OTC Markets Group Inc.
Q1 2021 Earnings Call Transcript

Published: 8 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the OTC Markets Group First Quarter 2021 Earnings Conference Call. I would now like to hand the conference over to your speaker today, Dan Zinn, General Counsel and please go ahead.

[Dan Zinn:]

Thank you, operator. Good morning and welcome to the OTC Markets Group first quarter 2021 earnings conference call. With me today are Cromwell Coulson, our President and Chief Executive Officer and Antonia Georgieva, our Chief Financial Officer. Today’s call will be accompanied by a slide presentation. Our earnings press release and the presentation are each available on our website. Certain statements during this call and in our presentation may relate to future events or expectations and as such may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning risks and uncertainties that may impact our actual results is contained in the Risk Factors section of our 2020 Annual Report, which is also available on our website. For more information, please refer to the Safe Harbor statement on Slide 3 of the earnings presentation.

[Cromwell Coulson:]

Thank you, Dan. Good morning, everyone. Thank you for joining us today. As we look back on more than a year of living with the global pandemic, I remain impressed by our incredible team’s hard work and achievement at OTC Markets Group. I am proud of our colleagues’ continued ability to serve our clients, stay connected and deliver excellent results. Everyone in our organization has been impacted differently. They each have risen to the challenges presented and demonstrated the best of our company values. Thank you. We continue to support our colleagues’ safe return to work. As New York and Washington reopen this summer, we are focused on bringing our teams together in a thoughtful manner, so each person can best perform their role. Our goal is to inspire individual contributions, foster productive collaboration, and most importantly, maximize our collective success. We saw a surge in trading volumes that stressed systems across the industry during the first quarter, and increased transaction count on OTC Link ATS and OTC Link ECN. With those substantial trading volumes, capital markets activity and continued client engagement, we delivered record results during the first quarter, with gross revenues growing 57% and net income growing 77%, compared to the first quarter last year. As a result, our earnings per share grew and our operating profit margin experienced significant expansion. Antonia will cover our financial results in more detail in a few moments. We are also pleased to report another quarter of providing reliable, consistent service to our subscribers. The secure, compliant and effective operation of our regulated ATS trading systems is a collaborative team effort every trading day. Activity on our markets is moderated since the peak days earlier in the year. However, our trading volumes remain robust. Keeping stock markets running and serving our broker dealer subscribers during volatile times is core to our mission of creating better informed and more efficient financial markets. We deliver mission-critical infrastructure for broker dealers. We bring the benefits of public trading to a wide spectrum of securities. We efficiently fulfilled the capital formation needs of a broad range of U.S. and global companies. The more useful we make our technology platform and data, the greater value we will offer clients. We will continue to invest in our people and platform to increase earnings power for shareholders in the years to come.

[Antonia Georgieva:]

Thank you, Cromwell. Thank you everyone on the call today for joining us for the review of our first quarter results. Our team at OTC Markets once again demonstrated continued commitment to our clients and subscribers, and delivered strong results across our businesses. As I review the results for the quarter ended March 31, 2021, please do keep in mind that any reference made to prior period comparatives, will refer to the first quarter of 2020. We continued to experience record volumes of trading activity on our markets and a robust pace of new sales. As a result, we concluded the first quarter of 2021 with $26.1 million in gross revenues, up 57% and all three of our business lines delivered strong quarter-over-quarter growth. In our OTC Link business, revenues were up 210%. OTC Link experienced unprecedented volumes on OTC Link ATS and OTC Link ECN in line with the overall volume of U.S. equity market activity during the quarter. As a result, OTC Link’s transaction-based revenue increased substantially. OTC Link ECN saw an 822% increase in gross revenues for the quarter. The average daily transactions executed on OTC Link ECN increased over 10 times from the prior quarter to reach over 70,000. Additionally, we added 9 new subscribers to OTC Link ECN to end the current quarter with 82 subscribers, which is a net increase of 21, compared to the prior quarter.

[Operator:]

Thank you. Our first question comes from Chris McGinnis of Sidoti & Company.

[Nick Bigelow:]

Good morning. It’s Nick Bigelow on for Chris McGinnis. Thank you for taking my questions and congratulations on the strong results. And looking at the strength of the first quarter ‘21 revenue, could you talk about the trends since the end of the quarter in Market Data and Corporate Services segment? Are you seeing an acceleration or deceleration in the strength from the 1Q ‘21 period and if you could talk about the major drivers of the improvement as well? Thank you.

[Antonia Georgieva:]

Certainly. I will take this. This is Antonia. As you saw in the first quarter, the largest change or outperformance we experienced was due to our transaction-based revenue, which increased substantially as we discussed, but our business remains largely subscription-based, with still majority of our revenue attributable to long-term subscription-based contracts, which is the predominant type of revenue we generate in Market Data Licensing and Corporate Services. So, we do continue to see consistent and robust results in those two business lines. Continuation of the trends of course as you would expect it’s – we are not providing forward guidance on our numbers for second quarter. But as we indicated, we continue to see very strong pipeline in our Corporate Services business and our Market Data Licensing continues to benefit from these larger number of users we have today though as we want that could change, especially on the non-professional user side and we have also benefited from certain price increases that will continue for the rest of the year since they became effective earlier. I hope that addresses your question?

[Nick Bigelow:]

Yes, thank you. And then also impressive was the operating leverage on the sales growth in the quarter. Given the rates of revenue growth you are seeing, is the current cost structure sustainable or do you need to invest and better support that growth? Thank you.

[Cromwell Coulson:]

So, this is Cromwell and thank you for that question. I mean, I think we look at it is there is always an opportunity to invest in our growth. We believe that we have a platform, which in places like serving broker dealers or allowing companies to be public or enhancing the usefulness of our data, all of those areas we have long lists of things we would like to do to make it better. And we also believe that because where we came from in serving the broker dealer community as a vendor and we look to deliver value to the broker dealer community rather than as some of our larger multinational exchange competitors look to extract value. So there is opportunities to do things. And we have – I think we have very nice margins is but we will – we are not looking to hockey stick our margins and instead we are looking to expand the utility of our platform for broker dealer subscribers, because we have a very cost competitive platform. I mean, if you look at, I mean, one of the revenue – one of the numbers I think is pretty interesting is about the amount of transactions, dollar volume of transactions that went across our ATSs in 2020 versus the amount of transactions that went across a large public crypto ATS provider. And their fees versus nominal volume, is over 50x what our trading services fees are. So you think about that as – and I think – and we have a very cost effective platform and we think that we can continue to deliver that and help broker dealers be efficient and informed in trading securities.

[Nick Bigelow:]

It sounds great. Thanks for taking my questions and good luck in 2Q.

[Cromwell Coulson:]

Great. Thank you.

[Operator:]

I am showing no further questions at this time. I would now like to turn it back to Cromwell Coulson for closing remarks.

[Cromwell Coulson:]

Thank you operator. We want to thank all of you for joining us today. I encourage each of you to read our full earnings report and view our inaugural OTC Markets Virtual Investor Day. Links to both are available on the Investor Relations page of our website. On behalf of the entire team at OTC Markets Group, we wish you and your families continued health and safety and we look forward to connecting with you again soon. Thank you.

[Operator:]

This concludes today’s conference call. Thank you for participating and you may now disconnect.