Interactive Data Corporation (NYSE: IDC) today reported its financial results for the third quarter ended September 30, 2009.
Interactive Data's third-quarter 2009 revenue was $192.1 million, an increase of 1.9% from $188.6 million in the third quarter of 2008. Income from operations in the third quarter of 2009 was $58.4 million, an 8.8% increase over $53.7 million in the same period one year ago. Net income attributable to Interactive Data for the third quarter of 2009 was a record $43.1 million, or $0.45 per diluted share, an increase of 17.5% over net income of $36.7 million, or $0.38 per diluted share, in the third quarter of 2008.
Ray D'Arcy, Interactive Data's president and chief executive officer, stated, "Our third-quarter 2009 financial performance was highlighted by higher income from operations primarily driven by the combination of actions we took earlier this year to adjust spending and higher revenue. Our third-quarter 2009 net income growth of 17.5% reflects higher income from operations and a lower effective tax rate of 26.6%, which more than offset a significant decrease in interest income. By comparison with the effective annual tax rate of 34.8% in the first-half 2009, the reduction in our third-quarter 2009 effective tax rate contributed over $4.8 million, or approximately $0.05 per diluted share, to our third-quarter 2009 net income."
Commenting on the Company's revenue performance, D'Arcy said, "Organic revenue grew 3.6% in the third quarter of 2009 over the same period last year due to the resiliency in our fixed income evaluations and reference data product areas, and a solid performance in Europe. We were also pleased to see lower cancellation levels across our institutional business compared with first-half 2009 levels. Although this is encouraging, customers continue to focus on controlling costs, which we expect will continue to influence near-term usage-related revenue growth and progress with new sales."
D'Arcy concluded, "With a successful third quarter behind us, we have raised our guidance for net income to primarily reflect a lower effective annual tax rate and, to a lesser extent, incremental improvement in the underlying performance of our business. In addition, we lowered our 2009 capital expenditure plans due to changes in the timing for various initiatives, including the upgrading and expansion of our London office and data center. In the context of our full-year 2009 guidance, it is also important to keep in mind that we enjoyed an exceptionally strong fourth quarter of 2008 that was aided by certain one-time sales, strong usage-related revenue and other items. Looking ahead, we plan to remain disciplined with our spending while continuing to direct investment into high priority areas that we believe are fundamental to driving long-term success."
Third-Quarter 2009 Effective Tax Rate
• Interactive Data's third-quarter 2009 effective tax rate of 26.6% declined by 8.2 percentage points from the first-half 2009 effective tax rate of 34.8%. The decrease was driven by discrete items totaling $6.1 million primarily resulting from a favorable UK audit settlement for 2005, 2006 and 2007 ($3.0 million), various state income tax audit settlements ($1.5 million), and the expiration of the statute of limitations in various U.S. tax jurisdictions which resulted in a release of tax reserves ($2.0 million). The collective impact of these discrete items was partially offset by a decrease in income generated in lower tax rate jurisdictions, a decrease in foreign tax credits and other items.
Segment Reporting, Related Operating Highlights and Revenue by Geography
Institutional Services Segment:
- Interactive Data Pricing and Reference Data reported third-quarter 2009 revenue of $126.7 million, an increase of $7.1 million, or 5.9%, over the prior year's third quarter (or an increase of $11.1 million, or 9.3%, before the effects of foreign exchange). Kler's Financial Data Service S.r.l. (Kler's), which we acquired in August 2008, contributed incremental revenue of $0.9 million in the third quarter of 2009. NTT DATA Financial (NDF), in whom we acquired an 80% interest in December 2008 and subsequently acquired an additional 10% interest during the second quarter of 2009, contributed an incremental $2.2 million to third-quarter 2009 revenue. Third-quarter 2009 organic revenue for this business, which excludes the contributions from Kler's and NDF, related intercompany eliminations associated with NDF and the effects of foreign exchange, increased by $8.0 million, or 6.8%, over the same period last year primarily as a result of net new business progress in Europe during the past several quarters and continued expansion of customer relationships in the U.S. During the third quarter, this business advanced alliances with specialist firms to provide valuation services for Term Asset-Backed Securities Loan Facility (TALF) loans and Municipal Auction Rate Securities (ARS) including Student Loan Auction Rate Securities (SLARS). This business also established an alliance with Goal Group, a leading UK-based global class actions service specialist, to provide a comprehensive, outsourced class actions service designed to support investors and corporations throughout the entire lifecycle of a securities class action.
- Interactive Data Real-Time Services generated third-quarter 2009 revenue of $36.2 million, a decrease of $1.9 million, or 5.1%, over the same quarter last year (or essentially unchanged before the effects of foreign exchange). The organic revenue performance for this business primarily reflects the impact of increased cancellations over the past several quarters for its real-time market data services, offset by continued strong growth in its U.S. Web-based solutions. In recent months, Interactive Data continued to expand its Web-based solutions business in the United States, announcing msnbc.com and Scivantage as new customers.
- Interactive Data Fixed Income Analytics reported revenue for the third quarter of 2009 of $8.2 million, which was essentially unchanged from last year's third quarter. During the third quarter, this business introduced BondEdge® Cash Flow Analyst for Insurance, a new package of capabilities designed to help address the asset modeling and risk analysis needs of insurance portfolio asset-liability management.
Active Trader Services Segment:
- eSignal's third-quarter 2009 revenue of $20.9 million decreased by $1.7 million, or 7.3%, from the third quarter of 2008 (or a decline of $1.3 million, or 5.9%, before the effects of foreign exchange) due to the decline in the eSignal direct subscriber base and lower advertising revenue. As of September 30, 2009, eSignal managed approximately 57,200 direct subscription terminals, which is 1.7% lower than the same period last year and essentially unchanged from the prior quarter. eSignal's recent highlights include the continued enhancement of its offerings and the deployment of customized versions of its applications by Knowledge to ActionTM, one of the UK's leading providers of financial training.
Revenue by Geography:
- Interactive Data's North American third-quarter 2009 revenue of $133.0 million was essentially unchanged from the same period last year. Organic revenue for Interactive Data's North American business, which excludes eliminations associated with the Company's redistribution relationship with NDF in Japan, grew 1.0% as growth in its evaluations, reference data services and web-based solutions was largely offset by revenue weakness in its real-time market data and eSignal product areas. The Company's third-quarter 2009 revenue in Europe of $50.7 million was essentially unchanged from last year's third quarter. Excluding the effects of foreign exchange and the incremental contribution from Kler's, third-quarter 2009 organic revenue in Europe grew 10.5% primarily as a result of growth within the Company's evaluations, reference data services and real-time market data areas. Interactive Data's Asia-Pacific revenue of $8.4 million in the third quarter of 2009 grew 73.5% from the third quarter of 2008 primarily as a result of the NDF contribution. Excluding the effects of foreign exchange and the contribution from NDF, Asia-Pacific organic revenue grew 2.2% during the third quarter of 2009.
- A table comparing revenue by geography, including the impact of foreign exchange as a percentage of total revenue for the three months and nine months ended September 30, 2009 and 2008, for each of Interactive Data's major geographic regions has been included on page 13 of this press release.
Other Third-Quarter 2009 Financial and Operating Highlights
Effects of Foreign Exchange:
- Interactive Data's third-quarter 2009 revenue was unfavorably impacted by $6.3 million due to the effects of foreign exchange resulting from a weaker US dollar in comparison with the third quarter of 2008. Third-quarter 2009 revenue before the effects of foreign exchange grew by $9.8 million, or 5.2%, over the same period in 2008. Total costs and expenses in the third quarter of 2009 were favorably impacted by $4.1 million as a result of the effects of foreign exchange. Third-quarter 2009 total costs and expenses before the effects of foreign exchange increased by $2.9 million, or 2.1%, over the third quarter of 2008.
- A table comparing the average foreign exchange rates during the three months and nine months ended September 30, 2009 versus the comparable periods of 2008 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 September 30, 2009, Interactive Data had no outstanding debt and had cash, cash equivalents and marketable securities of $290.2 million. During the third quarter of 2009, Interactive Data repurchased 479,500 shares of its common stock at an average price of $23.63 per share. Entering the fourth quarter of 2009, nearly 2.0 million shares were available for repurchase under the existing stock buyback program. During the third quarter of 2009, Interactive Data paid $18.8 million to stockholders in connection with its regular quarterly dividend of $0.20 per share.
- On September 16, 2009, Interactive Data announced that Christine A. Sampson, the Company's vice president of finance and chief accounting officer, began serving as interim chief financial officer and treasurer as a result of Andrew J. Hajducky's resignation as executive vice president, treasurer and chief financial officer. Interactive Data is in the process of conducting a CFO search.
- In early October, Interactive Data announced Elizabeth Duggan was promoted to managing director of the Company's Evaluations organization. Duggan has held a variety of management positions at Interactive Data, serving most recently as chief operating officer, Evaluations since January 2009.
Nine-Month 2009 Results
- For the nine months ended September 30, 2009, Interactive Data reported revenue of $563.1 million, an increase of $6.7 million, or 1.2%, from $556.4 million in the same period last year. Foreign exchange unfavorably impacted revenue during the first nine months by $33.2 million and acquisitions contributed an incremental $12.2 million during that same period. For the first nine months of 2009, organic revenue, which excludes the effects of foreign exchange and the net impact of acquisitions, grew by 5.0%. Total costs and expenses increased $1.9 million, or 0.5%, to $405.8 million during the first nine months of 2009. Net income attributable to Interactive Data during the first nine months of 2009 was $108.2 million, or $1.13 per diluted share, versus $102.5 million, or $1.06 per diluted share, in the comparable period of 2008. The effective tax rate for the first nine months of 2009 was 31.8% compared with 35.4% in the same period last year.
- Interactive Data's results for the first nine months of 2009 included a $10.9 million out-of-period accounting adjustment related to the write-down of certain assets and the accrual of certain liabilities associated with the Company's European real-time market data services operation. The out-of-period accounting adjustment, which occurred in the second quarter of 2009, decreased second-quarter 2009 revenue by approximately $2.3 million and increased 2009 second-quarter total costs by approximately $8.6 million, which is mostly related to data acquisition expenses that were not properly recorded in prior periods, primarily in 2008 and the first quarter of 2009. A table summarizing the out-of-period accounting adjustment and its allocation to earlier reporting periods has been included on page 16 of this press release.
Market conditions for the balance of 2009 are expected to remain challenging. Overall spending on market data and related services by customers in the financial services industry in 2009 is being influenced by various factors including cost-containment activities, the impact of recent mergers and acquisitions, and overall economic conditions. Based on these market conditions, our results to date and anticipated near-term performance, we have updated our 2009 non-GAAP and GAAP outlook as follows:
• 2009 organic revenue growth over 2008 (on a percentage change basis) is now expected to be roughly 2.0%. This compares with prior organic revenue guidance that called for the organic revenue growth to be at the low end of the low-single digit range.
• 2009 organic income from operations growth versus 2008 (on a percentage change basis) is now expected to be roughly 6.0%. This is at the high end of prior organic income from operations guidance that called for growth in the mid-single digit range.
• 2009 revenue is still expected to be roughly flat with 2008, which is unchanged from the prior quarter's guidance.
o This forecast still includes an anticipated positive impact of approximately two percentage points from acquisitions completed in 2008.
o Our prior revenue guidance assumed that 2009 revenue would be negatively impacted by approximately four percentage points associated with changes in foreign exchange rates. Our revenue forecast now includes a negative impact of at least four percentage points associated with changes in foreign exchange rates as of September 30, 2009.
o 2009 income from operations versus 2008 (on a percentage change basis) is now expected to be roughly flat. This compares with prior guidance that called for the decline in 2009 income from operations to be in the low single digit range.
This forecast still includes an anticipated positive impact of approximately two percentage points from acquisitions completed in 2008.
Our prior guidance assumed that changes in foreign exchange rates would negatively impact 2009 income from operations by more than five percentage points. This forecast now includes a negative impact of approximately five percentage points related to changes in foreign exchange rates as of September 30, 2009.
Our effective 2009 annual tax rate is now expected to be in the range of 33.0% to 34.0%, versus prior guidance that ranged from 35.0% to 36.0%.
Due primarily to the change in our effective 2009 annual tax rate, 2009 net income attributable to Interactive Data versus 2008 (on a percentage change basis) is now expected to be roughly flat. This compares with prior guidance for 2009 net income to decline in the low-to-mid single digit range.
2009 capital expenditures are now expected to be in the range of $49.0 million to $51.0 million versus our prior capital expenditure guidance of $54.0 million to $56.0 million.
This capital expenditure forecast now includes spending of $6.5 million to $7.0 million for leasehold improvements related to the planned relocation of our midtown New York office and refurbishment of our London office and data center. This is lower than the $7.0 million to $8.0 million that was included for these leasehold improvements in our prior capital expenditures guidance. Due to the timing of these activities, we now expect that approximately 50% of these leasehold improvements will be reimbursed by each respective landlord in 2010 versus the prior expectation that 30% of these leasehold improvements would be reimbursed by each respective landlord in 2009 with an additional 20% reimbursed in 2010.