Dan Zinn - General Counsel Cromwell Coulson - President & CEO Wendy Fraulo - CFO

Thank you, operator. Good morning and welcome to the OTC Markets Group second quarter 2015 conference call.

With me today are Cromwell Coulson, our President and Chief Executive Officer; and Wendy Fraulo, our Chief Financial Officer. Before we begin today's call, I would like to review the Safe Harbor statement.

This conference call may contain forward-looking statements about the company's future plans, expectations and objectives concerning but not limited to the company's expected financial results for 2015. Words such as may, will, expect, intend, anticipate, plan, believe, could and estimate and variations of these words and similar expressions are intended to identify forward-looking statements.

These forward-looking statements are not historical facts and are subject to risks and uncertainties that could cause the actual results to differ materially from those predicted in these forward looking statements. These risks and uncertainties include, but are not limited to the risk factors described in the Risk Factors section of the company's annual report for the year ended December 31, 2014.

The Company does not intend and undertakes no obligation to update its forward looking statements to reflect the future events or circumstances. With that, I'd like to turn the call over to Cromwell Coulson.

Good morning. During this morning's call, I will cover business and operational developments that occurred during the second quarter of 2015, as well as opportunities and challenges that will remain for the rest of the year.

Our CFO, Wendy Fraulo will then discuss the details of our financial results after me. At OTC Markets Group our mission is to create better informed and more efficient financial markets.

We bring the benefits of public trading to a wide spectrum of securities, and efficiently fulfill the capital information needs of a broad range of U.S. and global companies.

Our strategy is to operate world leading securities markets. We shared information widely through open networks that foster greater transparency.

We connect broker dealers, organized marketplaces and inform investors. We deliver elegant, reliable and cost effective subscription-based solutions.

Our 2015 initiatives are reliability of our core systems, processes and data with a focus on achieving full compliance with regulation SCI. I'll speak further about it later.

But for the first half of the year we've had 100% of our core systems and we're making strong progress on full compliance with regulation SCI. Enhancing the corporate client experience, our OTCQX and OTCQB marketplaces; we've made great progress.

In changing OTBQB into a better regulated spinster of market that stocks up competitively with other venture markets in the question, and is turning in terms of Americas venture market. For OTCQX we made progress with U.S.

companies too which I will also speak further about. Also increasing the breadth and gap for the securities traded on OTC and our market, those are still works in progress, we've been – as we have been making our technology implementations, we're still working through that side continuing to build the strength of our team to support future organic growth and opportunities to create value for our clients.

It is the people, and the platform, and the product that's going to drive our success as we try to create more value for broker dealer and companies and market data consumers. So during the quarter we made significant process with establishing the OTCQX and OTCQB markets.

These markets provide public trading, transparency and trust for critical massive companies without the complexion cost of National Securities Exchange Listing. They are disruptive, offering companies a faster, easier, cheaper public market alterative, they are also getting better from higher standards to a bigger network as more companies give out how to use them to achieve their capital markets and capital formation needs.

The OTCQX best market is for established that need high financial standards, disclosure requirements and compliance processes. We offer qualified company's an informed and efficient public market without all the pain.

OTCQX for bank celebrated one –year anniversary during the second quarter, today they are 73 communities and regional banks trader on OTCQX. Five of which went public on OTCQX including First Atlantic Fin, commencement bank, and commercial quarter.

This is a disruptive market because banks are overregulated, community banks have too much regulation and – but they want to access capital market. Want to be able to have their depositors, their community, their investors, be able to have the informational which transaction experience of public trading the want have the that comes from having disclosure again on Yahoo!

Finance and that is something that our OTCQX for banks is doing but not with a lot of extra cost and pain. The introduction of the OTCQX for U.S.

banks contributed 180 point in increase in the number of OTCQX U.S. companies, the majority of which were U.S.

banks. This led to growth in the OTCQX market as a whole despite the decline in the number of OTCQX companies.

We're still working throughout resource companies from Canada and Australia primarily. As we go and the natural resources, both in the mining as well as in the own gas resources basis are – it's a bear market but eventually those markets with turn.

A real important note is that our OTC market continue to been the global leader in exchange graduates. During the second quarter, 17 companies graduated to National Securities Exchange Listing including Naptus Therapeutics, the one group hospitality and signature group holdings.

If you benchmark Venture markets, the number one benchmark should be do you produce graduates. Last year we are the leader and that is a really important part of the functionality we provide U.S.

markets. We had 83 companies, the TSX venture had 22 graduates to of major exchange listing and the AIM had five.

So our markets serve a huge of creating more company's able to develop into exchange listed securities. Initial OTCQB roll out completed at the end of June and we today have nearly 1,000 company's traded on OTQB.

The OTCQB venture market provides public trading for developing companies with standards that promote price transparency and facilitate public disclosure. It's the market the company is in need today so they can grow for tomorrow.

The median market capital of OTCQB company's is approximately $12.8 million, which ranks it, squaring in the middle between the UK AIM market and the TFX Venture. That's important because as we position OTCQB, the TFX Venture is the benchmark, this is a venture market, the aim is a bit higher, they provide venture services, some of it is – they have – they are classic NASDAQ of 25 years ago, and/but for a venture market we have the demographics of company on OTCQB and we're successfully serving smaller companies that mark the market - without all – good public market without all the complexity, but we are also trading graduates for company that developed into bigger companies.

During the initial roll out phase, we removed 2,000 companies from OTCQB, this included failing our big price test because there was bankruptcy or were unwilling to meet our stricter QTCQB verification standards. These companies are now traded on OTC Pink where brokers have higher compliance processes for riskier securities, less transparent securities, and also the Pink market, is a great identifier of these securities riskier, it's a more speculative market, it is a market that is built on electronic trading for brokers but it has risk and it allows, it's a place for risk securities to be traded transparently, and that's the important role it plays.

The addition of companies to the OTCQB venture market was the primary driver in company-wide revenue growth during the second quarter. There were some pivotal dates during the second quarter that impacted the timing of company joining the OTCQB venture market.

And significant amount of applications were received in the last week of December 2014 from companies interested in the promotional pricing rate, therefor a portion of company's joining the OTCQB venture market through May 2015 received a promotional price of $7500 a year for the first towards although all new companies joining since then are paying the full annual fee of $10,000 per year. The last compliance roll off date for company with December 31st year end was April 30th and we received amount of applications during the second half of April.

Lots of these applications were processed through June 30th. Today OTCQB companies joining page, a $10,000 annual subscription fee and a $2500 application fee.

We believe there is still a significant number of companies in the less regulated Pink market that can benefit for meeting the standards of our OTCQX and OTCQB markets going forward. We have accomplished our 2015 results in a slower trading market.

The total dollar volume of trade in all the securities on our market including transaction executed away from OTC Link ATS, decreased 9% to $50 billion during the second quarter versus the prior year. While overall volume decline, the total dollar volume of trading on the OTC Jacks market during the second quarter has increased 17%.

We also modified the pricing for market making them securities traded on OTCQX and OTCQB which will allow broker-dealer subscribers to expand their coverage of securities that need our higher market standards and improved liquidity in a competitive environment. By giving companies that are transparent, that stepped up to OTCQX or OTCQB, to provide a better informed market, by lowering the cost of market making, the cost of entry, we hope to be helping solve the need for a diversity of liquidity providers, not just the biggest electronic firms but the smaller regional firms, an efficient market needs many different types of broker dealer participants, indeed the most connections.

So for us look at how do we have that platform that is very inclusive of a diverse world of liquidity and execution providers, both market makers and agency brokers and ECMs. We continue to invest our technology platform products and people to improve functionality and increased reliability.

During the first half of 2015, as I said earlier, our core OTC Link ATS systems delivered 100% uptown critical functionality during trading hours. This is the result of a lot of hardwork by our team.

We built out our processes, we build out our core QA department, we're really working hard to deliver higher quality level of dialtone to the industry because we know how important it is to be delivering a reliable services of our electronic markets. During the second quarter, we upgraded our OTC Link ATS messaging platform to handle higher volumes with lower lane.

All securities are now on our new TRex trading system and we've been migrating some of our most active market makers to our new fixy gateways. One fixy migration is complete, we'll be able to roll out new functionality at a more rapid pace.

One of the problems when you're replatforming, you have to freeze the majority of featured changes because it's – you're risk level of replatforming and adding new features is infinitely higher and more complex. So as we move people over to fixy in the second half of the year, we're going to be able to move forward with new features and that's going to be a great opportunity to keep taking our markets forward and improving the market and making it a better market to connect broker dealers.

Effective July 1, 2015, and updated OTC Link ATS pricing schedule eliminate growth position fees for securities on the OTCQX Fast and OTCQB Venture markets, and consolidated price/non-price trade message fees to a single trade message fees. These changes will be reflected in the company's financial results during the second half of 2015.

What we've done besides removing quote fees for securities on OTCQX and OTCQB is, we've also changed our pricing that is less about the cost of quoting and more about charging when company's – when broker-dealers are actually doing trades. And not only did we reduce for QB and QX, but we also put tax on for market makers.

So they can trade more securities, the largest market buyers can trade more securities and we incentivized markets makers to provide price quotes into the market, and that also moves us to much more competitive position going forward, being more messaging driven than quote driven. Other estimates OTC Link ATS, both the platform and the systems and the people will help us meet SEC regulation SCI requirements.

Future efforts will focus on improving the functionality of OTC Link ATS to handle securities trading at a higher velocity. This will help us handle active names on markets as we provide – as well as provide a step into Tier 2 NMS securities.

If you look at the major exchange groups, they are building their platforms to serve securities they trade a million times a day. We want to be best market in the world for companies that trade less than a million times a year, or even 500,000 times a year, a million less times, less than a million times a year, less than 4,000 trades a day; that's two-thirds of the NMS world.

These securities don't have standing order books, they don't liquidity, they need liquidity, and small companies, they need more dealers adding liquidity just like NASDAQ 25 years ago – we believe in electronic network of competing market makers offers the best market for small cap companies and we're building that next new network market today. One challenge we're addressing is improving the growth of our market data licensing revenues which were flat during the second quarter.

So this maybe due to a slower trading market but we need to figure out how to take our share of professional market data real time users higher. Some will come from investors understanding that with 83 exchange graduates last year, they will find it on the OTC markets first, but we need to tell our transformational story, so the investors know about the opportunities in our markets and want the data to find them and trade them.

Our strategy remains focused on organically growing our revenues by delivering elegant, reliable and cost effective public trading markets and information services that provide unique value for broker dealers, market users and corporate clients. We are continuing to grow our teams skills and capabilities to internal development and new hires and technology project management, compliance, quality insurance, people resource to help meet our growth opportunities, as well as our increased reliability and regulatory demands.

In addition to the new hires, we've increased IT infrastructure investments to improve modern and support our applications in systems. Those results we're seeing in our better uptime numbers.

For regulatory update, a few key events have been taking place. Regulation A+ became effective on June 19th, no offerings have yet been qualified but we continue to hear from companies and advisors that are preparing to take advantage of the new rule.

We have updated our OTCQX and OTCQB rules to streamline the process of Reg A assures to join our markets. And Reg A+ is important because it allows companies to file with the SEC and have blue-sky preemption on a national level to raise capital.

This is something that will take time for companies and advisors to figure out how to use, companies that are well served by existing capital raising practices won't need to do it but overtime we see there is a significant change of our markets to be able to do IPOs directly or OTCQX and OTCQB. We also continue to track the progress of Venture Market Legislation in Congress, the specific build has not move yet but remains a prominent topic of discussion.

We're part of that discussion, it's a great opportunity for us to educate Congress and other participants in the market of the role we play, we're the global leader in exchange graduates. We added 17 more graduates in the second quarter.

OTCQB is America's Venture market, more than 975 companies today, on demographics stack up well with the other global standards for venture markets. We're also focused on the underlying goals, blue-sky preemption or uniform state blue-sky exemption for certain OTC companies.

Margin eligibility for securities with a ready market, modernization of the penny stock definition to Fed, biotechnology and technology companies that are capital heavy, as we look at this – we're working for more regulatory recognitions to give the higher quality securities on our OTCQX and OTCQB markets. Some of the privileges of exchange listed securities were appropriate.

This is what happened to NASDAQ before it became an exchange, regulators were able to identify classes of securities or types of securities that deserves specific privileges of exchange listed securities, you can be traded on NASDAQ with only two market makers but you needed four market makers have margin eligibility. We believe that is a good approach to improving venture markets, and we're working hard to be part of that conversation.

Regulation SCI compliance is also a major focus. SCI becomes effective on November 3rd, compliance with Reg SCI is in line with our core strategic goal of reliability in our systems, we're building the necessary systems policies and procedures and taking the necessary steps with our hardware and software to operate under Reg SCI for years to come.

This is a big lift, it is time consuming and costly but worthwhile as we expect the bulk of the investment will benefit our reliability and trust in the markets. On August 4, our Board of Directors declared a $0.14 per share of cash dividend on our Class A common stock payable on September 22, 2015, holders of record on September 8th.

This is our 27th consecutive quarterly dividend and is a 40% increase from last quarters $0.10 per share dividend. And record obtaining quarterly and special dividends also highlights our continued growth in revenues and net income.

We are pleased with the strong operating results and are optimistic about future growth based on our solid base of recurring revenues and new product development but we also want to make sure that we are always focused on providing long term value and returns to our shareholders. I will now turn it over to Wendy Fraulo to review our financial results.

Thanks, Cromwell. OTC Markets Grouo had a 21% increase in gross revenues during the second quarter to $12.4 million.

This increase was primarily driven by the growth in companies under OTCQB Venture markets. During the second quarter, corporate services revenue increased 87% to $4.3 million, as Cromwell already mentioned, 334 companies complete the verification process during the second quarter which increased the total number of companies verified under OTCQB markets to 955 as of June 30th, and resulted in $1.9 million of OTCQB subscription revenue.

Due to the kind of approvals, some of the second quarter revenue impact because revenues recognized over each company's annual subscription period. We offered a two year promotional annual subscription fee of $7500 to companies that apply to join the OTCQB venture market by December 31, 2014.

Approximately 50% of the 955 companies as of June 30th would pay the promotional pricing rate and a remainder or the $10,000 annual subscription rate. The increase in OTCQB companies during the second quarter was partially offset by reduction of 40 companies.

Approximately 20% off these upgraded to a national securities exchange and 70% of which were downgraded to the OTC Pinks market. Revenue from OTCQX subscriptions increased $200,000, primarily due to a 14% increase and remember OTCQX companies as of June 30.

One a year-over-year basis, there was a 184% increase and remember OTCQX U.S. companies to 122, this included 73 OTCQX banks, partially offset by a 10% decline and the number of OTCQX international company.

Revenue generated by the OTC Link ATS business line increased 6% to $2.9 million during the second quarter. This was primarily related to a 43% increase in combined subscription revenue featuring updated fixed connection pricing schedule and new internet connection charge made increased OTC dealer license fees that were introduced in July 2014.

Although this increase was partially offset by 10% decrease in the combined usage revenue due to lower trading activity on OTC Link ATS during the second quarter as compared to the same prior year period. Markets data licensing revenues were flat during the second quarter as $5.2 million, the 4% increase in revenue professional user license subscription, and 65% increase in revenue from compliance data file sales, were substantial offset by a 50% decline in revenue from non-professional user license subscription and a 26% decrease in advertising revenue.

The high revenue growth, corporate facilities what has experienced from the addition of OTCQB subscription revenue was also in 35% of total company revenue during the second quarter, from 23% of total company revenue during the same prior year period. Market data licensing now represents 42% of growth revenues, down from 50%, and OTC Link ATS is 23% of growth revenue, down from 27%.

During the second quarter operating expenses increased 11% to $7.7 million. The majority of the increases in compensation and benefit cost which grew $600,000 or 15% of $4.8 million, primarily related to annual compensation increases and higher salaries as meaningfully.

Increased corporate services sales devoted a 188% increase in compensation expense to $200,000. And the increase in equity worth outstanding and the growth of our stock price contributed to a 58% increase in stock-based compensation expense to $300,000.

As a percentage of growth revenue, compensation and benefit cost decreased to 38% during the second quarter from 40% during the same prior year period. Growth in our operating expenses during the second quarter also related to professional consulting fees which increased 21% to $500,000 primarily related to the timing of certain recurring professional fees.

During the second quarter, income from operations increased $1.4 million or 53% to $4.1 million. And operating profit margin expanded to 35% from 28% during the same prior year period.

The growth in corporate services revenue contributed for increase in operating income. Our margin was narrowed by higher compensation and benefit cost.

Net income increased $800,000 at 48% to $2.4 million during the second quarter, which was directly correlated with the increase in operating income partially offset by the increase in provision for income taxes. The company's effective tax rate increased to 42%.

Net income per diluted share increased 43% to $0.20 as compared to $0.14 per diluted share during the same prior year period. Before I discuss adjusted EBITDA, I want to highlight the reconciliation of GAAP to non-GAAP results can be found in our press release which is available on our website.

Adjusted EBITDA which excludes non-cash compensation expense increased 48% to $4.9 million during the second quarter, $0.42 per adjusted diluted share. This increase again was directly correlated with the increase from income from operations and stock-based compensation expense.

Lastly, on benefits and company's cash flow. Cash available for operations was $24 million as of June 30 compared to $20.3 million as of December 31st.

Non-operating cash flows were primarily used on dividends paid and purchase IT equipment for our data centers. Our working capital increased 21% to $40 million as of June 30th, mainly due to the increase in cash flow from operations.

I want to thank everyone for their time this morning. Operator, we would like to open it now to some questions please.

Great, thank you everyone.

Hi, so early in the morning, I was slow and pressing the bucket. Anyway, thank you for that commentary, I have a couple of questions related to trading services.

The first is, I noticed that the number of broker dealer clients has declined of the past year and what is behind that? Is that consolidation in the industry or are you losing customers?

Daniel, that's consolidation, I mean it's been the trend since I came into the business, regulatory cost coming through, firms choosing to rout their order flow to other firms and for us, part of it is – some of it is a trend that is going to exist. Now I'd say in short term, there are some interesting changes where a lot of proprietary trading firms have been Chicago firms members, and the SEC is forcing them to become FINAR members, so that's going to open up a group of firms that could be clients of ours but – we're dealing with a trend where the securities industry is unbundling and decoupling market making and execution services.

So it's kind of a manageable trend. I would say where we don't want to end up in – I think New York Stock Exchange has about four market makers and the AIM had less than 20, there is not really many.

So you can have a business, the aim with a small number of market makers is but it changes a bit and we see especially in the community banks, there is a group of firms, they are just great firms that trade community banks, they are not doing tons of trade but we need to have our system work, so they can fit in and integrate in with the firms that are with – KCGs, the Citidels, the Citi's automated trading depth and the 90s global OTC, they are doing bulks of the transitional volume and that is you looked our pricing, our pricing change is really trying to address the different buckets of firms. We're discounting to smaller firms so it's lowest costs to be into securities where they may not get a big share of the volume but when they – the quote Peter going to write, the largest firm if you want to cap our quoting fees, so they just bring every security possible to trade.

And that's growing in the international securities, the AP shares, the ADRs, so it's a challenge in the trend and automation reduces the number of human traders but there is still a fair number of these securities that humans help add price efficiency and liquidity. And for us, our challenge is, humans are pretty good for securities to take less than 500 times a day is, but if we want this for the market, for the securities that trade, 4000 times a day, there you're going to need a bit more automation there is still going to be humans on top of the automation and for the stuff that trades a million times a day, the humans are only programming the computers, they are not touch anything, they are just giving it to the computers and letting the computers run it.

So for us, is that trends is going to exist, we also link – we haven't driven out new features, our number of securities has stayed at a level – we're hopeful that it's going to be easier to bring international securities into our system so we can grow those numbers but that takes some regulatory changes by FINRA and the SEC and while they – we keep talking to them and they seem interested, it hasn't moved and so I think you can see numbers, we're going to be very competitive and we want to support businesses around them but we're really – you're only going to see Link numbers grow if we jump in asset class or we add a bulk of securities. And – but the nice part is, we are in business now where we can monetize it through corporate services and market data.

Okay. I have a one more related question.

These pricing changes that you've made in trading services, will the net effective them be to make the trading services – will the net effective them to make the trading services revenue more sensitive to trading volume?

Yes, it will slightly more sensitive, it will be more sensitive to trading volumes because it's not an execution based fee. You see dollar volume is going to through assist and crop it down when stocks above below above $1 in trade left.

But it is the breadth of market activity, you get charged the messaging fees, and – I look at it as we're lying up for their broker dealers to be – the broker dealers are lined up, when they are more active and making more money, they are paying higher fees. When they are less active, our fees are not running them out of the business.

And, we were – it's still one fee per day, so it's not a fee on each message, if we went from the base fee of $1 for Link messaging to $1.50, and not allowed us to take cost out of quoting, which I think – it's really important because it also sets us up – ventrally, someone is going to want to compete with us who actually set up a system. I believe we have a really competitive platform and as I watch – none of these global OTC has a matching engine in the space, they do in the names, they don't trade all the names, they do 10% of the volume but of that volume they do, about 30% of their volume is they are matching both sides on their systems, and about 4% of the volume and these are approximate numbers, their limit order book is getting hit by someone taking their liquidity, and then about 3% they are just a smart rider functionality.

So we watched that as Kinery and the coal mine is, are matching engines better for trading these securities because you think the market would choose to move volumes to a matching engine but my belief is, and it's the same belief now like I had 25 years ago, and securities with less liquidity, last standing order books, you need deal or liquidity, you need market makers. You need ECNs and limit order display and agency brokers to keep dealers honest and competitive.

But you need that dealer liquidity, and we have a really unique system that's build around connecting broker dealers empowering their market. So that's where the changes go and we have a wonderful opportunity.

Without QC/QB, a chunk of the OTCQB revenues were put towards – let's increase the compliance team, the service team, that's serving these companies, but we also took part of it and we're investing in making our platform for broker-dealers better. So we always stay competitive.

And another part is dealing with the increased regulatory responsibilities because guess what, the public and the Congress don't like it when electronic market stop working. So we have to really focus on delivering the reliable service, not to say markets are going to have issues because much bigger companies with bigger platforms are having those things but we have to make it a core focus of delivering that reliability.

Okay. Thanks very much.

Keep up the good work.

Thanks.

Great, thank you. The second quarter was really an important transformational quarter for OTC Markets Group.

We now have two premiums markets to fit the needs of the different types of companies that trade in our markets, that are the more investible securities or want to be become investible in the future. And with OTCQX, if the non-penny stock market, it's financial standards, it's a light weight way to create a high quality public market.

With OTCQB, it's a venture market for developing countries, there is going to be some more risk and some more hedges but there is also going to be better transparency and better understanding. And it's a process where we're moving forward, and closing the gap of the feature set and the functionality for certain companies and what they can get versus the major listed markets.

If something NASDAQ did 25 years ago, and it's something that's our gameplan, we really believe can help – we can help improve capital formation, and we can help improve investors access to securities. And we can help to facilitate broker/dealers, and that's where our network model is very different from exchanges.

We're trying to help broker/dealers do more trades on their systems and when they only have half the trade, find the best counterparty to connect with. And it's a unique model, it's a strong network, it's a networks that will change overtime, that will have to deal with more trade velocities for us, we're successful but it's also a model which we believe by focusing – or not being the fastest market, but by being a market where liquidity can be offered and trade can be executed at lower cost and broker/dealers can build businesses around trading these securities.

And with a market structure of premiums markets of OTC Jacks, OTCQB, as well as Pink, which unengaged companies can trade for free, investors get best execution, brokers get a low cost way to provide best execution to investors who come through that. We have a really unique model, and it time to establish the structure of our markets but now we have them and I think the credibility and the critical math we have is going to make it more understanding and comparable of what our services are.

We have challenges but we're a strong position of a profitable company with good margins, and we're investing in our platform, in our products and our people, and to make sure that we can go grow the value we create for our user community. So, thank you again for calling in, and we look forward to talking to you next quarter.