Interactive Data Corporation (NYSE: IDC) today reported its financial results for the third quarter ended September 30, 2008.
Interactive Data's third-quarter 2008 revenue increased 7.7% to $188.6 million from $175.0 million in the third quarter of 2007. Income from operations grew 12.2% to $53.7 million in the third quarter of 2008 from $47.9 million in the same period one year ago. Net income for the third quarter of 2008 was $36.7 million, or $0.38 per diluted share, a 6.7% decrease over net income of $39.3 million, or $0.40 per diluted share, in the third quarter of 2007.
"Our third-quarter 2008 performance was in line with the preliminary results we announced last week," stated Stuart Clark, president and chief executive officer. "We produced organic revenue growth of 7.6% primarily as a result of sustained expansion at our Pricing and Reference Data business, as well as a good performance at our Real-Time Services business. Our success in driving revenue growth, while prudently managing our cost base, led to a 12.2% increase in income from operations. Despite the increase in operating profitability, our net income for the quarter declined as a result of a significant increase in our effective quarterly tax rate. Our third-quarter 2008 effective tax rate of 33.9% compares with 21.7% in last year's third quarter, which was extraordinarily low due to the impact of a number of discrete, one-time items. The difference between the effective quarterly tax rates impacted our net income by more than $6 million."
Clark continued, "Despite challenging market conditions, we are encouraged by the fact that we produced positive net new business in all three months of the third quarter at levels that were generally in line with or better than our expectations entering the quarter. We sustained renewal rates across our institutional business of approximately 95%, which reflects our strong relationships with these customers around the world. During the quarter, we made good progress in areas fundamental to future success by continuing to strengthen customer relationships, expand our global distribution channels, advance new product development, fortify our technical infrastructure, and broaden our capabilities through strategic acquisition and alliances."
Andrew Hajducky, Interactive Data's executive vice president and chief financial officer, commented, "As a result of our strong distribution channels, Interactive Data's customer base remains extremely diversified with no single direct customer representing more than five percent of total revenue. After yet another quarter of outstanding cash generation, we move forward with the strong financial position required to fund internal development activities and pursue strategic acquisitions in ways that will further expand our business. At the same time, we intend to continue returning cash to shareholders through our stock buyback and dividend programs."
Clark concluded, "We will continue managing the business prudently as we carefully monitor our discretionary spending while making important investments in programs that we believe will help drive future growth and bring tangible value to customers, business partners and shareholders. We believe we have the technical, intellectual and financial resources required to continue expanding our business through a combination of organic growth and strategic acquisitions."
Other Third-Quarter 2008 and Recent Financial and Operating Highlights
Effects of Foreign Exchange:
• Interactive Data's third-quarter 2008 revenue was unfavorably impacted by $1.1 million due to the effects of foreign exchange. Third-quarter 2008 revenue before the effects of foreign exchange grew by $14.6 million, or 8.4%, over the comparable period in 2007. Total costs and expenses in the third quarter of 2008 were positively impacted by $0.1 million due to the effects of foreign exchange. Third-quarter 2008 total costs and expenses before the effects of foreign exchange increased by $7.9 million, or 6.2%, over the third quarter of 2007.
Revenue by Geography:
• Interactive Data's total third-quarter 2008 revenue in North America grew 7.3% to $133.1 million from $124.1 million in the same period last year primarily due to growth within its Pricing and Reference Data business and continued institutional adoption of its real-time datafeed services. The Company's third-quarter 2008 revenue in Europe increased 7.5% to $50.6 million from $47.1 million in the comparable period one year ago (or increased by 10.1% before the effects of foreign exchange) due to an excellent performance by its European Pricing and Reference Data business, the two-month contribution of the Kler's business that was acquired in August 2008, and continued growth of its real-time datafeeds business. Interactive Data's Asia-Pacific revenue of $4.8 million in the third quarter of 2008 was up 26.5% from $3.8 million in the third quarter of 2007 (or increased by 22.1% before the effects of foreign exchange) due primarily to higher net new business and increased usage across the region.
Institutional Services Segment:
• Interactive Data Pricing and Reference Data reported third-quarter 2008 revenue of $119.7 million, a 9.3% increase over the prior year's third quarter (or an increase of 10.6% before the effects of foreign exchange). Kler's Financial Data Service S.r.l. (Kler's), a leading Italian provider of reference data acquired by Interactive Data in August 2008, contributed revenue of $1.3 million in the third quarter of 2008. Excluding the contributions from Kler's, and the effects of foreign exchange, third-quarter 2008 revenue increased 9.4% over the same period last year. Revenue growth for this business in the third quarter of 2008 primarily reflects the expansion of business with existing customers in both North America and Europe. In addition to continued enhancement of a number of services such as its Interest Rate Swap Valuation Service, Emerging Markets Credit Ratings Service and Fair Value Information Service, this business also began providing valuations of highly complex OTC derivatives and structured products through its exclusive new relationship with Prism Valuation. In addition, as part of this previously announced strategic alliance with Prism, Interactive Data purchased a minority ownership stake in Prism.
• Interactive Data Real-Time Services generated third-quarter 2008 revenue of $38.2 million, an increase of 7.9% over the same quarter last year (or an increase of 6.7% before the effects of foreign exchange). The revenue increase was driven by strong growth in the real-time datafeeds business and continued expansion of the Managed Solutions business in the United States. During the third quarter of 2008, Interactive Data Real-Time Services launched PlusFeed SelectSM, a new low latency data service that enables cost-effective access to a specified "watch list" of instruments.
• Interactive Data Fixed Income Analytics reported revenue for the third quarter of 2008 of $8.2 million, a 2.0% increase from last year's third quarter. New sales and one-time consulting project revenue were partially offset by the impact of cancellations primarily caused by client consolidation activities. In September 2008, Interactive Data announced that Keith Webster was appointed as managing director of this business.
Active Trader Services Segment:
• eSignal's third-quarter 2008 revenue of $22.6 million increased 1.9% from the same quarter last year (or an increase of 2.3% before the effects of foreign exchange). eSignal ended the third quarter of 2008 with approximately 61,250 direct subscription terminals, a decline of approximately 3% from the same period one year ago. In recent weeks, eSignal introduced enhancements to several offerings and advanced plans to introduce new services.
• For the nine months ended September 30, 2008, Interactive Data reported revenue of $556.4 million, an increase of $48.9 million, or 9.6%, from $507.5 million for the comparable period in 2007. Organic revenue growth for the first nine months of 2008 was 8.0%. Total costs and expenses rose by $27.0 million, or 7.2%, to $403.9 million in the first nine months of 2008. Net income for the first nine months of 2008 increased 9.0% to $102.5 million, or $1.06 per diluted share, from $94.1 million, or $0.97 per diluted share, in the comparable period of 2007. The tax rate for the first nine months of 2008 was 35.4% compared with 31.3% in the same period last year and 31.8% for the full year 2007.
Cash Position, Stock Buyback Activities, and Quarterly Cash Dividend:
• As of September 30, 2008, Interactive Data had no outstanding debt and had cash, cash equivalents and marketable securities of $239.0 million. During the third quarter of 2008, Interactive Data spent $17.4 million to repurchase 643,963 shares of common stock at an average purchase price of $26.94 per share as part of its existing stock buyback program. Entering the fourth quarter of 2008, more than 1.1 million shares remained available for repurchase under the existing stock buyback program. During the third quarter of 2008, Interactive Data paid $14.1 million to stockholders in connection with its regular quarterly dividend of $0.15 per share to stockholders. On September 16, 2008, Interactive Data announced that its Board of Directors declared a quarterly cash dividend of $0.15 per share of Interactive Data common stock payable on December 10, 2008 to stockholders of record on November 12, 2008.
Kler's Financial Data Service S.r.l. (Kler's) Acquisition:
• On August 4, 2008, Interactive Data announced the closing of its acquisition of Kler's for a purchase price of €19.0 million (or approximately $29.6 million based on exchange rates at the time of the acquisition) in cash, subject to final post-closing working capital adjustments. This acquisition represented an important element in Interactive Data's strategy to expand its reference data services and to continue increasing its direct presence across continental Europe.
• Our outlook for 2008 is unchanged from the guidance that we issued on October 15, 2008. The Company's updated 2008 outlook now includes the impact of the Kler's acquisition, which was completed in August 2008.
- 2008 revenue growth over 2007 on a percentage basis is expected to be in the range of 8% to 9% versus the July 2008 outlook for revenue growth in the range of 8% to 10%. The refinement of this guidance primarily reflects the anticipated impact of recent changes in foreign exchange rates.
- Income from operations is now expected to grow in the range of 14% to 16% versus July 2008 guidance that called for income from operations growth in the 11% to 13% range.
- Our 2008 effective tax rate is now expected to be between 35.5% and 36.5%, which includes the estimated impact associated with the recently approved legislation in the United States that extends the R&D tax credit for 2008. This compares with the original guidance for our 2008 effective tax rate in the range of 36% to 38%.
- We now anticipate that net income growth in 2008 on a percentage basis will be in the range of 6% to 8% compared with our July 2008 guidance for 2008 net income growth in the range of 3% to 6%.
- Capital expenditures in 2008 are still expected to be approximately $49 million.