Interactive Data Corporation (NYSE: IDC) today reported its financial results for the first quarter ended March 31, 2009.
Interactive Data's first-quarter 2009 revenue increased 2.4% to $186.0 million from $181.7 million in the first quarter of 2008. Income from operations in the first quarter of 2009 was $48.3 million versus $48.9 million in the same period one year ago. Net income for the first quarter of 2009 was $31.9 million, or $0.33 per diluted share, compared with net income of $32.3 million, or $0.33 per diluted share, in the first quarter of 2008.
"We are pleased with our first-quarter 2009 results, especially in light of the unprecedented turmoil that is affecting our core institutional customers," stated Ray D'Arcy, president and chief executive officer. "We produced organic revenue growth of 8.4% in the first quarter of 2009, although much of this expansion was offset by the effects of foreign exchange. Our organic revenue growth, combined with our diligence in containing costs, enabled us to drive a 13.0% increase in non-GAAP income from operations in the first quarter of 2009 even while absorbing higher non-cash expenses such as depreciation and certain one-time stock-based compensation costs. Net income for the first quarter of 2009 was also impacted by considerably lower interest income."
D'Arcy continued, "We produced another quarter of strong organic revenue growth primarily as a result of the robust demand, particularly in Europe, for our independent fixed income evaluations and our other high-value pricing and reference data content. In our Institutional Services segment, new sales trended according to our plans during the first quarter of 2009, although the challenging market environment produced higher-than-expected cancellations and downgrades. Despite this trend in cancellations, retention rates across our institutionally oriented businesses were strong at approximately 93% during the first quarter of 2009. As a result of vendor consolidations and an intensifying focus by financial institutions on reducing costs, we are seeing increased inte increased inte financial institutions on reducing costs, we are seeing increased interest in our real-time datafeeds and terminal offerings."
Andrew Hajducky, Interactive Data's executive vice president and chief financial officer, commented, "Our first-quarter 2009 operating performance was generally in line with our expectations entering the quarter. We took steps to control our spending during the first quarter, and we will continue to be vigilant on this front going forward given the uncertain market outlook. Net cash provided by operating activities of $36.8 million during the first quarter of 2009 enabled us to end the first quarter of 2009 with $244.1 million in cash, cash equivalents and marketable securities, which is $15.3 million higher than our cash position at the end of 2008."
D'Arcy concluded, "Even as we focused on controlling costs, we continued to direct our spending to enhance our offerings and relationships with institutional customers worldwide. For example, we added resources to further strengthen our fixed income evaluations organization and our investments in product development are yielding tangible results with the launch of several new services and meaningful enhancements to existing offerings. We anticipate that the near-term market conditions will remain uncertain, but we remain confident in our ability to navigate current market conditions by delivering a compelling value proposition to our customers that is based on high-value content, a growing range of innovative offerings, reliable service delivery and highly responsive customer support."
Segment Reporting, Related Operating Highlights and Revenue by Geography
Institutional Services Segment:
• Interactive Data Pricing and Reference Data reported first-quarter 2009 revenue of $121.8 million, a 7.1% increase over the prior year's first quarter (or an increase of 15.3% before the effects of foreign exchange). Kler's Financial Data Service S.r.l. (Kler's), which we acquired in August 2008, contributed revenue of $2.5 million in the first quarter of 2009. Our majority interest in NTT DATA Financial (NDF), which we acquired in December 2008, contributed net $1.7 million to first-quarter 2009 revenue. Excluding the contributions from Kler's and NDF, related intercompany eliminations associated with NDF and the effects of foreign exchange, first-quarter 2009 organic revenue for this business increased 11.7% over the same period last year primarily as a result of expanding business with existing customers in both North America and Europe. During the first quarter of 2009, this business introduced a new Business Entity Service, which is designed to assist clients with risk management and compliance by providing them with information to help analyze their global exposure to entities, industries and regions. In April, Interactive Data and NASDAQ OMXSM announced that they were selected by Wilshire Associates to support several of the indexes from the suite of Wilshire Indexes.
• Interactive Data Real-Time Services generated first-quarter 2009 revenue of $34.9 million, a decrease of 8.0% over the same quarter last year (or an increase of 4.8% before the effects of foreign exchange). The increase in organic revenue was primarily driven by global growth in the real-time datafeeds business and continued adoption of web-based solutions in the United States. Recent highlights for this business included the April 2009 launch of PlusBookTM, a new consolidated order book service for the European financial industry, and enhancements to the PrimePortal product, which is used to create customized Web solutions for wealth management and infomedia applications.
• Interactive Data Fixed Income Analytics reported revenue for the first quarter of 2009 of $8.2 million, a 1.1% increase from last year's first quarter (or an increase of 1.5% before the effects of foreign exchange). During the first quarter of 2009, this business introduced new tools aimed at expanding the appeal of its BondEdge® service to a broader base of end users.
Active Trader Services Segment:
• eSignal's first-quarter 2009 revenue of $21.1 million decreased 3.4% from the first quarter of 2008 (or essentially unchanged before the effects of foreign exchange). Continued declines in the eSignal direct subscriber base and lower advertising revenue more than offset higher average subscription fees. eSignal closed the first quarter of 2009 with approximately 57,500 direct subscription terminals, which is down 5.5% from the same period last year but up 4.7% since the end of 2008. The sequential increase in direct subscription terminals reflects Raymond James' March 2009 implementation of Interactive Data's Market-QSM offering. As previously announced, approximately 4,000 financial advisors in Raymond James' Private Client Group will be using Interactive Data's real-time browser-based market data terminals. During the first quarter, eSignal also launched QuoTrek® 2.0, the latest update to its leading mobile financial service available for Blackberry and other Java-enabled mobile devices.
Revenue by Geography:
• Interactive Data's total North American first-quarter 2009 revenue grew 4.6% to $132.6 million from $126.7 million in the same period last year primarily as a result of higher sales of its evaluated pricing, reference data, real-time datafeeds and web-based solutions offerings. Excluding first-quarter 2008 eliminations associated with the Company's redistribution relationship with NDF in Japan, Interactive Data's total North American first-quarter 2009 organic revenue grew 5.7%. The Company's first-quarter 2009 revenue in Europe decreased 8.8% to $46.3 million from $50.8 million in the first quarter one year ago. Excluding the effects of foreign exchange and the contribution from Kler's, first-quarter 2009 organic revenue in Europe grew 14.2% primarily as a result of higher demand for its independent fixed income evaluated pricing services as well as more modest expansion within its reference data and real-time datafeed services. Interactive Data's Asia-Pacific revenue of $7.2 million in the first quarter of 2009 grew 69.2% from $4.3 million in the first quarter of 2008 as a result of the first full-quarter contribution of the Company's majority interest in NDF, as well as higher net new business across the region. Excluding the effects of foreign exchange and the contribution from NDF, Asia-Pacific organic revenue grew 19.4% during the first quarter of 2009.
• A table summarizing revenue by geography, including the impact of foreign exchange as a percentage of total revenue for the three months ended March 31, 2009, for each major geographic region in which Interactive Data has operations has been included on page 13 of this press release.
Other First-Quarter 2009 Financial and Operating Highlights
Effects of Foreign Exchange:
• Interactive Data's first-quarter 2009 revenue was unfavorably impacted by $15.1 million due to the effects of foreign exchange resulting from a stronger US dollar in comparison with the first quarter of 2008. First-quarter 2009 revenue before the effects of foreign exchange grew by $19.4 million, or 10.7%, over the same period in 2008. Total costs and expenses in the first quarter of 2009 were reduced by $10.4 million as a result of the effects of foreign exchange. First-quarter 2009 total costs and expenses before the effects of foreign exchange increased by $15.3 million, or 11.5%, over the first quarter of 2008.
• A table summarizing the average foreign exchange rates during the first quarter of 2008 and 2009 in three of the Company's primary overseas currencies (as measured against the U.S. dollar) is provided on page 15 of this press release.
Cash Position, Stock Buyback Activities, and Quarterly Cash Dividend:
• As of March 31, 2009, Interactive Data had no outstanding debt and had cash, cash equivalents and marketable securities of $244.1 million. During the first quarter of 2009, Interactive Data did not repurchase any common stock. Entering the second quarter of 2009, nearly 2.8 million shares were available for repurchase under the existing stock buyback program. During the first quarter of 2009, Interactive Data paid $18.7 million to stockholders in connection with its regular quarterly dividend of $0.20 per share to stockholders.
• As part of the previously announced CEO succession process, on March 2, 2009, Raymond L. D'Arcy, formerly president of sales and marketing for Interactive Data, succeeded Stuart J. Clark as the Company's president and chief executive officer.
Board of Directors Changes:
• In conjunction with the Company's leadership transition, Stuart Clark stepped down from serving as a member of the Board of Directors on March 2, 2009, and Ray D'Arcy was appointed to fill this vacancy. On March 9, Interactive Data announced that Ambassador Carl Spielvogel and William T. Ethridge will not seek re-election at the Company's annual meeting of stockholders on May 20, 2009. Both Ambassador Spielvogel and Mr. Ethridge plan to fulfill the remainder of their respective terms.
Market conditions in 2009 are expected to remain uncertain. We anticipate that overall spending on market data and related services by customers in the financial services industry in 2009 may be influenced by various factors including delayed sales cycles, cost-containment activities, the impact of recent mergers and acquisitions, and overall economic conditions. With this as background, we are taking a cautious approach to our outlook for 2009. Our 2009 non-GAAP outlook is unchanged from the original guidance we provided in February 2009. However, our 2009 GAAP outlook has been updated primarily to reflect current assumptions about foreign exchange rates and interest income. Our outlook for 2009 is as follows:
• 2009 organic revenue growth over 2008 (on a percentage change basis) is still expected to be in the mid-single digit range.
• 2009 organic income from operations growth versus 2008 (on a percentage change basis) is still expected to be in the mid-single digit range.
• 2009 revenue growth over 2008 (on a percentage change basis) is now expected to be at the low end of original guidance that called for 2009 revenue growth in the low single digit range.
o This forecast still includes an anticipated positive impact of approximately two percentage points from acquisitions completed in 2008.
o Our original guidance assumed that 2009 revenue would be negatively impacted by at least five percentage points associated with changes in foreign exchange rates based on 2008 year-end rates. This forecast now includes a negative impact of approximately six percentage points associated with changes in foreign exchange rates as of March 31, 2009.
• 2009 income from operations versus 2008 (on a percentage change basis) is now expected to decline in the low single digit range, compared with original guidance that called for 2009 income from operations to range from roughly flat to a low single digit decline.
o This forecast still includes an anticipated positive impact of approximately two percentage points from acquisitions completed in 2008.
o Our original guidance assumed that 2009 income from operations would be negatively impacted by approximately five percentage points based on year-end 2008 rates. This forecast now includes a negative impact of more than five percentage points associated with changes in foreign exchange rates as of March 31, 2009.
• The effective 2009 annual tax rate is still expected to be in the range of 35.0% to 36.0%.
• As a result of an increase in the anticipated impact from the effects of foreign exchange and lower-than-expected interest income, 2009 net income versus 2008 (on a percentage change basis) is now expected to decline in the low-to-mid single digit range. This compares with original guidance that called for 2009 net income to decline in the low single digit range.
• 2009 capital expenditures are still expected to be in the range of $56.0 million to $58.0 million.
o This forecast includes expenditures of $8.0 million to $9.0 million for leasehold improvements related to the planned relocation of our midtown New York office and the refurbishment of our European headquarters in London.
o We expect that 50% of these leasehold improvements will be reimbursed by landlords during the year.