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OTC Markets Group Announces Fourth Quarter and Fiscal Year 2013 Financial Results

NEW YORK, March 5, 2014 /PRNewswire/ --

Fourth Quarter 2013 Highlights:

  • Unaudited fourth quarter 2013 GAAP diluted EPS of $0.14 and adjusted diluted EPS of $0.29
  • Fourth quarter operating profit margin of 29%
  • $57 billion dollars traded in OTCQX, OTCQB and OTC Pink securities; highest quarterly dollar volume in previous 10 quarters
  • Quarterly dividend of $0.06 per share

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 ended December 31, 2013.

"2013 marked a year of internal investment in our technology platform and development of new product offerings.  We delivered consistent revenue and earnings throughout the year, including the fourth quarter.  Although revenue growth slowed in 2013, we are making enhancements to our platform, products and services to expand the number of securities traded by broker-dealers, improve information availability for companies and their investors, streamline the OTCQX® qualification process for U.S. companies and banks, and make OTCQB® a better venture stage marketplace," said R. Cromwell Coulson, President and Chief Executive Officer. "During 2013, there was an expansion in the distribution of our market data and increased trading activity on OTC Link® ATS.  The Company's investment in enhancing our primary data center was substantially completed by the end of the year and we have begun to enhance our secondary data center during 2014.  The updated data centers will improve system reliability and increase market data throughput to support higher trading volumes on OTC Link ATS." 

"Revenue growth during 2013 was concentrated in our Market Data Licensing business line, which expanded the number of enterprise license subscriptions and user license subscriptions.  Revenue from Corporate Services was flat, as the increase in premium services subscription revenue was offset by the decline in OTCQX subscription revenue. Revenue generated from OTC Link ATS declined 2% due to the impact of fewer broker dealers and OTC Dealer® users, which was partially offset by increased usage revenue related to higher trading activity on OTC Link ATS.  Overall, gross revenues for the fourth quarter and fiscal year 2013 were flat as compared to 2012, and operating margin contracted during the same periods primarily due to a higher run rate in compensation costs and IT infrastructure costs," said Wendy Fraulo, Chief Financial Officer.

Results of Fourth Quarter 2013 compared to Fourth Quarter 2012

Revenues

Gross revenues during the fourth quarter of 2013 totaled $9.0 million, which was flat as compared to the fourth quarter of 2012.  Market Data Licensing revenue increased $0.2 million, or 7%, to $3.7 million due to increases in both enterprise license and user license subscriptions. OTC Link ATS revenue of $2.8 million was flat as increases in revenue from QAP® One Statement service fees and trade message revenue, which reflect increased trading activity on OTC Link ATS, were offset by decreases in subscription revenue and revenue from quote positions, which reflect the decline in the number of users active on OTC Link ATS.  Revenue from Corporate Services of $2.4 million decreased $0.2 million, or 7%, during the fourth quarter.  OTCQX subscription revenue decreased 13% during the quarter due to fewer companies trading on the OTCQX marketplace.  This decrease was partially offset by a 5% increase in premium service subscription revenue.

Operating Expenses

Operating expenses increased $0.1 million, or 2%, to $6.1 million, primarily related to increases in salary expenses, marketing and advertising expenses, and IT infrastructure and information services expenses during the fourth quarter of 2013.  Compensation and benefits costs increased $0.3 million, or 10%, due to higher headcount and 2013 annual salary increases.  IT infrastructure and information services costs increased $0.1 million, or 9%, due to higher data center costs and hardware maintenance costs associated with enhancements to our primary data center.  The timing of internal and external marketing initiatives contributed to a $0.1 million, or 35%, increase in marketing and advertising costs.  These increases were partially offset by decreases in professional and consulting fees of $0.2 million, or 40%, primarily related to a reduction in fees for IT consulting work and other professional and technical specialists.  A faster collections cycle that resulted in a reduction in bad debt expense, and non-recurring fees that were incurred during the fourth quarter of 2012, contributed to a $0.1 million, or 45%, decrease in general and administrative expenses during the fourth quarter of 2013.       

Income from Operations and Net Income

Income from operations decreased $0.1 million, or 2%, to $2.4 million, during the fourth quarter of 2013 and operating profit margin contracted to 29% from 30% during the same period in 2012.  The decrease in income from operations and contraction of operating profit margin were primarily attributable to the increases in operating expenses that were not balanced proportionately by revenue growth.    

Net income of $1.6 million was flat during the fourth quarter of 2013, as compared to the same period in 2012.  The decline in income from operations was offset by the reduction in the Company's provision for income taxes.  Net income per diluted share was $0.14 during the fourth quarters of both 2013 and 2012. 

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock-based compensation expense, was $3.1 million, or $0.29 per adjusted diluted share, during the fourth quarters of both 2013 and 2012.  The reduction in Adjusted EBITDA is directly correlated with the decrease in income from operations, except that this item excludes $39 thousand of increased stock-based compensation expense recorded during 2013.     

Fiscal Year 2013 Results compared to Fiscal Year 2012

Revenues

Gross revenues during 2013 increased $0.5 million, or 1%, to $35.5 million, primarily driven by the Market Data Licensing business line.  Market Data Licensing revenue of $14.7 million increased $0.7 million, or 5%, due to higher enterprise license subscription revenue, user license subscription revenue and the impact of a market data audit recovery.  Greater demand for license subscriptions during 2013 contributed to an 18% increase in enterprise license subscription revenue and a 3% increase in user license subscription revenue.  OTC Link ATS revenue of $11.4 million decreased $0.2 million, or 2%, during 2013.  Subscription revenue from OTC Dealer licenses, FIX connection fees and OTC Link ATS subscriptions decreased 10%, and revenue from quote positions decreased 4%, which was a direct result of the decline in the number of broker-dealers and OTC Dealer users active on OTC Link ATS. Increased trading via OTC Link ATS contributed to an 85% increase in revenue from QAP One Statement service fees and a 5% increase in revenue from trade messages, which partially offset the decreases in OTC Link ATS revenue.  Revenue from Corporate Services of $9.3 million was flat during 2013.  OTCQX subscription revenue decreased 2%, primarily due to a lower number of OTCQX companies during the second half of 2013, and was offset by a 6% increase in revenue from premium service subscriptions.   

Operating Expenses

Operating expenses during 2013 increased $1.1 million, or 5%, to $25.3 million, primarily related to increases in compensation and benefits expenses and IT infrastructure and information services expenses that were partially offset by decreases in professional and consulting fees, marketing and advertising expenses and bad debt expense.  Compensation and benefits costs increased $1.4 million, or 11%, to $14.3 million, primarily due to an increase in headcount, salaries, and other employee benefits, such as medical insurance costs and annual discretionary bonuses.  IT infrastructure and information services costs increased $0.4 million, or 13%, primarily related to increases in data center costs and hardware maintenance costs associated with enhancements to our primary data center.  Professional and consulting fees decreased $0.4 million, or 19%, primarily related to a decrease in the use of product development consultants and lower payroll service fees.  Marketing and advertising expenses decreased $0.1 million, or 6%, primarily due to the timing of internal and external marketing initiatives and lower search engine optimization costs.  General and administrative costs decreased $0.2 million, or 28%, primarily related to a reduction in bad debt expense due to improved collection efforts.  

Income from Operations and Net Income

Income from operations during 2013 decreased $0.7 million, or 7%, to $8.3 million, and operating profit margin contracted to 25% from 27% during 2012.  The decrease in income from operations and contraction of operating profit margin were primarily attributable to the increases in compensation and benefits costs, and costs associated with enhancements to our primary data center, which were partially offset by increases in Market Data Licensing subscription revenue.    

Net income increased $0.2 million, or 3%, to $5.6 million, primarily due to a $0.8 million reduction in the Company's provision for income taxes, which was partially offset by a $0.7 million decrease in income from operations.  The Company's effective tax rate during 2013 decreased to 32% from 39% in 2012, primarily due to the benefit from R&D tax credits for the 2012 and 2013 tax years that were both recognized during 2013.  Net income per diluted share was $0.51 in both 2013 and 2012.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock-based compensation expense, decreased $0.5 million, or 5%, during 2013 to $11.0 million, or $1.02 per adjusted diluted share, as compared to $1.09 per adjusted diluted share during 2012.  The reduction in Adjusted EBITDA is directly correlated with the decrease in income from operations, except that this item excludes $131 thousand of increased stock-based compensation expense recorded during 2013.    

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 Year End 2013 Conference Call

The Company will host a conference call on Thursday, March 6, 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); Call Confirmation Number 13577008.

Replay Dial-in Numbers (Available until March 20, 2014): 1-877-870-5176 (Domestic); 1-858-384-5517 (International); Replay PIN Number: 13577008.

A live webcast and webcast replay of the call will also be available in the Investor Relations section of the corporate web site at http://www.otcmarkets.com/investor-relations/overview.

OTC Markets Group's 2013 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 – OTCQX®, The Best Marketplace with Qualified Companies; OTCQB®, The Venture Stage Marketplace with U.S. Reporting Companies; and OTC Pink®, The Open Marketplace with Variable Reporting Companies.  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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OTC MARKETS GROUP INC.

CONSOLIDATED STATEMENTS OF INCOME

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








Year Ended December 31,


2013


2012


2011

OTC Link ATS Trading services

$               11,437


$               11,640


$               11,773

Market data licensing

14,741


14,081


13,680

Corporate services

9,331


9,305


7,498

Gross revenues

35,509


35,026


32,951

Redistribution fees and rebates

(1,869)


(1,842)


(2,188)

Net revenues

33,640


33,184


30,763

Operating expenses






Compensation and benefits

14,339


12,908


12,117

IT Infrastructure and information services

3,757


3,318


3,469

Professional and consulting fees

1,937


2,387


2,377

Marketing and advertising 

1,633


1,743


1,804

Occupancy costs

1,429


1,411


1,540

Depreciation and amortization

1,642


1,622


1,358

General, administrative and other

605


839


992

Total operating expenses

25,342


24,228


23,657

Income from operations

8,298


8,956


7,106

Other income/(expense)






Interest income

2


14


39

Other (expense) income

(4)


16


(154)

Income before provision for income taxes

8,296


8,986


6,991

Provision for income taxes

2,665


3,509


2,139

Net Income 

$                 5,631


$                 5,477


$                 4,852







Net income per share 






Basic

$                   0.51


$                   0.51


$                   0.46

Diluted

$                   0.51


$                   0.51


$                   0.45







Basic weighted average shares outstanding

10,677,340


10,539,142


10,473,811

Diluted weighted average shares outstanding

10,763,773


10,608,516


10,540,818







Note: For purposes of comparative presentation, website advertising revenues for all prior years have been reclassified to the Market Data Licensing business line from the Corporate Services business line. 







Non-GAAP Reconciliation







Year Ended December 31,


2013


2012


2011


(Unaudited)


(Unaudited)


(Unaudited)

Net Income

$                 5,631


$                 5,477


$                 4,852

Excluding:






Provision for income taxes

2,665


3,509


2,139

Interest income

(2)


(14)


(39)

Depreciation and amortization

1,642


1,622


1,358

Stock-based compensation expense

1,089


958


555

Adjusted EBITDA

$               11,025


$               11,552


$                 8,865







Adjusted diluted earnings per share

$                   1.02


$                   1.09


$                   0.84







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. 

CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares)






December 31,


2013


2012

Assets




Current assets




Cash

$             18,936


$             13,611

Accounts receivable, net of allowance for doubtful accounts of $130 and $221

4,980


6,481

Prepaid income taxes

179


345

Prepaid expenses and other current assets

711


744

Deferred tax assets

173


203

Total current assets

24,979


21,384

Property and equipment, net 

4,184


5,066

Non-current deferred tax assets, net

314


-

Goodwill

251


251

Intangible assets, net

40


40

Security deposits

210


209

Total Assets

$             29,978


$             26,950





Liabilities and stockholders' equity




Current liabilities




Accounts payable

$                  509


$                  721

Accrued expenses and other current liabilities

3,400


2,868

Deferred revenue

6,391


7,670

Total current liabilities

10,300


11,259

Deferred rent

608


786

Deferred tax liabilities, net

-


113

Income tax reserve

366


277

Total Liabilities

11,274


12,435

Commitments and contingencies




Stockholders' equity




Common stock - par value $0.01 per share




Class A - 14,000,000 authorized, 11,006,405 issued, 10,888,510 outstanding at




December 31, 2013; 10,814,622 issued, 10,700,047 outstanding at December 31, 2012

110


108

Class C - 130,838 shares authorized, issued and outstanding at December 31, 2013




and December 31, 2012

1


1

Additional paid-in capital 

7,243


6,050

Retained earnings

11,971


8,951

Treasury stock - 117,895 shares at December 31, 2013 and 114,575 shares at December 31, 2012

(621)


(595)

Total Stockholders' Equity

18,704


14,515

Total Liabilities and Stockholders' Equity

$             29,978


$             26,950






 

SOURCE OTC Markets Group Inc.

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