OTC Markets Group Inc.

Good day and thank you for standing by. Welcome to the OTC Markets Group third quarter 2021 earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host today, Dan Zinn, General Counsel. Please go ahead.

Thank you, Operator. Good morning, and welcome to the OTC Markets Group Third 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 websites. 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 three of the earnings presentation.

With that, I'd like to turn the call over to Cromwell Coulson.

Thank you, Dan. Good morning, everyone. Thank you for joining us today. I am extremely proud of our colleagues' commitment to our mission to create better informed and more efficient financial markets. The team's dedication, collaboration, and execution across all levels has delivered outstanding results for our clients and shareholders. Our team is mostly back in the office on a hybrid work schedule, and we have embraced the opportunity to work face to face. We are leveraging video communication and other new skills we have learned to stay connected and maximize our collective success. Our third quarter results continued the trend we saw in the first half of 2021, where we saw increased demand for our products and services throughout all business lines. This led to another quarter of record financial results. Gross revenues grew 42 percent and net income grew 68 percent compared to the third quarter of last year. As a result, our earnings per share and operating profit margin also continued to expand. Antonia will cover our financial results in more detail in a few moments. On September 28th, the SEC's amendments to Rule 15C2-11 went into effect. Our team worked tirelessly to prepare the company and our industry for the implementation of the rule and changes to our regulatory role. The effort to make these changes touched all aspects of our business, and our teams aligned across functions and business lines to achieve a shared objective. I want to specifically commend the work of our corporate, compliance, legal, and technology teams on this project. They truly showcased their expertise and ensured the rollout was a success. The overall experience of preparing for Rule 211 made us stronger as a company. The lessons learned and relationships strengthened from this endeavor will support future company-wide initiatives. September 28th marked the beginning of our role as a qualified inter-dealer quotation system under the rule. As a regulated market operator, we are building reliable processes and systems to serve our customers while enhancing regulatory compliance. The strong regulatory foundation we have established under Rule 211 will enhance the value our markets provide to public companies, bring efficiencies to broker-dealer trading, and digitalize useful data for investors. Trading volumes remained strong in the third quarter, and we recorded another quarter of reliable, consistent service to our broker-dealer subscribers. The secure, compliant, and effective operation of our SEC-regulated ATSs requires consistent and constant vigilance from our business, technology, and compliance teams. We launched our third ATS, OTC Link NQBing. This new ATS is a fully attributable inter-dealer quotation system with matching engine functionality. This market model complements our OTC Link ATS qualified inter-dealer quotation system and our OTC Link ECN anonymous matching engine. The addition now allows our subscribers to choose the ATS that best serves their client trading needs. We are thoughtfully increasing the number of securities on OTC Link and QB. As OTC Link and QB matures, we will be able to provide a data feed that expands the depth of book information available to all market participants. Our corporate services businesses continue to thrive in the third quarter, ending with over 560 companies on our OTC QX market. The OTC QB venture market also reached record highs in the third quarter, once again ending the quarter with over 1,000 companies. The growth and development of each of these markets exemplifies the value of our data-driven market standards and technology platform. The Rule 211 compliance date drove a significant influx of companies seeking to use our disclosure and news service as an efficient public disclosure and basic regulatory compliance platform. Many companies worked to ensure they could disseminate current public information in compliance with the rule for the first time, and other long-term subscribers strengthened their engagement. I would be remiss not to recognize the monumental effort of our issuer services team in helping companies meet the compliance date. This team worked around the clock, confirming the availability of required disclosure, and communicating with issuers as the compliance date approached. They helped countless companies understand their responsibility for ongoing public disclosure under the rule, and investors have benefited from wider availability to this information. Our market data licensing business also saw strong results during the third quarter. building on its growth throughout this year and capitalizing on the broader interest and participation in our markets. We remain focused on reaching a larger group of market data customers across the globe and providing our enhanced compliance data to industry participants. With Rule 211, we formally took on two important regulatory functions. First, we began making publicly available determinations regarding whether companies meet their ongoing disclosure obligations under the rule. Second, we started conducting initial information reviews to onboard new companies onto our OTCQX and OTCQB markets. This important regulatory foundation creates clarity in the process of going public and offers new opportunities to serve clients. We remain actively engaged with the SEC and FINRA as the industry establishes best practices under the new 211 standards. We will help clarify policies and procedures for trading OTC securities, especially concerning those on the expert market. I would also like to note that this past Monday, FINRA officially shuttered the OTC bulletin board as part of their increasing oversight of the markets we operate. The end of the OTCBB era represents an opportunity for us to continue the evolution of our markets over the past 20 years and the role we play as a commercial provider of regulated trading systems and services with FINRA as the SRO. In keeping with the strategic objectives we set out, At the start of the year, we accomplished the successful rollout of Rule 211, launched OTC Link and QB, and continued to support the record number of companies on our OTCQX and OTCQB markets. We remain well positioned to continue executing on these objectives for the remainder of the year. The level of increased interest across our business lines reinforces the vital role our markets play as a global gateway for companies to access the U.S. market in an efficient and cost-effective manner. In closing, I'm pleased to announce that on November 5th, our Board of Directors declared a special dividend of $1.50 per share and a quarterly dividend of $0.18 per share, each payable in December. The special dividend more than doubles our special dividend in 2020. Each of these dividends reflects our ongoing commitment to providing superior shareholder returns. With that, I will turn the call over to Antonia.

Thank you, Cromwell, and welcome to everyone on the call today. We are pleased with the seamless implementation of Rule 15c211, which demonstrated our team's incredible talent and dedication to serving our clients and subscribers. We're excited to report another quarter of strong performance across our businesses. As we discuss our results for the quarter ended September 30, 2021, any reference made to prior period comparatives will refer to the third quarter of 2020. During the third quarter of 2021, we saw continued strong sales and ensuring engagement in continuation of the trends from the first half of the year. We are pleased that our issuer clients continue to see the value of our markets and corporate services offerings, which was further reinforced in relation to Rule 15 . We also continue to see robust volumes of trading activity on our markets, albeit moderated from the unprecedented levels reached earlier in the year. our market data products continue to see strong demands as well. Turning to page nine, our gross revenues in the third quarter of 2021 amounted to 25.2 million, up 42% compared to the prior quarter, with revenue growth across all three of our business lines. OTC Link saw another quarter of strong growth with revenues up 60% versus the prior year quarter, driven mostly by a 168% increase in revenues from OTC Link ECN. Contributing to the growth were also message revenues from OTC Link ATS and QAPP One Statement fees. OTC Link benefited from a robust trading environment with volumes on OTC Link ECN reaching approximately 39,000 transactions per day compared to approximately 10,000 in the prior quarter. Additionally, during the third quarter, we added six new subscribers to OTC Link ECN to reach 90 subscribers, up from 69 as of September 30, 2020. Transaction-based expenses comprised of rebates paid to subscribers providing liquidity on OTC Link ECN increased 172%, or 1.1 million, in line with the increase in volume traded. Our market data licensing business saw an 18% increase in revenues versus the prior quarter. Revenues from professional user licenses were up 12%, while revenues from non-professional users increased 39%, driven by a 13% and 45% increase in pro and non-pro users, respectively. An increase in internal system license revenues of 48% over the prior year quarter also contributed to the overall growth in market data licensing revenues. As a reminder, the transaction-based revenue and transaction-based expenses that OTC Link generates are closely correlated with the volume of trading activity on our market. And those volumes are highly uncertain and cannot be predicted. Furthermore, in our market data licensing business, we have experienced substantial increase in nonprofessional users since March of 2020. Nonpro users' interest in our market data tends to fluctuate significantly in response to volatility in the markets and changes in retail trading activity, and we may experience a decline in the number of users in the coming months. In our corporate services business, strong sales and issuer engagement, as well as price increases that became effective January 1st, 2021, led to revenues increasing by 57%. As issuers sought to comply with Rule 15 C-211 in advance of the September compliance date, we saw a high number of issuers subscribing to our corporate services products, notably our disclosure and news service, or seeking to qualify their securities for our OTCQV or OTCQX marketeers. Revenues from OTCQX increased 54%. We ended the quarter with 561 companies on the OTCQX market, up from 441 as of the prior quarter. 55 new issuers joined our OTCQX market in the third quarter, up from 44 in the prior quarter. OTCQB revenues increased by 48%. We added 115 new issuers to OTCQB during the third quarter to reach 1,067 OTCQB companies compared to 62 new subscriptions and 874 companies as of the prior quarter. A significant increase in the number of subscriptions for our disclosure news service drove revenues from DNS up 101% compared to the prior year quarter. Turning to page 10 for review of our expenses. Operating expenses increased by 20% on a quarter-over-quarter basis. Compensation and benefits expenses with a primary driver increasing 20% with professional and consulting fees and IT infrastructure and information services costs also contributing. The increase in compensation costs primarily reflects an increase in salaries and incentive compensation in line with higher headcount and incentive award targets for 2021. We also saw an increase in commissions related to higher sales. Professional and consulting fees increased 72% due to an increase in clearing and regulatory fees related to the higher trading volume on OTC Link ECM as well as expenses incurred to support the growth in our corporate services business. IT infrastructure and information services expenses increased 26%, reflecting additional data license costs associated with the higher number of companies on our market, as well as a continued investment in the growth of OTC Link. In summary, on page 11, The third quarter of 2021 was the 19th consecutive quarter of revenue growth for OTC Markets Group. Our businesses delivered 77% quarter over quarter growth in income from operations and 68% growth in net income. Our operating profit margin expanded to 39.5% compared to 32.1% in the prior quarter. In addition to certain GAAP and other measures, management utilizes adjusted EBITDA, a non-GAAP measure which excludes non-cash stock-based compensation expenses. For the third quarter of 2021, our adjusted EBITDA was up 65% to 10.9 million or 90 cents per diluted share compared to 6.6 million or 55 cents per diluted share in the prior quarter. Cash flows from operating activities during the third quarter amounted to 10 million, up from 5.9 million in the prior quarter, reflecting the significant growth in net income. Free cash flows for the quarter were 9.2 million compared to 5.5 million in the prior quarter. Turning to page 12, we have continued to consistently return cash to our stockholders. During the third quarter of 2021, we returned 2.1 million in the form of dividends, up 21% compared to the prior quarter. We remain focused on enhancing our value proposition to issuers and broker-dealer subscribers, growing our business, and delivering long-term value for our stockholders. With that, I would like to thank you again for joining us on the call. We will now open the line for questions.

Thank you. If you have a question at this time, please press star, then 1 on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And our first question comes from the line of Chris McInnes with Sedodian Company. Your line is open. Please go ahead.

Good morning. Thanks for taking my questions, and congratulations on a really great quarter. I guess if you could just start around maybe 2-11, just provide a little bit more detail around maybe – the trends you saw positively impact the business. Did that implementation go as expected? Was there something that came in maybe stronger around that? And I guess the follow-up to that would be, are you still seeing that positive trend of companies coming on to the QX or QB or using DNS post the end of the quarter? Thanks.

Sure, and thanks for the questions, Chris. I'll kick it off, and then Cromwell may follow on with some thoughts from his perspective. So in terms of providing more color around 15C211, everything was pointed towards that September 28th compliance date, including the focus of the companies. So many companies were in touch with us over the course, really, of the entire year. preparing and making sure that they had the right kind of information to continue with the public broker dealer quote. So that's where a lot of the momentum came from, certainly on the DNS side. Companies that maybe hadn't engaged with the market as much before and were now starting to engage, partly as a result of 211, That also drove some companies to look at OTCQX and OTCQB as options. If you're going to take some steps to comply, those that qualify, some of them wanted to step up into the higher markets. What it's done on an overall level, I think, is put that degree of attention on our markets and what happens here, and companies understand that there's a rule in place now that hopefully over time is easier for them to understand and and that has very specific compliance requirements, and that by meeting that, they can really drive the way they communicate with their investors. And so while there's no other specific date, like September 28th, that's out there in relation to the rule, the kind of disclosure that's required and the ongoing communication that companies need to have with their investors and the disclosure they need to provide certainly perpetuates. Kroman, I don't know if you'd add to that.

Yes. So, Chris... Thank you for that question. At a high level, you know, September 28th really put in a basic standard that for a public company to have a public market maker quote, they need to provide current information and set OTC markets group, our regulated ATS as the regulated operator with FINRA oversight to confirm, confirm the information. Now, so a lot of companies started to come into the system. And if you think about where our corporate services products fit, we've got OTCQX and OTCQB, which offer an alternative to exchange listing. And they build, you know, they use data-driven standards to give companies the building blocks of being a public company. With The disclosure news service, it's really an alternative to SEC reporting. And so there are many companies that were able to fly under the radar and not provide a baseline level of disclosure. And it is very important is if a company wants to be SEC reporting, you know, they can just be SEC reported and we'll track them in our pink market. And a market maker can still, as under the old rule 211, bring a security into the U.S. But there's an alternative that is more cost effective, you know, in many ways, such as in the airport, you can either go through the government line or you can apply for clear. But, you know, not every passenger is going to want to follow those rules. and do the background work, do the pieces that are there. But it's a great protection for us because if we're uncomfortable with the company or it's red flags or a company doesn't seem to have an understanding of things such as U.S. GAAP, they can always go through the government line. and, you know, that's a bit more costly and time-consuming. So those are changes I think are interesting, and we had a changeover around the rule. We're going to have a follow-up effect. Then the second side is, you know, the powers of us being a more well-regulated market operator with the FINRA oversight, the increased FINRA rules, the SEC recognizing our role and those responsibilities that come forward is really – part of the overall trajectory that we've been working on for 20 years of building better informed and more efficient financial markets, which means more regulation. And it gives us more powers. The ability to onboard new securities, I think, is going to be super interesting in being able to offer clarity to companies wanting to go public and do a high-quality job of making sure that there's information available in the market when they start trading so investors can make adequate investment decisions. And then the third part of it, which is we put 211 through our existing technology infrastructure. How can we use technology to digitalize the issuer experience and really bring forward in the future, and this is gonna be a multi-year project as we work on these areas, is to make it more, efficient to be a public company using technology and disclosure tools. And that's going to be a really interesting partnership with between, you know, the commercial side, the clients, and the compliance side. Because, you know, public companies have two sides. One, they have to distribute disclosure to inform the market. But second, they need to get their credentials and out there to show that they're in compliance with various regulations. So I think it was a big, big moment, but then there's parts for us to build on going forward.

Sure. That makes a lot of sense. I like the airport example. Pretty clear example there. Thanks. Yeah. Following up on that, just around the new rule of the 6439, does that put you in a better position as well to continue to grow these, to add to whether it's DMS or the QX and QB? Does that change anything as well for you in the near term here?

First of all, Chris, I'm very impressed with your knowledge of the FINRA rule set. That was an impressive citation. 6439. It's 6439 mostly reinforces the things that we've been doing already. It provides for some additional public disclosure of the kinds of processes that we have here and the work that we're doing. But we've been in touch and working with the regulators on that for a while. I think maybe it shines a light on really what Cromwell was talking about, right, our role in the market and the fact that everything sort of flows through us to a large degree, where I think there were some legacy people that still kind of pointed to the OTC bulletin board and maybe didn't understand the shifts in the market over the years. So we can use it as a moment from that perspective in educating folks. From a regulatory perspective, which is obviously where I come at it from, it doesn't change a lot for us. It just allows us to be more public about what we're doing.

Yes. And I think it also clarifies the role of the commercial market operator and the SRO regulator. And, you know, both groups have important roles to provide the market, and there's a nice synergy. And in many ways, I'd say it's part of the future where there's a real conflict between exchanges acting as an SRO. You know, FINRA is a clean SRO. We're a clean SRO. SEC regulated and FINRA regulated market operator.

Thank you for that. And then just one last question just around blue sky exemptions. You know, I think prior to the pandemic and maybe 2.11, you know, it felt like there was more talk around it. You know, can you just talk about where you stand with the blue sky exemptions now and the opportunity to continue to expand that? Thanks.

So You know, we're persistent of pushing for more states to recognize us. The SEC recognitions and the expanded FINRA SRO role overseeing our operations should hopefully give states confidence. And, but, you know, it's a grind. You know, state securities law is 50 plus opinions in a room with divergent goals, people, perspectives, and, you know, it is we play a very long game grinding up wind.

All right. Thank you very much. Again, congratulations on the quarter. I'll jump back in the queue. Great. Thank you, Chris.

Thank you. And our next question comes from the line of Carl Morris with Edison. Your line is open. Please go ahead.

Hi, all. Thanks very much for taking my questions. Another smashing set of results. A big congratulations on that. I think it's now, I think, four, well, actually now five quarters. I'm not even surprised on the upside. So, well, you know, a big congratulations on that. My first question is on the regulatory front, and I think it just follows up on the previous questions that you've taken today. We've spoken at length about this, and you guys have done, I think, a good job of communicating with the market on this. I'm wondering how, as an organization, you thought this process has ultimately turned out. I mean, your initial expectations going into the end of September and how ultimately your client base has met the challenges of 15C211. Looking at the numbers disclosed, it perhaps has turned out better than originally thought from a revenue perspective. Those were my initial sort of thoughts going through your reports and Secondly, I guess related to the first, in terms of the revenues coming in from corporate services from QX, QB, and Pink, how sustainable is that? I mean, is there an element of worn-offs in there, you know, given the big, huge task of getting everybody on board ahead of the 28th in September? In other words, will these moderate somewhat now that we've passed the end of September deadline? And then finally on the dividend, after a really juicy special, I mean, it's pretty high. And if I just look at the payout ratio, you know, it's going to be, I suppose, we haven't seen fourth quarter numbers yet, but in excess of 90%. And so I'm just thinking about really next year and how you guys, you know, view that sort of the payout profile of your business. Thanks.

So, you know, we view it as, you know, as I said in my notes, I think the team was very successful. in hitting the target date. It was an external target date and it required collaboration across the company for the majority of the time when we were, when 90% of the company was working virtual. So that establishment piece is We really focused on the foundational work, the regulatory compliance side, where we could automate places, and where you see things is while a certain amount of securities that didn't make disclosure went to our expert market, we also added international securities, and we did it in a highly automated manner. And so essentially the number of individual market maker quote positions went up 8%. kind of from the 15th of September to now. And I think that's a reel of the breadth of market expanded. Now, it shifted in areas. We still have work to do. The expert market is too clamped down. Every brokerage industry, successful brokerage firms have a good conversation between compliance, the commercial interests, and primarily their customers. is right now the customers have to crawl over glass to get to the expert market, and so the pendulum probably needs to swing to a bit more thoughtful area. But on our overall places, we think the establishment of a baseline for companies to have a public quote in line with the SEC's goal that a company makes money a baseline of current information available. And it's not a huge, heavy baseline. I mean, it's not audited financials on the ongoing basis. You know, to enter the market, you would need audited financials. But for ongoing, it's U.S. GAAP. And companies need some basic financial skills to prepare those statements. But what it does across the board is, I mean, we had work to do to get this to hit the date. But the interesting part is, like, where do we build on it? Where do we go in the future? How do we really take that same path that NASDAQ used to be on before they decided they wanted to be a stock exchange to compete with? directly with the New York Stock Exchange. You know, this is the market in the gateway between public and private markets, the gateway between the US and the world. You know, that's a real role to have the different trading technologies mesh together with the disclosure and the compliance within a US-regulated entity. So that side is, I think, a positive and powerful platform for us to build on, to do interesting things, to create more value. So our clients today and clients tomorrow want to engage with us. The second piece is sustainability. There's O is churn. I would say that the churn-wise, as we've approached our other premium markets from the top and we've increased standards over time, so if you've looked at it, You know, traditionally, we've been trying to be very thoughtful about where do we add, where do we remove standards to get to the desired product that OTCQ acts as a market for that are not penny stocks, that has governance, that has certain financial standards aligned with state securities regulations, and how do we do that in a way that basically has quantitative and qualitative standards, but also we're not imposing regulations useless burdens that don't add value to the market pricing process and investor understanding and issuer compliance. And then we've had QB, which is disclosure-driven, and we've also had standards there where we looked around float, where we looked around some other areas that we've done things. So there's been a bit of churn, just natural churn, but there's also churn as we've And then this one's coming in from the low end. So we're going to learn where the churn is on the various sides. But we've seen growth in our premium markets, too, because companies, when they look at the services, they don't want the basic offering. They actually want something. They want to give their investors a premium service. So we will learn on the churn, and we're early days on that side. And as I've told my team, it's great we rearranged the deck chairs. What we're going to be building now is a compelling way to be public that is completely new in the future in a regulated market and is data-driven and And, you know, there's lots of work for us to create more value for our community. On the dividend, you know, we were conservative through COVID. We've been conservative, you know, of having capital of, you know, nobody really knew what was going to happen through the process, as you can see. We've executed on 211, and we have a strong recurring revenue stream. And so we're returning cash to shareholders again. I want to make clear that if we find good acquisitions to deploy capital to, the special dividend we do because we haven't found a use for the capital, and I highly believe that it's important for shareholders to be able to redeploy that elsewhere and to show a return of capital. And for small companies, a dividend is one of the best ways to create investors. So we've got our ongoing recurring dividend and our special dividend. But we've caught up a bit on this one. We will see where the business goes. We will be investing to keep growing the platform. We're not going to sit there and smugly on our hands say Rule 211 went through and now we don't need to do anything else because there's a lot of interesting work to do to bring the benefits of being public to a wide circle of companies and giving them different options of the various building blocks of being a public company that they can grow into to fit their unique needs versus the complexity and really one-size-fits-all listing standards and multiple outside advisors required to list on a national securities exchange.

Great. That was incredibly useful. Thank you.

Thank you. Thank you. And I'm showing no further questions at this time, and I would like to turn the conference back over to Cromwell-Colson for any further remarks.

Thank you, Operator. I want to thank all of you for joining us today. I would encourage you to read our full earnings report and the earnings press release. Links to both are available on the Investor Relations page of our website. On behalf of the entire team, we wish you and your families continued health and safety and And we look forward to updating you on key initiatives that continue to shape the integrity and competitiveness of the public markets.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day. Thank you. Thank you. Thank you. Thank you.

Bye. Thank you.

Good day and thank you for standing by. Welcome to the OTC Markets Group third quarter 2021 earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your host today, Dan Zinn, General Counsel. Please go ahead.

Thank you, Operator. Good morning, and welcome to the OTC Markets Group Third 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 websites. 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 three of the earnings presentation.

With that, I'd like to turn the call over to Cromwell Coulson.

Thank you, Dan. Good morning, everyone. Thank you for joining us today. I am extremely proud of our colleagues' commitment to our mission to create better informed and more efficient financial markets. The team's dedication, collaboration, and execution across all levels has delivered outstanding results for our clients and shareholders. Our team is mostly back in the office on a hybrid work schedule, and we have embraced the opportunity to work face to face. We are leveraging video communication and other new skills we have learned to stay connected and maximize our collective success. Our third quarter results continued the trend we saw in the first half of 2021, where we saw increased demand for our products and services throughout all business lines. This led to another quarter of record financial results. Gross revenues grew 42 percent and net income grew 68 percent compared to the third quarter of last year. As a result, our earnings per share and operating profit margin also continued to expand. Antonia will cover our financial results in more detail in a few moments. On September 28th, the SEC's amendments to Rule 15C2-11 went into effect. Our team worked tirelessly to prepare the company and our industry for the implementation of the rule and changes to our regulatory role. The effort to make these changes touched all aspects of our business, and our teams aligned across functions and business lines to achieve a shared objective. I want to specifically commend the work of our corporate, compliance, legal, and technology teams on this project. They truly showcased their expertise and ensured the rollout was a success. The overall experience of preparing for Rule 211 made us stronger as a company. The lessons learned and relationships strengthened from this endeavor will support future company-wide initiatives. September 28th marked the beginning of our role as a qualified inter-dealer quotation system under the rule. As a regulated market operator, we are building reliable processes and systems to serve our customers while enhancing regulatory compliance. The strong regulatory foundation we have established under Rule 211 will enhance the value our markets provide to public companies, bring efficiencies to broker-dealer trading, and digitalize useful data for investors. Trading volumes remained strong in the third quarter, and we recorded another quarter of reliable, consistent service to our broker-dealer subscribers. The secure, compliant, and effective operation of our SEC-regulated ATSs requires consistent and constant vigilance from our business, technology, and compliance teams. We launched our third ATS, OTC Link NQBank. This new ATS is a fully attributable inter-dealer quotation system with matching engine functionality. This market model complements our OTC Link ATS qualified inter-dealer quotation system and our OTC Link ECN anonymous matching engine. The addition now allows our subscribers to choose the ATS that best serves their client trading needs. We are thoughtfully increasing the number of securities on OTC Link and QB. As OTC Link and QB matures, we will be able to provide a data feed that expands the depth of book information available to all market participants. Our corporate services businesses continue to thrive in the third quarter, ending with over 560 companies on our OTC QX market. The OTC QB venture market also reached record highs in the third quarter, once again ending the quarter with over 1,000 companies. The growth and development of each of these markets exemplifies the value of our data-driven market standards and technology platform. The Rule 211 compliance date drove a significant influx of companies seeking to use our disclosure and news service as an efficient public disclosure and basic regulatory compliance platform. Many companies worked to ensure they could disseminate current public information in compliance with the rule for the first time, and other long-term subscribers strengthened their engagement. I would be remiss not to recognize the monumental effort of our issuer services team in helping companies meet the compliance date. This team worked around the clock, confirming the availability of required disclosure, and communicating with issuers as the compliance date approached. They helped countless companies understand their responsibility for ongoing public disclosure under the rule, and investors have benefited from wider availability to this information. Our market data licensing business also saw strong results during the third quarter. building on its growth throughout this year and capitalizing on the broader interest and participation in our markets. We remain focused on reaching a larger group of market data customers across the globe and providing our enhanced compliance data to industry participants. With Rule 211, we formally took on two important regulatory functions. First, we began making publicly available determinations regarding whether companies meet their ongoing disclosure obligations under the rule. Second, we started conducting initial information reviews to onboard new companies onto our OTCQX and OTCQB markets. This important regulatory foundation creates clarity in the process of going public and offers new opportunities to serve clients. We remain actively engaged with the SEC and FINRA as the industry establishes best practices under the new 211 standards. We will help clarify policies and procedures for trading OTC securities, especially concerning those on the expert market. I would also like to note that this past Monday, FINRA officially shuttered the OTC bulletin board as part of their increasing oversight of the markets we operate. The end of the OTCBB era represents an opportunity for us to continue the evolution of our markets over the past 20 years and the role we play as a commercial provider of regulated trading systems and services with FINRA as the SRO. In keeping with the strategic objectives we set out at the start of the year, we accomplished the successful rollout of Rule 211, launched OTC Link and QB, and continued to support the record number of companies on our OTCQX and OTCQB markets. We remain well positioned to continue executing on these objectives for the remainder of the year. The level of increased interest across our business lines reinforces the vital role our markets play as a global gateway for companies to access the U.S. market in an efficient and cost-effective manner. In closing, I'm pleased to announce that on November 5th, our Board of Directors declared a special dividend of $1.50 per share and a quarterly dividend of $0.18 per share, each payable in December. The special dividend more than doubles our special dividend in 2020. Each of these dividends reflects our ongoing commitment to providing superior shareholder returns. With that, I will turn the call over to Antonia.

Thank you, Cromwell, and welcome to everyone on the call today. We are pleased with the seamless implementation of Rule 15c211, which demonstrated our team's incredible talents and dedication to serving our clients and subscribers. We're excited to report another quarter of strong performance across our businesses. As we discuss our results for the quarter ended September 30, 2021, any reference made to prior period comparatives will refer to the third quarter of 2020. During the third quarter of 2021, we saw continued strong sales and issue engagement in continuation of the trends from the first half of the year. We are pleased that our issuer clients continue to see the value of our markets and corporate services offerings, which was further reinforced in relation to Rule 15 . We also continue to see robust volumes of trading activity on our markets, albeit moderated from the unprecedented levels reached earlier in the year. Our market data products continue to see strong demand as well. Turning to page nine. Our gross revenues in the third quarter of 2021 amounted to 25.2 million, up 42% compared to the prior quarter, with revenue growth across all three of our business lines. OTC Link saw another quarter of strong growth with revenues up 60% versus the prior year quarter, driven mostly by a 168% increase in revenues from OTC Link ECN. Contributing to the growth were also message revenues from OTC Link ATS and QAPP One Statement fees. OTC Link benefited from a robust trading environment with volumes on OTC Link ECN reaching approximately 39,000 transactions per day compared to approximately 10,000 in the prior quarter. Additionally, during the third quarter, we added six new subscribers to OTC Link ECN to reach 90 subscribers, up from 69 as of September 30, 2020. Transaction-based expenses comprised of rebates paid to subscribers providing liquidity on OTC Link ECN increased 172%, or $1.1 million, in line with the increase in volume traded. Our market data licensing business saw an 18% increase in revenues versus the prior quarter. Revenues from professional user licenses were up 12%, while revenues from non-professional users increased 39%, driven by a 13% and 45% increase in pro and non-pro users, respectively. An increase in internal system license revenues of 48% over the prior year quarter also contributed to the overall growth in market data licensing revenues. As a reminder, the transaction-based revenue and transaction-based expenses that OTC Link generates are closely correlated with the volume of trading activity on our market. And those volumes are highly uncertain and cannot be predicted. Furthermore, in our market data licensing business, we have experienced substantial increase in nonprofessional users since March of 2020. Nonpro users' interest in our market data tends to fluctuate significantly in response to volatility in the markets and changes in retail trading activity, and we may experience a decline in the number of users in the coming months. In our corporate services business, strong sales and issuer engagement, as well as price increases that became effective January 1st, 2021, led to revenues increasing by 57%. As issuers sought to comply with Rule 15 C-211 in advance of the September compliance date, we saw a high number of issuers subscribing to our corporate services products, notably our disclosure and news service, or seeking to qualify their securities for our OTCQV or OTCQX marketeers. Revenues from OTCQX increased 54%. We ended the quarter with 561 companies on the OTCQX market, up from 441 as of the prior quarter. 55 new issuers joined our OTCQX market in the third quarter, up from 44 in the prior quarter. OTCQB revenues increased by 48%. We added 115 new issuers to OTCQB during the third quarter to reach 1,067 OTCQB companies compared to 62 new subscriptions and 874 companies as of the prior quarter. A significant increase in the number of subscriptions for our disclosure news service drove revenues from DNS up 101% compared to the prior year quarter. Turning to page 10 for review of our expenses. Operating expenses increased by 20% on a quarter-over-quarter basis. Compensation and benefits expenses with a primary driver increasing 20% with professional and consulting fees and IT infrastructure and information services costs also contributing. The increase in compensation costs primarily reflects an increase in salaries and incentive compensation in line with higher headcount and incentive award targets for 2021. We also saw an increase in commissions related to higher sales. Professional and consulting fees increased 72% due to an increase in clearing and regulatory fees related to the higher trading volume on OTC Link ECN as well as expenses incurred to support the growth in our corporate services business. IT infrastructure and information services expenses increased 26%, reflecting additional data license costs associated with the higher number of companies on our market, as well as a continued investment in the growth of OTC Link. In summary, on page 11, The third quarter of 2021 was the 19th consecutive quarter of revenue growth for OTC Markets Group. Our businesses delivered 77% quarter over quarter growth in income from operations and 68% growth in net income. Our operating profit margin expanded to 39.5% compared to 32.1% in the prior quarter. In addition to certain GAAP and other measures, management utilizes adjusted EBITDA, a non-GAAP measure which excludes non-cash stock-based compensation expenses. For the third quarter of 2021, our adjusted EBITDA was up 65% to 10.9 million or 90 cents per diluted share compared to 6.6 million or 55 cents per diluted share in the prior quarter. Cash flows from operating activities during the third quarter amounted to 10 million, up from 5.9 million in the prior quarter, reflecting the significant growth in net income. Free cash flows for the quarter were 9.2 million compared to 5.5 million in the prior quarter. Turning to page 12, we have continued to consistently return cash to our stockholders. During the third quarter of 2021, we returned 2.1 million in the form of dividends, up 21% compared to the prior quarter. We remain focused on enhancing our value proposition to issuers and broker-dealer subscribers, growing our business, and delivering long-term value for our stockholders. With that, I would like to thank you again for joining us on the call. We will now open the line for questions.

Thank you. If you have a question at this time, please press star, then 1 on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And our first question comes from the line of Chris McInnes with Sedodian Company. Your line is open. Please go ahead.

Good morning. Thanks for taking my questions, and congratulations on a really great quarter. I guess if you could just start around maybe 2-11, just provide a little bit more detail around maybe – the trends you saw positively impact the business. Did that implementation go as expected? Was there something that came in maybe stronger around that? And I guess the follow-up to that would be, are you still seeing that positive trend of companies coming on to the QX or QB or using DNS post the end of the quarter? Thanks.

Sure, and thanks for the questions, Chris. I'll kick it off, and then Cromwell may follow on with some thoughts from his perspective. So in terms of providing more color around 15C211, everything was pointed towards that September 28th compliance date, including the focus of the companies. So many companies were in touch with us over the course, really, of the entire year. preparing and making sure that they had the right kind of information to continue with the public broker dealer quote. So that's where a lot of the momentum came from, certainly on the DNS side. Companies that maybe hadn't engaged with the market as much before and were now starting to engage, partly as a result of 211, That also drove some companies to look at OTCQX and OTCQB as options. If you're going to take some steps to comply, those that qualify, some of them wanted to step up into the higher markets. What it's done on an overall level, I think, is put that degree of attention on our markets and what happens here, and companies understand that there's a rule in place now that hopefully over time is easier for them to understand and and that has very specific compliance requirements, and that by meeting that, they can really drive the way they communicate with their investors. And so while there's no other specific date, like September 28th, that's out there in relation to the rule, you know, the kind of disclosure that's required and the ongoing communication that companies need to have with their investors and the disclosure they need to provide certainly perpetuates. Kroman, I don't know if you'd add to that.

Yes. So, Chris... Thank you for that question. At a high level, you know, September 28th really put in a basic standard that for a public company to have a public market maker quote, they need to provide current information and set OTC markets group, our regulated ATS as the regulated operator with FINRA oversight to confirm, confirm the information. Now, so a lot of companies started to come into the system. And if you think about where our corporate services products fit, we've got OTCQX and OTCQB, which offer an alternative to exchange listing. And they build, you know, they use data-driven standards to give companies the building blocks of being a public company. With The disclosure news service, it's really an alternative to SEC reporting. And so there are many companies that were able to fly under the radar and not provide a baseline level of disclosure. And it is very important is if a company wants to be SEC reporting, you know, they can just be SEC reported and we'll track them in our pink market. And a market maker can still, as under the old rule 211, bring a security into the U.S. But there's an alternative that is more cost effective, you know, in many ways, such as in the airport, you can either go through the government line or you can apply for clear. But, you know, not every passenger is going to want to follow those rules. and do the background work, do the pieces that are there. But it's a great protection for us because if we're uncomfortable with the company or it's red flags or a company doesn't seem to have an understanding of things such as U.S. GAAP, they can always go through the government lines. and, you know, that's a bit more costly and time-consuming. So those are changes I think are interesting, and we had a changeover around the rule. We're going to have a follow-up effect. And the second side is, you know, the powers of us being a more well-regulated market operator with the FINRA oversight, the increased FINRA rules, the SEC recognizing our role and those responsibilities that come forward is really – part of the overall trajectory that we've been working on for 20 years of building better informed and more efficient financial markets, which means more regulation. And it gives us more powers. The ability to onboard new securities, I think, is going to be super interesting in being able to offer clarity to companies wanting to go public and do a high-quality job of making sure that there's information available in the market when they start trading so investors can make adequate investment decisions. And then the third part of it, which is we put 211 through our existing technology infrastructure. How can we use technology to digitalize the issuer experience and really bring forward in the future? And this is going to be a multi-year project as we work on these areas is to make it more efficient to be a public company using technology and disclosure tools. And that's going to be a really interesting partnership with, between, you know, the commercial side, the clients, and the compliance side. Because, you know, public companies have two sides. One, they have to distribute disclosure to inform the market. But second, they need to get their credentials delivered. out there to show that they're in compliance with various regulations so you know so i think it was a it was a big big moment but then there there there's parts where for us to build on going forward sure that makes a lot of sense and i like the airport example pretty clear uh example there thanks um i guess

Following up on that, just around the new rule of the 6439, does that put you in a better position as well to continue to grow these, to add to whether it's the DMS or the QX and QB? Does that change anything as well for you in the near term here?

First of all, Chris, I'm very impressed with your knowledge of the FINRA rule set. That was an impressive citation. 6439. 6439 mostly reinforces the things that we've been doing already. It provides for some additional public disclosure of the kinds of processes that we have here and the work that we're doing. But we've been in touch and working with the regulators on that for a while. I think maybe it shines a light on really what Cromwell was talking about, right, our role in the market and the fact that everything sort of flows through us to a large degree, where I think there were some legacy people that still kind of pointed to the OTC bulletin board and maybe didn't understand the shifts in the market over the years. So we can use it as a moment from that perspective in educating folks. From a regulatory perspective, which is obviously where I come at it from, it doesn't change a lot for us. It just allows us to be more public about what we're doing. Yes.

And I think it also clarifies the role of the commercial market operator and the SRO regulator. And, you know, both groups have important roles to provide the market, and there's a nice synergy. And in many ways, I'd say it's part of the future where there's a real conflict between exchanges acting as an SRO. You know, FINRA is a clean SRO. We're a clean SRO. SEC regulated and FINRA regulated market operator.

Thank you for that. And then just one last question, just around blue sky exemptions. You know, I think prior to the pandemic and maybe 2.11, you know, it felt like there was more talk around it. You know, can you just talk about where you stand with the blue sky exemptions now and the opportunity to continue to expand that? Thanks. So

You know, we're persistent of pushing for more states to recognize us. The SEC recognitions and the expanded FINRA SRO role overseeing our operations should hopefully give states confidence. But, you know, it's a grind. You know, state securities law is 50-plus opinions today. in a room with divergent goals, people, perspectives, and, you know, it is we play a very long game grinding up wind.

All right. Thank you very much. Again, congratulations on the quarter. I'll jump back in the queue. Great. Thank you, Chris.

Thank you. And our next question comes from the line of Carl Morris with Edison. Your line is open. Please go ahead.

Hi, all. Thanks very much for taking my questions. Another smashing set of results. A big congratulations on that. I think it's now, I think, four, well, actually now five quarters. I'm not even surprised on the upside. So, well, you know, a big congratulations on that. My first question is on the regular frequency. I think it just follows up on the previous questions that you've taken today. We've spoken at length about this, and you guys have done, I think, a good job of communicating with the market on this. I'm wondering how, as an organization, you thought this process has ultimately turned out. And I mean, your initial expectations going into the end of September and how ultimately your client base has met the challenges of 15C211. Looking at the numbers disclosed, it perhaps has turned out better than originally thought from a revenue perspective. Those were my initial sort of thoughts going through your reports and Secondly, I guess related to the first, in terms of the revenues coming in from corporate services from QX, QB, and Pink, how sustainable is that? I mean, is there an element of one-offs in there, you know, given the big, huge task of getting everybody on board ahead of the 28th of September? In other words, will these moderate somewhat now that we've passed the end of September deadline? And then finally on the dividend, after a really juicy special, I mean, it's pretty high. And if I just look at the payout ratio, you know, it's going to be, I suppose, we haven't seen fourth quarter numbers yet, but in excess of 90%. And so I'm just thinking about really next year and how you guys, you know, view that sort of the payout profile of your business. Thanks.

So, you know, we view it as, you know, as I said in my notes, I think the team was very successful. in hitting the target date. There's an external target date and it required collaboration across the company for the majority of the time when we were, when 90% of the company was working virtual. So that establishment piece is We really focused on the foundational work, the regulatory compliance side, where we could automate places and, you know, where you see things is, you know, while a certain amount of securities that didn't make disclosure went to our expert market, we also added international securities, and we did it in a highly automated manner. And so essentially the number of individual market maker quote positions went up 8%. kind of from the 15th of September to now. And I think that's a reel of the breadth of market expanded. Now, it shifted in areas. We still have work to do. The expert market is too clamped down. Every brokerage industry, successful brokerage firms have a good conversation between compliance, the commercial interests, and primarily their customers. is, you know, is on right now the customers have to crawl over glass to get to the expert market. And so the pendulum probably needs to swing to a bit more thoughtful area. So but on our overall places, you know, we think the establishment of. of a baseline for companies to have a public quote in line with the SEC's goal that a company makes a baseline of current information available. And it's not a huge, heavy baseline. I mean, it's not audited financials on the ongoing basis. You know, to enter the market, you would need audited financials. But for ongoing, it's U.S. GAAP. And you do need, companies need some basic financial skills to prepare those statements. But what it does across the board is, I mean, we had work to do to get this to hit the date, but then the interesting part is like, where do we build on it? Where do we go in the future? How do we really take that same path that NASDAQ used to be on before they decided they wanted to be a stock exchange to compete directly with the New York Stock Exchange. You know, this is the market, the gateway between public and private markets, the gateway between the U.S. and the world. You know, that's a real role to have the different trading technologies mesh together with the disclosure and the compliance technologies. within a regulated, a U.S. regulated entity. So, you know, that side is, I think, a positive and powerful platform for us to build on, to do interesting things, to create more value. So our clients today and clients tomorrow want to engage with us. The second piece is sustainability. You I would say that the churn-wise, as we've approached our other premium markets from the top and we've increased standards over time, so if you've looked at it traditionally, we've been trying to be very thoughtful about where do we add, where do we remove standards to get to the desired product that OTCQ acts as a market for that are not penny stocks, that has governance, that has certain financial standards aligned with state securities regulations. And how do we do that in a way that basically has quantitative and qualitative standards, but also we're not imposing useless burdens that don't add value to the market pricing process and investor understanding and issuer compliance. And then we've had QB, which is disclosure-driven, and we've also had standards there where we looked around float, where we looked around some other areas that we've done things. So there's been a bit of churn, just natural churn, but there's also churn as we've figured out where to put the standards in. And then this one's coming in from the low end. So we're going to learn where the churn is on the various sides, but we've seen growth in our premium markets too because companies, when they look at the services, they don't want the basic offering. They actually want something. They want to give their investors a premium service. So we will learn on the churn, and we're early days on that side. And as I've told my team, It's great we rearranged the deck chairs. What we're going to be building now is a compelling way to be public that is completely new in the future in a regulated market and is data-driven. And there's lots of work for us to create more value for our community. On the dividend, we were conservative through COVID. We've been conservative, you know, of having capital of, you know, nobody really knew what was going to happen through the process. As you can see, we've executed on 211, and we have a strong recurring revenue stream. And so we're returning cash to shareholders again. I want to make clear that if we find good acquisitions to deploy capital to. You know, the special dividend we do because we haven't found a use for the capital. And I highly believe that it's important for shareholders to be able to redeploy that elsewhere and to show a return of capital. And for small companies, a dividend is one of the best ways to create investors. So we've got our ongoing dividend and then our ongoing recurring dividend and our special dividend is... We've caught up a bit on this one. We will see where the business goes. We will be investing to keep growing the platform. We're not going to sit there and smugly on our hands say Rule 211 went through and now we don't need to do anything else because there's a lot of interesting work to do to bring the benefits of being public to a wide circle of companies. and giving them different options of the various building blocks of being a public company that they can grow into to fit their unique needs versus the complexity and really one-size-fits-all listing standards and multiple outside advisors required to list on a national securities exchange.

Great. That was incredibly useful. Thank you.

Thank you. Thank you. And I'm showing no further questions at this time, and I would like to turn the conference back over to Cromwell Coulson for any further remarks.

Thank you, Operator. I want to thank all of you for joining us today. I would encourage you to read our full earnings report and the earnings press release. Links to both are available on the Investor Relations page of our website. On behalf of the entire team, we wish you and your families continued health and safety, and we look forward to updating you on key initiatives that continue to shape the integrity and competitiveness of the public markets.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.