OTCM

OTC Markets Group Inc.

 
Class A Common Stock Alternative Reporting
OTCQX U.S. Premier
 

OTC Disclosure & News Service

 

OTC Markets Group Announces Third Quarter 2014 Financial Results

Nov 12, 2014

OTC Disclosure & News Service

- OTC Markets Group Announces Third Quarter 2014 Financial Results

OTC Markets Group Announces Third Quarter 2014 Financial Results

PR Newswire

NEW YORK, Nov. 12, 2014 /PRNewswire/ --

Third Quarter 2014 Highlights:

  • Unaudited third quarter 2014 GAAP diluted EPS of $0.17 and adjusted diluted EPS of $0.36
  • Third quarter operating profit margin of 34%
  • Special dividend of $0.50 per share
  • Quarterly dividend of $0.10 per share
  • 118 companies met the new OTCQB Venture Marketplace standards through the third quarter

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 three and nine months ended September 30, 2014.

"We achieved revenue growth in all three business lines and expansion of operating profit margin during the third quarter and first nine months of 2014, led by increases in Market Data Licensing revenues.  We are pleased to see strong adoption of the premium OTCQB Venture Marketplace for entrepreneurial and development stage companies.  As of October 31, 2014, 153 companies had met the new OTCQB standards and we have a strong book of OTCQB applications from current and newly traded companies," said R. Cromwell Coulson, President and Chief Executive Officer.

"We continue to make investments in our technology platform and the supporting infrastructure to improve stability and increase the scalability of our network," continued Coulson. 

"Revenue growth in our Market Data Licensing business line was the primary contributor to the expansion of our operating profit margin to 34% during the third quarter and 30% for the year to date period," said Wendy Fraulo, Chief Financial Officer. "Management continues to focus on supporting our recurring revenue growth."

Third Quarter 2014 Results compared to Third Quarter 2013

Revenues

Gross revenues during the third quarter of 2014 increased $1.8 million, or 21%, to $10.8 million, driven by a $1.3 million, or 36%, increase in Market Data Licensing revenue.  Approximately 60% of the $1.3 million increase in Market Data Licensing revenue was driven by January 1, 2014 price increases for the majority of our market data licenses, while the remaining 40% reflects the expansion of our distribution network and number of end-users.  OTC Link ATS revenue increased $0.3 million, or 12%, to $3.1 million, primarily related to an increase in the combined subscription revenue due to an updated FIX connection pricing schedule, a new internet connection charge and increased OTC Dealer license fee that was effective July 1, 2014.   Corporate Services revenue increased $0.2 million, or 7%, to $2.5 million, due to the addition of 118 OTCQB subscribers since May 1, 2014 contributing $0.1 million and a 13% increase in premium service subscription revenue related to growth in the subscriber base.  These increases were partially offset by a 6% decrease in OTCQX subscription revenue due to the lower number of OTCQX companies.    

Operating Expenses

Operating expenses increased $0.5 million, or 9%, to $6.8 million during the third quarter of 2014, primarily related to increases in compensation and benefits and IT infrastructure and information services expenses.  Compensation and benefits costs increased $0.3 million, or 10%, primarily due to annual compensation increases and a higher bonus accrual.  IT infrastructure and information services costs increased $0.2 million, or 16%, due to higher monthly run rates in software maintenance costs, expenses related to purchased data fees and costs to operate the updated data centers, including cloud based services.  General and administrative expenses also increased $0.1 million, or 75%, primarily related to adjustments to bad debt expense due to the timing of collections.  These increases were partially offset by a 13% decrease in professional and consulting fees, primarily due to the timing of the annual OTC Link ATS systems audit as required for an SEC registered alternative trading system that processes significant trade volumes.

Income from Operations and Net Income

Income from operations increased $1.2 million, or 53%, to $3.4 million during the third quarter of 2014, and operating profit margin expanded to 34% from 27% during the same prior year period.  These increases were primarily attributable to the increase in Market Data Licensing revenues and controlled increases in operating expenses.

Net income of $1.9 million during the third quarter of 2014 increased $0.5 million, or 35%, over the same prior year period, primarily due to the increase in operating income, partially offset by an increase in the provision for income taxes.  The Company's effective tax rate was 44% during the third quarter of 2014, primarily because R&D tax credits were not enacted in the current year, but were included in the tax provision for the third quarter of 2013 and resulted in an effective tax rate of 37% during that period.  Net income per diluted share was $0.17 during the third quarter of 2014, as compared to $0.13 during the third quarter of 2013.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense increased 44% to $4.2 million, or $0.36 per adjusted diluted share, during the third quarter of 2014, as compared to $2.9 million, or $0.27 per adjusted diluted share during the same prior year period primarily due to an increase in income from operations.

Year to Date September 2014 Results compared to Year to Date September 2013

Revenues

Gross revenues increased $4.5 million, or 17%, to $31.0 million.  Consistent with our results for the prior two quarters, the combined impact of price increases and expansion of the subscriber base drove an increase in Market Data Licensing revenue of $4.2 million, or 39%.  The number of professional user licenses grew 12%, which contributed to the 40% growth in revenue from user license subscriptions.  Revenue from enterprise license subscriptions grew 50% and end of day pricing services revenue increased 28%.  OTC Link ATS revenue increased $0.2 million, or 2%, primarily related to the updated FIX connection pricing schedule, a new internet connection charge and increased OTC Dealer license fee, which generated 12% higher combined subscription revenue.   The increase from OTC Link ATS revenue was partially offset by a 6% decline in revenue from quote positions due to a shift to priced from unpriced quote positions.  Corporate Services revenue increased $0.1 million, or 1%, primarily due to the addition of 118 OTCQB subscribers paying subscription fees under the new OTCQB standards, a 12% increase in premium service subscription revenue related to improved retention rates and growth in the number of corporate clients subscribing to our OTC Disclosure and News Services, and increased subscriber use of integrated third-party newswire providers.  These increases were offset by a decrease in OTCQX subscription revenue due to a lower number of OTCQX companies. 

Operating Expenses

Operating expenses increased $1.0 million, or 6%, to $20.3 million.  Compensation and benefits costs increased $1.1 million, or 10%, to $12.0 million, primarily due to increased headcount, annual compensation increases and a higher bonus accrual, although these costs decreased to 39% of gross revenues from 41% during the same prior year period.  IT Infrastructure and data communications costs increased $0.4 million, or 15%, to $3.2 million, primarily related to higher monthly run rates in software maintenance costs, expenses related to purchased data feeds and costs to operate the updated data centers, including cloud based services.  General and administrative expenses increased $0.1 million, or 27%, to $0.6 million, primarily related to adjustments to bad debt expense due to the timing of collections.  These increases were partially offset by decreases in professional and consulting costs and marketing and advertising costs.  Professional and consulting fees decreased $0.2 million, or 12%, primarily related to an 89% reduction in IT consulting fees that was partially offset by a 14% increase in the use of other technical specialists and advisors.  Costs associated with outside agency fees were higher during the first nine months of 2013, which contributed to the 21% reduction in marketing and advertising expenses during the same period of 2014.  This decrease was partially offset by an increase in spending on corporate client outreach during the year to date period of 2014.      

Income from Operations and Net Income

Income from operations increased $3.0 million, or 52%, to $8.9 million and operating profit margin expanded to 30% from 23% during the same prior year period.  The increase was primarily attributable to the increase in Market Data Licensing revenues and controlled increases in operating expenses.     

Net income increased $1.1 million, or 28%, to $5.2 million.  The increase in income from operations was partially offset by a $1.9 million increase in the provision for income taxes.  The Company's effective tax rate increased to 41%, primarily because R&D tax credits were not enacted in the current year, but were included in the tax provision for the nine months ended September 30, 2013 and resulted in an effective tax rate of 31% during that period.  Net income per diluted share was $0.46 during the nine months ended September 30, 2014, as compared to $0.37 during the same prior year period.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense increased 38% to $11.0 million, or $0.96 per adjusted diluted share, during the first nine months of 2014, as compared to $8.0 million, or $0.74 per adjusted diluted share during the same prior year period primarily due to an increase in income from operations.

Dividend Declarations – Special Cash Dividend and Quarterly Cash Dividend

OTC Markets Group also announced today that its Board of Directors authorized two dividends on its Class A Common Stock; a quarterly cash dividend of $0.10 per share and a special cash dividend of $0.50.  The special dividend is payable on December 8, 2014 to stockholders of record on November 24, 2014.  The ex-dividend date is November 20, 2014.  The quarterly cash dividend is payable on December 23, 2014 to stockholders of record on December 9, 2014.  The ex-dividend date is December 5, 2014.

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 2014 Conference Call

The Company will host a conference call on Thursday, November 13, 2014 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 November 27, 2014): 1-877-870-5176 (Domestic); 1-858-384-5517 (International); Replay PIN Number: 13595206.

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

For more information, contact Wendy Fraulo, Chief Financial Officer, at (212) 220-2215 or by email at ir@otcmarkets.com.

OTC Markets Group's Quarterly Report for the three and nine months ended September 30, 2014 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 – OTCQX®, The Best Marketplace; OTCQB®, The Venture Marketplace; and OTC Pink®, The 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 registered ATS.

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OTC MARKETS GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except earnings per share and number of shares)

(Unaudited)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2014


2013


2014


2013

OTC Link ATS Trading services

$           3,146


$           2,815


$           8,820


$           8,620

Market data licensing

5,123


3,778


15,229


10,993

Corporate services

2,530


2,367


6,959


6,906

Gross revenues

10,799


8,960


31,008


26,519

Redistribution fees and rebates

(593)


(477)


(1,777)


(1,401)

Net revenues

10,206


8,483


29,231


25,118

Operating expenses








Compensation and benefits

3,909


3,569


11,960


10,885

IT Infrastructure and information services

1,123


969


3,218


2,804

Professional and consulting fees

446


513


1,379


1,572

Marketing and advertising 

284


287


954


1,234

Occupancy costs

389


368


1,104


1,047

Depreciation and amortization

408


403


1,151


1,276

General, administrative and other

200


114


552


435

Total operating expenses

6,759


6,223


20,318


19,253

Income from operations

3,447


2,260


8,913


5,865

Other income (expense)








Interest income

-


1


-


2

Other income (expense)

1


-


9


(7)

Income before provision for income taxes

3,448


2,261


8,922


5,860

Provision for income taxes

1,511


829


3,701


1,795

Net Income 

$           1,937


$           1,432


$           5,221


$           4,065









Net income per share 








Basic

$             0.17


$             0.13


$             0.47


$             0.37

Diluted

$             0.17


$             0.13


$             0.46


$             0.37









Basic weighted average shares outstanding

10,852,255


10,675,567


10,818,390


10,663,389

Diluted weighted average shares outstanding

11,188,086


10,704,377


11,101,530


10,742,417









Non-GAAP Reconciliation









Three Months Ended
September 30,


Nine Months Ended
September 30,


2014


2013


2014


2013

Net Income

$           1,937


$           1,432


$           5,221


$           4,065

Excluding:








Provision for income taxes

1,511


829


3,701


1,795

Depreciation and amortization

408


403


1,151


1,276

Stock-based compensation expense

336


249


896


817

Adjusted EBITDA

$           4,192


$           2,913


$         10,969


$           7,953









Adjusted diluted earnings per share

$             0.36


$             0.27


$             0.96


$             0.74









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,


2014


2013

Assets




Current assets




Cash

$             19,136


$             18,936

Accounts receivable, net of allowance for doubtful accounts of $150 and $130

5,277


4,980

Prepaid expenses and other current assets

1,222


711

Prepaid income taxes

169


179

Deferred tax assets

173


173

Total current assets

25,977


24,979

Property and equipment, net 

4,164


4,184

Non-current deferred tax assets, net

617


314

Goodwill

251


251

Intangible assets, net

40


40

Security deposits

210


210

Total Assets

$             31,259


$             29,978





Liabilities and stockholders' equity




Current liabilities




Accounts payable

$                  415


$                  509

Accrued expenses and other current liabilities

3,368


3,400

Income taxes payable

161


-

Deferred revenue

4,678


6,391

Total current liabilities

8,622


10,300

Deferred rent

450


608

Income tax reserve

520


366

Total Liabilities

9,592


11,274

Commitments and contingencies




Stockholders' equity




Common stock - par value $0.01 per share




Class A - 14,000,000 authorized, 11,254,289 issued, 11,066,466 outstanding at




September 30, 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 September 30, 2014




and December 31, 2013

1


1

Additional paid-in capital 

8,249


7,243

Retained earnings

14,757


11,971

Treasury stock - 187,823 shares at September 30, 2014; 117,895 shares at December 31, 2013

(1,453)


(621)

Total Stockholders' Equity

21,667


18,704

Total Liabilities and Stockholders' Equity

$             31,259


$             29,978

 

SOURCE OTC Markets Group Inc.

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The above news release has been provided by the above company via the OTC Disclosure and News Service. Issuers of news releases and not OTC Markets Group Inc. are solely responsible for the accuracy of such news releases.