OTC Markets Group Reports Fourth Quarter and Full Year 2017 Results; Delivers Strong Revenue and Earnings Growth

NEW YORK, March 6, 2018 /PRNewswire/ --

 Fourth Quarter and Full Year 2017 Highlights:

• Gross revenues of $54.7 million for the year, an increase of 7% over 2016
• Operating income of $18.3 million for the year, an increase of 8% over 2016
• Net Income of $12.6 million for the year, an increase of 19% over 2016, driving an 18% increase in GAAP diluted EPS to $1.06
• Fourth quarter gross revenues of $13.9 million and operating income of $4.7 million, an increase of 8% and 1% over the prior period
• Operating profit margin of 35% for the year and for the quarter (35% and 38%, respectively, for 2016)
• Total cash returned to shareholders during 2017 of $15.4 million, up from $14.8 million in 2016
• Announcing first quarter 2018 dividend of $0.14 per share
• 61 graduates to a national securities exchange during 2017
• OTCQX and OTCQB markets receive additional state Blue Sky recognition, bringing the total to 29 states that recognize OTCQX and 26 that recognize 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 2017.

"During 2017, we continued to execute against our strategic priorities, achieving increased regulatory recognition of our OTCQX and OTCQB markets, providing enhanced data and tools that drive greater transparency, and launching the OTC Link ECN to expand our trading services offerings." said R. Cromwell Coulson, President and Chief Executive Officer.  "We continue to execute on our strategy of creating transparent financial markets that more efficiently serve the needs of broker-dealers, companies and investors."

"We delivered strong results in the fourth quarter and for the year, with 7% top line revenue growth for the full year and an 18% increase in our fully diluted earnings per share.  During 2017, we continued to make investments in the people and technologies that will help us build on our track record of delivering long-term value for our shareholders." said Bea Ordonez, Chief Financial Officer.

Fourth Quarter 2017 compared to Fourth Quarter 2016

Financial Highlights

• Gross revenues of $13.9 million, up 8% over the prior period.
• Corporate Services delivered 17% growth in revenues versus the prior period.  Strong sales combined with reduced churn contributed to a 19% increase in quarter over quarter revenues from our OTCQB market.  Price increases effective in January 2017 contributed to a 18% increase in OTCQX revenues, which was partially offset by an increase in compliance related downgrades – a result of enhanced OTCQX eligibility standards introduced for 2017.    
• Market Data Licensing revenues saw a 4% increase, with price increases and new sales of our compliance products combined with quarter over quarter increases in reported professional and non-professional users driving that increase.    
• OTC Link revenues were down 3%, largely a result of a drop in in the number of active market participants, partially offset by an increase in message revenues. 
• Operating expenses increased 12% over the prior quarter, the result of a 15% increase in compensation and benefits costs and a 14% increase in information technology costs. 
• Compensation costs in the quarter increased as a result of an increase in headcount, the impact of annual salary increases, an increase in sales commissions and an increase in cash bonus payments accrued in respect of 2017.  Fourth quarter compensation costs were also impacted by one-time severance costs of $132 thousand.
• Net income increased 8%, to $2.9 million for the quarter, reflecting the increase in operating income and a quarter over quarter decrease in our effective tax rate ("ETR") from 41.6% to 37.4%.
• The Company's ETR decreased as a result of our adoption of ASU 2016-09 related to stock based compensation, the impact of certain benefits recognized from claiming the "Domestic Production Activities Deduction" ("DPAD") and the lower rate of Corporate Tax available in New York state to entities who meet the criteria of a "Qualifying Emerging Technology Company".   
• In the current quarter, the Company recorded additional tax expense of $378 thousand, to reflect the estimated impact associated with the enactment of the Tax Cuts & Jobs Act.  The increase in tax expense primarily relates to the remeasurement of the Company's net deferred tax assets at the lower U.S. federal corporate income tax rate.  This estimate may be refined in the future as new information becomes available.
• Adjusted EBITDA, which excludes non-cash stock-based compensation expense, declined marginally versus the prior quarter.

Fiscal Year 2017 Results compared to Fiscal Year 2016

Financial Highlights

• Gross revenues of $54.7 million, up 7% versus the prior year.
• Corporate Services revenues up 18% for the year.  Strong sales combined with reduced churn contributed to a 16% increase in revenues from our OTCQB market. Price increases effective in January 2017 contributed to a 19% increase in OTCQX revenues, which was partially offset by an increase in compliance related downgrades – a result of enhanced OTCQX eligibility standards introduced for 2017.
• Market Data Licensing revenues up 4%, primarily a result of 2017 price increases related to certain data license products, new sales of our compliance products, an increase in the number of non-professional users consuming our data, offset by modest declines in the number of professional users. 
• OTC Link revenues down 5%, primarily reflecting continued contraction in the number of broker dealer subscribers, which resulted in a decrease in subscription revenue of $473 thousand.
• Operating expenses for the 2017 fiscal year were up $2.2 million, or 7%, over 2016, with the increase in compensation and benefits costs the primary driver. 
• Compensation costs increased 10%, a result of the impact of increased headcount and annual salary increases, an increase in sales commissions, and an increase in the amortized cost of stock based compensation, largely a result of the higher value of 2016 awards granted in January 2017.
• Net income increased 19%, or $2.0 million, a result of the 8% increase in income from operations as well as a decrease in the Company's ETR, from 37.8% to 31.6%.
• The Company's ETR was impacted by its adoption of accounting guidance related to stock based compensation, as well as benefits recognized related to the DPAD and lower New York state corporate tax rate available to certain companies engaged in technology industries.  As noted in the quarterly discussion, the Company's ETR was also impacted by the remeasurement of net tax assets in in the context of the enactment of the Tax Cuts & Jobs Act. 
• Adjusted EBITDA increased 7% to $21.6 million, or $1.82 per adjusted diluted share.

Business Developments and News

• In February 2018, launched our new OTCMarkets.com website featuring enhanced functionality and navigation, new compliance data elements and a mobile-friendly interface. 
• In January 2018, announced a new redistributor relationship with BMO InvestorLine, a leading broker in Canada.
• In December 2017, launched the OTC Link Electronic Communications Network, or ECN, an SEC registered Alternative Trading System that will provide subscribers with order matching and routing functionality in OTC securities. 
• In November 2017, announced a strategic alliance with Issuer Direct Corporation ("Issuer Direct"), a communications and compliance company and in February 2018 launched online access to Issuer Direct's suite of news, compliance and communications solutions via our OTCIQ portal.
• In October 2017, announced a strategic alliance with the Canadian Securities Exchange ("CSE"), a Canadian listing exchange. The new program will offer international issuers the ability to raise capital through an IPO on the CSE and subsequently develop a secondary trading market on the OTCQX and OTCQB markets.
• As of March 1, 2018, our OTCQX market is exempt from state Blue Sky laws regarding secondary trading in twenty-nine states and our OTCQB market is exempt in twenty-six states.
• As of March 1, 2018, there are fifteen transfer agents participating in our Transfer Agent Verified Shares Program, which was launched in 2016, and makes current share information verified by a company's transfer agent publicly available.
• Received the award for "Most Innovative Market Data Project (Vendor)" at the 2017 Inside Market Data/Inside Reference Data Awards for our OTC Compliance Analytics product.

Dividend Declaration – Quarterly Cash Dividend

OTC Markets Group announced today that its Board of Directors authorized a quarterly cash dividend of $0.14 on its Class A Common Stock.  The quarterly cash dividend is payable on March 29, 2018 to stockholders of record on March 20, 2018.  The ex-dividend date is March 19, 2018.

Stock Buyback Program

On March 6, 2018, 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 2017 Conference Call

The Company will host a conference call on Wednesday, March 7, 2018, 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: 1-877-407-9124 (Domestic); 1-201-689-8584 (International)

Replay Dial-in Numbers (Available until April 7, 2018): 1-877-481-4010 (Domestic); 1-919-882-2331 (International); Replay PIN Number: 26121

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

http://www.investorcalendar.com/event/26121

The earnings release, transcript to the earnings call and presentation will also be available in the Investor Relations section of the corporate website at https://www.otcmarkets.com/about/investor-relations.

OTC Markets Group's 2017 Annual Report is available at www.otcmarkets.com.

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.