OTC Markets Group Announces First Quarter 2015 Financial Results

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May 06, 2015, 05:00 ET

NEW YORK, May 6, 2015 /PRNewswire/ --

First Quarter 2015 Highlights:

Unaudited first quarter 2015 GAAP diluted EPS of $0.16 and adjusted diluted EPS of $0.34
Revenues grew 16% to $11.5 million from the prior year quarter
Operating profit margin of 29%
Announces second quarter 2015 dividend of $0.10 per share
661 companies met the new OTCQB Venture Marketplace standards as of March 31, 2015

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 2015.

"Our first quarter was focused on efficiently processing the large number of applications for our OTCQB marketplace. With over 750 companies verified for trading as of April 30^th and over 200 open applications to be processed, we are so grateful for the high demand from companies to provide greater transparency, meet higher standards and help build America's Venture Market," said R. Cromwell Coulson, President and Chief Executive Officer. "The number of OTCQX U.S. companies increased 194% during the first quarter, driven by the specifically tailored OTCQX rules that we developed to meet the needs of U.S. community and regional banks. Our strong growth in Corporate Services clients allows us to keep developing innovative marketplace solutions that provide better informed and more efficient trading for investors in U.S and global companies."

Mr. Coulson continued, "Our anticipated recurring revenue growth lets us make long-term investments in our platform, products and people to support our expanded corporate client base; deliver the elegant, reliable and cost effective trading services our broker-dealer subscribers depend on; and achieve necessary compliance with SEC Regulation SCI given our status as a critical U.S. financial marketplace. Our technology enhancements will allow us to handle higher quote volumes with lower trade latencies and grow the number of securities that brokers-dealers can efficiently trade using our OTC Link ATS."

"Each business line contributed to the overall revenue growth during the first quarter. Corporate Services revenue grew by 54% due to revenue from OTCQB subscriptions and was the primary contributor of revenue growth. Our OTC Link ATS and Market Data Licensing business lines also contributed to revenue growth with 5% and 6% increases in business line gross revenues, respectively. The timing of new OTCQB subscription revenue and increases in compensation costs during the first quarter was a primary factor in our operating profit margin contracting to 29% from 30% on a year over year basis," said Wendy Fraulo, Chief Financial Officer.

First Quarter 2015 Results compared to First Quarter 2014

Revenues

Gross revenues during the first quarter of 2015 increased $1.6 million, or 16%, to $11.5 million. This growth was primarily driven by the growth in verified companies on the OTCQB marketplace, which contributed $1.0 million of the increase in Corporate Services revenue. During the first quarter, 365 companies completed the verification process, which increased the total number of verified companies to 661 as of March 31, 2015. Certain of these additions had a limited revenue impact during the first quarter due to the timing of approvals, but will be recognized over each company's annual subscription period. In addition, OTCQX subscription revenue increased $0.1 million during the first quarter, primarily due to an increase in new OTCQX companies and the 2015 annual OTCQX subscription renewal retention rate of 86%. The OTC Link ATS and Market Data Licensing business lines generated 5% and 6% higher revenues, respectively, during the quarter. OTC Link ATS revenues increased $0.1 million, or 5%, to $3.0 million primarily related to a 43% increase in combined subscription revenue due to an updated FIX connection pricing schedule, a new internet connection charge and an increased OTC Dealer license fee introduced in July 2014. These increases were partially offset by a 14% decline in usage revenue due to lower trading activity on OTC Link ATS during the first quarter of 2015. Market Data Licensing revenue increased $0.3 million, or 6%, to $5.2 million primarily due to an increase in reported user licenses and enterprise licenses.

Operating Expenses

Operating expenses increased $1.2 million, or 18%, to $7.8 million during the first quarter of 2015, primarily related to increases in compensation and benefits costs and IT infrastructure and information services costs. Compensation and benefits costs increased $1.0 million, or 26%, primarily due to the annual compensation increases, higher salaries of new employees, a higher bonus accrual based on anticipated revenue growth and increased commission expense from Corporate Services sales. IT infrastructure and information services costs increased $0.2 million, or 20%, primarily due to higher expenses related to third party information services and costs to improve monitoring and support our applications and systems.

Income from Operations and Net Income

Income from operations increased $0.4 million, or 13%, to $3.2 million during the first quarter of 2015, and operating profit margin contracted to 29% from 30% during the same prior year period. The increase in Corporate Services revenue contributed to the increase in operating income, although the timing of compensation increases and restricted stock award vesting, and higher IT infrastructure and information services costs, resulted in a contraction of our operating margin.

Net income increased $0.2 million, or 12%, to $1.9 million during the first quarter of 2015, primarily due to the increase in operating income, partially offset by an increase in the Company's provision for income taxes. Net income per diluted share increased 7% to $0.16 during the first quarter of 2015, as compared to $0.15 during the same prior year period.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, increased $0.5 million, or 16% to $4.0 million, or $0.34 per adjusted diluted share, during the first quarter of 2015, as compared to $3.5 million, or $0.31 per adjusted diluted share during the same prior year period, primarily due to the increase in income from operations and stock based compensation expense.

Dividend Declarations – Quarterly Cash Dividend

OTC Markets Group also announced today that its Board of Directors authorized a quarterly cash dividend of $0.10 per share on its Class A Common Stock, which is payable on June 23, 2015 to stockholders of record on June 9, 2015. The ex-dividend date is June 5, 2015.

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 2015 Conference Call

The Company will host a conference call on Thursday, May 7, 2015 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, 2015): 1-877-870-5176 (Domestic); 1-858-384-5517 (International); Replay PIN Number: 13608359.

The earnings release and transcript to the earnings call will also be available in the Investor Relations section of the corporate web site at www.otcmarkets.com/investor-relations/overview.

OTC Markets Group's First Quarter 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: the OTCQX® Best Marketplace; the OTCQB® Venture Marketplace; and the OTC Pink® 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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Investor Contact:

Wendy Fraulo
Chief Financial Officer
+ 1 (212) 220-2215
[email protected]

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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,
	2015	2014
OTC Link ATS	$ 3,044	$ 2,902
Market data licensing	5,233	4,959
Corporate services	3,247	2,109
Gross revenues	11,524	9,970
Redistribution fees and rebates	(600)	(603)
Net revenues	10,924	9,367
Operating expenses
Compensation and benefits	4,958	3,923
IT Infrastructure and information services	1,175	983
Professional and consulting fees	389	482
Marketing and advertising	266	303
Occupancy costs	361	345
Depreciation and amortization	406	370
General, administrative and other	214	171
Total operating expenses	7,769	6,577
Income from operations	3,155	2,790
Other income
Other income	16	1
Income before provision for income taxes	3,171	2,791
Provision for income taxes	1,315	1,127
Net Income	$ 1,856	$ 1,664

Net income per share
Basic	$ 0.16	$ 0.15
Diluted	$ 0.16	$ 0.15

Basic weighted average shares outstanding	10,987,948	10,789,136
Diluted weighted average shares outstanding	11,420,840	10,842,769



Non-GAAP Reconciliation
	Three Months Ended March 31,
	2015	2014
Net Income	$ 1,856	$ 1,664
Excluding:
Provision for income taxes	1,315	1,127
Depreciation and amortization	406	370
Stock-based compensation expense	429	307
Adjusted EBITDA	$ 4,006	$ 3,468

Adjusted diluted earnings per share	$ 0.34	$ 0.31

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,
	2015	2014
Assets
Current assets
Cash	$ 21,107	$ 20,272
Accounts receivable, net of allowance for doubtful accounts of $177 and $138	5,469	5,674
Prepaid expenses and other current assets	2,099	1,395
Prepaid income taxes	61	523
Deferred tax assets	177	177
Total current assets	28,913	28,041
Property and equipment, net	4,304	4,357
Non-current deferred tax assets, net	377	277
Goodwill	251	251
Intangible assets, net	40	40
Security deposits	210	210
Total Assets	$ 34,095	$ 33,176

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$ 369	$ 562
Accrued expenses and other current liabilities	2,212	3,888
Income taxes payable	314	-
Deferred revenue	10,665	9,521
Total current liabilities	13,560	13,971
Deferred rent	331	391
Income tax reserve	627	563
Total Liabilities	14,518	14,925
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 11,427,414 issued, 11,227,755 outstanding at
March 31, 2015; 11,310,364 issued, 11,122,541 outstanding at December 31, 2014	114	113
Class C - 130,838 shares authorized, issued and outstanding at March 31, 2015
and December 31, 2014	1	1
Additional paid-in capital	9,597	8,838
Retained earnings	11,485	10,752
Treasury stock - 199,659 shares at March 31, 2015 and 187,823 shares at December 31, 2014	(1,620)	(1,453)
Total Stockholders' Equity	19,577	18,251
Total Liabilities and Stockholders' Equity	$ 34,095	$ 33,176