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OTC Markets Group Reports Fourth Quarter and Full Year 2022 Results, Delivering Continued Revenue Growth

Written by Customer Service on . Posted in Earnings Releases And Operating Results.

Fourth Quarter and Full Year 2022 Highlights:

  • Gross revenues of $105.1 million for the year, up 2% versus 2021
  • Operating income of $36.8 million for the year, down 3% versus 2021
  • Operating profit margin of 36.1% for the year, versus 38.0% for 2021
  • Net income of $30.8 million for 2022, up 1% versus 2021, and GAAP diluted EPS of $2.53 versus $2.52 for 2021
  • Total cash returned to shareholders during 2022 of $29.1 million, comprised of dividends of $26.4 million and repurchases of common shares of $2.8 million, up 8% versus 2021
  • Announcing first quarter 2023 dividend of $0.18 per share
  • 615 OTCQX® and 1,239 OTCQB® companies at year end, each up 8% versus the prior year end
  • 74 graduates to a national securities exchange during 2022
  • 102 subscribers to OTC Link ECN as of year-end 2022, up 9 versus 2021; approximately 36,000 average daily trades during 2022 versus approximately 48,000 during 2021
  • Fourth quarter gross revenues of $27.3 million, up 4% versus the prior year quarter
  • Fourth quarter operating income of $9.9 million, down 8% versus the prior year quarter, resulting in an operating profit margin of 37.2% as compared to 42.4% for the fourth quarter of 2021
  • Continued progress in achieving state Blue Sky recognition for our OTCQX and OTCQB markets, with exemptions in 38 states and one U.S. territory as of March 1, 2023
  • Launched fixed income 15c2-11 data product, a premium offering that applies our expertise on Rule 15c2-11 compliance to TRACE-eligible corporate debt securities
  • On May 2, 2022, closed the acquisition of Blue Sky Data Corp, a provider of equity and debt compliance data regarding state Blue Sky securities rules and regulations
  • On November 9, 2022, closed the acquisition of EDGAR® Online, a supplier of real-time SEC regulatory data and financial analytics, from Donnelley Financial, LLC

NEW YORK, March 08, 2023 (GLOBE NEWSWIRE) — OTC Markets Group Inc. (OTCQX: OTCM), operator of regulated markets for trading 12,000 U.S. and international securities, today announced its financial results for the fourth quarter and full year 2022.

“Throughout 2022, we extended our long-term track record of revenue growth and sharpened our focus to execute on our strategic initiatives structured around serving our clients and shareholders,” said R. Cromwell Coulson, President and Chief Executive Officer. “We expanded our data offering, strengthened compliance solutions, and brought vital processes in-house with the Blue Sky Data and EDGAR Online acquisitions. We gained additional regulatory recognition for our markets and continue to pursue new opportunities to commercialize our enhanced regulatory status. As we turn to 2023, we seek to further strengthen our operational capabilities, deliver unique solutions for our clients, and create long-term value for our shareholders.”

“OTC Markets Group concluded another year of consecutive revenue growth. We benefited from our diversified product offering and revenue streams, and our strategic transactions expanded our customer base and product suite,” said Antonia Georgieva, Chief Financial Officer. “Our business saw continued organic growth from our Corporate Services business and our Market Data Licensing business, offsetting the decline in our OTC Link business that resulted from reduced trading activity on our markets. In addition, during 2022, we benefited from revenue contribution from our Blue Sky Data Corp and EDGAR Online acquisitions. We also incurred higher expenses as we integrated our acquisitions, added personnel, and continued to invest in our platform to support our strategic objectives.”

Fourth Quarter 2022 compared to Fourth Quarter 2021

  Quarter Ended December 31,      
(in thousands, except shares and per share data) 2022 2021 % change $ change
OTC Link $5,346  $5,591  (4%) (245)
Market data licensing 9,895  8,777  13% 1,118 
Corporate services 12,054  11,819  2% 235 
Gross Revenues 27,295  26,187  4% 1,108 
Net revenues 26,537  25,397  4% 1,140 
Revenues less transaction-based expenses 24,867  23,819  4% 1,048 
Operating expenses 14,990  13,041  15% 1,949 
Income from operations 9,877  10,778  (8%) (901)
Operating profit margin 37.2% 42.4%      
Income before provision for income taxes 10,031  10,710  (6%) (679)
Net income $8,630  $9,054  (5%) (424)
             
Diluted earnings per share $0.70  $0.74  (6%)   
Adjusted diluted earnings per share $0.95  $0.98  (3%)   
Weighted-average shares outstanding, diluted 11,895,058  11,900,839  –    
             

Fourth Quarter 2022 Financial Highlights

  • Gross revenues of $27.3 million, up 4% over the prior year quarter.   Revenues less transaction-based expenses up 4%.
  • OTC Link revenues were down 4%. Transaction-based revenues from OTC Link ECN and OTC Link NQB increased 2%, reflecting normalized trading volumes in both the current and prior year quarters. This increase was offset by a 22% decline in revenues from OTC Link ATS messages and a 56% decline in QAP One Statement fees.
  • Market Data Licensing revenues were up 13%, largely due to the contribution of the acquisitions of Blue Sky Data Corp and EDGAR Online. Excluding the effect of the acquisitions, Market Data Licensing revenues decreased 1%. Pro-user revenues declined 1%, while the number of professional users increased 1% quarter over quarter. Revenues from non-professional users declined 48%, driven by a 51% decrease in the number of non-professional users of our market data. Offsetting these declines were a 14% increase in revenues from broker-dealer enterprise licenses and a 13% increase in revenues from internal system licenses, delayed data licenses and certain other data services due to growth in subscribers.
  • Corporate Services revenues were up 2% quarter over quarter, driven by a 5% increase in revenues from our OTCQX market and a 7% increase in revenues from our OTCQB market, partially offset by a 12% decrease in revenues from our Disclosure & News Service® product.   Growth in the number of companies subscribing to our OTCQX and OTCQB markets, a result of new sales and strong retention, as well as annual, incremental price increases effective at the beginning of 2022, contributed to the quarter over quarter growth in Corporate Services revenues.
  • Operating expenses increased 15% over the prior year quarter, primarily driven by a 9% increase in compensation and benefits costs, reflecting a higher headcount. The increase was further impacted by a 13% increase in IT infrastructure and information services costs, primarily as a result of the EDGAR Online acquisition and a 55% 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 8% to $9.9 million and 5% to $8.6 million, respectively.
  • Adjusted EBITDA, which excludes non-cash stock-based compensation expense, decreased 3% to $11.6 million, or $0.95 per adjusted diluted share.

Fiscal Year 2022 Results compared to Fiscal Year 2021

  Year Ended December 31,      
(in thousands, except shares and per share data) 2022 2021 % change $ change
OTC Link $20,937  $29,665  (29%) (8,728)
Market data licensing 36,407  33,751  8% 2,656 
Corporate services 47,805  39,516  21% 8,289 
Gross Revenues 105,149  102,932  2% 2,217 
Net revenues 102,048  99,911  2% 2,137 
Revenues less transaction-based expenses 96,201  90,638  6% 5,563 
Operating expenses 59,380  52,622  13% 6,758 
Income from operations 36,821  38,016  (3%) (1,195)
Operating profit margin 36.1% 38.0%      
Income before provision for income taxes 36,966  37,965  (3%) (999)
Net income $30,814  $30,476  1% 338 
             
Diluted earnings per share $2.53  $2.52  –    
Adjusted diluted earnings per share $3.56  $3.56  –    
Weighted-average shares outstanding, diluted 11,887,868  11,811,320  1%   
             

Fiscal Year 2022 Financial Highlights

  • Gross revenues of $105.1 million, up 2%.   Revenues less transaction-based expenses up 6%.
  • OTC Link revenues were down 29%, primarily as a result of a reduction in revenues from OTC Link ECN and OTC Link NQB, which in aggregate declined 43%, and a decline in revenues from OTC Link ATS messages of 21% and QAP One Statement fees of 70%, consistent with a decline in trading volumes on our markets, when compared to the levels of market activity experienced in 2021. The decline was partially offset by growth in our subscription-based connectivity services and CAT reporting service.
  • Market Data Licensing revenues were up 8%, inclusive of the impact of the acquisitions of Blue Sky Data Corp and EDGAR Online. Excluding the impact of the acquisitions, Market Data Licensing revenues grew 2%, due to 4% growth in revenues from professional user licenses, 16% growth in revenues from broker-dealer enterprise licenses, and 17% growth in internal system licenses, delayed data licenses and certain other data services, offsetting a 40% decline in revenues from non-professional users.
  • Corporate Services revenues were up 21% for the year, primarily driven by a greater average number of companies subscribing to our OTCQX, OTCQB, and Disclosure & News Service offerings with price increases also contributing. Revenues from our premium OTCQX and OTCQB markets grew 10% and 26%, respectively, while revenues from our Disclosure & News Service product increased 33%.
  • Operating expenses were up $6.8 million, or 13%, reflecting a 10% increase in compensation and benefits as a result of higher headcount and a 44% increase in professional and consulting fees.  
  • Operating income decreased 3% to $36.8 million while net income increased 1% to $30.8 million due to a decrease in the Company’s effective tax rate, from 19.7% in 2021 to 16.6% in 2022.
  • Adjusted EBITDA was approximately flat at $43.2 million, or $3.56 per adjusted diluted share.

Dividend Declaration – Quarterly Cash Dividend

OTC Markets Group announced today that its Board of Directors authorized and approved a quarterly cash dividend of $0.18 per share of Class A Common Stock. The quarterly cash dividend is payable on March 30, 2023, to stockholders of record on March 23, 2023.   The ex-dividend date is March 22, 2023.

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.

On March 6, 2023, 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.

Fourth Quarter and Full Year 2022 Conference Call

The Company will host a conference call and webcast on Thursday, March 9, 2023, 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 March 8, 2024):
https://edge.media-server.com/mmc/p/fiea593w       

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/BId41294182b3040bbb37ad3f3b8196ea6  

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 Annual Report, 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.

Investor Contact:

Antonia Georgieva
Chief Financial Officer
Phone: (212) 220-2215
Email: ir@otcmarkets.com

Media Contact:

OTC Markets Group Inc.
Phone: (212) 896-4428
Email: media@otcmarkets.com

OTC MARKETS GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share information)

 Three Months Ended December 31, Year Ended December 31,
 2022 2021 2022 2021
OTC Link$5,346  $5,591  $20,937  $29,665 
Market data licensing9,895  8,777  36,407  33,751 
Corporate services12,054  11,819  47,805  39,516 
Gross revenues27,295  26,187  105,149  102,932 
Redistribution fees and rebates(758) (790) (3,101) (3,021)
Net revenues26,537  25,397  102,048  99,911 
Transaction-based expenses(1,670) (1,578) (5,847) (9,273)
Revenues less transaction-based expenses24,867  23,819  96,201  90,638 
Operating expenses           
Compensation and benefits8,887  8,135  37,585  34,049 
IT Infrastructure and information services2,323  2,057  8,091  7,633 
Professional and consulting fees1,817  1,170  6,464  4,495 
Marketing and advertising351  326  1,303  1,028 
Occupancy costs481  595  2,257  2,348 
Depreciation and amortization600  465  2,092  1,796 
General, administrative and other531  293  1,588  1,273 
Total operating expenses14,990  13,041  59,380  52,622 
Income from operations9,877  10,778  36,821  38,016 
Other income           
Other income154  (68) 145  (51)
Income before provision for income taxes10,031  10,710  36,966  37,965 
Provision for income taxes1,401  1,656  6,152  7,489 
Net Income $8,630  $9,054  $30,814  $30,476 
            
Earnings per share           
Basic$0.73  $0.77  $2.60  $2.59 
Diluted$0.70  $0.74  $2.53  $2.52 
            
Basic weighted average shares outstanding11,609,318  11,519,180  11,600,122  11,506,294 
Diluted weighted average shares outstanding11,895,058  11,900,839  11,887,868  11,811,320 
            
            
Non-GAAP Reconciliation           
 Three Months Ended December 31, Year Ended December 31,
 2022 2021 2022 2021
Net Income$8,630  $9,054  $30,814  $30,476 
Excluding:           
Interest Income(154) –  (155) (1)
Provision for income taxes1,401  1,656  6,152  7,489 
Depreciation and amortization600  465  2,092  1,796 
Stock-based compensation expense1,106  786  4,345  3,332 
Adjusted EBITDA$11,583  $11,961  $43,248  $43,092 
            
Adjusted diluted earnings per share$0.95  $0.98  $3.56  $3.56 
            
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)

 December 31,
 2022 2021
Assets     
Current assets     
Cash and cash equivalents$37,368  $50,394 
Accounts receivable, net of allowance for credit losses of $638 and $2449,485  7,404 
Prepaid income taxes59  790 
Prepaid expenses and other current assets1,469  1,363 
Total current assets48,381  59,951 
Property and equipment, net8,637  5,049 
Operating lease right-of-use assets13,635  14,889 
Deferred tax assets, net4,853  387 
Goodwill3,984  251 
Intangible assets, net7,993  40 
Long-term restricted cash1,568  1,564 
Other assets567  124 
Total Assets$89,618  $82,255 
      
Liabilities and stockholders’ equity     
Current liabilities     
Accounts payable$1,684  $962 
Income taxes payable567  13 
Accrued expenses and other current liabilities13,141  12,357 
Deferred revenue30,456  28,432 
Total current liabilities45,848  41,764 
Income tax reserve657  989 
Operating lease liabilities13,309  14,548 
Total Liabilities59,814  57,301 
Commitments and contingencies     
Stockholders’ equity     
Common stock – par value $0.01 per share     
Class A – 17,000,000 authorized, 12,601,270 issued, 11,874,763 outstanding at     
December 31, 2022; 12,483,128 issued, 11,801,761 outstanding at December 31, 2021126  125 
Additional paid-in capital24,847  21,681 
Retained earnings21,246  16,787 
Treasury stock – 726,507 shares at December 31, 2022 and 681,367 shares at December 31, 2021(16,415) (13,639)
Total Stockholders’ Equity29,804  24,954 
Total Liabilities and Stockholders’ Equity$89,618  $82,255 
      

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