OTC Markets Group Announces Fourth Quarter and Fiscal Year 2016 Financial Results

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Mar 01, 2017, 16:00 ET

NEW YORK, March 1, 2017 /PRNewswire/ --

Fourth Quarter and Fiscal Year 2016 Highlights:

Revenues of $12.9 million for the quarter and $50.9 million for the year ($13.1 million and $49.9 million respectively for 2015)
Operating profit margin of 38% for the quarter and 35% for the full year (40% and 35%, respectively, for 2015)
Fourth quarter dividend of $0.14 per share and special dividend of $0.60 per share, for a 2016 total of $1.16 per share (versus $1.08 for 2015)
Announcing first quarter 2017 dividend of $0.14 per share
44 graduates to a national securities exchange during 2016
OTCQX and OTCQB Markets receive State Blue Sky recognition from 8 additional states, bringing the total to 20 that recognize OTCQX and 17 that recognize OTCQB
7 Transfer Agents participating in the Transfer Agent Verified Shares Program, an initiative launched in October 2016 and designed to improve the timeliness and reliability of OTC company share information

OTC Markets Group Inc. (OTCQX: OTCM), operator of the OTCQX® Best Market, the OTCQB® Venture Market, and the Pink® Open Market for 10,000 U.S. and global securities, today announced its financial results for the fourth quarter and fiscal year 2016.

"Our strategy is to operate world-class securities markets. In 2016 we reached important milestones in achieving recognition of our markets as efficient and established public markets. The OTCQX Best Market has now achieved State Blue Sky recognition in 20 states," said R. Cromwell Coulson, President and Chief Executive Officer. "In 2017, we will continue to implement initiatives designed to deliver brokers and investors a better informational and trading experience, while reducing the time, pain and cost of being a public company."

"For the 2016 fiscal year we delivered strong and consistent revenues, achieving modest year over year revenue growth, while maintaining attractive operating margins and generating strong free operating cash flows. We remain focused on investing in the data-driven products, platform and technology offerings that will better serve our clients, drive future growth and continue our impressive record of delivering strong returns for our shareholders," said Bea Ordonez, Chief Financial Officer.

Fourth Quarter 2016 compared to Fourth Quarter 2015

	Quarter Ended December 31,
(in thousands, except shares and per share data)	2016	2015	% change	$ change
OTC Link ATS	$ 2,631	$ 2,882	(9%)	$ (251)
Market data licensing	5,218	5,121	2%	97
Corporate services	5,029	5,052	-	(23)
Gross revenues	12,878	13,055	(1%)	(177)
Net revenues	12,295	12,478	(1%)	(183)
Operating expenses	7,683	7,447	3%	236
Income from operations	4,612	5,031	(8%)	(419)
Operating profit margin	38%	40%
Net income	$ 2,693	$ 2,926	(8%)	$ (233)

Diluted earnings per share	$ 0.23	$ 0.25	(8%)	$ (0.02)
Adjusted diluted earnings per share	$ 0.46	$ 0.50	(8%)	$ (0.04)
Weighted-average shares outstanding, diluted	11,370,655	11,292,049	1%

Financial Highlights

Gross revenues decreased $0.2 million, or 1%, to $12.9 million.
Corporate Services revenues, representing 39% of total revenues, were flat versus the prior year quarter, a result of the impact of price increases introduced in February 2016 in respect of our OTC Disclosure & News Service, offset by a decrease in the number of companies on our OTCQX and OTCQB markets.
Our OTC Link ATS recorded revenues of $2.6 million, or 20% of total revenues and were down $0.3 million, or 9%, versus the prior year quarter, a result of decreases in quote and message volumes as well as a decline in the number of active market participants, including the loss of one significant subscriber in the third quarter of 2016.
Market data licensing revenues were $5.2 million for the quarter, representing 41% of total revenues, and were up $0.1 million, or 2%, a result of the introduction in January 2016 of an Indirect Access Fee and sales of data license products, partially offset by a decline in the number of professional user licenses.
Operating expenses increased $0.2 million, or 3%, to $7.7 million, related to increases in compensation and benefits costs, partially offset by a decrease in marketing spend.
Income from operations decreased $0.4 million, or 8%, to $4.6 million, in line with the decrease in top line revenues and increase in operating expenses.
Net income decreased $0.2 million, or 8%, to $2.7 million for the quarter, reflecting the decrease in operating income.
Adjusted EBITDA, which excludes non-cash stock-based compensation expense, decreased $0.4 million, or 7%, to $5.4 million, or $0.46 per adjusted diluted share, as compared to $5.8 million, or $0.50 per adjusted diluted share, during the same prior year period.

Fiscal Year 2016 Results compared to Fiscal Year 2015

	Year Ended December 31,
(in thousands, except shares and per share data)	2016	2015	% change	$ change
OTC Link ATS	10,573	11,796	(10%)	( 1,223 )
Market data licensing	21,054	20,609	2%	445
Corporate services	19,254	17,504	10%	1,750
Gross revenues	$ 50,881	$ 49,909	2%	972
Net revenues	48,565	47,530	2%	1,035
Operating expenses	31,638	30,664	3%	974
Income from operations	16,927	16,866	0%	61
Operating profit margin	35%	35%
Income before provision for income taxes	16,935	16,893	0%	42
Net income	$ 10,528	$ 10,258	3%	270

Diluted earnings per share	$ 0.90	$ 0.88	3%
Adjusted Diluted earnings per share	$ 1.73	$ 1.73	-
Weighted-average shares outstanding, diluted	11,339,603	11,289,185	0%

Financial Highlights

Gross revenues increased $1 million, or 2%, to $50.9 million, a result of significant growth in our Corporate Services business and modest growth in our Market Data Licensing business, partially offset by a decline in OTC Link ATS revenues.
Corporate Services revenues for the fiscal year were $19.3 million and 38% of total revenues, an increase of $1.8 million, or 10%, over the prior year. This increase was mostly related to the full year revenue impact of companies joining the OTCQB Market during 2015, as well as price increases applicable to companies joining the OTCQX Market during 2016, partially offset by year over year declines in the ending number of companies on both the OTCQX and OTCQB Markets.
Revenues of $10.6 million for our OTC Link ATS represented 21% of our total revenues and reflected a 10% decrease versus the prior year, primarily a result of declining quote and message volumes in US equities markets in general, as well as a decline in the number of active market participants on our trading platform, including the loss of a significant subscriber in the third quarter of 2016.
Market Data Licensing revenues of $21.1 million or 41% of total revenues, were up 2% versus the prior year, largely in relation to the introduction in January 2016 of an Indirect Access Fee for subscribers consuming our data through a third-party portal, as well as sales of enterprise level data license products, partially offset by modest declines in the number of professional users.
Operating expenses for the 2016 fiscal year were $31.6 million, up 3% over 2015.
Compensation and benefits costs increased by $0.9 million, or 5%, to $19.6 million and technology and infrastructure costs increased by 13%, to $5.5 million.
Income from operations for the fiscal year was flat versus the prior year at $16.9 million.
Net income increased 3%, or $0.3 million, to $10.5 million for 2016, a result of a decrease in the company's effective tax rate, from 39% to 38%.
Adjusted EBITDA remained flat at $20.1 million, or $1.73 per adjusted diluted share.

Business Developments and News

As of March 1, 2017, another eight states recognize our OTCQX and OTCQB markets as securities manuals for purposes of each state's 'Blue Sky Manual Exemption', bringing the total to twenty.
Broadened our market data distribution network via new or expanded relationships with IDC, Thomson Reuters and Interactive Brokers.
Launched the Transfer Agent Verified Shares Program in October 2016, a first-of-its-kind initiative to provide investors with current and reliable share data on OTCQX, OTCQB and Pink securities. As of March 1, 2017, seven transfer agents have joined the Program, providing timely data that improves the availability and accuracy of share information for companies on our markets.
Launched the Research Marketplace, an online resource for OTCQX and OTCQB companies seeking best in class third-party research analyses.
Established a collaboration with Morningstar to provide OTCQX and OTCQB companies with globally recognized quantitative research coverage.
Received award for "Best Real-time Market Data Initiative (vendor)" in the 2016 Inside Market Data/Inside Reference Data Awards for its OTC Compliance Data File.
In October 2016, introduced an enhanced compliance analytics product to provide market participants with an efficient, automated tool for analyzing OTC securities based on key compliance data points.

Dividend Declaration – Quarterly Cash Dividend

OTC Markets Group announced today that its Board of Directors authorized a quarterly cash dividend of $0.14 on its Class A Common Stock. The quarterly cash dividend is payable on March 30, 2017 to stockholders of record on March 16, 2017. The ex-dividend date is March 14, 2017.

Stock Buyback Program

On February 28, 2017, 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. The Company is authorized to purchase shares from time to time on the open market and through block trades, in compliance with applicable law.

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.

Fourth Quarter and Fiscal Year 2016 Conference Call

The Company will host a conference call on Thursday, March 2, 2017 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: 1-888-430-8694 (Domestic); 1-719-325-2144 (International); Conference ID: 2394378

Replay Dial-in Numbers (Available until March 16, 2017): 1-844-512-2921 (Domestic); 1-412-317-6671 (International); Replay PIN Number: 2394378

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

OTC Markets Group's 2016 Annual Report 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 10,000 U.S. and global securities. Through OTC Link® ATS, 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 is operated by OTC Link LLC, member FINRA/SIPC and SEC regulated ATS.

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Investor Contact:

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

OTC MARKETS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share information)
(Unaudited)
	Three Months Ended December 31,		Year Ended December 31,
	2016	2015	2016	2015
OTC Link ATS	$ 2,631	$ 2,882	$ 10,573	$ 11,796
Market data licensing	5,218	5,121	21,054	20,609
Corporate services	5,029	5,052	19,254	17,504
Gross revenues	12,878	13,055	50,881	49,909
Redistribution fees and rebates	(583)	(577)	(2,316)	(2,379)
Net revenues	12,295	12,478	48,565	47,530
Operating expenses
Compensation and benefits	4,720	4,311	19,591	18,716
IT Infrastructure and information services	1,376	1,318	5,470	4,860
Professional and consulting fees	356	356	1,732	1,811
Marketing and advertising	210	386	848	1,291
Occupancy costs	412	382	1,625	1,484
Depreciation and amortization	392	433	1,606	1,692
General, administrative and other	217	261	766	810
Total operating expenses	7,683	7,447	31,638	30,664
Income from operations	4,612	5,031	16,927	16,866
Other income
Other income (expense)	2	(1)	8	27
Income before provision for income taxes	4,614	5,030	16,935	16,893
Provision for income taxes	1,921	2,104	6,407	6,635
Net Income	$ 2,693	$ 2,926	$ 10,528	$ 10,258

Net income per share
Basic	$ 0.24	$ 0.26	$ 0.92	$ 0.91
Diluted	$ 0.23	$ 0.25	$ 0.90	$ 0.88

Basic weighted average shares outstanding	11,083,860	11,010,111	11,092,097	11,008,095
Diluted weighted average shares outstanding	11,370,655	11,292,049	11,339,603	11,289,185


Non-GAAP Reconciliation
	Three Months Ended December 31,		Year Ended December 31,
	2016	2015	2016	2015
Net Income	$ 2,693	$ 2,926	$ 10,528	$ 10,258
Excluding:
Provision for income taxes	1,921	2,104	6,407	6,635
Depreciation and amortization	392	433	1,606	1,692
Stock-based compensation expense	372	344	1,646	1,552
Adjusted EBITDA	$ 5,378	$ 5,807	$ 20,187	$ 20,137

Adjusted diluted earnings per share	$ 0.46	$ 0.50	$ 1.73	$ 1.73

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 share information)
(Unaudited)
	December 31,	December 31,
	2016	2015
Assets
Current assets
Cash	$ 25,034	$ 23,925
Accounts receivable, net of allowance for doubtful accounts of $145 and $147	6,262	6,082
Prepaid income taxes	435	22
Prepaid expenses and other current assets	1,246	1,520
Deferred tax assets	108	187
Total current assets	33,085	31,736
Property and equipment, net	2,279	3,507
Non-current deferred tax assets, net	778	470
Goodwill	251	251
Intangible assets, net	40	40
Security deposits	210	210
Total Assets	$ 36,643	$ 36,214

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$ 508	$ 616
Income taxes payable	103	92
Accrued expenses and other current liabilities	4,761	4,355
Deferred revenue	14,664	12,737
Total current liabilities	20,036	17,800
Deferred rent	187	139
Income tax reserve	914	728
Total Liabilities	21,137	18,667
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 11,595,337 issued, 11,247,979 outstanding at
December 31, 2016; 11,438,928 issued, 11,192,885 outstanding at December 31, 2015	116	114
Class C - 130,838 shares authorized, issued and outstanding at December 31, 2016
and December 31, 2015	1	1
Additional paid-in capital	12,988	10,786
Retained earnings	6,385	8,916
Treasury stock - 347,358 shares at December 31, 2016 and 246,043 shares at December 31, 2015	(3,984)	(2,270)
Total Stockholders' Equity	15,506	17,547
Total Liabilities and Stockholders' Equity	$ 36,643	$ 36,214