OTC Markets Group (NASDAQOTH:OTCM) fulfills its mission to make the financial markets more efficient by providing exchanges for companies that cannot meet the standards of or pay the fees to trade on better-recognized national exchanges, such as the New York Stock Exchange (NYSE) or the Nasdaq.
The OTCQX, OTCQB, and Pink Sheet market exchanges provided by OTC Markets accomplish two objectives. They give U.S. investors the opportunity to buy these stocks, and it gives these companies access to investor capital that would otherwise be unavailable. With shares up almost 20% year to date, OTC Markets hopes to propel its stock price even higher with its 2019 first-quarter results.
OTC Markets: The raw numbers
|Metric||2019 Q1||2018 Q1||Year-Over-Year Growth (Decline)|
|Gross revenue||$15.4 million||$14.4 million||7%|
|Net income||$3.5 million||$3.7 million||(5%)|
|Operating margin||30%||33%||(3 percentage points)|
What happened with OTC Markets this quarter?
- The company launched Canari, an online tool that provides subscribers with analytics across several data points for companies trading over the counter.
- It acquired and integrated Qaravan, which provides risk and performance analytics on more than 5,000 U.S. banks to banking and financial industry professionals.
- Its corporate headquarters moved to new facilities in New York, and it opened a location in London in an effort to boost international sales.
- OTC Markets currently has Blue Sky exemptions in 34 states for its OTCQX market exchange, meaning brokers and analysts in those states can recommend securities listed on the exchange to clients.
- Operating expenses rose to $10.6 million, a 15% increase year over year, driven primarily by compensation and IT infrastructure costs. The growth in expenses drove the operating margin down to 30%, a decline of 3 percentage points over last year's first quarter.
- The company returned $3.1 million to shareholders via share repurchases and dividends. The buyback program is more to "reduce the dilutive impact of our equity compensation program" than bring down the total number of shares, management said.
- It completed the acquisition of Virtual Investor Conferences, a platform that enables publicly traded companies to host virtual events with investors. The platform has already hosted four events since its acquisition and there are 13 more meetings planned for 2019.
What management had to say
In the earnings release, CEO R. Cromwell Coulson stated:
"Against the backdrop of a slower trading environment, the first quarter of 2019 marked the 9th consecutive quarter for which we have reported top line revenue growth. While remaining focused on our core business, we also moved to new state-of-the-art facilities in downtown New York and did so on schedule and without seeing any business interruption. We integrated our recent acquisitions, and have continued to make investments that will move our business forward and deliver on our mission."
CFO Bea Ordonez added, "We were pleased to report another quarter of revenue growth, with strong sales and increased uptake across our business lines, and improved retention all contributing."
Investors will want to see if OTC Markets can continue to grow its corporate services revenue, its largest revenue segment, which consists of the fees companies pay to be listed on its exchanges. In the first quarter, corporate services grew revenue to $6.5 million, a 10% increase year over year. This segment added five net new companies this quarter and sported a 94% customer retention rate.