Gross revenues of $16.6 million for the quarter, up 8% versus the prior year period
Operating income of $4.5 million for the quarter, up 11% versus the prior year period
Net income of $3.9 million, up 9% versus the prior year period, and quarterly diluted GAAP EPS of $0.32, up 7%
Total cash returned to shareholders during the quarter of $5.3 million, an increase of 68%, comprised of dividends of $1.7 million and repurchases of common stock of $3.5 million
Announcing second quarter 2020 dividend of $0.15 per share
16 graduates to a national securities exchange during the quarter
In the context of the COVID-19 pandemic, focused on safeguarding our colleagues, serving our clients and ensuring our short-term financial stability, while continuing to drive towards our long-term strategic goals
In March 2020, transitioned 97% of our employees to a fully remote working environment
In March and April 2020, announced temporary relief for OTCQX and OTCQB companies with certain compliance deficiencies
In April 2020, announced the participation of Canadian transfer agents in our Transfer Agent Verified Shares Program, covering 75% of the Canadian companies on the OTCQX and OTCQB markets
In April 2020, submitted our third comment letter in response to the SEC's Proposed Rule and Concept Release on Securities Exchange Act Rule 15c2-11, which governs the publication of quotes in interdealer quotation systems such as our OTC Link ATS
In February 2020, the ESOP Fairness Act, legislation that would make it easier for qualified OTC companies to offer Employee Stock Ownership Plans (ESOPs), was introduced in the U.S. House and Senate
In February 2020, the Virginia legislature passed legislation (effective July 1st) that would permit the OTCQX market to attain exempt status for secondary trading activities
In March 2020, announced enhancements to our Small Cap Listed Compliance product to include more data and risk flags for NYSE and NASDAQ listed securities
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 first quarter of 2020.
"The COVID-19 pandemic has sent a 100-year viral storm around the world, with tragic human consequences and vast economic challenges. It is truly inspiring to see the everyday courage and resilience exhibited by our first responders, healthcare workers and all the brave people who keep our essential services functioning so we can conquer these threats," said R. Cromwell Coulson, President and Chief Executive Officer. "At the same time, I am incredibly proud of the whole team at OTC Markets for the commitment they have shown during these challenging times. I remain confident in our ability to navigate these difficult waters and to continue to build a company that serves our community of subscribers and clients and to chart a course that delivers long term value to all of our stakeholders."
"During the first quarter, we delivered 8% top line revenue growth and were able to drive margin expansion to generate 11% growth in our operating income. To achieve these results in the context of an extraordinarily challenging business environment speaks to the resilience of our subscription-based revenue model. Further, our ability to continue to operate our markets and serve our clients from a remote working environment is a testament to the investments made in our people and infrastructure as well as to the hard work of the whole OTC Markets team," said Bea Ordonez, Chief Financial Officer. "We continue to evaluate the challenges of this rapidly evolving environment, to focus on protecting our franchise and ensuring our financial stability, while positioning ourselves to continue to deliver long-term value to our shareholders."
First Quarter 2020 compared to First Quarter 2019
Three Months Ended March 31,
(in thousands, except shares and per share data)
Market data licensing
Revenues less transaction-based expenses
Income from operations
Operating profit margin
Income before provision for income taxes
Diluted earnings per share
Adjusted diluted earnings per share
Weighted-average shares outstanding, diluted
Gross revenues increased $1.2 million, or 8%, to $16.6 million.
OTC Link revenues increased 17%, with significant volatility across U.S. equity markets driving increases in trading volumes on our OTC Link ECN and in quote and message volumes on our OTC Link ATS.
Market Data Licensing revenues grew 11%, with price increases for professional subscribers combined with growth in reported usage driving a 14% increase in related revenues. Price increases for broker-dealer enterprise licenses drove a 25% increase in related revenues. Increases in the number of users of our data file products, including our compliance data products, drove a 20% increase in revenues derived from same.
Corporate Services delivered 2% growth, with revenues from our OTCQX market up 6% and revenues from our OTCQB market down 4%. On our OTCQX market, we achieved a 92% retention rate for the 2020 annual subscription period but saw a significant drop in first quarter sales. Our OTCQB market saw slower sales in 2019, as well as a significant drop in sales in the current quarter, each contributing to a decline in the number of companies on OTCQB market.
Operating expenses, increased $0.4 million, or 4%, to $11.0 million, primarily as a result of the 7% increase in compensation costs, reflecting higher headcount, the impact of annual salary raises as well as increases in share based compensation expense and the cost of providing healthcare coverage for our employees.
Operating income and net income increased 11% and 9% respectively, when compared to the prior year period.
Adjusted EBITDA, which excludes non-cash stock-based compensation expense, increased 14%, to $5.8 million, or $0.49 per adjusted diluted share.
Business Developments and News
Considerable uncertainty still surrounds the likely trajectory of the COVID-19 pandemic and the full scope and extent of the potential impact to our business is dependent on a number of factors which are highly uncertain.
Our framework for managing through this challenging environment is grounded in four key principles: supporting our colleagues and prioritizing their safety and well-being; continuing to serve our subscribers and customers; ensuring that we take the measures necessary in the short term to protect our current operations and remain financially strong; and remaining focused on the critical long-term strategic initiatives that position our business for future growth.
In early March 2020, we initiated our business continuity plan and moved quickly to transition 97% of our employees to fully remote working environments and limited non-essential business travel. We have continued to monitor developments and plan to take a conservative and measured approach to returning to our offices, that prioritizes the health and safety of our colleagues and our ability to serve our subscribers.
We have continued to operate our businesses remotely, including facilitating and supporting the trading of securities on our two SEC registered ATSs. We continue to provide ongoing support to our broker-dealer community, to users of our market data and to the diverse community of U.S. and global issuers that we serve.
In March and April 2020, we announced measures designed to provide temporary relief to issuers on our OTCQX and OTQQB markets from certain of our market standards and requirements. In the context of the unprecedented market turmoil caused by the COVID-19 pandemic, we have provided relief from bid price, market capitalization, market value and public float requirements through June 30, 2020. Further, in keeping with the SEC's announcement that it would provide public companies with a 45-day extension on the standard deadline for making certain disclosure available, we have provided similar relief to issuers on our markets.
The COVID-19 pandemic did not materially adversely affect our financial results for the quarter ended March 31, 2020, with strong growth in transaction based revenues in our OTC Link business line and the impact of price increases and user growth in our Market Data Licensing business line offsetting weak growth in our Corporate Services business line. However, we expect that our financial results in future quarters are likely to be adversely impacted by the challenging macro-economic conditions caused by the COVID-19 pandemic and related containment measures, perhaps materially so. Factors that could affect the scope and extent of the potential impact are discussed in more detail in the Risk Factors and Trends sections of our Quarterly Report.
In April 2020, we announced that transfer agents in Canada are now participating in our Transfer Agent Verified Shares Program, providing reliable and current share data on approximately 75% of the Canadian companies traded on our OTCQX and OTCQB markets. Participating transfer agents include Computershare Canada, AST Trust Company Canada and TSX Trust.
In April 2020, we submitted our third comment letter in response to the SEC's Proposed Rule and Concept Release on Securities Exchange Act Rule 15c2-11, which governs the publication of quotes in interdealer quotation systems such as our OTC Link ATS. Our comment letter provides concrete solutions in line with recommendations in our prior comment letters.
In March 2020, we announced the introduction of "Hot Sector" industry data points to our Small Cap Listed compliance product, providing broker-dealers and compliance and risk management professionals with "Hot Sector" data points to supplement existing data sets that allow them to evaluate the roughly 2,300 equity securities listed on national securities exchanges that have a market capitalization below $500 million.
In April 2020, we introduced an additional "Hot Sector" designation that is assigned to companies engaged in industries that are connected to COVID-19. The new COVID-19 flag supplements existing data points in our Compliance Analytics and Small Cap Compliance file.
On February 11, 2020, the ESOP Fairness Act (S.3270) (H.R.5851) was introduced by bi-partisan co-sponsors in the House and Senate. Employee Stock Ownership Plans ("ESOPs") give company employees a greater opportunity to take an ownership stake, which aids employee retention and promotes small company growth. The ESOP Fairness Act would put qualified companies that meet established financial standards, such as those traded on the OTCQX market, on par with exchange listed companies by allowing them to fully access the benefits of public company ESOPs.
We have continued to devote internal resources to growing our Virtual Investor Conferences® business. Against the backdrop of the governmental measures instituted globally to contain the spread of COVID-19, we see this offering as an important tool for issuers to continue to communicate with and engage with their investor base. During the first quarter, we hosted five Virtual Investor Conferences, with 46 companies participating, reaching more than 4,000 investors. Since the end of the reporting period we have hosted a further three events and have an additional 12 events already scheduled through the rest of the year.
As of May 1, 2020, the OTCQX market is exempt from state Blue Sky laws regarding secondary trading in 36 states and the OTCQB market is exempt in 33 states. In February, the Virginia legislature passed a bill that would provide a pathway for the OTCQX market to attain exempt status. The Virginia law will become effective July 1, 2020.
As of May 1, 2020, 44 subscribers use the company's compliance data products to enhance and automate their compliance processes in the OTC and the small-cap exchange listed space. Subscribers include many of the largest custodians, banks and broker-dealers in the US equities markets.
We have seen increased transactional volume on our OTC Link ECN, a result of the active market environment as well as continued growth in our subscriber base, with 61 subscribers connected to our ECN as of May 1, 2020.
Dividend Declaration – Quarterly Cash Dividend
OTC Markets Group announced today that its Board of Directors authorized a quarterly cash dividend of $0.15 on its Class A common stock. The quarterly cash dividend is payable on June 25, 2020, to stockholders of record on June 11, 2020. The ex-dividend date is June 10, 2020.
Stock Buyback Program
The Company is authorized to purchase shares from time to time on the open market, from employees and through block trades, in compliance with applicable law. During the first quarter of 2020, the Company purchased 102,938 shares at an average price of $34.20 per share.
On March 4, 2020, 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. As at March 31, 2020, there are 300,000 shares remaining to be purchased under the Company's plan.
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.
First Quarter 2020 Conference Call
The Company will host a conference call and webcast on Thursday, May 14, 2020, at 8:30 a.m. Eastern Time, during which management will discuss the financial results in further detail. The call and a replay of the conference call and webcast may be accessed as follows:
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 and OTC Link ECN, 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 financial markets, visit www.otcmarkets.com.
OTC Link ATS and OTC Link ECN are operated by OTC Link LLC, member FINRA/SIPC and SEC regulated ATS.
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)
Accounts receivable, net of allowance for doubtful accounts of $166 and $168
Prepaid income taxes
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Deferred tax assets, net
Intangible assets, net
Long-term restricted cash
Liabilities and stockholders' equity
Accrued expenses and other current liabilities
Income taxes payable
Total current liabilities
Income tax reserve
Operating lease liabilities
Commitments and contingencies
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 12,296,029 issued, 11,659,395 outstanding at
March 31, 2020; 12,189,022 issued, 11,655,326 outstanding at December 31, 2019
Additional paid-in capital
Treasury stock - 636,634 shares at March 31, 2020 and 533,696 shares at December 31, 2019