OTC Markets Group Inc. (OTCM) Earnings Call Transcript & Summary

Welcome to the Annual Meeting for OTC Markets Group. Our host for today's call is Neal Wolkoff, Chairman of the Board. [Operator Instructions] I will now turn the call over to your host, Mr. Wolkoff, you may begin, sir.

Thank you. Good morning, and welcome to the 2021 Annual Meeting of Stockholders of OTC Markets Group. Thank you all for joining us today. I'm Neal Wolkoff, Chairman of the Board of Directors of the company, and I will be presiding over this meeting. The time is 10:02 on December 9, 2021. At this time, I call the meeting to order. I am joined by the CEO of the company, Cromwell Coulson; Daniel Zinn, the company's General Counsel, will act as Secretary and timekeeper of the meeting. [ Jeff Gin ], the company's Corporate Controller, will serve as Inspector of Elections. Dan will now discuss the rules of conduct.

Thank you, Neal. Good morning, and thank you for joining us today. We are conducting this meeting entirely remotely and ask that participants adhere to the following rules. First, please note that this meeting is being recorded and may be made publicly available. The record date for this meeting was the close of business on November 8, 2021. A list of shareholders on the record date is available for shareholders to review during the meeting at the bottom of the portal. Shareholders of record are entitled to ask questions and vote during the meeting. If you voted your shares prior to the start of the meeting, your vote has been received by the company's inspector of elections, and there is no need to vote those shares during the meeting, unless you wish to revoke or change your vote. To vote, submit questions or view the shareholder list during the meeting visit the [ virtualsharemeeting.com/otcm2021 ] and log into the portal as a shareholder by entering the 16-digit control number you received with your proxy materials. You may submit questions at any point during the meeting. You may vote your shares during the meeting when Mr. Wolkoff announces that the polls are open. We will address questions and host a general question-and-answer session following the business portion of the meeting. Please limit your questions and remarks to corporate business. Also, please note that we will be hosting an Investor Day for OTC Markets Group shareholders in April 2022, where we will discuss our business operations and performance in more detail.

Thank you, Dan. The Secretary will now report on the existence of a quorum for the meeting.

The shareholder list shows that holders of 11,781,796 shares of Class A common stock of OTC Markets Group, Inc. are entitled to vote at this meeting. We are informed by the Inspector of Elections that they are represented in person or by proxy 8,723,958 shares of Class A common stock or approximately 74% of all shares entitled to vote at the meeting.

Based upon the percentage of the total shares of the company held by holders of record now present at the meeting or represented by proxy, a quorum is present. This meeting is now duly convened for the purposes of transacting business properly before it. The next order of business is a description of matters properly brought before this meeting.

If any stockholder would like to make a comment regarding any of the proposals, please submit your comments through the web portal. Following the business portion of the meeting, there will be a general question-and-answer session.

Proposal 1, election of directors. The first item of business today is the election of 2 Class 1 directors, Proposals 1A and 1B. The nominees receiving the highest number of votes of shares present in person or by proxy at this meeting will be elected as a director. The directors elected today will hold office until the 2024 Annual Meeting of Stockholders. Biographies of the nominees are included in your proxy materials.

OTC Markets Group Board of Directors unanimously recommends Mr. Neal Wolkoff, and Ms. [ Luisa Serene Schneider ] for election to the Board of Directors. We will now move to proposal #2.

Proposal 2 increase the company's authorized shares. The second item of business today is to approve an amendment to the company's Certificate of Incorporation to increase the number of authorized shares of Class A common stock from 14 million to 17 million shares. Information concerning proposal #2 is included in the proxy materials.

OTC Market Group's Board of Directors unanimously recommends that shareholders vote for this proposal. We will now move to proposal #3.

Proposal 3, ratification of independent auditors. The third item of business today is the ratification of the company's independent auditors for the company's 2021 fiscal year.

The Audit Committee of the Board of Directors unanimously recommends the ratification of [ Deloitte & Touche LLP ] as the company's independent auditors. We have not received any shareholder questions concerning the proposals.

Because no further business is on the agenda to come before this meeting, we will move on to voting. The time is 10:06 a.m., and I declare the polls now open for each of the matters to be voted on today. Any shareholder who has not yet voted or wishes to change their vote may do so now by clicking on the voting button on the web portal and following the instructions. Shareholders who have sent in proxies or voted via telephone or Internet and do not want to change their vote do not need to take any further action. [Voting].

I declare the polls now closed at 10:07 a.m. December 9, 2021. Will the Secretary please report the results of voting?

The Inspector of Elections has informed us that the preliminary vote report shows the following results. Proposal 1A, the election of Mr. Neal Wolkoff, to the company's Board of Directors. 5,894,830 shares for the proposal or 62.2%. Proposal 1b, the election of Ms. [ Luisa Serene Schneider ] to the company's Board of Directors. 5,896,529 shares for the proposal or 61.3%. Proposal 2, the approval of an amendment of the company's Certificate of Incorporation to increase the company's authorized shares. 6,697,651 shares for the proposal, or 69%. Proposal 3, the ratification of the appointment of the company's independent public accounting firm. 7,270,448 shares for the proposal or 74%.

Thank you, Dan. I will now open the floor to general business questions.

We're just allowing questions to populate in the portal. There was one question related to the proposals that we want to address and apologies for not seeing it pop up earlier. That question was how was the number 3 million shares chosen for the increase in the number of shares? In the proxy materials, I talked about the general business use of these shares. Largely, our use of the shares historically has been as part of our equity incentive plan and the ability to compensate employees in that way. And so 3 million shares provides enough headroom for us to continue operating that plan for the foreseeable future in the manner in which we have historically done so. So we thought it was appropriate without giving a ride to a concern about a larger amount of dilution or anything of that nature. All right. Scroll to the top, see what questions we have. All right. So the first question that I see is Sidoti still providing coverage on OTCM. Please let us know. Many thanks, and congratulations on all of your success. Well, thank you for that. Yes, the brief answer is yes, Sidoti is still providing coverage. Hopefully, that should all be available in the reports that they publish on the Investor Relations page on our website. And if there are any questions or any issues accessing that, feel free to contact us. Next question/comment. I really like the virtual shareholder meeting as it is easier to attend. How many people are logged in? Also, can we get video for next year? We all look very good. I can promise you that. There are -- I think that's a total of 19 shareholders logged in right now. And I think we agree that the virtual shareholder meeting is nice, but we also miss the in person. So we'll keep everybody posted as the plan for upcoming years. Next question, how many of the votes were negative versus just [ non-votes ]? We can give some additional detail there. For Proposal 1a, the votes against or 1,314. That was the election of Neal Wolkoff. For the election of [ Luisa Schneider ], the against votes for 1,768. In each of those -- for each of those proposals, there were approximately 1.38 million broker non-votes and a small number of extensions as well. For the proposal with respect to the increase in shares and authorized shares, the against votes were 581,436, with a small number, just over 2,200 abstaining. And for [ Deloitte & Touche ], the against vote was 9,779 with just over 1,000 abstaining.

Can answer the next one?

Sure.

Why 3 million and not 5 million? We looked at $3 million gave us plenty of headroom, and it's much better to be able to go back to shareholders. So asking for large amounts and not really having a path on that. And I do believe the most important thing for shareholders to look at is share dilution over the years. And that's a misunderstood amount by both shareholders. And you should look at, is how a company diluted shareholders over the years and how have they grown asset values. And that's super important because at the end of the day, our goal is to grow the financial value of each individual share held by a shareholder. And so this is all a mixture together and part of it is of our compensation plan is aligning employees with shareholders as part of a mix of compensation that is in salaries, cash bonuses and equity compensation. And we have a fantastic culture of people. The second question is, how is the new 15c2-11 regime affected the company? I mean, I think to go into a deeper answer will be at our Investor Day after we've done our annual report is -- but it is part of a long-term trend of OTC Markets becoming a highly regulated market operator of critical financial infrastructure for U.S. markets. And the first part of that was regulated in our trading systems under Regulation ATS and with [ FINRA SRO ] oversight. The second part was recognizing the role we play in organizing the OTC markets and monitoring company disclosure. And the regulators really came in and codified what the private market hit first and then the states through blue sky recognitions within the SEC regime for unlisted securities. And also [ FINRA ] became our -- became our -- became more of the regulator of not only of our trading, but also our ongoing monitoring of ongoing disclosure by issuers. And another question is being critical infrastructure, do you think you'll get hit with Reg SCI? We are under Regulation SCI. Our trading infrastructure is under the same level as -- at the highest level, the same as the New York Stock Exchanges, the major clearing systems, and that's a plus and a minus. But we -- our team both from the business side, from the compliance side, from the legal side, from the technology side, all have to come in every day and earn the trust of the market. And Reg SCI, in many ways, a positive regulation because the regulators are in actively going through our processes, coming back with what they see as positives or problems of other industry players. And it is a lot of work but it's probably one of the best relationships with regulation that improves us to be better. Could it be more streamlined, could it be more efficient? Yes. Are there inefficiencies? Do the regulators look at some things which may not matter, Yes. But it is a pressure, which drives positive change for our operations to raise how we play the game. And the last one is thank you. Keep up the great work. So yes.

So with -- All right. So that concludes the question-and-answer portion of our meeting. We encourage shareholders to attend our 2022 Investor Day in April of next year. We will post a specific day and time and additional information about this event on the Investor Relations page of our corporate website.

Thanks, Dan. Our program for the day has concluded, and I declare the meeting to be officially adjourned at 10:16 a.m. December 9, 2021. Thank you all for attending today's meeting and for your continuing support of OTC Markets Group.

That concludes today's conference. Thank you for joining, and have a pleasant day.