Increased trading volumes, higher revenue, and lower taxes helped OTC Markets Group (OTCM 1.54%) report net income of $4.1 million in the fourth quarter, a 41% increase over the year-ago period.
More than 1,300 companies now have securities that trade on either the OTCQX or OTCQB markets, which offer a lower-cost alternative to listings on large exchanges like the NYSE or NASDAQ.
OTC Markets Group's fourth quarter: By the numbers
The table below shows key metrics for OTC Markets Group in the fourth quarters of 2018 and 2017.
|
Metric |
Q4 2018 |
Q4 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Net revenue |
$14.8 million |
$13.2 million |
12% |
|
Income before taxes |
$4.8 million |
$4.7 million |
4% |
|
Net income |
$4.1 million |
$2.9 million |
41% |
|
Diluted EPS |
$0.34 |
$0.25 |
43% |
EPS = earnings per share. Data source: OTC Markets Group.
Note the outsize impact of the Tax Cuts and Jobs Act in the company's financial results as net income grew 41% on a 4% increase in pre-tax profit year over year.
Image source: Getty Images.
What happened this quarter?
- Trading volumes on its markets increased roughly 24% in the fourth quarter compared to the prior-year period, rising to $100 billion in the fourth quarter. Its OTC Link segment, which generates revenue per subscriber and, in some cases, per trade, saw revenue increase 15% year over year in the fourth quarter.
- Corporate services revenue grew 11% year over year, which OTC Markets attributed to increased sales, reduced customer churn, and some price increases on its OTCQB Market. Corporate services revenue is predominantly generated from fees businesses pay to have their shares trade on one of OTC Market Group's markets.
- Market data licensing revenue increased 9% year over year in the fourth quarter, thanks to price increases and sales to new customers. Professional users of its data licenses increased 5% at the end of 2018 compared to the end of 2017.
- Total operating expenses increased about 15%, outpacing the 12% increase in net revenue year over year. OTC Markets said the increase in operating expenses was primarily driven by an increase in compensation, occupancy, and marketing expenses.
- Lower taxes were a boon. In the fourth quarter of 2018, OTC Markets reported a tax rate of 15%, down from a tax rate of 37.4% in the year-ago period. For the full year, its tax rate fell to 18% in 2018, down from 31% in 2017. On the conference call, management said that investors should expect the tax rate to decline again in 2019, as OTC Markets takes advantage of bonus depreciation on planned capital investments this year.
Check out the latest earnings call transcript for OTC Markets Group.
Looking ahead
OTC Markets is investing its in core businesses and expanding by way of acquisition. After the quarter ended, in January, the company opened a new sales office in London. The London office is part of a larger sales effort to get larger foreign companies to list on the OTC Markets for easier access to U.S.-based investors.
The company also closed on its acquisition of Virtual Investor Conferences in January. By hiring Virtual Investor Conferences for as little as $3,950, a publicly traded company can host an online presentation to communicate with its shareholders. Revenue from this product will flow into its "corporate services" revenue line in future accounting periods.
Finally, OTC Markets also announced the acquisition of Qaravan in the first quarter of 2019, which makes its money providing risk and analytics software to community banks. OTC Markets already has relationships with hundreds of smaller banks whose shares trade on its markets, enabling it to cross-sell additional services to existing OTC Markets or Qaravan customers.
