OTC Markets Group Announces Second Quarter 2016 Financial Results

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Aug 03, 2016, 05:00 ET

NEW YORK, Aug. 3, 2016 /PRNewswire/ --

Second Quarter 2016 Highlights:

Gross revenues of $12.6 million for the quarter versus $12.4 million for prior year quarter
Operating profit margin of 34% for the quarter, versus 35% for the prior year quarter
Collaboration with Morningstar, Inc. to provide quantitative equity ratings and research reports to OTCQX and OTCQB companies and their investors
OTCQX and OTCQB Markets receive state Blue Sky recognition from five states
Announcing third quarter 2016 dividend of $0.14 per share
8 graduates to a national securities exchange

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 second quarter 2016.

"State Blue Sky recognition from the first five states represents an important milestone in establishing our data-driven OTCQX and OTCQB market standards as a strong baseline of transparency for investors," said R. Cromwell Coulson, President and Chief Executive Officer. Mr. Coulson continued, "We focus on creating better informed and more efficient markets by delivering elegant and cost effective technology solutions to improve the trading process for broker-dealer subscribers and make being public less painful for U.S. and global companies."

"We continue to deliver strong, stable recurring revenues across our business lines as well as strong operating cash flows and attractive operating margins. This allows us to pursue our strategic goal of investing in our infrastructure and in the innovative product suite that will drive future growth," said Bea Ordonez, Chief Financial Officer.

Second Quarter 2016 Compared to Second Quarter 2015

	Quarter Ended June 30,
(in thousands, except shares and per share data)	2016	2015	% change	$ change
OTC Link ATS	$ 2,658	$ 2,931	(9%)	$ (273)
Market data licensing	5,237	5,169	1%	68
Corporate services	4,744	4,330	10%	414
Gross revenues	12,639	12,430	2%	209
Net revenues	12,055	11,830	2%	225
Operating expenses	7,936	7,741	3%	195
Income from operations	4,119	4,089	1%	30
Operating profit margin	34%	35%
Net income	$ 2,515	$ 2,392	5%	$ 123

Diluted earnings per share	$ 0.21	$ 0.20	5%	$ 0.01
Adjusted diluted earnings per share	$ 0.42	$ 0.42	-	$ -
Weighted-average shares outstanding, diluted	11,430,507	11,435,355	-

Financial Highlights

Gross revenues increased $0.2 million, or 2%, to $12.6 million.
$0.4 million, or 10%, increase in Corporate Services revenues, largely driven by full period impact of OTCQB additions from second quarter of 2015.
Decrease in revenues from OTC Link® ATS of $0.3 million, or 9%, to $2.7 million, largely a result of a decrease in the number of broker-dealer subscribers and OTC Dealer® users, reduced quote and trade message volumes and the elimination of fees for the quoting of OTCQX and OTCQB securities, partially offset by price increases for messaging.
Operating expenses increased $0.2 million, or 3%, to $7.9 million, primarily due to increases in compensation costs and information technology costs.
Income from operations flat at $4.1 million.
Net income increased $0.1 million, or 5%, to $2.5 million, primarily due to a decrease in the company's effective tax rate for the quarter from 42% to 39%.
Adjusted EBITDA, which excludes non-cash stock-based compensation expense, increased $0.1 million, or 1%, to $5.0 million, or $0.42 per adjusted diluted share.

Business Developments and News

Announced that Vermont state regulations recognize the OTCQX market, and Washington, Wyoming, Iowa and Rhode Island state securities regulators recognize the OTCQX and OTCQB markets as securities manuals for the purposes of each state's "Blue Sky Manual Exemption."
Entered into relationship with Interactive Brokers, to add real-time Level 2+ service to their platform. With this agreement, Interactive Brokers' 353,000 client accounts will have access to complete quote data for OTCQX, OTCQB and Pink securities.
Expanded market data distribution relationship with Thomson Reuters.
Filed Petition for Rulemaking with the SEC to extend Regulation A to SEC reporting companies.
Launched the OTCQX Dividend Index (OTCQXDIV), a new benchmark for tracking the performance of U.S. and International Companies trading on the OTCQX Market that pay a regular dividend.
Entered into an agreement with Morningstar, Inc., a leading provider of independent investment research, to provide quantitative Morningstar equity ratings and equity research reports to OTCQX and OTCQB companies and their investors.
Received award for "Best Real-time Market Data Initiative (vendor)" in the 2016 Inside Market Data/Inside Reference Data Awards. OTC Markets Group won in the category for its OTC Compliance Data File.

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 September 22, 2016, to stockholders of record on September 8, 2016. The ex-dividend date is September 6, 2016.

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 2016 Conference Call

The Company will host a conference call on Thursday, August 4, 2016, 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: 1-877-548-7901 (Domestic); 1-719-325-4755 (International); Conference ID: 4560762

Replay Dial-in Numbers (Available until August 18, 2016): 1-877-870-5176 (Domestic); 1-858-384-5517 (International); Replay Pin Number: 4560762

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 Quarterly Report for the period ended June 30, 2016 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 June 30,
	2016	2015
Gross revenues	$ 12,639	$ 12,430
Redistribution fees and rebates	(584)	(600)
Net revenues	12,055	11,830
Operating expenses
Compensation and benefits	4,967	4,763
IT Infrastructure and information services	1,375	1,145
Professional and consulting fees	438	546
Marketing and advertising	184	340
Occupancy costs	367	344
Depreciation and amortization	410	420
General, administrative and other	195	183
Total operating expenses	7,936	7,741
Income from operations	4,119	4,089
Other income
Other income	4	7
Income before provision for income taxes	4,123	4,096
Provision for income taxes	1,608	1,704
Net income	$ 2,515	$ 2,392

Net income per share
Basic	$ 0.22	$ 0.21
Diluted	$ 0.21	$ 0.20

Basic weighted average shares outstanding	11,099,650	11,006,339
Diluted weighted average shares outstanding	11,430,507	11,435,355

Non-GAAP Reconciliation
	Three Months Ended June 30,
	2016	2015
Net Income	$ 2,515	$ 2,392
Excluding:
Provision for income taxes	1,608	1,704
Depreciation and amortization	410	420
Stock-based compensation expense	420	396
Adjusted EBITDA	$ 4,953	$ 4,912

Adjusted diluted earnings per share	$ 0.42	$ 0.42

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,
	2016	2015
Assets
Current assets
Cash	$ 23,271	$ 23,925
Accounts receivable, net of allowance for doubtful accounts of $134 and $147	5,104	6,082
Prepaid expenses and other current assets	1,480	1,520
Prepaid income taxes	830	22
Deferred tax assets	187	187
Total current assets	30,872	31,736
Property and equipment, net	2,853	3,507
Non-current deferred tax assets, net	673	470
Goodwill	251	251
Intangible assets, net	40	40
Security deposits	210	210
Total Assets	$ 34,899	$ 36,214

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$ 324	$ 616
Accrued expenses and other current liabilities	2,912	4,355
Income taxes payable	-	92
Deferred revenue	10,829	12,737
Total current liabilities	14,065	17,800
Deferred rent	303	139
Income tax reserve	829	728
Total Liabilities	15,197	18,667
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 11,560,833 issued, 11,265,167 outstanding at
June 30, 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 June 30, 2016
and December 31, 2015	1	1
Additional paid-in capital	12,066	10,786
Retained earnings	10,591	8,916
Treasury stock - 295,666 shares at June 30, 2016 and 246,043 shares at December 31, 2015	(3,072)	(2,270)
Total Stockholders' Equity	19,702	17,547
Total Liabilities and Stockholders' Equity	$ 34,899	$ 36,214