OTC Markets Group Reports Fourth Quarter and Full Year 2019 Results; Delivers Continued Revenue Growth

NEW YORK, March 4, 2020 /PRNewswire/ --

Fourth Quarter and Full Year 2019 Highlights:

• Gross revenues of $62.8 million for the year, up 6% versus 2018
• Operating income of $17.9 million for the year, down 9% versus 2018
• Net income of $14.9 million for the year, down 8% versus 2018, driving an 8% decrease in GAAP diluted EPS to $1.25
• Fourth quarter gross revenues of $16.1 million, up 4% versus the prior year quarter, and operating income of $4.7 million, down 2% versus the prior year quarter
• Operating profit margin of 29.6% for the year and 30.5% for the quarter (34.6% and 32.5%, respectively, for 2018)
• Total cash returned to shareholders during 2019 of $16 million, comprised of dividends of $14.6 million and repurchases of common shares of $1.4 million, up 5% versus 2018
• Announcing first quarter 2020 dividend of $0.15 per share
• 57 graduates to a national securities exchange during 2019
• 53 subscribers to the OTC Link ECN as at year end, contributing to a 71% increase in year over year ECN revenues
• Submitted comments to the SEC's Proposed Rule and Concept Release on Securities Exchange Act Rule 15c2-11, which governs the publication of quotes in interdealer quotation systems such as our OTC Link ATS
• Following acquisition in late 2018 of the Virtual Investor Conferences^® business, hosted 18 events during 2019, with 213 companies participating and reaching more than fourteen thousand investors
• Broadened the scope and depth of our Market Data products, with the February 2019 acquisition of Qaravan^® Inc., the April 2019 launch of our web-based compliance tool, Canari^®, and other additions and enhancements to our suite of compliance products during 2019
• Continued to drive regulatory recognition of our market standards, with state Blue Sky exemptions reaching 36 states for OTCQX 33 states for OTCQB

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 released its financial results for the fourth quarter and fiscal year 2019.

"We achieved a great deal in 2019 – moving our corporate headquarters to new state-of-the-art facilities in downtown New York City, undertaking a complete refresh of the infrastructure at our data centers, and expanding our product offerings both organically and through acquisition,"  said R. Cromwell Coulson, President and Chief Executive Officer.  "In the coming year, we look forward to working alongside market participants and the SEC to help advance modernizations to Exchange Act Rule 15c2-11 that will drive increased market efficiency while properly balancing the needs of "main street" investors and delivering transparent trading and competitive executions to professional investors."

"We were pleased to report continued revenue growth across our business lines, delivering period over period increases in top line revenue for the 12th consecutive quarter," said Bea Ordonez, Chief Financial Officer.  "As we look to the rest of 2020, we are well positioned to leverage the investments made in 2019.  We see opportunities to expand our franchise – to grow the number of international issuers on our markets, to increase the number of private and public banks that we serve, to add subscribers to our ECN and to broaden the scope and reach of our suite of compliance products."

Fourth Quarter 2019 compared to Fourth Quarter 2018

Fourth Quarter 2019 Financial Highlights

• Gross revenues of $16.1 million, up 4% over the prior year quarter.
• Corporate Services delivered 6% growth in revenues versus the prior period, driven primarily by an increase in the number of companies on our OTCQX market.
• Market Data Licensing revenues saw a 4% increase, with increased usage of our suite of data license products, including our compliance analytics products, and quarter over quarter increases in the number of professional users driving much of that increase.
• OTC Link revenues were up 1%, a result of a 26% increase in revenues from our OTC Link ECN and a 9% increase in revenues from quotes on our OTC Link ATS, partially offset by a decrease in revenues from messages on our OTC Link ATS.
• Operating expenses increased 7% over the prior year quarter, the result of a 10% increase in compensation costs, an 8% increase in information technology costs and a 72% increase in depreciation and amortization expenses, partially offset by a 28% decrease in occupancy costs.
• Compensation costs in the quarter increased as a result of added headcount, the impact of annual salary raises awarded for 2019, an increase in stock compensation costs and an increase in the costs of providing health care benefits.
• Net income decreased 8% to $3.8 million for the quarter, reflecting the decrease in operating income and a quarter over quarter increase in our effective tax rate ("ETR") from 15.0% to 19.4%, primarily due to the recognition in the prior year quarter of the full 2018 benefit derived from the Foreign Derived Intangible Income deduction.
• Adjusted EBITDA, which excludes non-cash stock-based compensation expense, increased 3% to $5.8 million, or $0.48 per adjusted diluted share.

Fiscal Year 2019 Results compared to Fiscal Year 2018

Fiscal Year 2019 Financial Highlights

• Gross revenues of $62.8 million, up 6% versus the prior year.
• Corporate Services revenues up 8% for the year, primarily driven by an increase in the number of companies on our OTCQX market, as well as the full year impact of price increases for renewing subscribers on the OTCQB market, which offset a decline in the number of companies on the market.
• Market Data Licensing revenues up 5%, with new sales of our compliance and other data license products contributing to a 20% year over year increase in data license revenues, and growth in the number of professional users of our market data driving a 4% increase in corresponding revenues.
• OTC Link revenues up 4%, with revenues contributed by our OTC Link ECN the primary driver.
• Operating expenses for the year up $4.9 million, or 13%.
• Compensation costs increased $3.2 million, or 13%, with year over year increases in headcount and the impact of annual salary raises awarded for 2019 driving a 12% increase in base salaries, and higher headcount driving a 12% increase in cash incentive awards for 2019. The Company also saw an increase in stock-based compensation costs and a 29% increase in the cost of healthcare coverage for our employees.
• Net income decreased 8%, to $14.9 million, a result of the 9% decline in income from operations, partially offset by a decrease in the Company's ETR, from 17.8% in 2018 to 16.9% in 2019.
• The Company's 2019 ETR was lower than the prior year, primarily due to an increase in excess tax benefits related to stock-based compensation and an increase in the amount of federal research and development credit claimed.
• Adjusted EBITDA decreased 5% to $22.1 million, or $1.84 per adjusted diluted share.

Fiscal Year 2019 and Recent Business Developments and News

• Supported the February 2020 introduction, of the ESOP Fairness Act, legislation that, if passed, would ease restrictions on OTC issuers wishing to offer their employees Employee Stock Option Plans, or ESOPs.
• As of March 1, 2020, 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. In February 2020, the Virginia legislature passed a bill that would provide a pathway for the OTCQX market to attain exempt status.
• Following our acquisition in early 2019 of Qaravan Inc., a provider of software and analytics to the public and private banking industry, in May 2019, launched our Qaravan CECL Solution, in October 2019, made Quarterly Call Report data on U.S. banks available on our corporate website, and in February 2020, made corporate structure data for U.S. bank holding companies available on our website. The Qaravan products and related data enhancements are designed to position us to better serve the needs of the banking sector.
• In November and December 2019, submitted comments to the SEC's Proposed Rule and Concept Release on Rule 15c2-11 under the Exchange Act, which governs the publication of quotes in interdealer quotation systems such as our OTC Link ATS. The proposed amendments would require, among other things, that current information about a company be publicly available in order for that company to become, or remain, publicly quoted on OTC Link ATS. Our comments to the rule proposal, discussed in further detail in the "Recent Regulatory Developments" section of our Annual Report, include advocating for recognition of an "Expert" market for securities that are no longer eligible for public quoting under the rule.
• In October 2019, announced a strategic alliance with North Capital Investment Technology Inc. to provide companies on our markets with access to a technology platform that will enable them to cost effectively raise capital online.
• In September 2019, submitted our comment letter in response to the SEC's Concept Release on Harmonization of Securities Offering Exemptions, which sought input on various registration exemptions under the Securities Act and other federal securities laws. Our comment letter suggests a number of modernizations to public secondary market regulation and the exempt offering framework.
• In April 2019, launched Canari, a premium, web-based tool designed to provide subscribers with a comprehensive view of quantitative compliance data points and analytics. As of March 1, 2020, 42 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, including many of the largest custodians, banks and broker-dealers in the U.S. equities markets.
• In January 2019, announced our acquisition of the Virtual Investor Conferences ("VIC") business and, during 2019, hosted 18 events, with 213 companies participating and reaching more than fourteen thousand investors. We have hosted 2 VIC events so far in 2020, have 14 events scheduled with others in the pipeline, including a community bank event, a resource company event and partner events with KCSA, Deutsche Bank and Intrado.
• OTC Link ECN has continued to win market share with 59 subscribers as of March 1, 2020.

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 March 26, 2020 to stockholders of record on March 17, 2020.  The ex-dividend date is March 16, 2020.

Stock Buyback Program

On March 4, 2020, 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.  The Company is authorized to purchase shares from time to time on the open market and through block trades, in compliance with applicable law.

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 Full Year 2019 Conference Call

The Company will host a conference call and webcast on Thursday, March 5, 2020, 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) 665-5564 (Domestic); (470) 495-9522 (International); Dial-in PIN: 9899006

Replay Dial-in Numbers (Available until March 20, 2020): 855-859-2056 (Domestic); 404-537-3406 (International); Replay PIN Number: 9899006

Participants can access the conference via Internet webcast at the following link (available until March 5, 2021):

https://edge.media-server.com/mmc/p/a96giuzi

OTC Markets Group's 2019 Annual Report, 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 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

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SOURCE OTC Markets Group Inc.