News Press Releases

OTC Markets Group Reports Second Quarter 2019 Results

OTCM | August 7, 2019

Delivers Continued Revenue Growth

NEW YORK, Aug. 7, 2019 /PRNewswire/ --

Second Quarter 2019 Highlights:

Gross revenues of $15.7 million for the quarter, up 6% over the prior year quarter
Operating income of $4.4 million for the quarter, down 11% versus the prior year quarter
Net income of $3.6 million, down 11% versus the prior period, driving a 12% decrease in GAAP diluted EPS to $0.30
Total cash returned to shareholders during the quarter of $1.7 million, an increase of 8%
Announcing second quarter 2019 dividend of $0.15 per share
13 graduates to a national securities exchange during the quarter
Continued progress in achieving state Blue Sky exemptions for our OTCQX and OTCQB markets, with OTCQX reaching 36 states
Following our acquisition of the Virtual Investor Conferences^SM business, hosted 7 events in the second quarter with 79 companies reaching more than six thousand investors
Following our first quarter acquisition of Qaravan^SM Inc., launched the Qaravan CECL solution, further enhancing our Market Data offerings
Launched Canari^SM, a web-based tool designed to provide a comprehensive view of quantitative compliance data points for OTC securities
Launched the OTCQX Cannabis Index, a new performance benchmark for the most active cannabis companies trading on the OTCQX Best Market

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 second quarter of 2019.

"The first half of 2019 was a period of investment – in our facilities, in our technology platform and in our people. We are making these investments in order to increase the value of our products for our clients," said R. Cromwell Coulson, President and Chief Executive Officer. "We continue to focus on creating cost-effective public markets and on efficiently delivering data and technology solutions that solve the challenges faced by brokers, banks and companies."

"We were pleased to report our 10^th consecutive quarter of top line revenue growth, with all three of our business lines contributing. With our OTC Link ECN, we continued to drive growth in our trading business. In our Market Data business we saw a nice uptick in the number of professional users of our data as well as continued industry adoption of our suite of compliance analytics products. Finally, in our Corporate Services business, strong sales and improved customer retention on our OTCQX Best Market contributed to the quarter over quarter revenue gains," said Bea Ordonez, Chief Financial Officer. "While we saw contraction in our operating income and margin, this reflects the impact of our continued investment in the people, technology and facilities that we believe will drive sustainable, long-term earnings growth. We believe we are well positioned to deliver that growth."

Second Quarter 2019 compared to Second Quarter 2018

	Three Months Ended June 30,
(in thousands, except shares and per share data)	2019	2018	% change	$ change
OTC Link	$ 2,898	$ 2,799	4%	99
Market data licensing	6,077	5,830	4%	247
Corporate services	6,695	6,137	9%	558
Gross revenues	15,670	14,766	6%	904
Net revenues	15,033	14,142	6%	891
Revenues less transaction-based expenses	14,861	14,056	6%	805
Operating expenses	10,434	9,060	15%	1,374
Income from operations	4,427	4,996	(11%)	(569)
Operating profit margin	29.4%	35.3%
Income before provision for income taxes	4,450	5,007	(11%)	(557)
Net income	$ 3,567	$ 3,987	(11%)	(420)

Diluted earnings per share	$ 0.30	$ 0.34	(12%)
Adjusted diluted earnings per share	$ 0.46	$ 0.49	(6%)
Weighted-average shares outstanding, diluted	11,678,560	11,600,830	1%

Financial Highlights

Gross revenues increased $904 thousand, or 6%, to $15.7 million.
Corporate Services delivered 9% growth, with strong sales, an improved retention rate on the OTCQX market and the quarterly impact of 2018 price increases for renewing subscribers on the OTCQB market all contributing.
Market Data Licensing revenues grew 4% over the prior period, with a 4% increase in the number of professional users at period end, as well as the impact of sales of our data file products, including our suite of compliance products, both in 2018 and in the current year, driving that increase.
OTC Link revenues increased 4% over the prior year quarter, with revenues from our OTC Link ECN offsetting small declines in revenues from messages on our OTC Link ATS.
Operating expenses increased $1.4 million, or 15%, to $10.4 million, primarily due to a $875 thousand, or 15%, increase in compensation and benefits costs and a $261 thousand, or 19%, increase in IT infrastructure and information services spend.
Net income decreased by 11%, to $3.6 million, a result of the higher operating expense base, partially offset by growth in revenue and a small reduction in the company's effective tax rate.
Adjusted EBITDA, which excludes non-cash stock-based compensation expense, decreased 6%, to $5.5 million, or $0.46 per adjusted diluted share.

Business Developments and News

Following our February 2019 acquisition of Qaravan Inc., in May 2019, launched our Qaravan CECL Solution, a turnkey approach for firms to efficiently collect and analyze data related to their assessment of Current Expected Credit Losses. The CECL solution is designed to assist firms in their adoption of the Financial Accounting Standards Board's ("FASB") new accounting standard dealing with same. In July 2019, FASB voted to propose delaying the effective date for adoption of the guidance for smaller reporting companies, as defined by the SEC, and for all non-public entities to January 2023. The new FASB guidance is expected to become effective for large accelerated filers, as defined by the SEC, in respect of accounting periods beginning on or after December 15, 2019.
In April 2019, announced the launch of the OTCQX® Cannabis Index, a new performance benchmark for cannabis companies trading on the OTCQX Best Market. The OTCQX Cannabis Index is designed to highlight for investors the diversity of cannabis companies that meet the financial, disclosure and corporate governance standards required to trade on the OTCQX Market.
In April 2019, launched Canari^SM, a premium, web-based tool designed to provide subscribers with a comprehensive view of quantitative compliance data points and analytics tools for OTCQX, OTCQB, Pink and Grey Market securities.
Following our acquisition in January 2019 of assets related to the Virtual Investor Conferences business, during the second quarter, hosted 7 events with 79 companies presenting, including a Depositary Receipts conference in partnership with Deutsche Bank, a resource company event and an event focused on the cannabis sector. We have continued to grow the investor base and the events hosted in the second quarter reached more than six thousand investors and garnered more than ten thousand unique views.
As of August 1, 2019, the OTCQX market is exempt from state Blue Sky laws regarding secondary trading in thirty-six states and the OTCQB market is exempt in thirty-three states.
As of August 1, 2019, 33 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 U.S. equities markets.
OTC Link ECN has continued to gain traction with 47 subscribers connected to the ECN as of August 1, 2019.

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 September 26, 2019, to stockholders of record on September 12, 2019. The ex-dividend date is September 11, 2019.

Stock Buyback Program

The Company is authorized to purchase shares from time to time on the open market and through block trades, in compliance with applicable law. The Company did not repurchase any shares during the second quarter of 2019.

On March 7, 2019, 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 of June 30, 2019, there are 300,000 shares remaining to be purchased under our 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.

Second Quarter 2019 Conference Call

The Company will host a conference call on Thursday, August 8, 2019, at 8:30 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: 877-407-9124 (Domestic); 201-689-8584 (International)

Replay Dial-in Numbers (available until September 8, 2019): 877-481-4010 (Domestic); 919-882-2331 (International); Replay PIN Number: 50550

Participants can access the conference via Internet webcast at the following link:

https://www.investornetwork.com/event/presentation/50550

The earnings release, transcript to the earnings call and presentation 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 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.

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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 share and per share information)
(Unaudited)

	Three Months Ended June 30,
	2019	2018
OTC Link	$ 2,898	$ 2,799
Market data licensing	6,077	5,830
Corporate services	6,695	6,137
Gross revenues	15,670	14,766
Redistribution fees and rebates	(637)	(624)
Net revenues	15,033	14,142
Transaction-based expenses	(172)	(86)
Revenues less transaction-based expenses	14,861	14,056
Operating expenses
Compensation and benefits	6,754	5,879
IT Infrastructure and information services	1,614	1,353
Professional and consulting fees	546	595
Marketing and advertising	242	269
Occupancy costs	605	452
Depreciation and amortization	380	271
General, administrative and other	293	241
Total operating expenses	10,434	9,060
Income from operations	4,427	4,996
Other income
Interest income	19	10
Other income, net	4	1
Income before provision for income taxes	4,450	5,007
Provision for income taxes	883	1,020
Net income	$ 3,567	$ 3,987

Net income per share
Basic	$ 0.31	$ 0.35
Diluted	$ 0.30	$ 0.34

Basic weighted average shares outstanding	11,353,189	11,240,863
Diluted weighted average shares outstanding	11,678,560	11,600,830

Non-GAAP Reconciliation
	Three Months Ended June 30,
	2019	2018
Net Income	$ 3,567	$ 3,987
Excluding:
Interest Income	(19)	(10)
Provision for income taxes	883	1,020
Depreciation and amortization	380	271
Stock-based compensation expense	660	552
Adjusted EBITDA	$ 5,471	$ 5,820

Adjusted diluted earnings per share	$ 0.46	$ 0.49

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)

	June 30,	December 31,
	2019	2018
Assets
Current assets
Cash	$ 24,127	$ 28,813
Short-term restricted cash	-	160
Accounts receivable, net of allowance for doubtful accounts of $176 and $169	5,111	4,942
Prepaid income taxes	931	478
Prepaid expenses and other current assets	1,535	2,360
Total current assets	31,704	36,753
Property and equipment, net	6,134	1,980
Operating lease right-of-use assets	16,585	-
Deferred tax assets, net	964	1,043
Goodwill	251	251
Intangible assets, net	40	61
Long-term restricted cash	1,560	1,561
Total Assets	$ 57,238	$ 41,649

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$ 707	$ 693
Accrued expenses and other current liabilities	5,778	6,018
Income taxes payable	1	-
Deferred revenue	13,102	16,070
Total current liabilities	19,588	22,781
Deferred rent	-	1,001
Income tax reserve	1,641	1,458
Operating lease liabilities	16,097	-
Total Liabilities	37,326	25,240
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.01 per share
Class A - 14,000,000 authorized, 12,169,142 issued, 11,635,446 outstanding at
June 30, 2019; 12,035,941 issued, 11,548,956 outstanding at December 31, 2018	122	120
Additional paid-in capital	17,038	15,772
Retained earnings	11,349	7,724
Treasury stock - 533,696 shares at June 30, 2019 and 486,985 shares at December 31, 2018	(8,597)	(7,207)
Total Stockholders' Equity	19,912	16,409
Total Liabilities and Stockholders' Equity	$ 57,238	$ 41,649

See accompanying notes to unaudited condensed consolidated financial statements