Daniel Zinn – General Counsel and Corporate Secretary Cromwell Coulson – President and Chief Executive Officer Bea Ordonez – Chief Financial Officer

Chris McGinnis – Sidoti & Company Martyn King – Edison

Thank you, operator. Good morning, and welcome to the OTC Markets Group third quarter 2018 earnings conference call.

With me today are Cromwell Coulson, our President and Chief Executive Officer and Bea Ordonez, 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 Factors section of our 2017 Annual Report, which is also available on our website.

For more information, please refer to the Safe Harbor statement on Slide 3 of the earnings presentation. With that, I’d like to turn the call over to Cromwell Coulson.

Thank you, Dan. Good morning, and thank you, everyone for joining the call.

I will cover some important third quarter milestones and discuss how our initiatives tie into our mission and strategy. Our mission is to create better informed and more efficient financial markets.

We fulfilled that mission by executing our strategy, which is operating world-leading securities markets. We share information widely through open networks that foster greater transparency.

We connect broker-dealers, organize markets, and inform investors. We deliver elegant, reliable and cost-effective subscription-based solutions for a future that is online, data-driven and social.

Our mission, strategy, and company values guide us as we focus on improving our technology platform and our data-driven products, providing value to our clients, creating growth opportunities for our team and delivering long-term value for our shareholders. For the third quarter, we delivered solid 8% growth in topline revenue, slightly ahead of our performance in the first two quarters of 2018.

All three of our business lines contributed to this growth. Bea will cover our results in more detail in a few moments.

On the regulatory front, we continue to focus on gaining additional regulatory recognitions. We work with national and state regulators advocating for the needs of our issuers and brokers to facilitate more efficient capital formation and cross-border trading.

Since our last call, we have added Missouri and Oklahoma to our Blue Sky map for both OTCQX and OTCQB. With the addition of these two states, OTCQX companies are now exempt from secondary trading rules in 33 states, while OTCQB companies are exempt in 30.

Michigan is also in the process of adopting rule proposals recognized in our premium markets. A strong ongoing collaboration with regulators is a vital part of achieving our goal of national Blue Sky recognition.

On a national scale, we continue to see support for NASAA’s proposed model rule, which would help state streamline their respective Blue Sky requirements. Companies on our OTCQX and OTCQB markets provide investors with critical and current information and data points in a standardized format that is readily available for investors.

Our successes in the regulatory arena are a direct result of our team’s hard work to deliver on our mission to build better informed and more efficient markets. The data-driven standards of our OTCQX and OTCQB markets, create transparent and cost-effective public trading for companies, brokers and investors.

We continue to see growth in the number of clients using our enhanced data products. These tools provide broker-dealers, investment managers and compliance professionals with the data they need to automate compliance and other processes, identify operational risk and better address market-wide challenges.

In that context, our Transfer Agent Verified Shares Program, which brings greater transparency and reliability of company share data, also reached new milestones this quarter. 30 SEC-registered transfer agents now participate in the program, providing investors with current share information on over 96% of domestic OTCQX and OTCQB companies.

This unique collection platform provides useful and timely information for market participants on share issuance and dilution. Our stock promotion and shell risk flags continue to gain acceptance across the industry, and our compliance efforts have garnered positive coverage from the financial press.

These flags, which are applied to a small subset of companies, provide valuable real-time transparency in the area of risks that can impact market pricing and investment decisions. We are dynamically identifying and flagging risks so that broker-dealers can redline bad actors and questionable affiliates.

We recently launched a Small Cap Listed Compliance product to provide greater information about exchange-listed companies. Based on our analysis of the data, exchange-listed companies are often the subject of stock promotion and similar issues.

Shining a light on these practices will help address the mistaken belief that companies trading on a national securities exchange are somehow immune from these risks. Recent regulatory enforcement actions, including the number of micro-cap fraud cases, have served to raise the risk profile of firms that clear and process lower-priced securities.

Some clearing firms have announced that they are curtailing their activities in this space or instituting policies that further restrict certain client’s abilities to deposit shares or trade in securities that are priced below $5. Low-priced securities are an important part of the public company ecosystem.

For example, in Canada, 98% of stocks on the TSX Venture market trade below $5. There is a balance to be struck here between appropriate investor protection and the functioning of an orderly market that provides a mechanism for small companies to gain access to capital.

If we want to have a functional capital market that serves the needs of venture-stage companies, we need to provide a framework where market forces determine the merits of investments. We are working with transfer agents, clearing firms, broker-dealers, regulators, and others to frame the discussion, and to develop database solutions that inform investors, allow firms to properly assess risk, and respond accordingly to bad actors.

In September, we discussed investor protection initiatives at a round table hosted by the SEC’s Division of Trading and Markets. Our ongoing dialog with regulators and industry members raises awareness of the issues impacting small company trading and capital raising, and provides us with valuable feedback on how we can enhance our services to meet the needs of a diverse group of market participants.

Moving on, our OTC Link ECN was the primary contributor to another strong quarter of growth from our OTC Link business. The ECN continues to attract new subscribers and enhance the capabilities of the OTC Link ATS subscribers that choose to connect.

We look forward to continuing to work with our broker-dealer community to optimize their experience across each of our platforms. As the operator of two ATSs, one which is subject to the SEC’s Regulation SCI, we remain vigilant about the reliability of our systems.

While we constantly work to enhance our services and capabilities, we also know that reliability remains the core of our offering. We reported another quarter of 100% uptime of our core OTC Link ATS systems during regular market trading hours, and our entire team remains dedicated to providing the best possible service to our subscribers.

System reliability and regulatory compliance needs to be a core focus every working day at OTC Markets Group. Our people are a critical component of our accomplishments, and will drive future opportunities.

In September, we were named to Crain’s 2018 list of the 100 Best Places to Work in New York City. The better we are at providing an outstanding employee experience, the more effective we can be at serving the diverse needs of our clients, community and shareholders.

Finally, I’m pleased to announce that on November 5, our Board of Directors declared a special dividend of $0.65 per share and a quarterly dividend of $0.15 per share, each payable in December. These dividends reflect our ongoing commitment to providing superior shareholder returns.

With that, I will turn the call over to Bea.

Thank you, Cromwell, and thank you all for joining the call. I will now spend a few minutes reviewing our results for the quarter ended September 30, 2018.

Any reference made to prior period comparatives refers to the third quarter of 2017. I will start on Slide 7.

For the third quarter of 2018, OTC Markets Group generated $14.8 million in gross revenue, up 8% versus the prior period. Our Corporate Services business generated revenues of $6.2 million, representing 42% of the total, and up 9%.

Revenues from our OTCQX market were up 11%. Stronger year-to-date sales with especially strong third quarter sales and a decline in the number of compliance downgrades contributed to an increase in the number of companies on the market, which was only partially offset by a small increase in exchange graduates and a two percentage point decline in our renewal rate for 2018.

42 companies joined the market in the third quarter, as compared to 18 in the prior period. We ended the quarter with 395 companies on the OTCQX market, the highest ending count since December 2016.

International companies have been a significant driver of the growth in the number of companies on our OTCQX market. In that context, we recently completed the process of incorporating a UK subsidiary, OTC Markets Group International Limited.

We will be establishing a physical presence in London in early 2019 to support and enhance our international sales efforts. In respect of our OTCQB markets, strong sales and reduced churn during 2017 resulted in a higher number of companies on the market at the beginning of 2018.

On a quarter-to-date and year-to-date basis, we have generated moderately stronger sales, while seeing a marginal increase in the number of downgrades and service cancellations. Overall, quarter-over-quarter, we saw an increase in the number of companies on the market, from 923 to 953.

This represents our highest ending count since November 2015. Coupled with price increases effective in 2018 for new and renewing subscribers, this drove a 10% increase in related revenue.

Market Data Licensing revenues were $5.8 million for the quarter, representing 39% of the total, and up 5%. Price increases effective for 2018 and impacting certain end-of-day pricing and data file products, coupled with increased usage of these products, including our suite of compliance products, were the primary drivers of a 32% increase in related revenue.

For the third quarter, revenue from professional users of our market data were up 2%, while revenues from non-professional users were up 6%. OTC Link generated revenues of $2.8 million or 19% of the total, up 16% over the prior period.

Increased volatility and generally higher U.S. trading volumes helped drive a period over period increase in the volume of messages on our platform, and a 12% increase in related revenues.

Our OTC Link ECN contributed gross revenues of $284,000 for the quarter. These increases offset reduced subscription-based revenues resulting from a drop in the number of individual OTC Dealer platform users and a decrease in the number of subscriber FIX connections.

In terms of active market participants, we saw a period over period increase to 97 from 94 as at the end of the prior-year period. This reverses the trend that we have seen over the past several quarters that saw a contraction in the subscriber base.

Since its launch in December 2017, our OTC Link ECN has added 7 new subscribers and enabled 29 legacy subscribers. We have seen a consistent increase in trading on the platform, with average daily volumes traded during the third quarter at almost 3x the level of [indiscernible] volumes traded that we saw in the second quarter.

Turning now to Slide 8. During the third quarter, operating expenses increased 4% to $8.7 million.

The primary driver was an 8% increase in our compensation costs. Annual salary raises and increase in 2018 incentive bonuses and increase in sales commissions as well as an increase in stock compensation, all contributed.

Our information technology costs declined 8% in the quarter to $1.4 million. The decrease is primarily related to the elimination of certain Blue Sky data costs as well as the renegotiation on more favorable terms of our contract with Morningstar.

This was partially offset by an increase in software support costs for our OTC Link ECN and increased spend related to system security. Moving now to Slide 9.

For the third quarter, income from operations was $5.3 million, up 15%. Net income for the quarter increased 26% to $4.4 million.

A result of the increase in operating income combined with the drop in the company’s effective tax rate from 24% to 18%. This was a result of tax reform legislation passed at the end of 2017 as well as the impact of higher research and development credits claimed in respect of the 2017 year.

In addition to certain GAAP and other measures, management utilizes a non-GAAP measure, adjusted EBITDA, which excludes non-cash stock-based compensation. Adjusted EBITDA increased by 14% to $6.1 million or $0.51 per diluted share.

You can find a reconciliation of our GAAP to non-GAAP results in our press release, which is available on our website as well as in the appendix to the earnings presentation. Moving now to Slide 10.

Our subscription-based revenue model continues to produce solid recurring cash flows. For the third quarter, cash flows from operating activities amounted to $4.1 million, a decrease of $341,000 versus the prior-year quarter.

On a year-to-date basis, cash flow from operations increased by $2.7 million to $10.3 million. We ended the quarter with $26 million of cash on hand and a strong balance sheet with no debt.

We continue to operate an investor-focused capital allocation policy, which returns cash to investors in the form of dividends and through our stock buyback program. Year-to-date we have returned a total of $6 million, representing approximately 60% of our free cash flow for the same year-to-date period.

We were pleased to announce our 40th consecutive quarterly dividend as well as a special dividend in the amount of $0.65 per share, our fifth consecutive special dividend and an increase of $0.05 per share over the prior year. In closing, we will continue to strategically deploy our capital and resources to enhance our product suite and grow our subscriber base.

We continue to focus on both organic initiatives as well as on evaluating strategic corporate development opportunities, while always evaluating these initiatives in the context of our commitment to delivering strong returns for our shareholders. With that, I would like to thank everyone for their time and pass it back to the operator to open up the line for questions.

Good morning. Thanks for taking my questions and nice quarter.

Just a few questions, mostly around revenue, just on the Corporate Service side, you talked about a lower number of downgrades. Is that a stronger client base that you’re seeing?

And maybe you can just discuss what you’re seeing within the portfolio companies there and the ones you’re bringing on. Are they stronger than maybe you had in the past?

Can we maybe just talk a little bit about the downgrades, but also the retention rate?

Thank you, Chris. Hi.

Yes, on the OTCQX market we have seen marginal declines in the number of downgrades. I think that’s two trends.

One, first of all in 2017, we had instituted a new rule set, which had resulted in an uptick in the number of downgrades, as companies that had been grandfathered during the 2016 annual subscription period became subject to that rule set, and so we saw an uptick in downgrades during that year. So now we’re seeing sort of the bedding in, if you like of that rule set, and a sort of return to normal.

In terms of the overall quality, I mean as I highlighted, we’ve certainly seen an uptick in international companies, that is a group of companies where we would expect a number of downgrades on average. So I think that’s probably also contributing, but I think overall the main driver would be the bedding in, as I say, of that set of rules and compliance requirements over the course of 2017.

And then second, just around ECN, and you talked about a little bit of, maybe there is not a huge potential market for it, are we at sort of peak revenue run rates unless we change the pricing structure? You maybe just talk a little bit about where that revenue is and where it can go other than a pricing structure change?

I mean we recorded close to $300,000 in revenue in the quarter, I certainly wouldn’t say that we are at peak revenue in terms of where we could see that product going. It’s hard to say, I mean there is a big incumbent in the space that we’re competing for volume with, certainly we plan on and we have been competitive in terms of both the product that we think we offer, the service that we think we offer, and the pricing mechanism.

So we would expect to continue to gain market share. As we highlight in the release and in our quarterly, overall the addressable market is not that huge, it’s a very tiny percentage of overall U.S.

equity volumes, but we do think we can garner more market share. And it really remains to be seen how aggressive we would need to be on pricing in order to continue to gain it, but I think overall, as I say, our strategy is to continue to grab market share where we can, we think we have a product that is very competitive, both in terms of its functionality and in terms of the pricing.

And then just one last one, just on the cost structure, given the expansion in Europe, can you maybe just – one of your best quarters in terms of operating leverage, can you just talk about what you think about for the cost structure, maybe next quarter, or just how you view it, maybe over the next 12 months as well?

I mean, as we’ve always said on these calls, we invest when we think that we can sort of leverage that investment and generate returns and generate revenues. I think our expansion in London, it’s going to be in Europe, is really sort of an example of that.

We did some analysis, we see a lot of opportunity in terms of attracting international companies to our product, not just in Europe, but also in Asia, Australia, and so we’re very active in those markets. And so we see a lot of opportunity in Europe, we think we can make a very modest investment, relatively speaking, and set up a physical presence there.

And as we see results, we can certainly grow it, but I think at the outset we’re making a modest investment to sort of leverage and see where we can grow that client base. And I think, as I say, that’s a good example of how we view sort of our operating cost base vis-à-vis the revenue base in our leverage overall, where we think it makes sense, where we think we can generate a return and that satisfactory we will make that investment, and that’s I think obviously what we’ll try and continue to do.

Great. Thank for your additional color.

Again nice quarter.

Thanks, Chris.

Hello there. You mentioned the growing significance of the international companies.

I was wondering, would it be possible to give some color on that or an update on the number of companies, and how that differs across the different segments? It sounds from what you’re saying is that it’s particularly focused on OTCQX.

Yes, so Martyn, well, I think there’s OTCQX and there’s OTCQB, they both – they fit a different client base. And what we’ve seen is – where I would see the sales team has done a really good job is our partnership with the CSE, the Canadian Securities Exchange, and we have approximately 100 issuers there, because we’ve worked really into embedding ourselves into their issuer service process and marketing process, which gives them – they’ve got an efficient public market in Canada, and – but the only thing they don’t have is U.S.

trading. So we see there’s lots of great global exchanges around the world where we can be a very complementary service to fill in – to enhance the global liquidity opportunities for their issuers.

And there’s around 1,500 companies that go public every year around the world. So that’s something that we need to get good at serving, and – but all of these types of initiatives are not hockey stick initiatives, they’re ones that take a long process of getting out there, talking to clients, enhancing your offering, educating the market, working with partners, and how do we serve the community of global companies and their advisors, and primary listing exchanges.

And the growth currently, notwithstanding the opportunity, the growth that you’ve seen this year, is that particularly Canadian driven?

I think it comes from a number of sectors, Canada would certainly be part of that driver, in sense of the minerals and mining sector having somewhat of a resurgence in Canada. But we’re also seeing growth from the European market and also in some other sort of tech-driven type primary exchange venues overseas where we’re a good fit in terms of providing those kind of earlier venture type companies and earlier technology-driven companies with access to the U.S.

investor base.

I have another question, just on the growing OTC Link revenues, you mentioned the sort of weaker spot within that in terms of subscription-based revenues, is that just reflecting the ongoing pressures on the broker-dealer market, or is there anything else to that?

I mean Interestingly, as I noted, over the past several quarters, I think at least 6 or 7, we saw a decline, initially somewhat more marked decline and then a slowing decline in the number of actual broker-dealers connecting, which was a factor of as you say, pressure on the broker-dealer community, consolidation, folks exiting the space, just a general contraction post 2008 [ph] of the broker-dealer community here in the U.S. As we’ve seen in the last two quarters, in fact it’s been a slowing trend, and this quarter we saw an uptick, so we saw a small increase.

What’s driving, – and it was very small, I believe it was 3%. What’s driving the contraction in subscriber-based revenue from that same user group is the decline in individual users, so traders who are connecting to our OTC Dealer platform as opposed to in the number of subscribers, and also in the number of FIX connections as found to perhaps consolidated many years ago or a year or two ago, start collapsing connections and collapsing broker IDs as they connect into the system.

So it was a very marginal decline, 3% quarter-over-quarter, but those are the two drivers, and in part it’s contraction, but also automation in the industry as there are less sort of folks that are coming through that more traditional user interface dealer platform.

I had 2 other small questions, would you like me to ask them now or come back?

No, go ahead.

You can...

You’ve helpfully given the expected lease payment profile on the new headquarters, could I just ask how on an annualized basis, when that’s up and running, what likely impact that would have on the total occupancy cost, which currently runs at about $1.8 million, $1.9 million a year? I’m just trying to link the 2 numbers together, because I imagine there’s some other costs on top of the least cost.

Yes, that’s right. We actually gave that number at the last earnings call.

I don’t have it right in front of me. But it’s an increase that is somewhere south of $1 million annually.

I don’t want to sort of throw a number out necessarily, but it’s somewhere in there. We can certainly look back at our last quarter and have that, but we gave that number.

It’s definitely an increase overall, but it’s not a dramatic increase.

And Martyn, we got – our space here was fully depreciated as of last year, so we’ve been kind of – and our lease here, we didn’t – we built out the space on top of the lease, we didn’t get any landlord credits for it that were significantly impacted. So we’ve had a couple years of no depreciation flowing through, so just – but when you look at really shareholders economic cash paying is this lease is going to be a very attractive one for us in the value we’re getting.

And it’s a space that was newly built at substantial expense within the past five years and has tons of technology, it’s a big upgrade in reliability in the building, the building was built for the Comex Exchange, it actually – it was built by our Chairman of the Board with Chief Operating Officer of the Comex at the time, so ran the project of building the whole building, it has all of the backup power, all of the redundant connections and systems. So it’s a really fantastic step up for us from a functionality and also for our employees, and – but it is an incredibly cost effective compared to what else – what other things are out there in the market, so.

You’ll be teased to move into that, I’m sure. And just finally, on the tax, you mentioned the structural impact from the tax reform, but also the research credits into FY 2017, is around 20% going forward a sensible number still to be working with?

We don’t like to give hard and fast sort of guidance around effective tax rates, but you can probably impute it based on trends. We saw an uptick in our research and development credit from 2017 that impacted our third quarter as we filed in that quarter and make the appropriate adjustments, and that the reason for that uptick in R&D credit was that 2017 was the year that we did two very big projects from our perspective.

We launched our ECN, and there was significant third party and internal costs incurred in doing that, in building that platform, and we also re-platformed our website. So again, significant third party and internal costs in doing that.

So that has an impact on the amount of research and development credit that goes against your federal tax. So we always do something in terms of developing our product suite and so on, but I would have expected or I would expect that 2017 is a bigger than average year and that you would see a sort of return to historic norms.

Okay. Thank you for the answers for the questions.

That’s very helpful.

Thank you, Martyn.

Thank you everyone for calling in, and we look forward to continuing to serve our shareholders well over the next 10 years. Thank you.