OTC Markets Group Announces Third Quarter 2016 Financial Results

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Nov 02, 2016, 05:00 ET

NEW YORK, Nov. 2, 2016 /PRNewswire/ --

Third Quarter 2016 Highlights:

Gross revenues of $12.6 million for the quarter versus $12.9 million for the prior year quarter
Operating profit margin of 36% for the quarter, versus 37% for the prior year quarter
Launch of OTC Markets' Transfer Agent Verified Shares Program, an initiative to improve the timeliness and reliability of OTC Company Share Information
OTCQX and OTCQB Markets receive state Blue Sky recognition from 7 additional states, bringing the total to 12 that recognize OTCQX and 10 that recognize OTCQB
Launch of OTC Markets' Research Marketplace in collaboration with ACF Equity Research, Edison and Sidoti & Company
Announcing special dividend of $0.60 per share and fourth 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 third quarter 2016.

"Our goal is to operate world-class securities markets for a future that is online, data-driven and social. The launch of Q Score liquidity metrics, our Research Marketplace and the Transfer Agent Verified Shares Program continue our drive to make more trusted and timely data available," said R. Cromwell Coulson, President and Chief Executive Officer. "We will continue to improve our markets by delivering a better informational and trading experience for brokers and investors, while making it less time consuming, painful and costly to be public."

"While this quarter's revenues showed a small year-over-year decline, our strong financial results in the third quarter demonstrate the resilience of our subscription-based revenue model, the complementary nature of our three business lines, and our ability to continue to generate strong earnings even in the context of less than favorable market conditions. We continue to generate strong, recurring cash flows and are well positioned to invest in our future growth while remaining focused on delivering solid returns for our shareholders," said Bea Ordonez, Chief Financial Officer.

Third Quarter 2016 Compared to Third Quarter 2015

	Quarter Ended September 30,
(in thousands, except shares and per share data)	2016	2015	% change	$ change
OTC Link ATS	$ 2,530	$ 2,939	(14%)	$ (409)
Market data licensing	5,274	5,087	4%	187
Corporate services	4,809	4,874	(1%)	(65)
Gross revenues	12,613	12,900	(2%)	(287)
Net revenues	12,056	12,298	(2%)	(242)
Operating expenses	7,657	7,707	(1%)	(50)
Income from operations	4,399	4,591	(4%)	(192)
Operating profit margin	36%	37%
Net income	$ 3,006	$ 3,085	(3%)	$ (79)

Diluted earnings per share	$ 0.26	$ 0.26	-	$ -
Adjusted diluted earnings per share	$ 0.45	$ 0.46	(2%)	$ (0.01)
Weighted-average shares outstanding, diluted	11,428,716	11,367,709	1%

Financial Highlights

Gross revenues decreased $0.3 million, or 2%, to $12.6 million.
OTC Link ATS revenues decreased $0.4 million, or 14%, to $2.5 million. The decrease was primarily due a decrease in the number of market participants and declines in quote and message volumes.
Corporate Services revenues decreased $0.1 million, or 1%, to $4.8 million, primarily a result of a decline in OTCQB subscribers from 959 at September 30, 2015 to 869 at September 30, 2016.
Market Data Licensing revenues increased $0.2 million, or 4%, to $5.3 million, primarily due to the introduction of an indirect access fee in January 2016 for subscribers consuming our data through a third-party portal.
Operating expenses remained flat at $7.7 million as higher IT infrastructure and information services fees were offset by lower marketing and advertising and professional fees.
Income from operations decreased $0.2 million, or 4%, to $4.4 million.
Net income decreased $0.1 million, or 3%, to $3.0 million, primarily due to the decline in operating income, partially offset by a decrease in the Company's effective tax rate resulting from changes related to state and local apportionment rates.
Adjusted EBITDA, which excludes non-cash stock-based compensation expense, decreased $0.1 million, or 3%, to $5.3 million, or $0.45 per adjusted diluted share.

Business Developments and News

As of November 2, 2016, another seven states – Alaska, Colorado, Georgia, Kansas (OTCQX only), Mississippi, Nebraska, and New Mexico recognize our OTCQX and OTCQB markets as securities manuals for purposes of each state's 'Blue Sky Manual Exemption.'
Launched the Research Marketplace, a new online resource for OTCQX and OTCQB companies seeking third-party research analyses and investment tools in collaboration with institutional and global equity research firms ACF Equity Research, Edison, and Sidoti & Company, LLC.
Launched the Transfer Agent Verified Shares Program, a first-of-its-kind initiative to provide investors with current and reliable share data on OTCQX, OTCQB and Pink securities in a timely manner.
Launched enhancements to OTC Link ATS, including Q Score, which are valuable metrics designed to enhance the trading experience for consumers and producers of liquidity on our network.

Dividend Declaration – Quarterly Cash Dividend, Special Dividend

OTC Markets Group announced today that its Board of Directors authorized two dividends on its Class A Common Stock: a special cash dividend of $0.60 per share and a quarterly cash dividend of $0.14 per share. The special dividend is payable on December 6, 2016 to stockholders of record on November 22, 2016. The ex-dividend date is November 18, 2016. The quarterly cash dividend is payable on December 21, 2016 to stockholders of record on December 7, 2016. The ex-dividend date is December 5, 2016.

Stock Buyback Program

During the third quarter, OTC Markets Group repurchased 46,637 shares for $0.8 million at an average price of $17.51. As of September 30, 2016, there were 250,193 shares remaining under the previously announced board authorized share repurchase program.

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.

Third Quarter 2016 Conference Call

The Company will host a conference call on Thursday, November 3, 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: 1-800-231-9012 (Domestic); 1-719-457-2552 (International); Conference ID: 3159021

Replay Dial-in Numbers (Available until November 17, 2016): 1-844-512-2921 (Domestic); 1-412-317-6671 (International); Replay Pin Number: 3159021

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.

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 September 30,
	2016	2015
Gross revenues	$ 12,613	$ 12,900
Redistribution fees and rebates	(557)	(602)
Net revenues	12,056	12,298
Operating expenses
Compensation and benefits	4,665	4,684
IT Infrastructure and information services	1,378	1,239
Professional and consulting fees	439	520
Marketing and advertising	175	298
Occupancy costs	442	397
Depreciation and amortization	387	434
General, administrative and other	171	135
Total operating expenses	7,657	7,707
Income from operations	4,399	4,591
Other income
Interest income	1	-
Other income	10	6
Income before provision for income taxes	4,410	4,597
Provision for income taxes	1,404	1,512
Net income	$ 3,006	$ 3,085

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

Basic weighted average shares outstanding	11,087,328	10,989,747
Diluted weighted average shares outstanding	11,428,716	11,367,709

Non-GAAP Reconciliation
	Three Months Ended September 30,
	2016	2015
Net Income	$ 3,006	$ 3,085
Excluding:
Provision for income taxes	1,404	1,512
Depreciation and amortization	387	434
Stock-based compensation expense	458	383
Adjusted EBITDA	$ 5,255	$ 5,414

Adjusted diluted earnings per share	$ 0.45	$ 0.46
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)

	September 30,	December 31,
	2016	2015
Assets
Current assets
Cash	$ 25,114	$ 23,925
Accounts receivable, net of allowance for doubtful accounts of $132 and $147	4,930	6,082
Prepaid expenses and other current assets	1,762	1,520
Prepaid income taxes	227	22
Deferred tax assets	187	187
Total current assets	32,220	31,736
Property and equipment, net	2,490	3,507
Non-current deferred tax assets, net	766	470
Goodwill	251	251
Intangible assets, net	40	40
Security deposits	210	210
Total Assets	$ 35,977	$ 36,214

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$ 406	$ 616
Accrued expenses and other current liabilities	3,891	4,355
Income taxes payable	759	92
Deferred revenue	8,986	12,737
Total current liabilities	14,042	17,800
Deferred rent	245	139
Income tax reserve	847	728
Total Liabilities	15,134	18,667
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 11,586,795 issued, 11,244,492 outstanding at
September 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 September 30, 2016
and December 31, 2015	1	1
Additional paid-in capital	12,595	10,786
Retained earnings	12,019	8,916
Treasury stock - 342,303 shares at September 30, 2016 and 246,043 shares at December 31, 2015	(3,888)	(2,270)
Total Stockholders' Equity	20,843	17,547
Total Liabilities and Stockholders' Equity	$ 35,977	$ 36,214