News Press Releases

OTC Markets Group Announces Third Quarter 2017 Financial Results

OTCM | November 8, 2017

PR Newswire

NEW YORK, Nov. 8, 2017

NEW YORK, Nov. 8, 2017 /PRNewswire/ --

OTC Markets Group logo. (PRNewsFoto/OTC Markets Group)

Third Quarter 2017 Highlights:

Gross revenues of $13.6 million for the quarter versus $12.6 million for prior year quarter, up 8%
Operating income of $4.6 million for the quarter versus $4.4 million for the prior year quarter, up 4%
Operating profit margin of 35% for the quarter, down from 36% for the prior year quarter
Net income of $3.5 million for the quarter, up from $3.0 million for the prior year quarter
OTCQX and OTCQB Markets receive state Blue Sky recognition from Hawaii and exemption under existing law in Pennsylvania, bringing the total to 27 states for OTCQX and 24 states for OTCQB
15 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
Announced a Strategic Alliance with the Canadian Securities Exchange, a Canadian listing exchange
Announced a Strategic Alliance with Issuer Direct Corporation, (NYSE American: ISDR ), a provider of communications and compliance solutions to issuers
Filed a Form ATS with the SEC to create "OTC Link ECN," a matching engine and router for certain OTC equity securities expected to launch in the fourth quarter 2017
Announcing special dividend of $0.60 per share and fourth quarter 2017 dividend of $0.14 per share
12 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 third quarter 2017.

"During the third quarter, we continued to execute on our strategic goal of making it less painful for companies to be public," said R. Cromwell Coulson, President and Chief Executive Officer. Mr. Coulson continued, "Our continued progress towards national Blue Sky recognition and the growth of our Transfer Agent Verified Shares Program allow us to provide our OTCQX and OTCQB companies with more efficient, effective public markets."

"The third quarter of 2017 saw 8% quarter over quarter revenue growth. While the 10% increase in operating expenses contributed to a 100 basis points contraction in our operating margin, we were able to deliver 4% growth in quarter over quarter operating income, 16% growth in net income and 12% growth in quarter over quarter diluted EPS. We continue to make significant investments in the people and technologies that will deliver innovative solutions to our subscribers and drive long term value creation for our shareholders," said Bea Ordonez, Chief Financial Officer.

Third Quarter 2017 Compared to Third Quarter 2016

	Quarter Ended September 30,
(in thousands, except shares and per share data)	2017	2016	% change	$ change
OTC Link ATS	$ 2,413	$ 2,530	(5%)	$ (117)
Market data licensing	5,505	5,274	4%	231
Corporate services	5,704	4,809	19%	895
Gross revenues	13,622	12,613	8%	1,009
Net revenues	13,038	12,056	8%	982
Operating expenses	8,448	7,657	10%	791
Income from operations	4,590	4,399	4%	191
Operating profit margin	35%	36%
Net income	$ 3,488	$ 3,006	16%	$ 482

Diluted earnings per share	$ 0.29	$ 0.26	12%
Adjusted diluted earnings per share	$ 0.45	$ 0.42	7%
Weighted-average shares outstanding, diluted	11,593,890	11,428,716	1%

Financial Highlights

Gross revenues increased $1.0 million, or 8% over the prior year quarter, to $13.6 million.
$895 thousand, or 19%, increase in Corporate Services revenues, largely driven by significant growth in companies joining the OTCQB Venture market and price increases related to the OTCQX market.
Revenues from OTC Link® ATS declined $117 thousand, or 5%, to $2.4 million, reflecting a 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 $231 thousand, or 4%, 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 and strong sales related to certain data license products.
Operating expenses increased $791 thousand, or 10%, to $8.4 million, primarily due to quarter over quarter increases in compensation costs and information technology costs.
Income from operations increased $191 thousand, or 4%, to $4.6 million.
Net income increased $482 thousand, or 16%, to $3.5 million, due to the increase in operating income as well as a decrease in the company's effective tax rate for the quarter from 32% to 24%. The decrease in the effective tax rate was the result of discrete, one-time benefits recognized from amending prior year federal tax returns to claim a deduction against qualifying income pursuant to the "Domestic Production Activities Deduction" and to claim the lower rate of Corporate Tax available in New York state to entities who meet the criteria of a "Qualifying Emerging Technology Company".
Adjusted EBITDA, which excludes non-cash stock-based compensation expense, increased $92 thousand, or 2%, to $5.3 million, or $0.45 per adjusted diluted share.

Business Developments and News

Announced that Hawaii state regulations recognize the OTCQX and OTCQB markets as securities manuals for the purposes of its state "Blue Sky Manual Exemption", and that secondary transactions on OTCQX and OTCQB are exempt under existing Pennsylvania law. Hawaii and Pennsylvania bring the total number of states recognizing the OTCQX Market to 27 and the total recognizing the OTCQB Market to 24. This marks continued progress in respect of the initiative, which began in May 2016, and had the objective of achieving Blue Sky recognition for secondary trading activities on our OTCQX and OTCQB markets.
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 October 31, 2017, 15 transfer agents have joined the program, including Continental Stock Transfer & Trust and 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.
On October 2, 2017, announced a Strategic Alliance with the Canadian Securities Exchange, a Canadian listing exchange. This first-of-its-kind North American capital and visibility solution is designed to offer a new program for issuers looking for an efficient IPO experience in Canada and cost-effective access to North American investors.
OTC Link LLC filed the requisite Form ATS with the Securities and Exchange Commission to establish "OTC Link ECN", an Electronic Communications Network that will function as a matching engine and router for certain OTC securities. OTC Link ECN is expected to launch in the fourth quarter of 2017.
On November 1, 2017, announced a Strategic Alliance with Issuer Direct Corporation, (NYSE American: ISDR), a provider of communications and compliance solutions to small corporate issuers. The Strategic Alliance positions the Company to offer a premier suite of cost effective news, communications, compliance and investor relations services.

Dividend Declaration – Quarterly Cash Dividend

OTC Markets Group announced today that its Board of Directors authorized and approved 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, 2017 to stockholders of record on November 22, 2017. The ex-dividend date is November 21, 2017. The quarterly cash dividend is payable on December 21, 2017 to stockholders of record on December 7, 2017. The ex-dividend date is December 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.

Third Quarter 2017 Conference Call

The Company will host a conference call on Thursday, November 9, 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: 1-888-567-1602 (Domestic); 1-404-267-0373 (International);

Replay Dial-in Numbers (Available until November 23, 2017): 1-877-481-4010 (Domestic); 1-919-882-2331 (International); Replay Pin Number: 22418

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 September 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: ir@otcmarkets.com

OTC MARKETS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)

	Three Months Ended September 30,
	2017		2016
Gross revenues	$	13,622	$	12,613
Redistribution fees and rebates	(584)		(557)
Net revenues	13,038		12,056
Operating expenses
Compensation and benefits	5,250		4,665
IT Infrastructure and information services	1,499		1,378
Professional and consulting fees	560		439
Marketing and advertising	190		175
Occupancy costs	469		442
Depreciation and amortization	300		387
General, administrative and other	180		171
Total operating expenses	8,448		7,657
Income from operations	4,590		4,399
Other (expense) income
Interest income	6		1
Other (expense) income	(1)		10
Income before provision for income taxes	4,595		4,409
Provision for income taxes	1,107		1,404
Net income	$	3,488	$	3,005

Net income per share
Basic	$	0.31	$	0.26
Diluted	$	0.29	$	0.26

Basic weighted average shares outstanding	11,414,750		11,087,328
Diluted weighted average shares outstanding	11,593,890		11,428,716

Non-GAAP Reconciliation
	Three Months Ended September 30,
	2017		2016
Net Income	$	3,488	$	3,006
Excluding:
Provision for income taxes	1,107		1,404
Depreciation and amortization	300		387
Stock-based compensation expense	452		458
Adjusted EBITDA	$	5,347	$	5,255

Adjusted diluted earnings per share	$	0.45	$	0.45

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)

	September 30,	December 31,
	2017	2016
Assets
Current assets
Cash	$ 24,603	$ 25,034
Accounts receivable, net of allowance for doubtful accounts of $166 and $145	5,647	6,262
Prepaid expenses and other current assets	1,554	1,246
Prepaid income taxes	295	435
Total current assets	32,099	32,977
Property and equipment, net	1,967	2,279
Deferred tax assets, net	1,215	886
Goodwill	251	251
Intangible assets, net	124	40
Security deposits	192	210
Total Assets	$ 35,848	$ 36,643

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$ 835	$ 508
Accrued expenses and other current liabilities	4,165	4,761
Income taxes payable	139	103
Deferred revenue	10,116	14,664
Total current liabilities	15,255	20,036
Deferred rent	274	187
Income tax reserve	1,069	914
Total Liabilities	16,598	21,137
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 11,860,898 issued, 11,414,238 outstanding at
September 30, 2017; 11,595,337 issued, 11,247,979 outstanding at December 31, 2016	119	116
Class C - 0 shares authorized, issued and outstanding at September 30, 2017;
130,838 shares authorized, issued and outstanding at December 31, 2016	-	1
Additional paid-in capital	14,057	12,988
Retained earnings	11,233	6,385
Treasury stock - 446,660 shares at September 30, 2017 and 347,358 shares at December 31, 2016	(6,159)	(3,984)
Total Stockholders' Equity	19,250	15,506
Total Liabilities and Stockholders' Equity	$ 35,848	$ 36,643