OTC Markets Group Reports Third Quarter 2020 Results

NEW YORK, Nov. 11, 2020 /PRNewswire/ --

Third Quarter 2020 Highlights:

• Gross revenues of $17.7 million for the quarter, up 13% versus the prior year quarter
• Operating income of $5.5 million for the quarter, up 16% versus the prior year quarter
• Net income of $4.5 million for the quarter, up 11%, driving a 12% increase in GAAP diluted EPS to $0.37
• Announcing special dividend of $0.65 per share, and fourth quarter dividend of $0.15 per share
• 19 graduates to a national securities exchange during the quarter
• In the context of the continuing COVID-19 pandemic, remaining focused on safeguarding our colleagues and serving our clients while continuing to drive towards our long-term strategic goals
• During the third quarter, hosted six Virtual Investor Conferences, with 85 companies participating, reaching more than 6,000 investors 
• In September 2020, introduced our Blue Sky Data Product, a premium offering designed to provide a comprehensive view of compliance data on state "Blue Sky" secondary trading rules
• On September 16, 2020, the SEC published a Final Rulemaking amending Rule 15c2-11 under the Exchange Act, under which OTC Link ATS, in its capacity as a Qualified Interdealer Quotation System, will review company information availability to determine whether a security is eligible for public quoting

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 third quarter of 2020.

"Our people have, again, risen to the challenge this quarter, keeping our markets operating reliably, connecting and serving our broker-dealer subscribers and meeting the needs of the diverse spectrum of issuers that rely on our public markets.  I am grateful for their dedication and commitment to delivering results for all of our stakeholders," said R. Cromwell Coulson, President and Chief Executive Officer.  "We remain well-positioned to continue to invest and innovate, to better serve our clients' needs, and to seize new opportunities, while always remaining true to our core values and our mission."

"Our business has continued to perform well, despite the challenging macroeconomic conditions.  In our OTC Link business, continued volatility drove strong growth in transaction-based revenues. In our Market Data business, the impact of price increases as well as robust user growth drove significant quarter over quarter revenue gains. After a couple of difficult quarters, our Corporate Services business saw a rebound in sales and delivered modest quarter over quarter revenue growth," said Bea Ordonez, Chief Financial Officer.  "We are pleased to report 13% growth in top line revenues and 16% growth in operating income, and remain committed to continuing to deliver value for our shareholders and to the subscribers and issuers we serve."

 Third Quarter 2020 compared to Third Quarter 2019

Financial Highlights

• Gross revenues increased $2.0 million, or 13%, to $17.7 million.
• OTC Link revenues increased $827 thousand, or 28%, with increased trading volumes across U.S. equity markets and the impact of additional subscribers driving a significant increase in transactional revenues on our OTC Link ECN.
• Market Data Licensing delivered a $1.1 million, or 18%, increase in revenues, with price increases for professional subscribers effective for 2020, combined with a 7% quarter over quarter increase in reported usage driving a 20% increase in pro-user revenues. Increased retail participation in U.S. equities markets helped drive a 45% increase in the number of non-professional users of our market data at period end, delivering a 64% increase in related revenues.
• Corporate Services revenues grew at 1% versus the prior year quarter, with revenues from our Disclosure & News Service^® product and our Virtual Investor Conferences^® ("VIC") business up 7% and 183%, respectively. These increases were partially offset by a 4% and 2% decrease in revenue from our OTCQB market and OTCQX market, respectively. On the OTCQX market, a rebound in sales in the third quarter drove an increase in the number of companies on the market at the quarter end, while the average number of companies on the market for the quarter lagged the prior year period, resulting in a slight contraction in quarter over quarter revenues. On the OTCQB market, a lower starting point at the beginning of 2020 and a pronounced drop in first quarter sales contributed to contraction in the number of companies on the market, which was only partially offset by a rebound in sales in both the second and third quarters of 2020.
• Operating expenses increased 7%, to $11.0 million, primarily due to an 8% increase in compensation costs, a 54% increase in occupancy costs and a 20% increase in professional fees.
• Net income increased 11% to $4.5 million, driven by the 15% increase in operating income, partially offset by a 2.7 percentage point increase in our effective tax rate in the quarter, a result of a decrease in the amount of excess tax benefits realized in the quarter from share-based compensation
• Adjusted EBITDA, which excludes non-cash stock-based compensation expense, increased 15%, to $6.6 million, or $0.55 per adjusted diluted share.

Business Developments and News

• In the aggregate, the COVID-19 pandemic did not have a material adverse effect on our financial results for the third quarter, 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 weaker results in our Corporate Services business.
• We have continued to operate our businesses with the majority of our employees working remotely, and plan to continue to operate predominantly remotely at least through the end of 2020.
• 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. Factors that could affect the scope and extent of the potential impact are discussed in more detail in the Risk Factors sections of our 2019 Annual Report and our 2020 first quarter report, as well as the Trends sections of our quarterly reports for the first, second and third quarters of 2020.
• On September 16, 2020, the SEC published a Final Rulemaking amending Rule 15c2-11 under the Exchange Act. Rule 15c2-11 governs the ability of broker-dealers to publish quotations in interdealer quotation systems, such as our OTC Link ATS. OTC Link LLC and OTC Link ATS, our broker-dealer subscribers, and companies quoted on our markets must comply with the amended rule on or before September 26, 2021. OTC Link ATS, in its capacity as a Qualified Interdealer Quotation System, will review company information availability to determine whether a security is eligible for public quoting. We plan to devote significant technology, compliance, legal, personnel and other resources towards compliance with the rule.
• The initial phase of Consolidated Audit Trail ("CAT") reporting obligations applicable to OTC Link LLC and its broker-dealer subscribers began on June 22, 2020. We continue to engage with FINRA, the SEC and others, to define the scope of CAT reporting obligations related to OTC equity securities. As the next phases of the CAT plan become effective through 2021, the applicable CAT reporting requirements are likely to result in increased compliance and technology costs that may be material.
• In September 2020, we introduced our Blue Sky Data Product, a premium offering designed to provide a comprehensive view of compliance data on state "Blue Sky" secondary trading rules for more than 16,000 OTC equity securities and 80,000 OTC corporate fixed income securities.
• We have continued to devote internal resources to growing our VIC business. Against the backdrop of restrictions on travel and a global business environment that continues to adopt online and virtual workflows, we see the VIC offering as an important tool for issuers to communicate and engage with their investor base. During the third quarter, we hosted six VICs, with 85 companies participating, reaching more than 6,000 investors.
• As of November 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.
• We have seen increased transactional volume on our OTC Link ECN, a result of the active U.S. equities market environment as well as continued growth in our subscriber base, with 72 subscribers connected to our OTC Link ECN as of November 1, 2020.

Dividend Declaration – Quarterly and Special Cash Dividend

OTC Markets Group announced today that its Board of Directors authorized and approved a special cash dividend of $0.65 per share of Class A Common Stock and a quarterly cash dividend of $0.15 per share of Class A common stock.  The special dividend is payable on December 9, 2020 to our stockholders of record on November 25, 2020. The ex-dividend date is November 24, 2020.  The quarterly dividend is payable on December 23, 2020 to our stockholders of record on December 9, 2020.  The ex-dividend date is December 8, 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 third 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 September 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.

Third Quarter 2020 Conference Call and Webcast

The Company will host a conference call and webcast on Thursday, November 12, 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: (877) 665-5564 (Domestic); (470) 495-9522 (International)
Conference ID: 7098115
Call Replay Numbers (Available until November 26, 2020): 855-859-2056 (Domestic); 404-537-3406 (International); Replay PIN Number: 7098115
Participants can access the conference via Internet webcast at the following link (available until November 11, 2021:

https://edge.media-server.com/mmc/p/4zh97jms 
The earnings release, transcript of 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.

OTC Markets Group's Quarterly Report for the period ended September 30, 2020 is available publicly at www.otcmarkets.com.

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 markets, visit www.otcmarkets.com.

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

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Investor Contact:
Bea Ordonez
Chief Financial Officer
Phone: 212-220-2215
Email: [email protected]

SOURCE OTC Markets Group Inc.

Related Links

http://www.otcmarkets.com