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OTC Markets Group Reports Fourth Quarter and Full Year 2021 Results

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

Delivers Continued Strong Revenue and Earnings Growth

Fourth Quarter and Full Year 2021 Highlights:

  • Gross revenues of $102.9 million for the year, up 45% versus 2020
  • Operating income of $38.0 million for the year, up 77% versus 2020
  • Operating profit margin of 38.0% for the year versus 31.3% for 2020
  • Net income of $30.5 million for the year, up 67% versus 2020, driving a 65% increase in GAAP diluted EPS to $2.52
  • Total cash returned to shareholders during 2021 of $27.0 million, comprised of dividends of $25.5 million and repurchases of common shares of $1.5 million, up 49% versus 2020
  • 212 new OTCQX companies added and 451 new OTCQB companies added during 2021 to end the year with 570 and 1,150 OTCQX and OTCQB companies, respectively
  • 111% increase in the number of companies subscribing to our Disclosure & News Service® products
  • 155 graduates to a national securities exchange during 2021
  • 93 subscribers to OTC Link ECN as of year-end 2021, up 20 versus 2020; approximately 48,000 average daily trades during 2021, versus approximately 11,500 during 2020
  • Launch of our third Alternative Trading System, OTC Link® NQB, offering a fully attributable matching engine model with ability to distribute depth-of-book market data
  • 32 Virtual Investor Conferences® events during 2021, with 626 companies participating
  • Implemented amendments to Rule 15c2-11, enabling our OTC Link ATS to act as a qualified interdealer quotation system
  • Fourth quarter gross revenues of $26.2 million, up 32% versus the prior year quarter
  • Fourth quarter operating income of $10.8 million, up 61% versus the prior year quarter, resulting in an operating profit margin of 42.4% as compared to 35.0% for the fourth quarter of 2020
  • Announcing first quarter 2022 dividend of $0.18 per share

NEW YORK, March 09, 2022 (GLOBE NEWSWIRE) — OTC Markets Group Inc. (OTCQX: OTCM), operator of regulated markets for trading 12,000 U.S. and international securities, today released its financial results for the fourth quarter and fiscal year 2021.

“2021 marked an important milestone in our evolution as a regulated market operator. Our gross revenues surpassed one hundred million dollars for the first time, and we delivered record financial results across all our businesses,” said R. Cromwell Coulson, President and Chief Executive Officer. “Our cornerstone project last year was the implementation of the SEC’s amendments to Rule 15c2-11 to efficiently support the compliance of our clients and effectively meet our new responsibilities as a Qualified Interdealer Quotation System. As we build on this momentum in 2022, we remain focused on our strategic initiatives to maximize the potential of our enhanced regulatory role for public companies, support the success of our broker-dealer subscribers and deliver sustainable growth for our stockholders.”

“We are pleased to report on a remarkable year of growth, seamless implementation of critical regulatory changes, and continued reliable service for our clients,” said Antonia Georgieva, Chief Financial Officer. “2021 marked our fifth year of consecutive revenue growth. Strong customer demand led to record growth in revenues and earnings per share and a robust operating margin expansion. The strong free cash flows that our business generated allowed us to deliver 49% growth in cash returned to our stockholders. We remain focused on growing our business and creating sustainable long-term value.”

Fourth Quarter 2021 compared to Fourth Quarter 2020

  Quarter Ended December 31,     
(in thousands, except shares and per share data)  2021   2020  % change $ change 
OTC Link $5,591  $5,095  10% 496 
Market data licensing  8,777   7,358  19% 1,419 
Corporate services  11,819   7,325  61% 4,494 
Gross Revenues  26,187   19,778  32% 6,409 
Net revenues  25,397   19,064  33% 6,333 
Revenues less transaction-based expenses  23,819   17,702  35% 6,117 
Operating expenses  13,041   11,021  18% 2,020 
Income from operations  10,778   6,681  61% 4,097 
Operating profit margin  42.4%   35.0%      
Income before provision for income taxes  10,710   6,662  61% 4,048 
Net income $9,054  $5,728  58% 3,326 
          
Diluted earnings per share $0.74  $0.48  54%   
Adjusted diluted earnings per share $0.98  $0.66  48%   
Weighted-average shares outstanding, diluted  11,900,839   11,661,096  2%   
          

Fourth Quarter 2021 Financial Highlights

  • Gross revenues of $26.2 million, up 32% over the prior year quarter.
  • OTC Link revenues up 10%, with sustained elevated trading volumes and the impact of additional subscribers driving a 16% increase in transaction-based revenues on our OTC Link ECN.
  • Market Data Licensing revenues up 19%, with a 13% quarter over quarter increase in pro-users driving a 16% increase in related revenues. The number of non-professional users of our market data increased 36%, reflective of an increased retail participation in the U.S. equities markets and helped drive a 36% increase in related revenues.
  • Corporate Services delivered 61% growth in revenues quarter over quarter, driven by a 44% increase in revenues from our OTCQX market, a 56% increase in revenues from our OTCQB market, and a 134% increase in revenues from our Disclosure & News Service product. Robust growth in the number of companies subscribing to our offerings as well as price increases introduced at the beginning of 2021 contributed to the growth in Corporate Services revenues.
  • Operating expenses increased 18% over the prior year quarter, primarily driven by a 17% increase in compensation and benefits costs, reflecting higher incentive compensation and higher sales commissions. The increase was further impacted by a 20% increase in IT infrastructure and information services costs and a 30% increase in professional and consulting fees.
  • Net income increased 58% to $9.1 million for the quarter, reflecting the increase in operating income, partially offset by a quarter over quarter increase in our effective tax rate.
  • Adjusted EBITDA, which excludes non-cash stock-based compensation expense, increased 52% to $12.0 million, or $0.98 per adjusted diluted share.

Fiscal Year 2021 Results compared to Fiscal Year 2020

  Year Ended December 31,    
(in thousands, except shares and per share data)  2021   2020  % change $ change
OTC Link $29,665  $15,890  87% 13,775
Market data licensing  33,751   28,133  20% 5,618
Corporate services  39,516   27,206  45% 12,310
Gross Revenues  102,932   71,229  45% 31,703
Net revenues  99,911   68,419  46% 31,492
Revenues less transaction-based expenses  90,638   65,397  39% 25,241
Operating expenses  52,622   43,963  20% 8,659
Income from operations  38,016   21,434  77% 16,582
Operating profit margin  38.0%   31.3%     
Income before provision for income taxes  37,965   21,407  77% 16,558
Net income $30,476  $18,274  67% 12,202
         
Diluted earnings per share $2.52  $1.53  65%  
Adjusted diluted earnings per share $3.56  $2.20  62%  
Weighted-average shares outstanding, diluted  11,811,320   11,630,685  2%  
         

Fiscal Year 2021 Financial Highlights

  • Gross revenues of $102.9 million, up 45%.
  • OTC Link revenues up 87%, with revenues contributed by our OTC Link ECN as the primary driver. OTC Link ECN benefited from elevated trading volumes, which surged to unprecedented levels early in 2021 before moderating later in the year.
  • Market Data Licensing revenues up 20%, mainly due to growth in professional and non-professional user licenses.
  • Corporate Services revenues up 45% for the year, primarily driven by an increased demand for our OTCQX, OTCQB, and Disclosure & News Service offerings with price increases also contributing. Our premium OTCQX and OTCQB markets and our Disclosure & News Service product allow issuers to meet their current public disclosure requirements under federal and state securities laws.
  • Operating expenses up $8.7 million, or 20%.  
  • Compensation and benefits costs increased 5.2 million, or 18%, primarily due to an increase in cash bonus awards, resulting from improved earnings performance and higher sales commission driven by strong OTCQX and OTCQB sales.
  • Net income increased 67% to $30.5 million due to a 77% increase in income from operations, partially offset by an increase in the Company’s effective tax rate, from 14.6% in 2020 to 19.7% in 2021.
  • Adjusted EBITDA increased 64% to $43.1 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 31, 2022, to stockholders of record on March 23, 2022. The ex-dividend date is March 22, 2022.

Stock Buyback Program

On March 7, 2022, 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 2021 Conference Call

The Company will host a conference call and webcast on Thursday, March 10, 2022, 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: 1-877-665-5564 (Domestic); 1-470-495-9522 (International); Conference ID: 2748035

Call Replay Dial-in Numbers (available until March 24, 2022): 1-855-859-2056 (Domestic); 1-404-537-3406 (International); Replay ID Number: 2748035

Participants can access the conference via webcast at the following link (replay available until March 9, 2023):

https://edge.media-server.com/mmc/p/6qc8u2ry 

OTC Markets Group’s 2021 Annual Report, the earnings release, transcript of the earnings call and presentation will also be available in the Investor Relations section of its 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

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, 
  2021   2020   2021   2020  
OTC Link$5,591  $5,095  $29,665  $15,890  
Market data licensing 8,777   7,358   33,751   28,133  
Corporate services 11,819   7,325   39,516   27,206  
Gross revenues 26,187   19,778   102,932   71,229  
Redistribution fees and rebates (790)   (714)   (3,021)   (2,810)  
Net revenues 25,397   19,064   99,911   68,419  
Transaction-based expenses (1,578)   (1,362)   (9,273)   (3,022)  
Revenues less transaction-based expenses 23,819   17,702   90,638   65,397  
Operating expenses        
Compensation and benefits 8,135   6,977   34,049   28,896  
IT Infrastructure and information services 2,057   1,717   7,633   6,452  
Professional and consulting fees 1,170   903   4,495   2,704  
Marketing and advertising 326   259   1,028   807  
Occupancy costs 595   335   2,348   2,303  
Depreciation and amortization 465   490   1,796   1,761  
General, administrative and other 293   340   1,273   1,040  
Total operating expenses 13,041   11,021   52,622   43,963  
Income from operations 10,778   6,681   38,016   21,434  
Other income        
Other income (68)   (19)   (51)   (27)  
Income before provision for income taxes 10,710   6,662   37,965   21,407  
Provision for income taxes 1,656   934   7,489   3,133  
Net Income $9,054  $5,728  $30,476  $18,274  
         
Earnings per share        
Basic$0.77  $0.49  $2.59  $1.56  
Diluted$0.74  $0.48  $2.52  $1.53  
         
Basic weighted average shares outstanding 11,519,180   11,418,394   11,506,294   11,402,703  
Diluted weighted average shares outstanding 11,900,839   11,661,096   11,811,320   11,630,685  
         
         
Non-GAAP Reconciliation        
 Three Months Ended December 31, Year Ended December 31, 
  2021   2020   2021   2020  
Net Income$9,054  $5,728  $30,476  $18,274  
Excluding:        
Interest Income –   –   (1)   (19)  
Provision for income taxes 1,656   934   7,489   3,133  
Depreciation and amortization 465   490   1,796   1,761  
Stock-based compensation expense 786   716   3,332   3,059  
Adjusted EBITDA$11,961  $7,868  $43,092  $26,208  
         
Adjusted diluted earnings per share$0.98  $0.66  $3.56  $2.20  
         
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 share information)
    
 December 31,
 2021 2020
Assets   
Current assets   
Cash and cash equivalents$50,394 $33,733
Short-term restricted cash– 32
Accounts receivable, net of allowance for credit losses of $244 and $1947,404 6,609
Prepaid income taxes790 356
Prepaid expenses and other current assets1,363 1,375
Total current assets59,951 42,105
Property and equipment, net5,049 5,367
Operating lease right-of-use assets14,889 14,844
Deferred tax assets, net387 343
Goodwill251 251
Intangible assets, net40 40
Long-term restricted cash1,564 1,532
Other assets124 328
Total Assets$82,255 $64,810
    
Liabilities and stockholders’ equity   
Current liabilities   
Accounts payable$962 $1,251
Income taxes payable13 16
Accrued expenses and other current liabilities12,357 9,965
Deferred revenue28,432 18,765 
Total current liabilities41,764 29,997
Income tax reserve989 801
Operating lease liabilities14,548 14,466
Total Liabilities57,301 45,264
Commitments and contingencies   
Stockholders’ equity   
Common stock – par value $0.01 per share   
Class A – 17,000,000 authorized, 12,483,128 issued, 11,801,761 outstanding at   
December 31, 2021; 12,346,491 issued, 11,709,857 outstanding at December 31, 2020125 123
Additional paid-in capital21,681 19,770
Retained earnings16,787 11,770
Treasury stock – 681,367 shares at December 31, 2021 and 636,634 shares at December 31, 2020(13,639) (12,117)
Total Stockholders’ Equity24,954 19,546
Total Liabilities and Stockholders’ Equity$82,255 $64,810
    

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