Third Quarter 2022 Highlights:
- Gross revenues of $25.9 million for the quarter, up 3% versus the prior year quarter
- Operating income of $9.0 million for the quarter, down 7% versus the prior year quarter
- Operating profit margin of 35.9% versus 39.5% during the prior year quarter
- Net income of $7.2 million, down 5% versus the prior year quarter, driving a 3% decrease in the quarterly diluted GAAP EPS to $0.60
- Total cash returned to shareholders during the quarter in the form of dividends of $2.1 million
- Announcing special dividend of $1.50 per share and fourth quarter 2022 dividend of $0.18 per share
- 609 OTCQX® companies and 1,245 OTCQB® companies at quarter-end, up 9% and 17%, respectively, versus the prior year quarter
- 23 graduates to a national securities exchange during the quarter
- 105 subscribers to OTC Link ECN as of September 30, 2022, up 15 versus September 30, 2021; approximately 32,000 average daily trades during the quarter, down 17% from the prior year period
- Continued progress in achieving state Blue Sky recognition for our OTCQX and OTCQB markets, with exemptions in 38 states and 1 U.S. territory as of November 1, 2022
- Launched fixed income 15c2-11 data product, a premium offering that applies our expertise on Rule 15c2-11 compliance in the equity market to TRACE-eligible corporate debt securities
- Announced closing of the acquisition of EDGAR® Online, an established supplier of real-time SEC regulatory data and financial analytics, from Donnelley Financial, LLC. The transaction closed on November 9, 2022
NEW YORK, Nov. 14, 2022 (GLOBE NEWSWIRE) -- OTC Markets Group Inc. (OTCQX: OTCM), operator of regulated markets for 12,000 U.S. and international securities, today announced its financial results for the third quarter of 2022.
“Our acquisition of the Edgar® Online business expands our data coverage, domain expertise, and connectivity. It includes a full complement of U.S. public company disclosure, adding SEC reporting data to the issuer data we currently provide through our OTC Disclosure & News Service®," said R. Cromwell Coulson, President and Chief Executive Officer. “The mission-critical platform supports our current subscribers, expands our client base and brings in-house vital services that power our automated processes for tracking issuers’ compliance with disclosure, financial standards and regulatory reporting requirements. Over the longer term, the acquisition provides an opportunity to enhance our data offerings and distribution channels and better serve our subscribers.”
“OTC Markets Group’s diversified product offering and revenue streams allowed us to deliver year-on-year revenue growth in an increasingly challenging economic environment,” said Antonia Georgieva, Chief Financial Officer. “Our Corporate Services business saw continued strong growth, while our Market Data Licensing business benefited from professional and enterprise subscriber growth and the additional revenue from the Blue Sky Data Corp acquisition earlier in the year. This growth helped to offset the impact of reduced OTC Link trading activity and the decline in the number of non-professional users of our market data. Our higher third quarter expenses reflect our thoughtful and deliberate investments in our talent and platform in support of our strategic priorities, including our enhanced regulatory role under amended Rule 15c2-11, the continued development of our product offering and our unwavering focus on the security and reliability of our core trading systems.”
Third Quarter 2022 compared to Third Quarter 2021
Financial Highlights
| Three Months Ended September 30, | ||||||||||||||
| (in thousands, except shares and per share data) | 2022 | 2021 | % change | $ change | ||||||||||
| OTC Link | $ | 5,027 | $ | 6,110 | (18%) | (1,083) | ||||||||
| Market data licensing | 9,028 | 8,489 | 6% | 539 | ||||||||||
| Corporate services | 11,860 | 10,621 | 12% | 1,239 | ||||||||||
| Gross revenues | 25,915 | 25,220 | 3% | 695 | ||||||||||
| Net revenues | 25,141 | 24,476 | 3% | 665 | ||||||||||
| Revenues less transaction-based expenses | 23,836 | 22,808 | 5% | 1,028 | ||||||||||
| Operating expenses | 14,799 | 13,132 | 13% | 1,667 | ||||||||||
| Income from operations | 9,037 | 9,676 | (7%) | (639) | ||||||||||
| Operating profit margin | 35.9% | 39.5% | ||||||||||||
| Income before provision for income taxes | 9,038 | 9,688 | (7%) | (650) | ||||||||||
| Net income | $ | 7,169 | $ | 7,512 | (5%) | (343) | ||||||||
| Diluted earnings per share | $ | 0.60 | $ | 0.62 | (3%) | |||||||||
| Adjusted diluted earnings per share | $ | 0.88 | $ | 0.90 | (2%) | |||||||||
| Weighted-average shares outstanding, diluted | 11,866,903 | 11,812,910 | - | |||||||||||
- Gross revenues increased $695 thousand, or 3%, to $25.9 million as compared to the prior year quarter. Revenues less transaction-based expenses increased 5%.
- OTC Link revenues decreased 18%, primarily driven by a reduction in transaction-based revenues from OTC Link ECN and OTC Link NQB, consistent with a decline in trading volumes on our markets, when compared to the levels of market activity experienced in the same prior year period.
- Market Data Licensing revenues grew 6%, reflecting professional and enterprise subscriber growth and the acquisition of Blue Sky Data Corp. The number of professional subscribers increased 2%, resulting in a likewise increase in related revenues. As a result of new enterprise subscribers, revenues from broker-dealer enterprise licenses increased 14% and revenues from internal system licenses, delayed data licenses and certain other data services increased 18%. The increase in Market Data Licensing revenues was partially offset by a 46% decline in revenue from non-professional users.
- Corporate Services saw a 12% growth in revenues, with revenues from our OTCQX market up 5% and revenues from our OTCQB market up 18%. New sales and the 96% retention rate we achieved for OTCQX during the 2022 annual renewal cycle, up from 94% in 2021, contributed to the growth. OTCQB maintained an over 90% renewal rate. Revenues from our Disclosure & News Service increased 11% as a result of the higher average number of companies subscribing.
- Operating expenses increased $1.7 million, or 13%, to $14.8 million, primarily as a result of an 11% increase in compensation costs, reflecting higher headcount and the impact of annual salary increases as well as higher incentive compensation. Contributing to the increase in operating expenses was also a 68% increase in professional and consulting fees, primarily related to higher spending on external consulting services to support our web-based applications, databases and security initiatives.
- Operating income and net income decreased 7% and 5%, respectively.
- Adjusted EBITDA, which excludes non-cash, stock-based compensation expense, decreased 2% to $10.7 million, or $0.88 per adjusted diluted share.
Dividend Declaration – Quarterly and Special Cash Dividend
OTC Markets Group announced today that its Board of Directors authorized and approved a special cash dividend of $1.50 per share of Class A Common Stock and a quarterly cash dividend of $0.18 per share of Class A common stock. The special dividend is payable on December 8, 2022 to stockholders of record on November 23, 2022. The ex-dividend date is November 22, 2022. The quarterly dividend is payable on December 22, 2022 to stockholders of record on December 8, 2022. The ex-dividend date is December 7, 2022.
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. The Company did not repurchase any shares during the third quarter of 2022.
On March 7, 2022, 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.
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 2022 Conference Call and Webcast
The Company will host a conference call and webcast on Tuesday, November 15, 2022, at 8:30 a.m. Eastern Time, during which management will discuss the financial results in further detail. The call and webcast may be accessed as follows:
Webcast:
The conference webcast and management presentation can be accessed at the following link (replay available until November 14, 2023):
https://edge.media-server.com/mmc/p/hcuut4eb
Live Call:
Participants intending to ask a question during the live call and Q&A session should also register in advance at:
https://register.vevent.com/register/BI828bea59c48745f8956f35a08eee698e
Upon registration, participants will receive a dial-in number along with a unique PIN number that can be used to access the live call. Live call participants may also select a “Call Me” option.
OTC Markets Group’s Quarterly Report for the quarter ended September 30, 2022, the earnings release, transcript of the earnings call and management presentation will also be available in the Investor Relations section of our corporate website at www.otcmarkets.com/investor-relations/overview.
About OTC Markets Group Inc.
OTC Markets Group Inc. (OTCQX: OTCM) operates regulated markets for trading 12,000 U.S. and international securities. Our data-driven disclosure standards form the foundation of our three public markets: OTCQX® Best Market, OTCQB® Venture Market and Pink® Open Market.
Our OTC Link® Alternative Trading Systems (ATSs) provide critical market infrastructure that broker-dealers rely on to facilitate trading. Our innovative model offers companies more efficient access to the U.S. financial markets.
OTC Link ATS, OTC Link ECN and OTC Link NQB are each an SEC regulated ATS, operated by OTC Link LLC, a FINRA and SEC registered broker-dealer, member SIPC.
To learn more about how we create better informed and more efficient markets, visit www.otcmarkets.com.
EDGAR® and SEC® are trademarks of the U.S. Securities and Exchange Commission. OTC Market Group Inc.'s products and services are not affiliated with or approved by the U.S. Securities and Exchange Commission.
Investor Contact:
Antonia Georgieva
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 September 30, | ||||||||
| 2022 | 2021 | |||||||
| OTC Link | $ | 5,027 | $ | 6,110 | ||||
| Market data licensing | 9,028 | 8,489 | ||||||
| Corporate services | 11,860 | 10,621 | ||||||
| Gross revenues | 25,915 | 25,220 | ||||||
| Redistribution fees and rebates | (774 | ) | (744 | ) | ||||
| Net revenues | 25,141 | 24,476 | ||||||
| Transaction-based expenses | (1,305 | ) | (1,668 | ) | ||||
| Revenues less transaction-based expenses | 23,836 | 22,808 | ||||||
| Operating expenses | ||||||||
| Compensation and benefits | 9,431 | 8,471 | ||||||
| IT Infrastructure and information services | 1,917 | 2,062 | ||||||
| Professional and consulting fees | 1,690 | 1,008 | ||||||
| Marketing and advertising | 294 | 218 | ||||||
| Occupancy costs | 584 | 521 | ||||||
| Depreciation and amortization | 556 | 446 | ||||||
| General, administrative and other | 327 | 406 | ||||||
| Total operating expenses | 14,799 | 13,132 | ||||||
| Income from operations | 9,037 | 9,676 | ||||||
| Other income | ||||||||
| Interest income | 1 | - | ||||||
| Other income, net | - | 12 | ||||||
| Income before provision for income taxes | 9,038 | 9,688 | ||||||
| Provision for income taxes | 1,869 | 2,176 | ||||||
| Net income | $ | 7,169 | $ | 7,512 | ||||
| Net income per share | ||||||||
| Basic | $ | 0.61 | $ | 0.64 | ||||
| Diluted | $ | 0.60 | $ | 0.62 | ||||
| Basic weighted average shares outstanding | 11,597,871 | 11,501,186 | ||||||
| Diluted weighted average shares outstanding | 11,866,903 | 11,812,910 | ||||||
| Non-GAAP Reconciliation | ||||||||
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net Income | $ | 7,169 | $ | 7,512 | ||||
| Excluding: | ||||||||
| Interest Income | (1 | ) | - | |||||
| Provision for income taxes | 1,869 | 2,176 | ||||||
| Depreciation and amortization | 556 | 446 | ||||||
| Stock-based compensation expense | 1,066 | 782 | ||||||
| Adjusted EBITDA | $ | 10,659 | $ | 10,916 | ||||
| Adjusted diluted earnings per share | $ | 0.88 | $ | 0.90 | ||||
| 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)
| September 30, | December 31, | ||||||
| 2022 | 2021 | ||||||
| Assets | |||||||
| Current assets | |||||||
| Cash | $ | 44,745 | $ | 50,394 | |||
| Accounts receivable, net of allowance for credit losses of $298 and $244 | 8,237 | 7,404 | |||||
| Prepaid income taxes | 36 | 790 | |||||
| Prepaid expenses and other current assets | 1,513 | 1,363 | |||||
| Total current assets | 54,531 | 59,951 | |||||
| Property and equipment, net | 4,716 | 5,049 | |||||
| Operating lease right-of-use assets | 13,954 | 14,889 | |||||
| Deferred tax assets, net | 2,583 | 387 | |||||
| Goodwill | 3,984 | 251 | |||||
| Intangible assets, net | 8,138 | 40 | |||||
| Long-term restricted cash | 1,566 | 1,564 | |||||
| Other assets | 503 | 124 | |||||
| Total Assets | $ | 89,975 | $ | 82,255 | |||
| Liabilities and stockholders' equity | |||||||
| Current liabilities | |||||||
| Accounts payable | $ | 1,031 | $ | 962 | |||
| Accrued expenses and other current liabilities | 11,159 | 12,357 | |||||
| Income taxes payable | 2,512 | 13 | |||||
| Deferred revenue | 20,563 | 28,432 | |||||
| Total current liabilities | 35,265 | 41,764 | |||||
| Income tax reserve | 604 | 989 | |||||
| Operating lease liabilities | 13,625 | 14,548 | |||||
| Total Liabilities | 49,494 | 57,301 | |||||
| Commitments and contingencies | |||||||
| Stockholders' equity | |||||||
| Common stock - par value $0.01 per share | |||||||
| Class A - 17,000,000 authorized, 12,591,119 issued, 11,864,612 outstanding at | |||||||
| September 30, 2022; 12,483,128 issued, 11,801,761 outstanding at December 31, 2021 | 126 | 125 | |||||
| Additional paid-in capital | 24,201 | 21,681 | |||||
| Retained earnings | 32,569 | 16,787 | |||||
| Treasury stock - 726,507 shares at September 30, 2022 and 681,367 shares at December 31, 2021 | (16,415 | ) | (13,639 | ) | |||
| Total Stockholders' Equity | 40,481 | 24,954 | |||||
| Total Liabilities and Stockholders' Equity | $ | 89,975 | $ | 82,255 | |||
