OTC Markets Group Announces Fourth Quarter and Fiscal Year 2012 Financial Results

NEW YORK, March 12, 2013 /PRNewswire/ -- 

Fourth Quarter 2012 Highlights:

• Unaudited fourth quarter 2012 GAAP diluted EPS of $0.14 and fourth quarter 2012 non-GAAP diluted EPS of $0.29
• Fourth quarter operating profit margin of 30%; 2012 operating profit margin of 27%
• Launch of OTCM ADR Index with BNY Mellon
• Integration of PR Newswire's news distribution service with the OTCIQ.com IR and business intelligence portal

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, 2012.

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"Throughout 2012, we remained focused on the execution of our core mission: to create better informed and more efficient financial marketplaces," said R. Cromwell Coulson, President and Chief Executive Officer. "We have grown revenue through the consistent performance of our subscription based premium services that enable the market structure, information availability and network connections for broker-dealers, companies and financial data providers to communicate or transact without the need of a stock exchange."

"We continue to improve our network for broker-dealers and companies seeking informed and efficient U.S. public trading with reduced regulatory complexity and lower costs," continued Coulson. 

"Overall revenue growth was primarily tied to the increase in subscriptions to the OTCQX marketplace during 2012. We expanded operating profit margin during 2012 by achieving operating efficiencies and renegotiating certain agreements during the fourth quarter of 2011 and through 2012," said Wendy Fraulo, Chief Financial Officer.

Fourth Quarter Results

Revenues

Gross revenues during the fourth quarter of 2012 increased $0.1 million, or 1%, to $8.9 million from $8.8 million during the fourth quarter of 2011.  Revenue from the company's OTC Link ATS Trading Services business line continued to be impacted by low trading volume throughout the industry during the fourth quarter of 2012, leading to a decrease of $0.1 million, or 4%, during the fourth quarter of 2012 versus the same period in 2011.  Revenue generated by the QAP One Statement service and an increase in OTC Link ATS subscriber quote helped offset decreases in revenue from OTC Dealer licenses and fix connection subscriptions.  Revenue from the Market Data Licensing business line decreased $0.3 million, or 7%, during the fourth quarter of 2012 as compared to the fourth quarter of 2011, primarily due to an increase in this business line's revenue in the fourth quarter of 2011 related to non-recurring subscription catch-up payments. The year over year increase in companies qualified for trading on the OTCQX marketplace continued to be a significant driver of the company's revenue growth, contributing $0.5 million to the increase in total gross revenue during the fourth quarter of 2012, although the OTCQX marketplace's rate of growth slowed in 2012 as compared to 2011.   

Operating Expenses

Operating expenses for the fourth quarter of 2012 decreased $0.7 million, or 10%, to $6.0 million from $6.7 million during the fourth quarter of 2011.  Decreases in operating expenses were concentrated in marketing and advertising and professional fees.  Legal fees decreased $75 thousand, or 61%, and consulting fees decreased $95 thousand, or 19%, during the fourth quarter of 2012 as compared to the fourth quarter of 2011, primarily related to more efficient use of internal resources leading to decreased use of outside professionals.  Marketing and advertising costs decreased $297 thousand, or 50%, during the fourth quarter of 2012, primarily related to less spending on direct marketing promotional materials, sponsorships and events during the period.  The increase in compensation and benefits expenses of $0.1 million, or 5%, partially offset the decreases in the other expense categories as headcount increased by 9 employees to 74 at December 31, 2012 as compared to 65 at December 31, 2011.  

Income from Operations and Net Income

Income from operations increased $0.7 million, or 38%, to $2.5 million during the fourth quarter of 2012 and operating profit margin expanded from 21% during the fourth quarter of 2011 to 30% during the fourth quarter of 2012. The higher operating margin was primarily due to lower operating expenses during the fourth quarter of 2012 as compared to the similar period in 2011, as noted above.  

Net income for the fourth quarter of 2012 increased $0.3 million, or 21%, to $1.6 million, as compared to $1.3 million during the fourth quarter of 2011.  Net income per weighted average diluted shares outstanding increased to $0.14 for the fourth quarter of 2012, as compared to $0.12 in the fourth quarter of 2011.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, for the fourth quarter of 2012 increased 39% to $3.1 million, compared to $2.2 million in the fourth quarter of 2011, primarily due to the company's effective tax rate increasing to 37% for the fourth quarter of 2012 from 24% for the fourth quarter of 2011, which increased the provision for income taxes, and an increase in non-cash stock based compensation expense during the fourth quarter of 2012 as compared to the fourth quarter of 2011.

Fiscal Year 2012 Results

Revenues

Gross revenues during 2012 increased $2.1 million, or 6%, to $35.0 million from $32.9 million during 2011.  Growth in Issuer Services revenue of $1.8 million, or 22%, was the primary driver of total company gross revenue growth and was primarily attributable to the increase of 86 OTCQX companies during 2012.  Overall gross revenue from OTC Link ATS Trading Services was impacted by low trading volume throughout the entire year, industry consolidation and the effects of financial distress on smaller, less automated broker-dealer subscribers. OTC Link ATS Trading Services subscription revenue decreased 9% due to a 14% decrease in the number of OTC Dealer users and a 13% decrease in the number of locations with subscription privileges. Increases in revenue from QAP One Statement service fees contributed to gross revenue from OTC Link ATS and kept gross revenue fairly constant in 2012 as compared to 2011.  Market Data Licensing revenues increased 3%, with the largest increase coming from level 2 market data broker-dealer enterprise licenses.

Operating Expenses

Operating expenses during 2012 increased $0.6 million, or 2%, to $24.2 million from $23.7 million during the same period in 2011, primarily due to an increase in compensation and benefits expenses of $0.8 million, or 7%, driven by the increase in headcount and related direct costs. Compensation cost as a percentage of gross revenue remained consistent at approximately 37% during both 2012 and 2011. Professional and consulting fees were flat during 2012, although the composition shifted significantly as compared to 2011. Legal fees decreased $265 thousand, or 50%, during 2012 due to high fees incurred during 2011 related to the registration of OTC Link LLC as a FINRA member broker-dealer and an SEC registered ATS, and consulting fees increased by the same amount due to increased use of product development consultants and other professional and technical specialists. General and administration expenses decreased 15% during 2012 primarily related to a decrease in bad debt expense.  IT Infrastructure and data communication costs decreased 4% during 2012 primarily due to the operating lease buy-out of several servers in September 2011, which lowered costs by approximately $200 thousand.  

Income from Operations and Net Income

Income from operations increased $1.9 million, or 26%, to $9.0 million during 2012 as compared to $7.1 million during 2011 and operating profit margin improved to 27% from 23% during the same periods. The growth in income from operations and operating profit margin was primarily achieved through renegotiating our rebate arrangements with certain market data redistributors, a reduction in bad debt expense during 2012 and the operating lease buy-out of IT equipment in late 2011.   

Net income increased $0.6 million, or 13%, to $5.5 million in 2012, as compared to $4.9 million during 2011, and net income per weighted average diluted shares outstanding increased to $0.51 from $0.45 during the same periods.

Adjusted EBITDA

Adjusted EBITDA, which excludes non-cash stock based compensation expense, for 2012 grew 30% to $11.6 million, compared to $8.9 million in 2011 as significant non-cash expenses, such as depreciation and stock based compensation expense, grew as a percentage of total operating expenses and the company's effective tax rate increased to 39% in 2012 from 31% in 2011, which increased the provision from income taxes.

Non-GAAP Financial Measures

In addition to disclosing results prepared in accordance with GAAP, OTC Markets 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 OTC Markets' 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 Fiscal Year 2012 Conference Call

The company will host a conference call on Wednesday, March 13, 2013 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: 1-800-447-0521 (Domestic); 1-847-413-3238 (International); Call Confirmation Number 3441-4664. Replay Dial-in Numbers (Available until March 27, 2013): 1-888-843-7419 (Domestic); 1-630-652-3042 (International); Replay Passcode:  3441-4664#.

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.

For more information, contact Wendy Fraulo, Chief Financial Officer, at (212) 220-2215 or by email at [email protected].

OTC Markets Group's 2012 Annual Disclosure 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.

SOURCE OTC Markets Group Inc.