News Press Releases

OTC Markets Group Announces Fourth Quarter and Fiscal Year 2014 Financial Results

OTCM | March 4, 2015

NEW YORK, March 4, 2015 /PRNewswire/ --

Fourth Quarter 2014 Highlights:

Unaudited fourth quarter 2014 GAAP diluted EPS of $0.23 and adjusted diluted EPS of $0.41
Revenues grew 25% to $11.2 million from prior year quarter
Operating profit margin of 38%
Announces first quarter 2015 dividend of $0.10 per share
193 companies met the new OTCQB Venture Marketplace standards during the fourth quarter bringing the total to 311 as of December 31, 2014

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 fourth quarter and fiscal year 2014.

"We had strong financial growth and operational progress during 2014, which will allow us to continue strategically investing in our platform, products and people," said R. Cromwell Coulson, President and Chief Executive Officer. "Enhancements to our OTCQX Best and OTCQB Venture marketplaces continued to improve their value proposition to select companies and their investors. There was a 92% increase in the number of OTCQX U.S. companies, which included 34 banks. We also recently announced that the OTCQB marketplace now has over 500 verified companies. This critical mass of verified companies became the basis for the new OTCQB Composite Index that launched in November 2014."

Mr. Coulson continued, "Our focus will remain on improving the reliability of our core systems, processes and data to achieve full compliance with Regulation SCI, enhancing the broker-dealer trading experience on OTC Link ATS and the corporate client offering on the OTCQX and OTCQB premium marketplaces, as well as increasing the breadth and reach of our market data so investors can make better informed decisions."

"Each business line contributed to the overall revenue growth during the fourth quarter. Market Data Licensing business line revenue grew by 36% and was the primary contributor of revenue growth during both the fourth quarter and fiscal year 2014. Our Corporate Services and OTC Link ATS business lines also contributed to revenue growth during the fourth quarter with 20% and 14% increases, respectively. In addition, operating profit margin expanded to 38% during the fourth quarter and 32% for the year," said Wendy Fraulo, Chief Financial Officer.

Fourth Quarter 2014 Results compared to Fourth Quarter 2013

Revenues

Gross revenues during the fourth quarter of 2014 increased $2.2 million, or 25%, to $11.2 million. This growth was primarily the result of a $1.4 million, or 36%, increase in Market Data Licensing revenue. Our OTC Link ATS and Corporate Services business lines generated 14% and 20% higher revenues, respectively, during the quarter. Approximately 62% of the $1.4 million increase in Market Data Licensing revenue was driven by the January 2014 price increases for the majority of our market data licenses, while the remaining 38% reflects the expansion of our distribution network and an increase in the number of end-users. OTC Link ATS revenue increased $0.4 million, or 14%, to $3.2 million, primarily related to an increase in combined subscription revenue due to an updated FIX connection pricing schedule, a new internet connection charge and an increased OTC Dealer license fee introduced in July 2014. Corporate Services revenue increased $0.5 million, or 20%, to $2.9 million, primarily due to 311 companies joining the premium OTCQB marketplace since its introduction in May 2014, which contributed $0.4 million in revenue.

Operating Expenses

Operating expenses increased $0.5 million, or 8%, to $6.6 million during the fourth quarter of 2014, primarily related to increases in compensation and benefits costs and IT infrastructure and information services expense. Compensation and benefits costs increased $0.2 million, or 6%, primarily due to higher salary expense, as well as non-recurring employee benefits that were recorded during the fourth quarter of 2014. IT infrastructure and information services costs increased $0.1 million, or 16%, primarily due to higher expenses related to purchased data feeds.

Income from Operations and Net Income

Income from operations increased $1.6 million, or 64%, to $4.0 million during the fourth quarter of 2014, and operating profit margin expanded to 38% from 29% during the same prior year period. The increase in gross revenues and controlled increases in operating expenses contributed to the improvement in our margin during the fourth quarter of 2014.

Net income increased $1.1 million, or 70%, to $2.7 million during the fourth quarter of 2014, primarily due to the increase in operating income, partially offset by an increase in the Company's provision for income taxes. Net income per diluted share increased 64% to $0.23 during the fourth quarter of 2014, as compared to $0.14 during the same prior year period.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, increased 54% to $4.7 million, or $0.41 per adjusted diluted share, during the fourth quarter of 2014, as compared to $3.1 million, or $0.29 per adjusted diluted share during the fourth quarter of 2013, primarily due to the increase in income from operations.

Fiscal Year 2014 Results compared to Fiscal Year 2013

Revenues

Gross revenues increased $6.7 million, or 19%, to $42.2 million. Consistent with our results for the first three quarters of 2014, growth in revenues was primarily driven by growth in our Market Data Licensing business line of $5.6 million, or 38%. The number of professional user licenses grew 10%, which contributed to the 39% increase in revenue from user license subscriptions. Revenue from enterprise license subscriptions grew 47%, and end of day pricing services revenue increased 28%. OTC Link ATS revenue increased $0.6 million, or 5%, to $12.0 million, primarily related to the updated FIX connection pricing schedule, a new internet connection charge and an increased OTC Dealer license fee, which generated 20% higher combined subscription revenue. The increase in OTC Link ATS revenue was partially offset by a 4% decline in revenue from quote positions due to a shift to priced from unpriced quote positions. Corporate Services revenue increased $0.5 million, or 6%, to $9.9 million, primarily due to the addition of 311 OTCQB corporate clients since May 1, 2014, which contributed $0.6 million during 2014. Improved retention rates and growth in the number of corporate clients subscribing to our OTC Disclosure & News Service and increased subscriber use of integrated third-party newswire providers generated 10% higher premium service subscription revenue. These increases were offset by a 7% decrease in OTCQX subscription revenue due to a lower average number of OTCQX companies during 2014.

Operating Expenses

Operating expenses increased $1.6 million, or 6%, to $26.9 million. Compensation and benefits costs increased $1.3 million, or 9%, to $15.6 million, primarily due to increased headcount, annual compensation increases, a higher bonus accrual and other employee benefits. Total compensation and benefits costs decreased to 37% of gross revenues from 40% during the prior year. IT Infrastructure and information services costs increased $0.6 million, or 15%, to $4.3 million, primarily related to increased expenses for purchased data feeds, higher monthly run rates to operate and support our updated data centers, cloud based services and software applications. General and administrative expenses increased $0.2 million, or 34%, to $0.8 million, primarily related to increases to bad debt expense and spending on internal employee travel. These increases were partially offset by a $0.3 million, or 19%, decrease in marketing and advertising costs, primarily associated with a reduction in outside agency fees.

Income from Operations and Net Income

Income from operations increased $4.6 million, or 55%, to $12.9 million, and operating profit margin expanded to 32% from 25% during the prior year. The increase was primarily attributable to the increase in Market Data Licensing revenues and controlled increases in operating expenses.

Net income increased $2.3 million, or 40%, to $7.9 million. The increase in income from operations was partially offset by a $2.4 million increase in the Company's provision for income taxes. The Company's effective tax rate increased to 39% from 32% in 2013, primarily because the 2012 R&D tax credit was not enacted until 2013 resulting in two years of tax credits being recognized during the 2013 tax year, while only a single year of R&D tax credits was recognized in 2014. Net income per diluted share increased 35% to $0.69 during 2014, as compared to $0.51 during 2013.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, increased 42% to $15.7 million, or $1.36 per adjusted diluted share during 2014, as compared to $11.0 million, or $1.02 per adjusted diluted share during 2013, primarily due to the increase in income from operations.

Dividend Declarations – Quarterly Cash Dividend

OTC Markets Group also announced today that its Board of Directors authorized a quarterly cash dividend of $0.10 per share on its Class A Common Stock, which is payable on March 31, 2015 to stockholders of record on March 17, 2015. The ex-dividend date is March 13, 2015.

Stock Buyback Program

On February 24, 2015, 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. The Company is authorized to purchase shares from time to time on the open market and through block trades, in compliance with applicable law.

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.

Fourth Quarter and Fiscal Year 2014 Conference Call

The Company will host a conference call on Thursday, March 5, 2015 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: 1-877-407-0789 (Domestic); 1-201-689-8562 (International)

Replay Dial-in Numbers (Available until March 19, 2015): 1-877-870-5176 (Domestic); 1-858-384-5517 (International); Replay PIN Number: 13602003.

The earnings release and transcript to the earnings call will also be available in the Investor Relations section of the corporate web site at www.otcmarkets.com/investor-relations/overview.

OTC Markets Group's 2014 Annual Report 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 marketplaces to better inform investors of opportunities and risks – the OTCQX® Best Marketplace; the OTCQB® Venture Marketplace; and the OTC Pink® Open Marketplace. Our data-driven platform enables investors to easily trade through the broker of their choice 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 better informed and more efficient financial marketplaces, 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:

Wendy Fraulo
Chief Financial Officer
+ 1 (212) 220-2215
ir@otcmarkets.com

OTC MARKETS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share and number of shares)
(Unaudited)

	Three Months Ended December 31,		Year Ended December 31,
	2014	2013	2014	2013
OTC Link ATS Trading services	$ 3,199	$ 2,816	$ 12,019	$ 11,437
Market data licensing	5,105	3,750	20,334	14,741
Corporate services	2,903	2,425	9,862	9,331
Gross revenues	11,207	8,991	42,215	35,509
Redistribution fees and rebates	(611)	(468)	(2,388)	(1,869)
Net revenues	10,596	8,523	39,827	33,640
Operating expenses
Compensation and benefits	3,672	3,454	15,632	14,339
IT Infrastructure and information services	1,101	953	4,319	3,757
Professional and consulting fees	447	365	1,825	1,937
Marketing and advertising	401	399	1,330	1,633
Occupancy costs	361	382	1,465	1,429
Depreciation and amortization	392	366	1,543	1,642
General, administrative and other	233	171	811	605
Total operating expenses	6,607	6,090	26,925	25,342
Income from operations	3,989	2,433	12,902	8,298
Other income (expense)
Interest income	-	-	-	2
Other income (expense)	-	2	9	( 4 )
Income before provision for income taxes	3,989	2,435	12,911	8,296
Provision for income taxes	1,320	869	5,021	2,665
Net Income	$ 2,669	$ 1,566	$ 7,890	$ 5,631

Net income per share
Basic	$ 0.24	$ 0.14	$ 0.71	$ 0.51
Diluted	$ 0.23	$ 0.14	$ 0.69	$ 0.51

Basic weighted average shares outstanding	10,879,819	10,696,340	10,833,874	10,677,340
Diluted weighted average shares outstanding	11,225,568	10,743,553	11,137,625	10,763,773



Non-GAAP Reconciliation
	Three Months Ended December 31,		Year Ended December 31,
	2014	2013	2014	2013
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Net Income	$ 2,669	$ 1,566	$ 7,890	$ 5,631
Excluding:
Provision for income taxes	1,320	869	5,021	2,665
Interest income	-	-	-	(2)
Depreciation and amortization	392	366	1,543	1,642
Stock-based compensation expense	344	272	1,241	1,089
Adjusted EBITDA	$ 4,725	$ 3,073	$ 15,695	$ 11,025

Adjusted diluted earnings per share	$ 0.41	$ 0.29	$ 1.36	$ 1.02

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)

	December 31,
	2014	2013
Assets
Current assets
Cash	$ 20,272	$ 18,936
Accounts receivable, net of allowance for doubtful accounts of $138 and $130	5,674	4,980
Prepaid income taxes	523	179
Prepaid expenses and other current assets	1,395	711
Deferred tax assets	177	173
Total current assets	28,041	24,979
Property and equipment, net	4,357	4,184
Non-current deferred tax assets, net	277	314
Goodwill	251	251
Intangible assets, net	40	40
Security deposits	210	210
Total Assets	$ 33,176	$ 29,978

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$ 562	$ 509
Accrued expenses and other current liabilities	3,888	3,400
Deferred revenue	9,521	6,391
Total current liabilities	13,971	10,300
Deferred rent	391	608
Income tax reserve	563	366
Total Liabilities	14,925	11,274
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 11,310,364 issued, 11,122,541 outstanding at
December 31, 2014; 11,006,405 issued, 10,888,510 outstanding at December 31, 2013	113	110
Class C - 130,838 shares authorized, issued and outstanding at December 31, 2014
and December 31, 2013	1	1
Additional paid-in capital	8,838	7,243
Retained earnings	10,752	11,971
Treasury stock - 187,823 shares at December 31, 2014 and 117,895 shares at December 31, 2013	(1,453)	(621)
Total Stockholders' Equity	18,251	18,704
Total Liabilities and Stockholders' Equity	$ 33,176	$ 29,978