OTC Markets Group Announces Third Quarter 2012 Financial Results

Announces Special and Quarterly Cash Dividends

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Nov 12, 2012, 05:00 ET

NEW YORK, Nov. 12, 2012 /PRNewswire/ --

Third Quarter 2012 Highlights:

Gross revenues increased 6% to $8.7 million as compared to the third quarter 2011
Operating profit margin of 23%
Added two directors, further strengthening the Board's expertise
Announcing special dividend of $0.25
Announcing quarterly dividend of $.05, marking sixteenth consecutive quarterly dividend

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 three and nine months ended September 30, 2012, a special dividend of $0.25 and a quarterly cash dividend of $0.05.

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"Our focus during 2012 has been on the execution of our core mission: to create better informed and more efficient marketplaces," said R. Cromwell Coulson, President and Chief Executive Officer. "We have been able to grow revenue while providing services that enable investors to intelligently analyze, value and trade securities through the broker of their choice."

"We are especially pleased to announce that our Board of Directors declared a special dividend of $0.25 per share, payable in December 2012," continued Coulson. "This special dividend, in addition to our sixteenth consecutive quarterly dividend, highlights our commitment to providing superior returns to our shareholders."

"We have continued to grow revenue during a period of lower trading volumes and general economic uncertainty. The small decrease in operating profit margin during the third quarter of 2012 was primarily due to a strategic decision to reinvest in our business during a period of slightly slower revenue growth" said Wendy Fraulo, Chief Financial Officer.

Third Quarter Results

Revenues

Gross revenues during the third quarter of 2012 increased $0.5 million, or 6%, to $8.7 million from $8.2 million during the third quarter of 2011. Revenue from the company's OTC Link ATS Trading Services business line was negatively impacted by low trading volume throughout the industry during the third quarter of 2012. Revenue generated by the QAP One Statement service and an increase in subscriber quote volume on OTC Link ATS helped offset a decrease in revenue from OTC Dealer license subscriptions. Revenue from the Market Data Licensing business line increased $0.2 million during the third quarter of 2012, largely driven by increases in professional licenses and broker-dealer enterprise license subscriptions. The increase in OTCQX companies continues to be a significant driver of the company's revenue growth, contributing $0.4 million of the increase in total gross revenue during the third quarter of 2012, although the OTCQX marketplace's rate of growth has slowed in 2012 during a period of low trading volumes. The Issuer Services business line had the largest growth in gross revenue from the third quarter of 2011 to the third quarter of 2012, although Issuer Services revenues from services not related to OTCQX decreased $0.1 million.

Operating Expenses

Operating expenses for the third quarter of 2012 increased $0.7 million, or 12%, to $6.4 million from $5.7 million during the third quarter of 2011, largely driven by an increase in compensation and benefits expenses of $0.3 million, or 8% as headcount increased by 8 employees to 72 at September 30, 2012 from 64 employees at September 30, 2011. Marketing and advertising expenses increased $0.3 million, or 100%, primarily attributable to our use of a dedicated outside advertising agency, which increased related agency fees by $0.2 million, as well as other increases in costs related to promoting the www.otcmarkets.com website. Increases in operating expenses were offset by a $0.1 million decrease in general, administrative and other expenses, primarily due to a $48 thousand decrease in bad debt expense and lower general spending.

Income from Operations and Net Income

Income from operations remained constant at $1.9 million for each of the third quarters of 2012 and 2011, and operating profit margin decreased from 25% during the third quarter of 2011 to 23% during the third quarter of 2012. The lower operating margin was primarily due to higher consulting and marketing expenses in a period of slower revenue growth.

Net income for the third quarter of 2012 decreased $0.1 million, or 13%, to $1.2 million, as compared to $1.3 million during the third quarter of 2011. Net income per weighted average diluted shares outstanding decreased to $0.11 for the third quarter of 2012, as compared to $0.12 in the third quarter of 2011.

Adjusted EBITDA

Adjusted EBITDA for the third quarter of 2012 increased 5% to $2.5 million, compared to $2.4 million in the prior year period as significant non-cash expenses, such as depreciation and stock based compensation expense, grew as a percentage of total operating expenses.

Year to Date Results

Revenues

Gross revenues during the nine month period ended September 30, 2012 increased $2.0 million, or 8%, to $26.1 million from $24.1 million during the same period in 2011. Overall revenue from OTC Link ATS remained constant. Revenue from QAP One Statement service contributed $0.3 million, and transaction revenue from quotes increased $0.1 million, or 5%, due to increased quote activity on OTC Link ATS. This increase was offset by decreases in revenue from lower messaging activity on OTC Link ATS and fewer OTC Link ATS subscription licenses and licenses of OTC Dealer due to some contraction in the broker-dealer industry. Market Data Licensing revenues increased $0.7 million, or 7%, primarily due to a 4% increase in professional license subscriptions and a 28%, or $216 thousand, increase in broker-dealer enterprise licenses. Growth in Issuer Services revenue of $1.3 million, or 22%, was driven by the increase of 120 OTCQX companies during the twelve months ended September 30, 2012.

Operating Expenses

Operating expenses during the nine month period ended September 30, 2012 increased $1.3 million, or 7%, to $18.3 million from $17.0 million during the same period in 2011, primarily due to an increase in compensation and benefits expenses of $0.7 million, or 7%, driven by the increase in headcount and related direct costs. Compensation cost as a percentage of gross revenue remained consistent at approximately 38% during the nine months ended September 30, 2012 and 2011, respectively. Marketing expenses increased $0.2 million, or 20%, primarily due to the increased use of an outside advertising agency and increased sponsorship costs. Professional and consulting fees increased $0.3 million, or 18%, due to an increased use of professional and technical specialists during 2012, offset by lower legal fees of $0.2 million.

Income from Operations and Net Income

Income from operations increased $1.2 million, or 22%, to $6.5 million as compared to $5.3 million during the nine month periods ended September 30, 2012 and 2011, respectively, and operating profit margin improved to 26% from 24% during the same periods. The increase in profitability through the nine month period ended September 30, 2012 demonstrates management's efforts to scale operations during the course of the year.

Net income increased $0.3 million, or 10%, to $3.9 million, as compared to $3.6 million during the nine month periods ended September 30, 2012 and 2011, respectively, and net income per weighted average diluted shares outstanding increased to $0.36 from $0.33 during the same periods.

Adjusted EBITDA

Adjusted EBITDA for the nine months ended September 30, 2012 grew 27% to $8.4 million, compared to $6.6 million for the comparable period in 2011 as significant non-cash expenses, such as depreciation and stock based compensation expense, grew as a percentage of total operating expenses.

Dividend Declaration – Special and Quarterly Cash Dividends

OTC Markets Group also announced today that its Board of Directors authorized a special cash dividend on its Class A Common Stock of $0.25 per share, and a quarterly cash dividend of $0.05 per share. The special dividend is payable on December 6, 2012 to stockholders of record on November 23, 2012, with an ex-dividend date of November 21, 2012. The quarterly dividend is payable on December 26, 2012 to stockholders of record on December 6, 2012, with an ex-dividend date of December 4, 2012.

The special dividend is the first in the company's history, and the quarterly dividend marks the Company's 16^th consecutive quarter of dividend payments.

Third Quarter 2012 Conference Call

The company will host a conference call on Tuesday, November 13, 2012 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: 1-800-447-0521 (Domestic); 1-847-413-3238 (International); Call Confirmation Number 3364-4840. Replay Dial-in Numbers (Available until November 27, 2012): 1-888-843-7419 (Domestic); 1-630-652-3042 (International); Replay Passcode: 3364-4840#.

A live webcast and webcast replay of the call will also be available in the Investor Relations section of the corporate web site at http://www.otcmarkets.com/investor-relations/overview.

OTC Markets Group's Quarterly Report for the three and nine month periods ended September 30, 2012 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 tiered marketplaces to inform investors of opportunities and risks - OTCQX^® - The Intelligent Marketplace for the Best OTC Companies; OTCQB^® - The Venture Marketplace; and OTC Pink^® - The Open Marketplace. Our data-driven platform enables efficient trading through any broker 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 smarter financial marketplaces, visit www.otcmarkets.com.

OTC Link ATS is operated by OTC Link LLC, member FINRA/SIPC and SEC regulated ATS.

OTC MARKETS GROUP INC. (formerly Pink OTC Markets Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Trading services	$ 2,821	$ 2,874	$ 8,837	$ 8,850
Market data licensing	3,380	3,171	10,163	9,471
Issuer services	2,502	2,150	7,101	5,811
Gross revenues	8,703	8,195	26,101	24,132
Redistribution fees and rebates	( 474 )	( 611 )	( 1,367 )	( 1,834 )
Net revenues	8,229	7,584	24,734	22,298
Operating expenses
Compensation and benefits	3,260	3,007	9,783	9,126
IT Infrastructure and data communications	817	812	2,444	2,469
Professional and consulting services	682	438	1,780	1,503
Marketing and advertising	643	321	1,448	1,211
Occupancy costs	364	417	1,052	1,144
Depreciation and amortization	406	364	1,235	927
General, administrative and other	191	306	530	626
Total operating expenses	6,363	5,665	18,272	17,006
Income from operations	1,866	1,919	6,462	5,292
Other income/(expense)
Interest income	2	14	13	31
Miscellaneous income (expense)	20	( 42 )	18	( 42 )
Income before provision for income taxes	1,888	1,891	6,493	5,281
Provision for income taxes	734	571	2,595	1,729
Net Income	$ 1,154	$ 1,320	$ 3,898	$ 3,552

Net income per share
Basic	$ 0.11	$ 0.12	$ 0.36	$ 0.34
Diluted	$ 0.11	$ 0.12	$ 0.36	$ 0.33

Basic weighted average shares outstanding	10,541,505	10,474,591	10,529,119	10,466,061
Diluted weighted average shares outstanding	10,574,281	10,508,172	10,582,661	10,528,273

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 our current financial performance and our prospects for the future.

Non-GAAP Reconciliation

	Three Months Ended June 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Net Income	$ 1,154	$ 1,320	$ 3,898	$ 3,552
Excluding:
Provision for income taxes	734	571	2,595	1,729
Interest, net	(2)	(14)	(13)	(31)
Depreciation and amortization	406	364	1,235	927
Stock-based compensation expense	248	167	725	445
Adjusted EBITDA	$ 2,540	$ 2,408	$ 8,440	$ 6,622

Adjusted diluted earnings per share	$ 0.24	$ 0.23	$ 0.80	$ 0.63

OTC MARKETS GROUP INC. (formerly Pink OTC Markets Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
(Unaudited)

	September 30,	December 31,
	2012	2011
Assets
Current assets
Cash and cash equivalents	$ 13,426	$ 10,170
Short-term investments	246	1,297
Accounts receivable, net of allowance for doubtful accounts of $331 and $268	4,757	7,194
Prepaid income taxes	383	307
Prepaid expenses and other current assets	570	417
Deferred tax assets, net	293	293
Total current assets	19,675	19,678
Property and equipment, net	4,314	5,143
Goodwill	251	251
Intangible assets, net	40	40
Security deposits	209	209
Total Assets	$ 24,489	$ 25,321

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$ 422	$ 629
Accrued expenses and other	2,777	3,066
Dividend payable	533	419
Income tax reserve	-	109
Deferred revenue	3,756	6,628
Total current liabilities	7,488	10,851
Deferred rent	825	926
Deferred tax liabilities, net	95	475
Income tax reserve	255	197
Total Liabilities	8,663	12,449

Stockholders' equity
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 10,776,247 issued, 10,661,672 outstanding at September 30, 2012;
10,589,170 issued, 10,484,595 outstanding at December 31, 2011	108	106
Class C - 130,838 shares authorized, issued and outstanding at September 30, 2012 and December 31, 2011	1	1
Additional paid-in capital	5,736	5,027
Retained earnings	10,578	8,276
Treasury stock - 114,575 shares at September 30, 2012 and 104,575 shares at December 31, 2011	( 595 )	( 532 )
Accumulated other comprehensive loss	( 2 )	( 6 )
Total Stockholders' Equity	15,826	12,872
Total Liabilities and Stockholders' Equity	$ 24,489	$ 25,321