Yahoo Finance

Antonia Georgieva

Thank you, Cromwell. And thank you, everyone, for joining us today. I would like to start by thanking our entire OTC markets team for their continued commitment to our subscribers and for driving our business forward. I will now review our results for the fourth quarter and year ended December 31, 2024. Any references made to prior period comparatives referred to the fourth quarter or the year ended December 31, 2023. A review of our fourth quarter results is included on page 7.
We generated $28.5 million in gross revenues, up 3% as compared to the prior year period. Revenues less transaction-based expenses were flat. OTC Link's gross revenues increased 33%, driven by higher revenues from OTC Link ECN and OTC Link NQB, which in aggregate, increased 56%, consistent with a higher volume of trading activity on our markets compared to the fourth quarter of 2023.
As an offset, transaction-based expenses increased 62%. Additionally, revenues from OTC Link ATS messages increased 22%, reflecting a higher number of messages and fee increases. OTC Link also saw an increase in certain connectivity revenue due to the introduction of additional fees at the beginning of 2024.
OTC Link finished the fourth quarter with 114 subscribers on OTC Link ECN and 82 subscribers on OTC Link ATS, compared to 108 and 86 respectively, at the end of the prior year. OTC Link had 141 unique subscribers to our ATSs at the end of 2024, up 5 from the end of 2023. Creating volumes remain highly unpredictable and could decline in the future.
Revenues from our market data licensing business were flat to the prior quarter, reflecting the offsetting trends in redistributor-based revenues, which declined 4%, and in revenues from direct sold licenses which increased 5%, and revenues from data and compliance solutions which increased 4%. Within distributor-based revenues, pro user revenues declined 5% along with lower pro user count, down 3%. While non-pro user revenues increased slightly at 1%, due to the addition of a new redistributor relationship at the end of the third quarter of 2024 resulting in a 12% increase in period and non-pro user counts.
Historically and in the normal course of business, we have seen significant changes in the number of non-professional users as market volumes and retail participation in the US equity markets fluctuate, and we may experience a decline in the future. Broker dealer enterprise licenses drove the growth in direct sold licenses.
Within data and compliance solutions, revenues from data services and the Blue Sky data product increased due to price increases for certain licenses and additional fees and were partially offset by a decline in revenues from EDGAR Online due to subscriber cancellations. Corporate services revenues decreased 6% in the fourth quarter. OTCQX and OTCQV revenues each decreased 4%, while DNS revenues decreased 6%.
In the fourth quarter, we added 22 OTCQX companies, compared to 24 new sales in the prior year quarter, and finished the period with 567 OTCQX companies, down 6%. On OTCQB, we added 61 new companies in the fourth quarter, compared to 41 in the prior-year period and had 1,050 OTCQB companies at the end of the quarter, down 8%. We had 1,338 Pink companies subscribing to GNS and other products at the end of the fourth quarter, down 8%.
These engaged in companies, which have a relationship with OTC Markets Group through our disclosure offerings, represented approximately 13% of all Pink Securities traded on our platforms at the end of 2024 compared to approximately 14% at the end of the prior year period. 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 8 for our full year results. In 2024, we generated gross revenues of $111.1 million, up 1%. OTC Link revenues increased 14% with a 21% increase in revenues from OTC Link ECN and OTC Link NQB and a 16% increase in revenues from OTC Link ATS messages as the main drivers. Contributing to the overall increase in OTC revenues was also an increase in certain connectivity revenue due to the introduction of additional fees in 2024. Transaction-based expenses increased 20%.
Our market data licensing business saw a modest 1% growth year over year, largely driven by the same factors as previously mentioned, partially offset by the impact of 10% lower non-pro user revenue.
Corporate services revenues decreased 4%, with flat revenue from OTCQX, mostly due to pricing adjustments, and 5% and 7% decrease in OTCQB and DNS revenues, respectively, driving the decline. Corporate services, so a lower average in period and number of companies across OTCQX, OTCQB, and GNS.
During 2024, we added 83 new companies to OTCQX compared to 90 in the prior year and 190 new companies to OBCQV compared to 184 in the prior year. The retention rate for the annual OPCQX subscription period that began on January 1, 2024, was 93% compared to 95% for the prior year. For the annual OPCQX subscription period beginning January 1, 2025, we achieved a 96% retention rate.
Turning now to expenses on page 9. On a quarter-over-quarter basis, operating expenses increased by 1%. The primary drivers were a 7% increase in compensation and benefits and a 16% increase in IT infrastructure and information services costs, partially offset by a 42% reduction in professional and consulting fees as one-time cost in the prior year quarter did not recur. Compensation and benefits comprise 61% of our total operating expenses during the fourth quarter compared to 57% in the prior year period.
In the fourth quarter, income from operations was flat, while net income and diluted earnings per share each increased 3%. Operating profit margin contracted to 31.6% compared to 32.8% in the prior quarter. On a year-over-year basis, on page 10, operating expenses were also up 1%, driven by similar factors. During 2023, we incurred approximately $2.5 million in non-recurring expenses related to an SEC matter and EDGAR Online, which did not recur in 2024. Compensation and benefits comprised 64% of our total expense base in 2024, compared to 62% in the prior year.
Turning to page 11. For the full year, income from operations and net income each declined 1%, and operating margin contracted to 29.9% compared to 30.6% in the prior year. Our diluted earnings per share decreased commensurately to $2.26 per share, compared to $2.28 per share.
In addition to certain GAAPs and other measures, management utilizes adjusted EBITDA, a non-GAAP measure which excludes non-cash stock-based compensation expenses. Our adjusted EBITDA was $41.3 million for the full year 2024, and our adjusted diluted earnings were $3.41 per share, each up 1% compared to the prior year. Cash flows from operating activities for 2024 amounted to $32.9 million and free cash flows were $31.6 million, compared to $33 million and $31.5 million in the prior year, respectively.
Turning to page 12. During 2024, we returned a total of $29.5 million to investors in the form of dividends and through our stock buyback program, a slight decrease of 1% from the prior year, primarily related to a lower amount of stock repurchases. We remain focused on growing our business and delivering long-term value to our stockholders.
With that, I would like to thank everyone for your time and pass it back to the operator to open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Steve Silver, Argus Research Corporation.

I was curious about the technology investments that have been made over the past couple of years with the heavy lifting seemingly done now on the new projects for 2025 after an investment year in EDGAR, maybe the year before. Curious as to whether there's anything directionally, we should be thinking about in terms of the rate of IT spending over the next couple of years.

R. Cromwell Coulson

If you look at our IT spend spending, it's people.
And that is -- and there's a mix of different amounts of work which is what's on new, what's supporting, keeping the lights on, what's upgrading, what's driven by regulatory compliance and security, and where we would like to become better is more operational, better with our resources, better with our performance, better with our productivity, and by empowering our people and focusing on improving different areas. So, that part of we're not a company that has a huge project to go buy, to bring in a consultant and go build something outside. We try to always be incrementally improving our technology platforms and our human capital resources; we work to align with our revenues over time.

Antonia Georgieva

Even in the appendix to the earnings slide, we include our cash flow summary, and you can see that the capital expenditures have been between $1 million and $1.5 million per year for the last 5 years. These investments are necessary to maintain the high availability and reliability of our trading system. We do not expect that requirements to go away. We will continue to invest in our primary and disaster recovery data centers and upgrades to our servers as we go along. But as Cromwell correctly pointed out, a lot of our investment is actually flowing through the PNL rather than the cash flow statement and it's reflected in our human capital and our IT infrastructure information services cost.

And one more if I may, with the July launch of OTCID, will there be any information that might be available maybe before the Q2 call over the summer just in terms of initial penetration of subscriptions for the OTCID program, or will that more likely be available after the program formally launches?

R. Cromwell Coulson

Steve, it will be after. And I think it's going to be interesting to see the number both by number of securities and by dollar volume of engaged issuers. And you really have to look at OTCID fills in to provide just a disclosure-based market. And companies putting their information into our system so we can digitalize it, whatever reporting standard they use and this is good for investors. It's good -- and it's good for brokers because they can automate compliance and appropriately remove or apply risk controls.
However, the Pink Limited Market has a long history of us supporting brokers who in the United States are the only businesses that are allowed to legally trade securities. That when brokers have a client shows up and says, I want to sell this piece of property I have, or I want to buy this stock or ADR, we provide a fantastic technology platform, and we're going to continue to do that.
If you read the biography of Warren Buffett, Snowball. In his early days when he was building his Super Returns with the Buffett partners, every time a new copy of either one of the daily sheets or the monthly books published by our predecessor, National Quotation Bureau came out, he would go through looking around for interesting stocks to research. And they talk about not only was he great about digging around for information; however, he also was really good at negotiating with all the brokers in this opaque phone-based market.
The firm I came from dealt with lots of those type of investors. And these securities would trade at discounts because management wasn't engaged, and there's different reasons for the discounts. There's some -- there's smaller companies, there are large European companies with great consumer brand names to for various reasons, their investor relations department has an extremely different viewpoint of streaming information into the US than their marketing and advertising department. Those companies will still trade. They'll trade on consumer brand recognition. However, we will not have the relationship and the data, and investors will be adequately warned, and I think that's super important.

Antonia Georgieva

Steve, from a revenue and reporting point of view, OPCID is going to succeed DNS. It is essentially monetized through our DNS product. And following the launch on July 1, 2025, in the following quarters, we expect to report metrics for the OPCID market in a similar fashion to which we now report Pink paying subscribers, those who subscribe to our corporate services product suite, so the change in our reporting and revenue will be minimal more widely, connotation and naming changes rather than anything else.
In terms of the products, however, we did revise our fee schedule and you would see on our website, a different price for DNS for this year, which is an increase to what we had for the product in last year and in prior years and it reflects what we believe is an improved value proposition to the subscriber base with the OCID product.

Operator

(Operator Instructions)
Brendan McCarthy, Sidoti.

Cromwell, I want to start off, I believe you mentioned there's been renewed focus from regulators to improve small company capital formation. Just wondering if you can expand on your outlook on this topic and maybe also tie in how the expectation for more broadly deregulation, I guess, just how that might impact your business looking forward.

R. Cromwell Coulson

Well, one is just the tone and questions of the conversations when we go down to Washington and the interest in how can we help the better players succeed. And we've always had a conversation with regulators and there's a natural tension because the commercial side of the business wants more good things to happen, and the regulators want no bad things to happen. I think it's going to be a more balanced conversation.
And if you look at how our market works, we are a fantastic market for secondary trading of already issued securities. The place where it's harder is for the companies that are public to raise capital, and this is just not our problem. This problem is endemic to smaller public companies that put in all the cost and complexity to be listed on Nasdaq or NISE because there's a two-tier capital raising market and it's completely wrong.
If you're a large, well-known seasoned issuer, you can do ATM shelf offerings with ATMs directly into the market, extremely low cost and efficiently. If you are a smaller public company, If you haven't been public for a while, if you've got a small float, if you're OTC, that highly efficient way to raise capital is not available to you. And that's completely wrong because these are the stocks that are often the most volatile. And the ability of accompanying IPOs and the stock goes up. The company should be able to supply demand if investors want more to raise more capital and we've limited these companies out.
So what happens to smaller companies, and we've written about it a lot because because it takes place in the exchange space in a very large amount is smaller public companies have to do private placements at a discount to the public market that are highly diluted. And it breaks the public market pricing process if a company is raising capital, and there's a big spread between what the company's raising capital at and where the public is buying the securities, and there's no transparency of these private offerings until it's too late.
And we really believe there's an opportunity to make It easier for public companies to raise capital in the public markets. As well as there's a whole bunch of other rules and regulations that a pragmatic regulator can streamline o continue America's success as the world's leading financial market.

And I guess just as a follow up, what does that opportunity look like or I guess how can OTC markets, maybe bridge that gap?

So Brendan, there are so many ways. I think Cromwell was starting to reference a lot of that. And further to his point, where regulators have been willing to listen to us and talk to us in the past and hear proposals, they are now soliciting that kind of information from us and want to hear what small companies need. Cromwell gave the example of easier offerings and at the market offerings for smaller public companies.
So being able to get some momentum on issues like that, being able to get recognition of companies that are meeting, let's say some of our OTCQX or OTCQP standards, to put them on par with exchange listed peers in a number of different ways. And all of those issues, they're not new to us, they're not new to the discussions that we have in Washington, but there does seem to be more of an open and like I said, solicitous sort of attitude in Washington towards seeing these things really happen and finding out what the nuts and bolts would look like. So I think success for us includes continuing those conversations and making sure we're taking advantage of the questions being asked of us and then really focusing in and pushing some of those initiatives across the line.

One more question for me. I think we've been reading in the past few months about some of the compliance changes to or some of the changes to the Nasdaq rules regarding their compliance framework. I guess just the framework around how companies can execute reverse stock splits to maintain their listing standards. I guess you see some of these changes having a material impact on your business, in the sense that it might feed some of these Nasdaq companies that are downgraded for compliance reasons it might kind of feed them as an opportunity for OTC markets.

R. Cromwell Coulson

Well, Brandon, the way I would frame it is I believe Nasdaq and the New York Stock Exchange are fantastic markets for companies of a certain size, the blue-chip Investable securities with the strong financing and balance sheets. I also believe that our market works better for smaller companies, for different types of companies and because we simply label these securities.
And Nasdaq Has gotten all the press, but it's because they've been the most aggressive in the smaller public company space because we see the data is their standards have been played, and the reverse split world is really a signal of toxic financing having destroyed the investor cap table and these repeatedly have taken place.
So one side is let's fix financing because we shouldn't be sending public companies whether they're on exchanges or traded OTC to payday lenders is for pawnshops where the public investors lose out. On the flip side is it also changes the conversation with regulators because there was a former belief that exchange listing standards somehow could get rid of risk, we have a very different viewpoint. We don't think risk is good or bad. We think risk needs to be identified and priced by the market and that's with our data driven markets.
And my belief was always when Nasdaq became a national securities exchange, they opened up a door to use better transparency and technology to do what Nasdaq used to do to be a market for smaller public companies, a market for international companies and broaden the base of the public market ecosystem and that's an opportunity. So, we want to see all public markets succeed, but we don't want to see companies getting stuck doing bad financing because of regulatory barriers or investors blinded by blue brands and not doing the diligence to have securities efficiently analyzed, valued, and traded.

One more question from me just on the market data licensing segment, just curious as to your outlook there for how you kind of resume organic growth in that segment looking at the next couple of years.

R. Cromwell Coulson

Brendan, it's about some new products from the data set and it's also about stuffing more value into the existing products. And that's empowering the people on the production line who are closest to the data or the client service to be making continual incremental improvement. So, every subscriber who receives an invoice from us feels they are getting increasing value.
My view of the data business, if you're not putting more into a data product it's going to zero slowly. And so, we always need to not be looking at what's in the product today. But what are the problems we're solving for the customer now, tomorrow, and in the future? So we have a fantastic group of subscribers and they're sophisticated. They're very good at using data. There's -- and we want to help serve their success, and we'll be fine.

Antonia Georgieva

And Brendan, just a reminder, a portion of our market data revenue is usage-based, user-based, so that component, as we've seen in the past and have indicated may happen in the future will have some volatility based on the number of users that our redistributors reach with our market data on a monthly basis. We're focused to Cromwell's points on growing the subscription-based revenue, improving the quality of the product. One of our key strategic focus for this year is usage and user growth, and obviously, all of this is targeted at the market data segment first and foremost.

Operator

Thank you. I would now like to turn the call back over to Cromwell Coulson for any closing remarks.

R. Cromwell Coulson

Thank you, operator. I want to thank each of you for joining us today. I would encourage you to read our full 2024 annual report and the earnings press release for more information. Links to both are available on the investor relations page of our website. On behalf of the entire team, we look forward to updating you on our key initiatives that will continue to shape the integrity and competitiveness of the public markets.

Operator

Thank you. This concludes the conference. Thank you for your participation, you may now disconnect.