• Gross Revenue: $27.6 million, up 1% year-over-year.

• OTC Link Revenue: Increased 12%, representing 20% of gross revenues.

• Market Data Licensing Revenue: Increased 1%, contributing 39% of gross revenues.

• Corporate Services Revenue: Decreased 3%, comprising 41% of gross revenues.

• Operating Expenses: Increased 1% quarter-over-quarter.

• Operating Profit Margin: 30.4%, down from 31.4% in the prior year quarter.

• Adjusted EBITDA: $10.3 million, down 1% year-over-year.

• Adjusted Diluted Earnings Per Share: $0.85, down 1% year-over-year.

• Cash Provided by Operating Activities: $6.2 million, up from $4.7 million in the prior year quarter.

• Free Cash Flow: $5.5 million, up from $4.4 million in the prior year quarter.

• Dividends Returned to Investors: $2.2 million, compared to $2.1 million in the prior year quarter.

• Warning! GuruFocus has detected 2 Warning Sign with OTCM.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• OTC Link experienced a significant growth of 12% during the quarter, driven by increased trading volume.

• The company announced the launch of OTC Overnight, which will allow trading in OTC equity securities during Asian market hours, potentially expanding market reach.

• Revenues from Blue Sky data products increased by 35%, indicating strong growth in this area.

• The company maintained a strong operating profit margin of over 30%, showcasing efficient cost management.

• A quarterly dividend of 18 cents per share was declared, reflecting a commitment to providing shareholder returns.

Negative Points

• Corporate Services revenue decreased by 3% in the second quarter, with a notable decline in OTCQB and DNS revenues.

• The number of OTCQB companies decreased by 9%, indicating challenges in retaining smaller financially stressed companies.

• Revenues from EDGAR Online decreased by 22% due to subscriber cancellations, highlighting integration challenges.

• Operating expenses increased by 1%, with a significant 50% rise in general, administrative, and other costs.

• Income from operations and net income both declined by 2% and 3% respectively, indicating pressure on profitability.

Q & A Highlights

Q: With the closing auction and overnight trading products coming online, can you discuss the process of bringing new technology functions into the product suite? A: Cromwell Coulson, President and CEO, explained that product development can stem from internal ideas or subscriber feedback. The process varies depending on whether it's an incremental improvement or a larger initiative. Some products, like the Link messaging product, have quick uptake, while others, like the ECN, require a longer development period. The focus is on solving client problems and adding value through technology.

Q: How much of OTC Link's strong transactional results are attributed to meme stock trading? A: Coulson noted that while meme stocks are few, the growth in OTC Link is driven by global trading and the breadth of the market. The focus is on expanding investable securities and maintaining a data-driven market model, which is more suitable for companies with risks compared to exchange environments.

Q: Can you discuss the subscriber cancellations in EDGAR Online and the strategy for monetizing it? A: Antonia Georgieva, CFO, clarified that cancellations were not recent but occurred during the integration phase last year. The focus now is on understanding customer counts and improving the product. Coulson added that the technology transition was challenging, but future plans include integrating data sets and enhancing value for clients.

Q: What is the opportunity for Market Data Licensing with the overnight trading initiative? A: Coulson highlighted that overnight trading caters to demand from Asia, allowing global securities to be traded during local daytime hours. This initiative helps protect market share and opens conversations with subscribers about additional trading opportunities, leveraging existing infrastructure for scalability.

Q: What are your thoughts on the Texas Stock Exchange's value proposition and its impact on the competitive landscape? A: Coulson described the Texas Stock Exchange as a marketing strategy, noting that exchanges' listing standards are controlled by the SEC. He emphasized OTC Markets' focus on providing functionality and compliance, allowing companies to own and earn their public trading visibility, which offers real savings compared to traditional exchanges.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.