OTC Markets Group Inc.

Good day and thank you for standing by. Welcome to the OTC Markets Group fourth quarter and full year 2022 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 that session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Zinn, General Counsel. You may begin.

Thank you, operator. Good morning, and welcome to the OTC Markets Group fourth quarter and year-end 2022 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 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. 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 Factor section of our 2022 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 Folsom.

Thank you, Dan. Good morning, everyone. Thank you for joining us today. I will discuss our year-end 2022 results and focus on how we performed on each of our strategic initiatives during the year. I will then discuss our strategic outlook for 2023. Our business continued its trend of top-line growth as gross revenues surpassed $105 million for the first time in our history. We experienced growth in our corporate services and market data licensing businesses, tempered by a significant decline in transaction-based revenue in our OTC Link business, following what was record trading volume during 2021. Through the first two months of 2023, trading volumes have been consistent and broker-dealer engagement across our ATS platforms continues to be strong with over 100 combined subscribers. Corporate services delivered outstanding revenue growth of more than 20% during the year. We ended the year with more than 600 companies on OTCQX and more than 1,200 companies on OTCQB, highlighting the value of our premium markets for public companies. The market data licensing business performed well, growing revenue by 8% while integrating Blue Sky Data Corp into our platform and closing the EDGAR online purchase. Our integration efforts continue, and the full impact of both acquisitions will be reflected in our market data licensing results this year. As a result of business lines trending in different directions, corporate services now represents approximately 45% of our overall revenue. Market data licensing accounts for 35%, and OTC Link accounts for 20%. As I have said, this was a year of investment in assets and operations with two acquisitions and continued enhancements to our people and platform. As a result, our operating profit margin for the year contracted and earnings per share remained essentially flat. Antonia will cover our financial results in more detail in a few moments. We focused on four strategic initiatives structured around serving our clients and shareholders. First, drive sustainable revenue growth across each of our business lines that increases long-term per share earnings power. Second, commercialize our enhanced regulatory status under Rule 211 to create new opportunities for public companies and broker-dealers. Third, advocate for additional regulatory recognition of our markets to increase the value of being public. pursue corporate development efforts to grow and diversify our product suite and client base. With respect to the first initiative, our focus is always over the long term, and our track record of revenue growth has been a direct result of providing unique value to our clients. The Blue Sky Data Corp and Edgar Online Acquisitions position us to further develop our capabilities. each of these businesses strengthens our ability to add value to our subscribers trading disclosure and compliance processes the acquisitions also extend our coverage beyond otc equity securities build our product suite and expand our client base we see tremendous value in these data sets and are focused on turning the edgar online assets into a cash flow positive contributor to our overall operations in the short term our priority is moving the edgar online application stack into the cloud and retaining subscribers then we can shift our focus to the longer term projects that will enhance our data offerings, find operational efficiencies, and grow the enterprise customer base with a stronger, integrated product suite. As OTC-Link trading volumes normalized, the business focused on building its subscriber base, improving compliance processes, and strengthening operational resilience. We are also pleased to have delivered consistent, reliable service to our broker dealer community on our core SCI regulated trading system. Security and uptime of OTC Link ATS will always be a top priority. Our subscribers demand and deserve our best. Our second strategic initiative commercializing our regulatory status under Rule 211 starts with a commitment to our compliance process. Our broker-dealer subscribers rely on our publicly available determinations to know when they can quote a security. The EDGAR online services are a vital component of our 211 compliance process, allowing us to leverage structured SEC filing data to perform our current information checks. Bringing these services in-house allows us to enhance and deploy them for the benefit of other clients and public companies. The September 2021 amendments to Rule 211 also provided a springboard for our corporate services businesses heading into 2022. That business delivered strong revenue results. However, we believe we can continue to commercialize our new regulatory role. Identifying new opportunities for companies, broker dealers, and market data subscribers, such as our fixed income 211 data product, will continue to be a priority moving forward. We finished the year on a high note with respect to our third strategic priority, gaining regulatory recognition for our markets. The ESOP Fairness Act was part of a package of bills signed by President Biden in late December. The law includes a provision that will modernize the rules governing employee stock ownership plans. This will put qualified OTC-traded companies that meet established financial and disclosure standards, such as those traded on the OTCQX market, on par with exchange-listed companies when offering ESOP plans. With the ESOP Fairness Act and the addition of South Carolina and Puerto Rico to our blue sky map, we are poised to continue achieving additional regulatory recognitions. Our Blue Sky Data Corp and EDGAR Online acquisitions demonstrate our commitment to our fourth strategic priority, pursuing growth through corporate development initiatives. I look forward to the continued integration of those businesses and employees and to identifying additional corporate development opportunities. As we turn to 2023, we seek to build on our progress last year and focus on the following five strategic initiatives. First, coming together as one team on one platform to build the value of one share. We will work to further leverage Blue Sky data and integrate Edgar Online technology and personnel. Second, commercializing our role as a regulated market operator and delivering visible client value. We will continue to scale our infrastructure and introduce cost-effective technology-enabled solutions that are useful for clients. Third, prioritizing client-facing application development and improving our data. We will dedicate resources to enhance the customer experience through modernized interfaces and enriched data for external and internal users. Fourth, improving OTC link functionality and reducing operational exposure and business risk. We intend to invest in our core trading infrastructure to strengthen its resilience and to enhance its value to subscribers, including by adding new asset classes. Finally, because we operate as owners and capitalists, creating strong net revenue growth and delivering sustainable profitability that increases long-term per share earnings. I look forward to discussing our progress on these initiatives throughout the course of the year. In closing, I'm pleased to announce that on March 6, our Board of Directors declared a quarterly dividend of 18 cents per share, payable later this month. This dividend reflects our ongoing commitment to providing superior shareholder returns. With that, I will turn the call over to Antonia.

Thank you, Cromwell, and thank you all for joining our call today. I would like to start by thanking our entire RTC Markets team for advancing our strategic priorities, successfully completing two acquisitions, and seamlessly serving and supporting our subscribers. I will now review our results for the fourth quarter and year ended December 31, 2022. Any references made to prior period comparatives referred to the fourth quarter or the year ended December 31, 2021. In 2022, continued customer demand for our OTCQX and OTCQB markets drove revenue growth in our corporate services business, while market data licensing benefited from the partial year addition of the customers and revenues from Blue Sky Data Corp and Edgar Online. Furthermore, the sustained demand from professional and enterprise clients helped to offset a decline in non-professional users. OTC links, so transaction-based revenues decline in line with a decrease in trading activity on our market, while its subscription-based revenues grew due to increased subscriber demand. Our full year results are presented in comparison to the full year 2021 and reflect the impact of record high trading volumes and regulatory changes, which materially affected our financial performance during 2021. Our fourth quarter results are presented in comparison to the fourth quarter of 2021 and reflects more comparable operating environments in each of those periods. With that, I will turn to page 12 for our fourth quarter results. We generated $27.3 million in gross revenues, up 4%, as compared to the prior year period. Revenues less transaction-based expenses were also up 4%. OTC links or gross revenues declined 4%, primarily as a result of lower revenues for messages on OTC link ATS and from QAP1 statement fees, which decreased 22% and 56% respectively. This decline was partially offset by a 2% increase in transaction-based revenues from OTC Link ECN and OTC Link NQB, reflecting comparable trading volumes in the current and prior year quarters. The decline was further offset by growth in subscription-based revenues from our consolidated audit trail reporting service and our connectivity services. Transaction-based expenses increased 6%. OTC Link finished the fourth quarter with 102 subscribers on OTC Link ECN and 87 subscribers on OTC Link ATS, up from 93 and 86, respectively, at the end of the prior year. Trading volumes are highly unpredictable and could decline in the future. Revenues from our market data licensing business were up 13% quarter over quarter. primarily due to the contribution of the acquisitions of Blue Sky Data Corp and Edgar Online. Excluding the impact of the acquisitions, market data licensing revenues were down 1%. Pro user counts were up 1%, while the corresponding revenues were down 1%. Revenues from internal system licenses, delayed data licenses, and other data services increased 13%, and revenues from broker-dealer enterprise licenses increased 14%. due to growth in subscribers. Offsetting these increases was a 48% decline in revenues from non-pro users in line with a 51% decline in period and non-professional 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 U.S. equity markets fluctuate, and we may experience a further decline in the future. Corporate services revenues increased 2% in the fourth quarter. As a result of new sales and strong retention rates, we had a higher average number of companies on the OTCQX and OTCQB markets, which combined with incremental price increases effective for 2022, drove an increase in OTCQX revenues of 5% and an increase in OTCQB revenues of 7%. Revenues from DNS declined 12%. In the fourth quarter, we added 21 OTCQX companies compared to 35 new sales in the prior quarter and finished the period with 615 OTCQX companies up 8%. On OTCQB, we added 53 new companies in the fourth quarter compared to 113 in the prior year period and had 1,239 OTCQB companies at the end of the quarter, up 8%. We had 1,546 PIN companies subscribing to DNS and other products at the end of the fourth quarter, down 1% from 1,563 at the end of the prior year. Our DNS offering experienced a significant increase in subscribers during the prior year quarter, in connection with the amendments to Rule 15C211 becoming effective in September of 2021. The number of DNS users gradually declined during 2022, with month-to-month variability driven by non-renewals, corporate events, and compliance downgrades. Turning to page 14 for our full-year results. In 2022, we generated gross revenues of 105.1 million, up 2%. OTC Link revenues declined 29% with a 43% decline in revenues from OTC Link ACM and OTC Link NQB as the primary driver. Our market data licensing business delivered 8% revenue growth year over year with the benefit of the acquired revenue from Blue Sky Data Corp and Edgar Online. Excluding acquired revenue, market data licensing saw a 2% revenue growth driven by revenues from professional and broker dealer subscribers offsetting a decline in revenues from nonprofessional users. Corporate services revenues increased 21% with a 10% increase in OTCQX revenues, a 26% increase in OTCQB revenues, and a 33% increase in DNS revenues, all contributing. During 2022, we added 133 new companies to RTCQX compared to 212 in the prior year and 322 new companies to RTCQB compared to 451 in 2021. For the annual RTCQX subscription period beginning January 1st, 2023, we achieved a 95% retention rate compared to 96% in the prior year. Turning now to expenses on page 15. On a quarter-over-quarter basis, operating expenses increased by 15%. The primary drivers were a 9% increase in compensation and benefits and a 55% increase in professional and consulting fees. The increase in compensation and benefits reflects higher headcount, including 14 new employees from Edgar Online. annual base salary increases, and an increase in stock-based incentive compensation, partially offset by lower commissions and lower cash-based incentive compensation. Compensation and benefits comprise 59% of our total operating expenses during the fourth quarter, compared to 62% in the prior year period. Professional and consulting fees increased primarily due to higher spending on external consulting services to support our web-based applications, databases, and security initiatives. On a year-over-year basis, on page 16, operating expenses were up 13%, driven by similar factors. We also incurred one-time acquisition-related expenses that contributed one percentage point to the increase. Compensation comprised 63% of our total expense base in 2022 compared to 65% in 2021. Turning to page 17. In the fourth quarter, income from operations and net income declined 8% and 5% respectively. Operating profit margin contracted to 37.2% compared to 42.4% in the prior quarter. For the full year, income from operations declined by 3% and operating margin contracted to 36.1% compared to 38% in the prior year. Net income increased by 1% and our diluted earnings per share remained essentially flat at $2.53 per share. 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 $43.2 million for the full year 2022, and our adjusted diluted earnings per share were $3.56, flat to the prior year. Cash flows from operating activities for 2022 amounted to $33.7 million compared to $46.5 million in the prior year, and free cash flows were $32.2 million compared to $45.1 million in the prior year. Turning to page 18, during 2022, we returned a total of $29.1 million to investors in the form of dividends and through our stock buyback program. an increase of 8% over the prior year. 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. Certainly.

As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

One moment for our first question.

And our first question will come from Steve Silver of Argus Research. Your line is open.

Thank you, operator, and good morning. Congratulations to the entire team on the execution in 2022. Really strong results in diversifying the business. It's great to see the strong customer retention, Antonio, that you just mentioned so far in 2023. My question is, given all the noise that's in the economy, I guess with the inflation and rising interest rates, I was curious to see if you guys still see pricing increasing power in 2023. And then as a follow-up, it looks like there was a notable drop in the number of graduates to national exchanges in Q4. It looks like it was from 23 in Q3 to about 12 in the fourth quarter. Just curious if there's anything you could share, even just in terms of directionally in the year-to-date results. Thanks. Sure.

I think pricing power is an interesting discussion because, you know, we've got a portfolio of products. And, you know, we've got some products that we're building that nobody's paying for right now. And that's a bit like a VC portfolio because sometimes they work, sometimes they don't. We've got some other products which are newly acquired, and some of those have potential to have more value stuffed in for clients. And some of those are more legacy products. And then we've got some existing products where the goal is we don't have pricing power where we're going to drive ahead of inflation, but it can keep up with inflation. And then we have other parts of our products which are in information. If you're providing an information or a technology service that's not increasing value for clients over time or providing visible client value within to their cost structure, some of these products are on their way to free. And as you have an established company, you've got this portfolio of of SKUs, revenue streams. And so we manage that. And, but we're also not, we don't look at it on a one year, we have to be super aggressive with our clients because we view as our, you know, when you look at our churn rates, our best clients are very long-term relationships. And So pricing is something – is inflation a short-term reset because of money supply changes and labor repricing? Or is inflation something which is just going to be moving towards southern hemisphere currencies? And I don't know. But I think we're – the key point is we have a good core of clients who are – our information, technology, services, platforms, ATSs are critical to their day-to-day operations. And they're based in America, which is a pretty fantastic place to be a capitalist and a commercial business operator. So that's how we take a look at it. And, you know, we're We believe that we can stay with inflation over the long term and catch it a bit, but we also just have to always be building visible client value to the clients.

Okay, great. That's helpful, and congratulations again.

Again, ladies and gentlemen, if you would like to ask a question.

And just Dan can answer the graduate question.

Oh, yeah, Steve, I know a piece of your question was related to the number of graduates. I think what we saw more than anything was a spike in graduates in 2021. And so we have, over the course of history, averaged roughly 60, 65 graduates to national exchanges per year. That spiked to well over 100 last year, I think even over 150. And so you're seeing, I think, a bit of a normalization there, but things that we would expect to see. And probably as we start to do those five-year rolling averages, over time, the number will move from 65 to 75 or so, just as the number of companies continues to grow.

And our goal is to what we're proud of graduates because it shows that part of our market plays a role as a venture market. The second place I'd say is we want to extend the runway. We don't think exchange listing offers its greatest value until you're in the S&P 500. So what are the differences between functionality that we can close the gap on over time on regulatory recognitions, on market efficiency that we can add in so companies have more runway in what we believe is a very cost-effective and time-effective market for companies to be public, whether they're smaller primary trading companies or as a secondary trading market for global companies that are listed overseas.

Great. Thanks again.

Okay.

Again, as a reminder, please press star 1-1. For questions, one moment for our next question. And our next question will come from Brendan McCarthy of the DOTI. Your line's open.

Great. Thank you, and congratulations to everybody on the results. I have two questions. The first one, I believe there was mention of potentially adding new asset classes. I was wondering if you can expand on that a little bit, and then the second question, You know, I've read into the SEC's recent climate disclosure proposals. I was wondering if you could potentially try and quantify that risk and what that means going forward. Thank you.

So, on asset classes, until we have traction, we are not really going to talk ahead of these areas because, you know, some of our ideas we get very excited about. customers aren't willing to open their checkbook. Some ideas which our customers say they really want, we build, and then our customers don't want to open their checkbook. But, you know, one example is the fixed income 211 file. which is a solution which is providing – if a company is providing current disclosure for corporate bonds. And that goes hand-in-hand with after buying the Blue Sky data file, we had much better coverage of corporate bonds. And so – So creating technology and data files that broker-dealers can rely on for their compliance and trading processes into the fixed income market gives us opportunities. It's a different market structure. There's changes that the SEC is doing, is looking at for best execution, which may change how the bond market works. And there may be opportunities, but we're not sure. And there's a lot of players in that space. So we would have to come along with some really unique value to help companies do more business on their own platforms or to do their existing business at lower cost, which our 211 file really hits that note. The second question is, Climate disclosure is tough. It's a really complex new rule coming out from the SEC to satisfy one small subset of investors versus other investors and IRR investors. So there's a big fight going on. All we wanted to do was point out that Sarbanes-Oxley really hits smaller public companies that are SEC reporting. it made it much more expensive. And hopefully with an SEC chair who really looks at what fees investors pay and whether they're paying those fees to a broker, to the manager of an investment product, or adding fees into the cost of a company being public. You know, if you add for a company with $100 million market cap, $500,000 of cost of being public, That's like a half-point investment management fake, away from returns. And so the debate is pretty contentious. I think the pendulum is swinging more towards the center, and we shall see what happens. And there's a lot of well-funded, bigger players across the spectrum of ideas that are going to ensure that the democratic process both through the regulators and the legislative and court side does its job. So that's my answer I'd say there.

That's helpful. Thank you.

And I'm showing no further questions. I would now like to turn the conference back to .

Okay, great. Thank you, operator.

One question that wasn't asked was just about the difference between our two acquisitions of Blue Sky and Edgar Online. And they're very different acquisitions. So we should be clear. Blue Sky was a fantastic acquisition. I wish we could do five of them a year that are five times as big. It is, we paid a premium price to a founder who built a very strong business with a high quality product that clients could rely on. And we were able to take the subscriber base into our platform to produce the data and take key people with domain knowledge, both in the data quality and in the client support, and add them to our organization to strengthen what we do. It was a fantastic acquisition. We are now looking at how do we expand the utility of the product for clients, adding in more fixed income securities, adding in more transparency about how the blue sky process takes place. And it. The team on the market data side, on the technology side, on the infrastructure side, on the finance side, on the HR side, did an incredible job integrating and consuming this business to make it part of the OTC market platform. Edgar Online is different. We did not pay a premium price. We paid less than one times revenues. And that even includes taking away what we were paying as the largest client. It looks a lot more like the original National Quotation Bureau we bought. It is a business that has a long track record, however, was part of a larger organization that had different core strengths, that were very different than the data licensing business that we do and the compliance business. We see an opportunity for Edgar Online to be the premier supplier of financial information on SEC reporting companies to broker dealers, both in the trading and compliance areas, as well as to other data providers. That's a core spot and really focusing on a niche They have 72 terabytes of data bringing it into our platform because we don't have processes that are doing the same thing. We're taking in their technology. It is going to be a lot of work. The data they produce from our perspective as a client is very high quality. There are other enterprise clients who also rely on the data. It has not been invested in. We have to move it out of the former owner's data centers into the cloud. We are not going to be the most efficient or effective at first. We will grind through that. We will get better. We also have to find out how many of the clients we retain. What is the ongoing business? We are going to have a good idea in the second quarter of the first batch of who we retain. Then we're going to learn more because there are going to be some clients who say that they want to stay on, but they're actually, some of the products in the portfolio may not be as useful. But we will know have a pretty good idea by the end of this year where the revenue streams are, which ones need to be invested in, which ones have growth potentials, which ones we can cross sell, where we can combine products with our own data structure. And, you know, we are going to have the best database of financial information for U.S. traded companies. We are going to have some real core capabilities, and we're also going to have a lot of work. work making their technology work in the cloud work investing in some areas that haven't been invested in work integrating the data teams across otc markets blue sky data and the edgar online people is to be one team and we believe that it creates a great opportunity however this is not a business that is instantly profitable. We are going to carry operating costs. And as a large shareholder, I would much rather buy a business at a lower total price, even if it doesn't all instantly go to the balance sheet. That if we have to pay for it partly, with a low initial purchase price, second, with a cost of moving, cost of the is, and third, with supporting operating costs as we right size, invest, and redeploy the assets. So, we could look smarter in the short term if we were out there paying eight or ten times revenues. for some information businesses. That's not how we're built. Even though it may make us look more exciting, we're grinders. And this acquisition is a real opportunity for us. And if we do it well, and we do integrate it in to be one team, one platform, building value for one share, our team is going to learn and build skills that will make us a better acquirer of other businesses over the longer term. So thank you for that. I want to thank each of you for joining us today. I would encourage you to read our full annual 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 look forward to updating you on key initiatives that continue to shape the integrity and competitiveness of the public markets. Thank you.

And ladies and gentlemen, that concludes today's conference. Thank you for participating. You may now disconnect. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. Thank you. Thank you. Thank you. Thank you. Good day and thank you for standing by. Welcome to the OTC Markets Group fourth quarter and full year 2022 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 that session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Zinn, General Counsel. You may begin.

Thank you, operator. Good morning, and welcome to the OTC Markets Group fourth quarter and year-end 2022 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 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. 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 Factor section of our 2022 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 Folsom.

Thank you, Dan. Good morning, everyone. Thank you for joining us today. I will discuss our year-end 2022 results and focus on how we performed on each of our strategic initiatives during the year. I will then discuss our strategic outlook for 2023. Our business continued its trend of top-line growth as gross revenues surpassed $105 million for the first time in our history. We experienced growth in our corporate services and market data licensing businesses, tempered by a significant decline in transaction-based revenue in our OTC Link business, following what was record trading volume during 2021. Through the first two months of 2023, trading volumes have been consistent and broker-dealer engagement across our ATS platforms continues to be strong with over 100 combined subscribers. Corporate services delivered outstanding revenue growth of more than 20% during the year. We ended the year with more than 600 companies on OTCQX and more than 1,200 companies on OTCQB, highlighting the value of our premium markets for public companies. The market data licensing business performed well, growing revenue by 8% while integrating Blue Sky Data Corp into our platform and closing the EDGAR online purchase. Our integration efforts continue, and the full impact of both acquisitions will be reflected in our market data licensing results this year. As a result of business lines trending in different directions, corporate services now represents approximately 45% of our overall revenue. Market data licensing accounts for 35%, and OTC Link accounts for 20%. As I have said, this was a year of investment in assets and operations with two acquisitions and continued enhancements to our people and platform. As a result, our operating profit margin for the year contracted and earnings per share remained essentially flat. Antonia will cover our financial results in more detail in a few moments. We focused on four strategic initiatives structured around serving our clients and shareholders. first drive sustainable revenue growth across each of our business lines that increases long-term per share earnings power second commercialize our enhanced regulatory status under rule 211 to create new opportunities for public companies and broker dealers third advocate for additional regulatory recognition of our markets to increase the value of being public fourth pursue corporate development efforts to grow and diversify our product suite and client base. With respect to the first initiative, our focus is always over the long term, and our track record of revenue growth has been a direct result of providing unique value to our clients. The Blue Sky Data Corp and Edgar Online Acquisitions position us to further develop our capabilities. Each of these businesses strengthens our ability to add value to our subscribers' trading, disclosure, and compliance processes. The acquisitions also extend our coverage beyond OTC equity securities, build our product suite, and expand our client base. We see tremendous value in these data sets. and are focused on turning the edgar online assets into a cash flow positive contributor to our overall operations in the short term our priority is moving the edgar online application stack into the cloud and retaining subscribers then we can shift our focus to the longer term projects that will enhance our data offerings, find operational efficiencies, and grow the enterprise customer base with a stronger, integrated product suite. As OTC-Link trading volumes normalized, the business focused on building its subscriber base, improving compliance processes, and strengthening operational resilience. We are also pleased to have delivered consistent, reliable service to our broker dealer community on our core SCI regulated trading system. Security and uptime of OTC Link ATS will always be a top priority. Our subscribers demand and deserve our best. Our second strategic initiative commercializing our regulatory status under Rule 211 starts with a commitment to our compliance process. Our broker-dealer subscribers rely on our publicly available determinations to know when they can quote a security. The EDGAR online services are a vital component of our 211 compliance process, allowing us to leverage structured SEC filing data to perform our current information checks. Bringing these services in-house allows us to enhance and deploy them for the benefit of other clients and public companies. The September 2021 amendments to Rule 211 also provided a springboard for our corporate services businesses heading into 2022. That business delivered strong revenue results. However, we believe we can continue to commercialize our new regulatory role. Identifying new opportunities for companies, broker dealers, and market data subscribers, such as our fixed income 211 data product, will continue to be a priority moving forward. We finished the year on a high note with respect to our third strategic priority, gaining regulatory recognition for our markets. The ESOP Fairness Act was part of a package of bills signed by President Biden in late December. The law includes a provision that will modernize the rules governing employee stock ownership plans. This will put qualified OTC-traded companies that meet established financial and disclosure standards, such as those traded on the OTCQX market, on par with exchange-listed companies when offering ESOP plans. With the ESOP Fairness Act and the addition of South Carolina and Puerto Rico to our blue sky map, we are poised to continue achieving additional regulatory recognitions. Our Blue Sky Data Corp and EDGAR online acquisitions demonstrate our commitment to our fourth strategic priority, pursuing growth through corporate development initiatives. I look forward to the continued integration of those businesses and employees and to identifying additional corporate development opportunities. As we turn to 2023, we seek to build on our progress last year and focus on the following five strategic initiatives. First, coming together as one team on one platform to build the value of one share. We will work to further leverage Blue Sky data and integrate Edgar Online technology and personnel. Second, commercializing our role as a regulated market operator and delivering visible client value. We will continue to scale our infrastructure and introduce cost-effective technology-enabled solutions that are useful for clients. Third, prioritizing client-facing application development and improving our data. We will dedicate resources to enhance the customer experience through modernized interfaces and enriched data for external and internal users. Fourth, improving OTC link functionality and reducing operational exposure and business risk. We intend to invest in our core trading infrastructure to strengthen its resilience and to enhance its value to subscribers, including by adding new asset classes. Finally, because we operate as owners and capitalists, creating strong net revenue growth and delivering sustainable profitability that increases long-term per share earnings. I look forward to discussing our progress on these initiatives throughout the course of the year. In closing, I'm pleased to announce that on March 6, our Board of Directors declared a quarterly dividend of 18 cents per share, payable later this month. This dividend reflects our ongoing commitment to providing superior shareholder returns. With that, I will turn the call over to Antonia.

Thank you, Cromwell, and thank you all for joining our call today. I would like to start by thanking our entire RTC Markets team for advancing our strategic priorities, successfully completing two acquisitions, and seamlessly serving and supporting our subscribers. I will now review our results for the fourth quarter and year ended December 31, 2022. Any references made to prior period comparatives referred to the fourth quarter or the year ended December 31, 2021. In 2022, continued customer demand for our OTCQX and OTCQB markets drove revenue growth in our corporate services business, while market data licensing benefited from the partial year addition of the customers and revenues from Blue Sky Data Corp and Edgar Online. Furthermore, the sustained demand from professional and enterprise clients helped to offset a decline in non-professional users. OTC Link saw transaction-based revenues decline in line with a decrease in trading activity on our market, while its subscription-based revenues grew due to increased subscriber demand. Our full year results are presented in comparison to the full year 2021 and reflect the impact of record high trading volumes and regulatory changes, which materially affected our financial performance during 2021. Our fourth quarter results are presented in comparison to the fourth quarter of 2021 and reflect more comparable operating environments in each of those periods. With that, I will turn to page 12 for our fourth quarter results. We generated $27.3 million in gross revenues, up 4%, as compared to the prior year period. Revenues less transaction-based expenses were also up 4%. OTC links or gross revenues declined 4%, primarily as a result of lower revenues for messages on OTC link ATS and from QAP1 statement fees, which decreased 22% and 56% respectively. This decline was partially offset by a 2% increase in transaction-based revenues from OTC Link ECN and OTC Link NQB, reflecting comparable trading volumes in the current and prior year quarters. The decline was further offset by growth in subscription-based revenues from our consolidated audit trail reporting service and our connectivity services. Transaction-based expenses increased 6%. OTC Link finished the fourth quarter with 102 subscribers on OTC Link ECN and 87 subscribers on OTC Link ATS, up from 93 and 86, respectively, at the end of the prior year. Trading volumes are highly unpredictable and could decline in the future. Revenues from our market data licensing business were up 13% quarter over quarter. primarily due to the contribution of the acquisitions of Blue Sky Data Corp and Edgar Online. Excluding the impact of the acquisitions, market data licensing revenues were down 1%. Pro user counts were up 1%, while the corresponding revenues were down 1%. Revenues from internal system licenses, delayed data licenses, and other data services increased 13%, and revenues from broker-dealer enterprise licenses increased 14%. due to growth in subscribers. Offsetting these increases was a 48% decline in revenues from non-pro users in line with a 51% decline in period and non-professional 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 U.S. equity markets fluctuate, and we may experience a further decline in the future. Corporate services revenues increased 2% in the fourth quarter. As a result of new sales and strong retention rates, we had a higher average number of companies on the OTCQX and OTCQB markets, which combined with incremental price increases effective for 2022, drove an increase in OTCQX revenues of 5% and an increase in OTCQB revenues of 7%. Revenues from DNS declined 12%. In the fourth quarter, we added 21 OTCQX companies compared to 35 new sales in the prior quarter and finished the period with 615 OTCQX companies up 8%. On OTCQB, we added 53 new companies in the fourth quarter compared to 113 in the prior year period and had 1,239 OTCQB companies at the end of the quarter, up 8%. We had 1,546 PIN companies subscribing to DNS and other products at the end of the fourth quarter, down 1% from 1,563 at the end of the prior year. Our DNS offering experienced a significant increase in subscribers during the prior year quarter, in connection with the amendments to Rule 15C211 becoming effective in September of 2021. The number of DNS users gradually declined during 2022, with month-to-month variability driven by non-renewals, corporate events, and compliance downgrades. Turning to page 14 for our full-year results. In 2022, we generated gross revenues of 105.1 million, up 2%. OTC Link revenues declined 29% with a 43% decline in revenues from OTC Link ACM and OTC Link NQB as the primary driver. Our market data licensing business delivered 8% revenue growth year over year with the benefit of the acquired revenue from Blue Sky Data Corp and Edgar Online. Excluding acquired revenue, market data licensing saw a 2% revenue growth, driven by revenues from professional and broker dealer subscribers, offsetting a decline in revenues from nonprofessional users. Corporate services revenues increased 21%, with a 10% increase in OTCQX revenues, a 26% increase in OTCQB revenues, and a 33% increase in DNS revenues, all contributing. During 2022, we added 133 new companies to RTCQX compared to 212 in the prior year and 322 new companies to RTCQB compared to 451 in 2021. For the annual RTCQX subscription period beginning January 1st, 2023, we achieved a 95% retention rate compared to 96% in the prior year. Turning now to expenses on page 15. On a quarter-over-quarter basis, operating expenses increased by 15%. The primary drivers were a 9% increase in compensation and benefits and a 55% increase in professional and consulting fees. The increase in compensation and benefits reflects higher headcount, including 14 new employees from Edgar Online. annual base salary increases, and an increase in stock-based incentive compensation, partially offset by lower commissions and lower cash-based incentive compensation. Compensation and benefits comprise 59% of our total operating expenses during the fourth quarter, compared to 62% in the prior year period. Professional and consulting fees increased primarily due to higher spending on external consulting services to support our web-based applications, databases, and security initiatives. On a year-over-year basis, on page 16, operating expenses were up 13%, driven by similar factors. We also incurred one-time acquisition-related expenses that contributed one percentage point to the increase. Compensation comprised 63% of our total expense base in 2022 compared to 65% in 2021. Turning to page 17. In the fourth quarter, income from operations and net income declined 8% and 5% respectively. Operating profit margin contracted to 37.2% compared to 42.4% in the prior quarter. For the full year, income from operations declined by 3% and operating margin contracted to 36.1% compared to 38% in the prior year. Net income increased by 1% and our diluted earnings per share remained essentially flat at $2.53 per share. 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 $43.2 million for the full year 2022, and our adjusted diluted earnings per share were $3.56, flat to the prior year. Cash flows from operating activities for 2022 amounted to $33.7 million compared to $46.5 million in the prior year, and free cash flows were $32.2 million compared to $45.1 million in the prior year. Turning to page 18, during 2022, we returned a total of $29.1 million to investors in the form of dividends and through our stock buyback program. an increase of 8% over the prior year. 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 fasten back to the operator to open the line for questions.

Certainly. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

One moment for our first question.

And our first question will come from Steve Silver of Argus Research. Your line is open.

Thank you, Operator, and good morning. Congratulations to the entire team on the execution in 2022. Really strong results in diversifying the business. It's great to see the strong customer retention, Antonio, that you just mentioned so far in 2023. My question is, given all the noise that's in the economy, I guess with the inflation and rising interest rates, I was curious to see if you guys still see pricing increasing power in 2023. And then as a follow up, it looks like there was a notable drop in the number of graduates to national exchanges in Q4. Looks like it was from 23 in Q3 to about 12 in the fourth quarter. Just curious if there's anything you could share, even just in terms of directionally in the year to date results. Thanks.

So I think pricing power is an interesting discussion because, you know, we've got a portfolio of products. And, you know, we've got some products that we're building that nobody's paying for right now. And that's a bit like a VC portfolio because sometimes they work, sometimes they don't. We've got some other products which are newly acquired, and some of those have potential to have more value stuffed in for clients. And some of those are more legacy products. And then we've got some existing products where the goal is we don't have pricing power where we're going to drive ahead of inflation, but it can keep up with inflation. And then we have other parts of our products which are in information. If you're providing an information or a technology service that's not increasing value for clients over time or providing visible client value within to their cost structure, some of these products are on their way to free. And as you have an established company, you've got this portfolio of of skews, revenue streams. And so we manage that. But we're also not, we don't look at it on a one year, we have to be super aggressive with our clients. Because we view as our, you know, when you look at our churn rates, our best clients are very long-term relationships. And So pricing is something – is inflation a short-term reset because of money supply changes and labor repricing? Or is inflation something which is just going to be moving towards southern hemisphere currencies? And I don't know. But I think we're – the key point is we have a good core of clients who are – our information, technology, services, platforms, ATSs are critical to their day-to-day operations. And they're based in America, which is a pretty fantastic place to be a capitalist and a commercial business operator. So that's how we take a look at it. And, you know, we're We believe that we can stay with inflation over the long term and catch it a bit, but we also just have to always be building visible client value to the clients.

Okay, great. That's helpful, and congratulations again.

Again, ladies and gentlemen, if you would like to ask a question.

And just Dan can answer the graduate question.

Oh, yeah, Steve, I know a piece of your question was related to the number of graduates. I think what we saw more than anything was a spike in graduates in 2021. And so we have, over the course of history, averaged roughly 60, 65 graduates to national exchanges per year. That spiked to well over 100 last year, I think even over 150. And so you're seeing, I think, a bit of a normalization there, but things that we would expect to see, and probably as we start to do those five-year rolling averages, over time the number will move from 65 to 75 or so, just as the number of companies continues to grow.

And our goal is to what we're proud of graduates because it shows that part of our market plays a role as a venture market. The second place I'd say is we want to extend the runway. We don't think exchange listing offers its greatest value until you're in the S&P 500. So what are the differences between functionality that we can close the gap on over time on regulatory recognitions, on market efficiency that we can add in so companies have more runway in what we believe is a very cost-effective and time-effective market for companies to be public, whether they're smaller primary trading companies or as a secondary trading market for global companies that are listed overseas.

Great. Thanks again.

Okay.

Again, as a reminder, please press star 1-1. For questions, one moment for our next question. And our next question will come from Brendan McCarthy of the Doty. Your line's open.

Great. Thank you, and congratulations to everybody on the results. I have two questions. The first one, I believe there was mention of potentially adding new asset classes. I was wondering if you can expand on that a little bit, and then the second question, You know, I've read into the SEC's recent climate disclosure proposals. I was wondering if you could potentially try and quantify that risk and what that means going forward. Thank you.

So, on asset classes, until we have traction, we are not really going to talk ahead of these areas because, you know, some of our ideas we get very excited about. customers aren't willing to open their checkbook. Some ideas which our customers say they really want, we build, and then our customers don't want to open their checkbook. But, you know, one example is the fixed income 211 file. which is a solution which is providing if a company is providing current disclosure for corporate bonds and that goes hand in hand with after buying the blue sky data file we had but much better coverage of of of of debt of corporate bonds and so So creating technology and data files that broker-dealers can rely on for their compliance and trading processes into the fixed income market gives us opportunities. It's a different market structure. There's changes that the SEC is doing, is looking at for best execution, which may change how the bond market works. And there may be opportunities, but we're not sure. And there's a lot of players in that space. So we would have to come along with some really unique value to help companies do more business on their own platforms or to do their existing business at lower cost, which our 211 file really hits that note. The second question is, Climate disclosure is tough. It's a really complex new rule coming out from the SEC to satisfy one small subset of investors versus other investors and IRR investors. So there's a big fight going on. All we wanted to do was point out that Sarbanes-Oxley really hits smaller public companies that are SEC reporting. It made it much more expensive. And hopefully with an SEC chair who really looks at what fees investors pay and whether they're paying those fees to a broker, to the manager of an investment product, or adding fees into the cost of a company being public. You know, if you add for a company with $100 million market cap, $500,000 of cost of being public, That's like a half-point investment management fake, away from returns. And so the debate is pretty contentious. I think the pendulum is swinging more towards the center, and we shall see what happens. And there's a lot of well-funded, bigger players across the spectrum of ideas that are going to ensure that the democratic process both through the regulators and the legislative and court side does its job. So that's my answer I'd say there.

That's helpful. Thank you.

And I'm showing no further questions. I would now like to turn the conference back to .

Okay, great. Thank you, operator.

One question that wasn't asked was just about the difference between our two acquisitions of Blue Sky and Edgar Online. And they're very different acquisitions. So we should be clear. Blue Sky was a fantastic acquisition. I wish we could do five of them a year that are five times as big. It is, we paid a premium price to a founder who built a very strong business with a high quality product that clients could rely on. And we were able to take the subscriber base into our platform to produce the data and take key people with domain knowledge, both in the data quality and in the client support, and add them to our organization to strengthen what we do. It was a fantastic acquisition. We are now looking at how do we expand the utility of the product for clients, adding in more fixed income securities, adding in more transparency about how the blue sky process takes place, and it The team on the market data side, on the technology side, on the infrastructure side, on the finance side, on the HR side, did an incredible job integrating and consuming this business to make it part of the OTC market platform. Edgar Online is different. We did not pay a premium price. We paid less than one times revenues. And that even includes taking away what we were paying as the largest client. It looks a lot more like the original National Quotation Bureau we bought. It is a business that has a long track record, however, was part of a larger organization that had different core strengths, that were very different than the data licensing business that we do and the compliance business. We see an opportunity for Edgar Online to be the premier supplier of financial information on SEC reporting companies to broker dealers, both in the trading and compliance areas, as well as to other data providers. That's a core spot and really focusing on a niche They have 72 terabytes of data bringing it into our platform because we don't have processes that are doing the same thing. We're taking in their technology. It is going to be a lot of work. The data they produce from our perspective as a client is very high quality. There are other enterprise clients who also rely on the data. It has not been invested in. We have to move it out of the former owner's data centers into the cloud. We are not going to be the most efficient or effective at first. We will grind through that. We will get better. We also have to find out how many of the clients we retain. What is the ongoing business? We are going to have a good idea in the second quarter of the first batch of who we retain. Then we're going to learn more because there are going to be some clients who say that they want to stay on, but they're actually, some of the products in the portfolio may not be as useful. But we will know have a pretty good idea by the end of this year where the revenue streams are, which ones need to be invested in, which ones have growth potentials, which ones we can cross sell, where we can combine products with our own data structure. And, you know, we are going to have the best database of financial information for U.S. traded companies. We are going to have some real core capabilities, and we're also going to have a lot of work. work making their technology work in the cloud work investing in some areas that haven't been invested in work integrating the data teams across otc markets blue sky data and the edgar online people is to be one team and we believe that it creates a great opportunity however this is not a business that is instantly profitable. We are going to carry operating costs. And as a large shareholder, I would much rather buy a business at a lower total price, even if it doesn't all instantly go to the balance sheet. That if we have to pay for it partly, with a low initial purchase price, second, with a cost of moving, cost of the is, and third, with supporting operating costs as we right size, invest, and redeploy the assets. So, we could look smarter in the short term if we were out there paying eight or ten times revenues. for some information businesses. That's not how we're built. Even though it may make us look more exciting, we're grinders. And this acquisition is a real opportunity for us. And if we do it well, and we do integrate it in to be one team, one platform, building value for one share, our team is going to learn and build skills that will make us a better acquirer of other businesses over the longer term. So thank you for that. I want to thank each of you for joining us today. I would encourage you to read our full annual 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 look forward to updating you on key initiatives that continue to shape the integrity and competitiveness of the public markets. Thank you.

And ladies and gentlemen, that concludes today's conference. Thank you for participating. You may now disconnect.