,950





Liabilities and stockholders' equity




Current liabilities




Accounts payable

$                  455


$                  721

Accrued expenses and other

2,737


2,868

Deferred revenue

3,521


7,670

Total current liabilities

6,713


11,259

Deferred rent

657


786

Deferred tax liabilities, net

-


113

Income tax reserve

343


277

Total Liabilities

7,713


12,435





Stockholders' equity




Common stock - par value $0.01 per share




Class A - 14,000,000 authorized, 11,013,712 issued,

10,895,817 outstanding at September 30, 2013;

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

 

110


108

Class C - 130,838 shares authorized, issued and outstanding

at September 30, 2013 and December 31, 2012

1


1

Additional paid-in capital 

6,975


6,050

Retained earnings

11,058


8,951

Treasury stock - 117,895 shares at September 30, 2013 and 114,575 December 31, 2012

( 621 )


( 595 )

Total Stockholders' Equity

17,523


14,515

Total Liabilities and Stockholders' Equity

$             25,236


$             26,950





 

 

 

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

SOURCE OTC Markets Group Inc.



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