OTC Markets Group Announces Second Quarter 2017 Financial Results

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Aug 23, 2017, 09:47 ET

NEW YORK, Aug. 9, 2017 /PRNewswire/ --

Second Quarter 2017 Highlights:

Gross revenues of $13.8 million for the quarter versus $12.6 million for prior year quarter
Operating income of $4.8 million for the quarter up from $4.1 million for the prior year quarter
Operating profit margin of 37% for the quarter, versus 34% for the prior year quarter
Net income of $3.1 million for the quarter, up from $2.5 million for the prior year quarter
OTCQX and OTCQB Markets receive state Blue Sky recognition from four additional states, bringing the total to 25 that recognize OTCQX and 22 that recognize OTCQB
12 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
On May 30, 2017 completed the acquisition of theOTC.today, an independent website that monitors and analyzes stock promotion campaigns
Announcing third quarter 2017 dividend of $0.14 per share
14 graduates to a national securities exchange during the quarter

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 2017.

"A year after we announced that our OTCQX and OTCQB markets had received State Blue Sky recognition from five states, we have reached the half way point in achieving national State Blue Sky recognition with twenty-five states now formally recognizing our data-driven market standards," said R. Cromwell Coulson, President and Chief Executive Officer. Mr. Coulson continued, "We continue to make public markets less painful with our focus on providing mission critical technology solutions that inform investors, make trading easier for broker dealers and deliver a more efficient market for public companies."

"The second quarter of 2017 saw 9% quarter over quarter revenue growth and a 300 basis point improvement in our operating profit margin. This contributed to strong growth in our operating income, which was up 17% versus the prior year period and demonstrates the high level of operating leverage implicit in our subscription based business model. We continue to focus on generating strong operating cashflows that create long term value for our shareholders. In that context, we are pleased to announce our 35th consecutive quarterly dividend," said Bea Ordonez, Chief Financial Officer.

Second Quarter 2017 Compared to Second Quarter 2016

	Quarter Ended June 30,
(in thousands, except shares and per share data)	2017	2016	% change	$ change
OTC Link ATS	$ 2,497	$ 2,658	(6%)	$ (161)
Market data licensing	5,522	5,237	5%	285
Corporate services	5,750	4,744	21%	1,006
Gross revenues	13,769	12,639	9%	1,130
Net revenues	13,143	12,055	9%	1,088
Operating expenses	8,319	7,936	5%	383
Income from operations	4,824	4,119	17%	705
Operating profit margin	37%	34%
Net income	$ 3,105	$ 2,515	23%	$ 590

Diluted earnings per share	$ 0.26	$ 0.21	24%
Adjusted diluted earnings per share	$ 0.48	$ 0.42	14%
Weighted-average shares outstanding, diluted	11,519,683	11,430,507	1%

Financial Highlights

Gross revenues increased $1.1 million, or 9%, to $13.8 million.
$1.0 million, or 21%, increase in Corporate Services revenues, largely driven by price increases related to our OTCQX market and DNS services and significant growth in new companies joining our premium markets.
Revenues from OTC Link® ATS declined $0.2 million, or 6%, to $2.5 million, reflecting the continued decline in the number of active market participants, decreases in the number of OTC Dealer® users at our remaining broker-dealer subscribers as well as reduced quote volumes.
Market Data Licensing revenues were up $0.3 million, or 5%, over the prior year quarter, primarily a result of significant growth in the number of non-professional users consuming our market data as well as the impact of price increases related to certain data license products and strong sales in relation to same.
Operating expenses increased $0.4 million, or 5%, to $8.3 million, primarily due to quarter over quarter increases in compensation costs and information technology costs.
Income from operations increased $0.7 million, or 17%, to $4.8 million.
Net income increased $0.6 million, or 23%, to $3.1 million, primarily due to the increase in operating income, as well as a decrease in the company's effective tax rate for the quarter from 39% to 36%, a result of the adoption of Accounting Standards Update No. 2016-09 related to Stock Compensation. Under the new guidance, excess tax benefits from share-based compensation are reflected in the Consolidated Statements of Income as a component of the provision for income taxes, whereas they were previously recognized under Additional paid-in capital.
Adjusted EBITDA, which excludes non-cash stock-based compensation expense, increased $0.7 million, or 15%, to $5.7 million, or $0.48 per adjusted diluted share.

Business Developments and News

Announced that Utah state regulations recognize the OTCQX market, and Indiana, Maine and West Virginia state securities regulators recognize the OTCQX and OTCQB markets as securities manuals for the purposes of each state's "Blue Sky Manual Exemption", bringing the total number of states to 25.
The Transfer Agent Verified Shares Program, launched in October 2016, provides investors with current and reliable share data on OTCQX, OTCQB and Pink securities. As of August 9, 2017, 12 transfer agents have joined the program, including Broadridge Financials Solutions Inc, providing timely data that improves the availability and accuracy of share information for companies on the OTCQX, OTCQB and Pink markets.
Announced that on May 30, 2017 we completed the acquisition of theOTC.today, an independent website that monitors and analyzes stock promotion campaigns, acquiring valuable historical data on and "know how" related to the tracking of stock promotion campaigns, data that will be used to further strengthen our internal issuer compliance processes and to enhance our compliance data product offerings.
Received award for "Most Innovative Market Data Project (vendor)" in the 2017 Inside Market Data/Inside Reference Data Awards. OTC Markets Group won in the category for its OTC Compliance Data Analytics Product.

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 21, 2017, to stockholders of record on September 7, 2017. The ex-dividend date is September 6, 2017.

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 2017 Conference Call

The Company will host a conference call on Thursday, August 10, 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: 1-866-682-6100 (Domestic); 1-862-255-5401 (International);

Replay Dial-in Numbers (Available until August 24, 2017): 1-877-481-4010 (Domestic); 1-919-882-2331 (International); Replay Pin Number: 19391

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, 2017 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,
	2017	2016
Gross revenues	$ 13,769	$ 12,639
Redistribution fees and rebates	(626)	(584)
Net revenues	13,143	12,055
Operating expenses
Compensation and benefits	5,243	4,967
IT Infrastructure and information services	1,426	1,375
Professional and consulting fees	399	438
Marketing and advertising	227	184
Occupancy costs	451	367
Depreciation and amortization	399	410
General, administrative and other	174	195
Total operating expenses	8,319	7,936
Income from operations	4,824	4,119
Other (expense) income
Interest income	4	-
Other (expense) income	18	4
Income before provision for income taxes	4,846	4,123
Provision for income taxes	1,741	1,608
Net income	$ 3,105	$ 2,515

Net income per share
Basic	$ 0.27	$ 0.22
Diluted	$ 0.26	$ 0.21

Basic weighted average shares outstanding	11,134,758	11,099,650
Diluted weighted average shares outstanding	11,519,683	11,430,507

Non-GAAP Reconciliation
	Three Months Ended June 30,
	2017	2016
Net Income	$ 3,105	$ 2,515
Excluding:
Provision for income taxes	1,741	1,608
Depreciation and amortization	399	410
Stock-based compensation expense	456	420
Adjusted EBITDA	$ 5,701	$ 4,953

Adjusted diluted earnings per share	$ 0.48	$ 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 share information)
(Unaudited)

	June 30,	December 31,
	2017	2016
Assets
Current assets
Cash	$ 22,595	$ 25,034
Accounts receivable, net of allowance for doubtful accounts of $145 and $145	5,196	6,262
Prepaid expenses and other current assets	1,708	1,246
Prepaid income taxes	1,331	435
Total current assets	30,830	32,977
Property and equipment, net	1,876	2,279
Non-current deferred tax assets, net	1,103	886
Goodwill	251	251
Intangible assets, net	136	40
Security deposits	192	210
Total Assets	$ 34,388	$ 36,643

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$ 420	$ 508
Accrued expenses and other current liabilities	2,950	4,761
Income taxes payable	-	103
Deferred revenue	12,263	14,664
Total current liabilities	15,633	20,036
Deferred rent	303	187
Income tax reserve	1,024	914
Total Liabilities	16,960	21,137
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 11,846,185 issued, 11,418,793 outstanding at
June 30, 2017; 11,595,337 issued, 11,247,979 outstanding at December 31, 2016	118	116
Class C - 0 shares authorized, issued and outstanding at June 30, 2017;
130,838 shares authorized, issued and outstanding at December 31, 2016	-	1
Additional paid-in capital	13,643	12,988
Retained earnings	9,343	6,385
Treasury stock - 427,392 shares at June 30, 2017 and 347,358 shares at December 31, 2016	(5,676)	(3,984)
Total Stockholders' Equity	17,428	15,506
Total Liabilities and Stockholders' Equity	$ 34,388	$ 36,643