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

Thank you. Good day and welcome to the OTC Markets Group second quarter 2026 earnings conference call and webcast. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 1 1 on your touchtone telephone. Please note this call is being recorded. I'd like to turn the call over to Dan Zenn, General Counsel and Chief of Staff. Please go ahead.

Thank you, Operator. Good morning, and welcome to the OTC Markets Group second quarter 2026 earnings conference call. With me today are Framwell 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. Information concerning risks and uncertainties that may impact our actual results is contained in the risk factor section of our 2025 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. With that, I'd like to turn the call over to Cromwell Coulson. Thank you, Dan.

Good morning everyone and thank you for joining us. I will begin by reviewing our second quarter 2026 results at a high level and then Turn to a discussion of our performance and priorities for the year. For the second quarter, gross revenues and net revenues grew 14 percent. This was another record quarter for OTC Markets Group, with each business line showing growth that contributed to our overall strong results. OTC Link revenue was up 27 percent in the second quarter and 29 percent for the first six months. Market data saw 7 percent growth in the quarter and is up 4 percent in the first half. Corporate services achieved 14 percent growth during the quarter, and 17% over the first six months. OTC Link's performance continues to result from robust activity across our markets. With over 230 billion in market-wide dollar volume during the quarter, and over 460 billion for the first half of the year. Increased trading volume is not the only measure of success for OTC Link. Our team added several unique broker-dealer subscribers across our ATSs, giving us nearly 145 unique subscribers as of June 30th. Our market data results were driven by growth in professional and non-professional subscribers during the quarter, combined with targeted price increases for certain products. Our ongoing success will depend on our ability to keep expanding our content and distribution network, increasing the client value of our products, and growing the number of subscribers. Results in our corporate services business reflect the higher use counts at the start of 2026, driven by our strong finish to last year. This growth was largely due to the continued impact of the OTCID Basic Market, which launched on July 1st of last year. Notably, we saw subscriber growth on both the OTCQX best and OTCQB venture markets. as well as growth in the overall number of corporate clients using our services. Success in the corporate services business will come from strong solution-based sales to connect more companies, coupled with our ability to drive client success and retention. We prioritize helping actively engaged companies improve the quality of their public trading to close the investor, and broker information experience gap with exchange listed securities. With respect to operating expenses, we saw a 9% increase in the second quarter. Our investment in our people remains our largest, most important expenditure. I remain extremely appreciative of the hard work and client-centered approach our OTC Markets Group team brings every day and their individual contribution to supporting our clients, improving our products, and growing the business. We continue to work to round out our senior management team. with a new head of corporate services. We are conducting a thorough search and review process to find a leader who can build our team, expand our offerings, and engage more companies to improve market quality. We will report on our progress in future earnings calls. The decision last year to prioritize building out our overnight trading capability and launching the OTCID Basic Market formed the foundation on which we have achieved growth through the first half of 2026. Overnight trading on our Moon ATS has been a useful learning experience to expand our capabilities. Working to launch it last year helped us engage and build our broker-dealer community and move together to offer robust around-the-clock trading for a wide range of investors. investors. We continue to focus on the importance of engaging subscribers with our OTC overnight market. The offering is ahead of actual demand. Providing investors convenient access to OTC securities on a continuous basis remains a key part of our vision for the future. The OTC ID market has been a growth engine within corporate services. engaging and attracting a number of new corporate clients. We had over 1100 companies trading on OTC ID at the end of the second quarter. Not only is OTC ID itself seeing subscriber growth, we have also seen our efforts to educate the issuer community around OTC ID lead to increase sales and retention on our OTC QX and OTC QB markets. One of our key metrics is the percentage of connected companies and related dollar volume on our markets. The connected companies trading on OTCQX, OTCQB, and OTCID contributed roughly 26% of the dollar volume traded on our markets during the first half of 2026. Recent mega cap additions on OTCQX, such as Siemens Energy AG, give a positive indication of our ability to serve blue chip issuers on our markets going forward. Turning to our 2026 initiatives, we have made significant strides in preparing our platform for the introduction of tokenized and digital asset securities into our markets. A recently announced strategic alliance with BitGo will allow us to bring digital asset trading and custody infrastructure to broker-dealers utilizing OTC Link ATS. Enterprise-grade custody and clearing are a critical component of regulated securities markets. Currently, DTC performs that role for the industry. Today, DTC's efforts are focused on tokenizing member firm entitlements rather than onboarding blockchain native securities and other digital assets. digital assets. By connecting OTC Link's qualified interdealer quotation system with BitGo as a qualified digital asset custodian, we are assembling the core components to bring legal and lawful trading of blockchain native securities into regulated securities markets. As regulations and rules and guidance in this area develop further, we stand ready to support our FINRA member broker-dealers, market data customers, and other market participants as they innovate around these new technologies. You can look at our value add in two parts. First, wholesale trading on our ATSs and price transparency through our market data distribution, which supports broker-dealers in sourcing liquidity and delivering best execution, for their customers, the investors. We serve broker dealers trading in a wide range of securities based on investor demand. Second, our premium markets provide engaged public companies with the platform to improve their investor experience, market quality, and breadth of accounts that can access their shares. by distributing disclosure and demonstrating compliance with securities laws. These fundamentals are foundational to traditional securities and digital securities. They are applicable to shares held at DTC, ordinary shares custody at overseas, and now shares on the blockchain. We have also begun to see the first contributions from the opening of our Hong Kong office earlier this year, another of our 2026 initiatives. While that office is still in its initial phase, this international expansion helps further our mission to educate non-US companies about how best to use our market structure, data and disclosure tools. and to connect with more investors and build their brands in the US. Another high profile initiative this year been moving forward our regulatory agenda. We have invested our energy advocating for small company capital raising, recognition of our OTCQX and OTCQB markets, and and achieving greater regulatory parity between comparable qualifying companies on our markets and those on NMS exchanges. The SEC's recent set of rule proposals, specifically their proposal on registered offering reform, marks a significant step forward on all fronts. The SEC's proposal, for the first time, formally recognizes OTCQX and OTCQB as qualifying public trading markets. on which issuers can conduct at the market offerings This recognition reflects a long period of candid conversations with the SEC staff about how to increase the benefits of being a public company and reduce the burdens. We are excited at the prospects it represents to increase tangible benefits for public reporting companies and make capital raising less burdensome. The proposed rules also cover the potential federal preemption of certain blue sky, certain state blue sky laws, expanding access to more investors and reducing cost and complexity for registered offerings. As the SEC moves to finalize these and other related proposals, we will discuss the potential benefits to OTCQX and OTCQB issuers, as well as their advisors, in future earnings calls and reports. At the beginning of this year, we announced a strategic determination to increase our quarterly dividend to better balance the ratio between quarterly and special dividends. We have also been opportunistically buying back shares in the public market. I'm pleased to announce that on August 4th, our board of directors declared a quarterly dividend of 30 cents per share payable in September. This dividend reflects our ongoing commitment to providing superior shareholder returns. With that, I'll turn the call over to Antonia.

Thank you, Cromwell, and good morning to everyone joining us today. We appreciate your continued interest in OTC markets. I would like to start by recognizing our exceptional team. Their focus and execution in the second quarter delivered meaningful momentum. That's positioning us well as we head into the second half of 2026. Let's turn to our results for the second quarter ended June 30, 2026, starting on page 7. with all comparisons to the same period of 2025. We generated gross revenues of 34.8 million, up 14% year over year, revenues lens transaction basic expenses grew 12% to 30.6 million Our OTC-linked business delivered another quarter of strong growth with revenue increasing 27% as trading activity across our ATSs remained robust with Moon ATS continuing to ramp up. Transaction-based revenue generated by OTC Link ECN, OTC Link NQB, and MoonATS increased 47%. while transaction-based expenses paid to liquidity providers increased 39%. Usage-based revenues from OTC Link ATS increased 6%, largely driven by a higher volume of trade messages. During the quarter, average daily transactions on OTC Link ECN and OTC Link NQB reached approximately 95,000, a 50% increase year-over-year, while Moon ATS saw approximately 69,000 average trades and 7.8 million average shares traded per session. While trading volumes have been strong year to date, they remain inherently unpredictable and could decline in the future. In terms of Brocadero subscriber numbers, we ended the quarter with 144 unique subscribers across our ATSs up from 137 a year ago. This subscriber engagement with our multi-ATS model reflects the value our open platform offers in support of the diverse business, operational, and compliance requirements of our broker-dealer subscribers. Our market data licensing revenues increased 7%, comprised of an 8% increase in redistributor-based revenue, 10% increase in revenue from direct-sold licenses, and 1% increase in revenue from data and compliance solutions. Redistributor-based revenues increased across both the professional user segment, which grew 6%, and the non-professional user segment, which increased 47%. In each case, the revenue increases with the result of growth in user counts, professional users increasing 5% and non-professional users increasing 38%. The number of non-professional users continues to fluctuate period to period with market activity and varying retail participation in the market and may continue to fluctuate in the future. Revenues from direct sold licenses increased primarily due to price increases for certain licenses and growth in subscribers. Data and Compliance Solutions revenues benefited from growth in data services and our Blue Sky data product, partially offset by lower revenue from Edgar Online. Our corporate services business delivered 14 percent revenue growth in the second quarter with contribution from all of our markets. OTCQX revenues increased 9%, while OTCQB revenues grew 10%, supported by both higher average company counts and pricing adjustments effective January 1, 2026. In terms of new sales, we added 33 OTCQX companies and 63 OTCQB companies in the second quarter, compared to 39 and 85, respectively, in the prior year quarter. Core and OTCQX companies reached 585, up 5%, while core and OTCQB accounts were 1,101, up 3%. Revenues from our OTC ID market and from PINC Limited subscribers to the disclosure and news service increased 32%, reflecting the continued impact of the OTC ID basic market launch in July 2025. At quarter end, we had 1,037 OTC ID companies compared to 1,035 at launch. Combined with the pink limited subscribers to DNS and other products, these companies reached a total of 1,477 up 8% from 1,362 a year ago. Month-to-month variability in our corporate services subscribers is driven by new sales offset by non-renewals, corporate events, and compliance downgrades. Turning to page eight. Operating expenses increased 9% year over year. The primary drivers were professional and consulting fees, which increased 54%, and IT infrastructure and information services costs, which grew 11%. Professional and consulting fees reflect increased regulatory and clearing fees related to the higher trading activity, as well as certain accruals for regulatory matters. Compensation and benefits comprise 58% of our total operating expenses in the second quarter, compared to 63% in the prior year period. Moving to page 9. Operating income increased 19% to 10.5 million and operating margin expanded to 31.1% up from 29.9% in the prior year period. Net income was $8.6 million, up 17%, and diluted gap earnings per share reached 71 cents, up 18%. In addition to certain GAAP and other measures, management utilizes adjusted EBITDA, a non-GAAP measure, which excludes non-cash stock-based compensation expenses. Our adjusted EBITDA was 12.7 million in the second quarter, up 14%, and our adjusted diluted earnings per share were $1.04, up 13%. Operating cash flow in the second quarter was $11.5 million and free cash flow was $11.4 million, compared with $11.2 million for both measures in the prior quarter. During the second quarter, we returned a total of $6.6 million to shareholders, including $3.6 million in dividends and $3 million in open market share repurchases. Compared to the prior period, this represented a threefold increase. Turning to page 10. For the six months, we generated $11.2 million in cash from operations and $10.7 million in free cash flow and returned $13.4 million to shareholders, compared to $10.4 million in operating cash flow, $10.2 million in free cash flow, and $7.3 million in cash returns to shareholders respectively in the same prior year period. Overall, the second quarter reflected continued momentum from the start of 2026 with robust revenue growth in each business line, expanding margins, and continued progress on our strategic initiatives. We remain focused on discipline execution, investing selectively to support growth, and returning capital to shareholders while maintaining financial flexibility. With that, I'll turn the call back to the operator to open the line for questions.

Thank you. As a reminder, to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 11 again. Our first question comes from Steve Silver with Argus Research Corporation. Your line is open.

Thanks, Operator, and congratulations on the quarter. In the prepared remarks, you guys mentioned that the Hong Kong office is still in its early days, but I was curious as to whether you're seeing any trends into the OTC, QX, and QB pipeline, that if the company's come out of a period of contraction and it's returned to net additions for both QX and QB.

Hey, Steve, thanks. That office really is in such an early stage that it's probably premature to talk about trends at this point. We're seeing a nice contribution and seeing that team, there's a couple of people in that office settle in nicely. So not quite ready to say this is a trend that we've either noticed or could expect to see going forward.

but encouraging signs nonetheless. And Steve, in addition to their Hong Kong office, we have had continued encouragement continuous coverage of the Asia Pacific region through our New York based sales force as well. So while we do expect net positive contributions from the Hong Kong office, there's really no significant material change in our coverage of the region and how we have been doing.

globally and in that particular region over time. Okay, great. And one more, if I may. You mentioned the market data licensing growth despite the decline in EDGAR revenue. I'm just curious as to whether you're seeing any signs of stabilization in the rate of EDGAR cancellations. I believe the disclosure document mentioned 6% declines in revenue. Just curious, I know it's been a long-term process to integrate EDGAR into the market data licensing offering. Just curious if there are any emerging signs of stabilization there. Not yet. Okay, fair enough. Thanks so much, and best of luck in the second half.

Thanks, Steve. Thank you. Our next question comes from Brenda McCarthy with Sedodian Company. Your line is open.

Great. Good morning, everyone, and thanks for taking my questions here. I wanted to start off on the digital asset side and the potential alliance with BitGo. I recall that OTC Link received the regulatory approval from from FINRA to trade digital assets. I think it was a couple of years ago. But curious as to what do you see as the key regulatory hurdles at this point for that.

Thank you for that question, Brent, but I would say regulatory clarity. And there's a there's in Congress is debating a set of rules, the Clarity Act. which may or may not pass. And there's some very good stuff in the Clarity Act. However, there's also some places where the world of the crypto community wants a pass on fundamental and foundational parts of securities regulation. And so that the part of how do we bring into regulated broker dealers tokenized securities is really the question. And when we got our at our our license from FINRA to. trade digital asset securities on our ATS. There was no way for FINRA member firm broker dealers, but it was really because of the SEC. to custody and hold tokenized securities. The SEC is in a very different place. And we're expecting that the SEC is going to be rapidly moving forward in on providing clear rules of the road. But we want to make sure.

that broker dealers have enterprise grade competitive choices for the critical component of custody. So that's where it is. So we're setting up for, and the SEC is a very good example of that. has been rumored for a while but we believe it's getting closer is to have an innovation release which is going to expand the amount of native tokenized securities that will be available. We don't know what that is going to look like. And I hear a lot of different sources saying, You know, some based on overexcitement, some based on paranoia. But we have an expectation that this SEC is going to be quite rational and thoughtful. this technology will move forward and where it is useful, we'll find uses in financial markets. Understood. I appreciate that detail, Cromwell. And just.

Just to clarify, so it sounds like the SEC is trying to move forward with the initiative, but is it contingent on the Clarity Act passing here, or do you think that... No, I don't believe the SEC really...

believes they need any tools for the assets that are securities. A big bulk of the Clarity Act is related to the CFTC and spot crypto markets. However, securities markets are the SEC. If something is a security, the SEC has, I would believe, everything they need and can start moving forward.

Great, great. That's helpful. Thank you. Next question. I'm curious about the new NASDAQ enforcement standards around the $5 million market value threshold. It appears tough to quantify at this point, but it seems like it's going to be a big deal. like it'd obviously be a favorable read through for OTC markets. Do you have any any comment on that that change at the Nasdaq level?.

Well, we have a fantastic comment letter on the NASDAQ rule proposal, which I would love recommend every shareholder of OTC markets and NASDAQ and any investor in smaller public companies, whether they are NMS securities or OTC securities, read. The NASDAQ has a bulk of companies. which has frustrated the industry of broker dealers, SIFMA. You've seen comment letters from Schwab. You've seen comment letters from Citadel. You've seen comment letters from Robinhood. You've seen comment letters from Virtu. And these are securities which... are speculative and financially not sound. However, they use their NASDAQ listing to, to make themselves look more blue chip. And the exchanges have a model because it's very brand driven. Anything in the Blue Tiffany box is of the highest quality. that model starts to fail if the securities are not not because investors are not fully informed. Our markets, we've always taken a very different approach because we have a range of securities. We've taken an approach which the auction houses have used. And a leading auction house can sell a Rothko. and it can also handle a sideboard from grandma's house. And they have that range. of objects that trade at efficient prices, by focusing on fundamentals. Is the object as described? that we use disclosure and updating material information. Number two, are known flaws disclosed? We call those risk disclosure in securities markets. Number three, what's the provenance ownership history? We call that governance, we call that share issuance, we call that insider activity in securities markets. And finally, is it legal and lawful to trade within this jurisdiction? Are there restrictions on ownership? And so it's a more nuanced approach, but our market model works better. We have Fannie Mae. It trades fine, but it does have known flaws. And it's not a blue chip. But we can also handle international blue chips. And when companies are engaged, when they're putting the information onto investor screens and into broker machines and they're maximizing their compliance, they're. is they will be able to have the widest possible market with the greatest potential valuation. So that's how I see it is, and it's a difference. That rule proposal is out there. There are people who make money doing discounted toxic financings who want to be able to peddle their wares on an exchange. My belief is that the SEC's registered offering reform and bringing ATMs in is really going to make the market more efficient and make the OTC market a more competitive capital raising market in a way that's good for companies and is good for investors.

Sorry, that was a bit long winded. No, that's great. I really appreciate the detail there. Thanks, Prem. Well, I'll hop back in the queue.

Thank you. Our next question comes from Walter Hopkins with 18th Square. Your line is open.

Hi, Cromwell and the team. This touches on what you were just talking about a little bit. Just kind of focusing more on those recent beneficial regulatory developments. the ATM's federal blue sky prevention for registered offerings, and plus perhaps the 2028 ESOP paired provision. Could you comment on the degree to which these would stuff more value into the tiered corporate service offerings? Do you see any of these as potential big needle movers? In practice, I could see the potential ATM expansion standing out as a big value proposition to OTC listed companies that are on OTCQX or QB because it would provide a lot of financing optionality for a relatively small price. I'm really interested to hear how you think about it from that business perspective and from regulatory perspective too, to the extent you want to add more comments there.

So, you know, the first part, I'm incredibly excited for public companies that do the work to be SEC registered. is they're going to get a lot more value. They're going to be able to sell shares almost as easily as they buy back shares in the market through regular brokers transactions at a much lower cost from the fees they pay Wall Street, which is, I'm going to say, is brokers and investment banks, but also the intermediation discount which is the private placement market, which companies that are newly public have smaller market caps and fewer shareholders and are traded in the top tiers of the top markets of the OTC market. So that I'm really excited about. How the world will change because the status quo has been, if you need to raise capital as a smaller public company, most of these companies went to became NMS securities because it was easier. There were fewer, fewer restrictions and investors saw the brand as, as meaning you are closer to a blue chip. than a speculative entrepreneurial entity. And there's nothing wrong with being speculative, it's just when investors don't understand that and they can't price the security properly. So that's a huge change. How it'll change the dynamic is, I don't know. Many of these companies that are on NASDAQ today, when they are finally delisted, they die pretty quickly, because there wasn't anything there. is, and this is comparison to financially strong, you know, when a company leaves NASDAQ that's a community bank, there's no change in their market. You know, they've just saved a bunch of costs and they're still serving their shareholders. So having this competitive offering, is really exciting. I can't tell how it's going to happen. And then the final piece, I think Dan's been on two panels at the SEC, is that the SEC specifically has been recognized OTCQX and OTCQB in the rule proposal. And when we built OTCQX, it was a private market initiative. many people said oh until the regulators opine on it or tell people to join it you you're going to, you know, why should we care? But regulatory recognitions come from past performance, and being a private market reference. And so the regulatory recognition is important. And we're also going to work to make sure that our rule sets and how we run that market respond over time with the responsibilities of greater regulatory recognition. Is that, again, too long-winded? But I think these are very big changes to our markets that are coming along.

It's perfect. Thank you. And we've already hit on this a lot, so I'm not sure if I'm going to ask this perfectly the right way, but I'm curious to see how you see the regulatory landscape regarding the NASDAQ delisting. Thank you. It seems that maybe it's got some teeth this time. I could be kind of misinterpreting what's happened in the past, but it seemed like in the past NASDAQ had rules that they didn't necessarily follow as closely as the previous folks had hoped. Do you think that this time with the minimum market value requirement and the accelerated compliance window that it's got more teeth?.

Well, my hope is that NASDAQ, with the changes at the SEC, NASDAQ becomes more attractive to public companies, and we become more attractive to public companies, and the pies grow. So, I do believe they've been holding on to keep some metrics where they're looking at number of companies rather than quality of companies. And we have a model because it's very different than their blue box branding. Our model is, of security by security, which is based on core functionality. is offers a better market for many companies on their journey of becoming a bigger, more successful company, you know, building their products and getting.