Interactive Data Corporation (NYSE: IDC) today reported its financial results for the fourth quarter and full year ended December 31, 2009. Interactive Data's fourth-quarter 2009 revenue of $194.1 million was unchanged from the fourth quarter of 2008.
Income from operations in the fourth quarter of 2009 was $50.4 million, an 11.7% decrease from $57.1 million in the same period one year ago. Net income attributable to Interactive Data for the fourth quarter of 2009 was $33.0 million, or $0.34 per diluted share, a decrease of 17.6% over net income of $40.1 million, or $0.42 per diluted share, in the fourth quarter of 2008.
For the year ended December 31, 2009, Interactive Data's revenue grew to $757.2 million from $750.5 million in 2008. Income from operations for 2009 was $207.7 million, compared with $209.7 million in 2008. Net income attributable to Interactive Data for 2009 was $141.2 million, or $1.47 per diluted share, versus $142.6 million, or $1.48 per diluted share, in the comparable period of 2008.
"Interactive Data successfully navigated through some of the most challenging conditions that our industry has experienced to achieve our full-year 2009 profit targets and deliver solid growth in net cash provided by operating activities," stated Ray D'Arcy, Interactive Data's president and chief executive officer. "Our organic revenue growth of 2.8% in 2009 was driven by the resilience of our fixed income evaluations and reference data offerings, which enabled our Pricing and Reference Data business to grow organically at 6.0% for the year. The combination of our top-line growth and decisive cost-control initiatives implemented earlier in the year enabled the Company to increase its underlying profitability by 5.5%. Market conditions began to show signs of stabilization starting in the third quarter of 2009, and this trend continued through the fourth quarter."
Commenting on the Company's fourth-quarter 2009 performance, D'Arcy said, "Our fourth-quarter 2009 results were generally in line with our expectations entering the quarter. In terms of revenue, the contributions from acquisitions and the positive impact of foreign exchange offset a 3.4% decline in organic revenue. The decline in organic revenue reflects several factors. First, our performance compared against record fourth-quarter 2008 revenue that was aided by more than $5 million in certain one-time sales, strong usage-related revenue and other items. Second, we continued to experience softness in our active trader and real-time datafeed services. Fortunately, this softness was partially offset by sustained demand for our fixed income evaluations and reference data services. We continued to carefully manage our operating expenses during the fourth quarter of 2009. However, we received an updated pension valuation related to the Company's overseas pension plan, which reduced our fourth-quarter 2009 income from operations by $3.4 million and fourth-quarter 2009 net income by $2.2 million. Other factors that impacted fourth-quarter 2009 net income were an increase in depreciation and amortization, lower interest income and a higher effective quarterly tax rate.
"We are encouraged by the continued stabilization of market conditions during the fourth quarter, which is reflected by new sales that were the highest of any quarter in 2009 and cancellation levels that were on a par with the prior two quarters," D'Arcy added. "From a strategic perspective, we move into 2010 with good momentum and we are well positioned to help customers continue adapting to ongoing changes in technology, market structure and regulations. We have continued to make investments to enhance and expand our fixed income evaluation and reference data services, which we believe will drive even greater customer adoption. In December 2009, we formed the Real-Time Market Data and Trading Solutions Group, which combines the resources of our eSignal, Managed Solutions, and Real-Time Services businesses into a single organization. This initiative supports our plans to integrate our suite of real-time market data and innovative, hosted technology services and solutions to more effectively capitalize on opportunities in the wealth management and electronic trading sectors. In addition, we recently completed three acquisitions that help further strengthen our real-time capabilities in the wealth management and electronic trading sectors, and provide us with a direct presence in the Middle East. These recent acquisitions, combined with our ongoing investments in our content, capabilities, delivery platforms and infrastructure, are enabling us to address a wide range of valuation, transparency, risk management, compliance, electronic trading and wealth management challenges facing our customers around the world."
In terms of the Company's outlook for 2010, D'Arcy concluded, "Looking ahead, although the market stabilization we've observed over the past several months has been encouraging, there is still a degree of uncertainty regarding overall market conditions in 2010. We anticipate that 2010 revenue will range between $810 million and $830 million due to the contribution from recent acquisitions and improved organic revenue performance over the coming quarters. Our anticipated revenue growth, in combination with ongoing cost-control initiatives, will enable us to support healthy operating income margins in the range of 25% to 26% even as we make important strategic investments, reinstate certain incentive bonus compensation programs and merit-based annual salary increases, and incur higher depreciation and amortization expense. In addition, producing substantial net cash provided by operating activities has been a hallmark of Interactive Data's business model for many years, and we expect this trend to continue in 2010."
Segment Reporting, Related Operating Highlights and Revenue by Geography
Institutional Services Segment:
Interactive Data Pricing and Reference Data reported fourth-quarter 2009 revenue of $127.6 million, an increase of $3.1 million, or 2.5%, over the prior year's fourth-quarter 2008 revenue (or an increase of $1.2 million, or 0.9%, before the effects of foreign exchange). 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 a net of $1.7 million to fourth-quarter 2009 revenue. Fourth-quarter 2009 organic revenue for Interactive Data Pricing and Reference Data, which excludes the effects of foreign exchange, incremental contributions from NDF, and related intercompany eliminations associated with NDF and the Online Financial Solutions ("OFS") data and tools assets that were acquired in December 2009, was essentially unchanged from the same period last year. While we continued making progress to expand this business in both the U.S. and Europe, comparisons with the fourth-quarter of 2008 are complicated since the year-ago quarter included more than $5 million in certain one-time sales, strong usage-related revenue due in part to increased frequency related to the volatility in the fixed income markets, and other items. During the fourth quarter of 2009, Interactive Data Pricing and Reference Data began delivering intraday fixed income valuations to help clients around the world more closely monitor portfolio value changes, and provide European and Asian domiciled funds with new inputs to their fair value procedures.
Interactive Data Real-Time Services generated fourth-quarter 2009 revenue of $37.3 million, a decrease of $1.6 million, or 4.2%, over the same quarter last year (or a decrease of $3.6 million, or 9.3% before the effects of foreign exchange). In early December 2009, Interactive Data completed its acquisition of the OFS data and tools assets from Dow Jones & Co. Organic revenue for Interactive Data Real-Time Services, which excludes the one-month contribution of $1.0 million in revenue from the OFS data and tools assets and the effects of foreign exchange, decreased 11.7% from the same period last year. This performance primarily reflects the impact of increased real-time datafeed services cancellations primarily related to market conditions during the past several quarters, partially offset by strong organic revenue results for its Web-based solutions in the U.S. In January 2010, Interactive Data launched ETF CenterSM, a fully-hosted and customizable Web-based portal that Registered Investment Advisors (RIAs) and wealth managers can integrate into their own websites and other online applications.
Interactive Data Fixed Income Analytics reported revenue for the fourth quarter of 2009 of $8.6 million, an increase of 1.2% over the fourth quarter of 2008. During the fourth quarter of 2009, this business released BondEdge(R) Asset Manager, a new package of capabilities designed to assist portfolio managers and analysts at asset management firms in managing and reporting on the relative risk between their portfolios and relevant indices or liability benchmarks.
Active Trader Services Segment:
eSignal's fourth-quarter 2009 revenue of $20.6 million decreased by $1.6 million, or 7.1%, from the fourth quarter of 2008 (or a decline of $1.7 million, or 7.7%, before the effects of foreign exchange) due to lower average subscription fees and lower advertising revenue. As of December 31, 2009, eSignal managed approximately 56,500 direct subscription terminals, which is 3.0% higher than the number of direct subscription terminals as of December 31, 2008. During the fourth quarter of 2009, this business released Market-QSM 3.2, which provides upgraded features to enable users to track real-time streaming market data directly from their Web browser, including advanced charting, alerts, option chains, and Canadian fundamental market data.
Revenue by Geography:
Interactive Data's North American fourth-quarter 2009 revenue of $134.6 million declined by $3.6 million, or 2.6%, from the same period last year. Organic revenue for Interactive Data's North American business, which excludes the one-month contribution of $1.0 million in revenue from the OFS data and tools assets and eliminations associated with the Company's redistribution relationship with NDF in Japan and the OFS assets, declined 2.4% as growth in its fixed income evaluations, reference data services and web-based solutions was more than offset by revenue weakness in its real-time market data and eSignal product areas. The Company's fourth-quarter 2009 revenue in Europe of $51.3 million was essentially unchanged from revenue in the fourth quarter of 2008. Excluding the effects of foreign exchange, fourth-quarter 2009 organic revenue in Europe declined by 6.1% primarily due to weakness within the Company's real-time market data services and exceptionally strong fourth-quarter 2008 revenue within its Pricing and Reference Data business. Interactive Data's Asia-Pacific revenue of $8.2 million in the fourth quarter of 2009 grew 76.5% from the fourth quarter of 2008 primarily due to incremental revenue from NDF. Excluding the effects of foreign exchange and the contribution from NDF, Asia-Pacific organic revenue declined 5.5% during the fourth quarter of 2009.
Other Fourth-Quarter 2009 Financial and Recent Operating Highlights
Effects of Foreign Exchange:
Interactive Data's fourth-quarter 2009 revenue was favorably impacted by $4.1 million due to the effects of foreign exchange resulting from a weaker U.S. dollar in comparison with the fourth quarter of 2008. Fourth-quarter 2009 revenue before the effects of foreign exchange declined by $4.0 million, or 2.1%, over the same period in 2008. Total costs and expenses in the fourth quarter of 2009 were unfavorably impacted by $3.9 million as a result of the effects of foreign exchange. Fourth-quarter 2009 total costs and expenses before the effects of foreign exchange increased by $2.8 million, or 2.0%, over the fourth quarter of 2008.
Cash Position, Stock Buyback Activities, and Quarterly Cash Dividend:
As of December 31, 2009, Interactive Data had no outstanding debt and had cash, cash equivalents and marketable securities of $306.0 million. During the fourth quarter of 2009, Interactive Data repurchased 480,000 shares of its common stock at an average price of $26.06 per share. Entering the first quarter of 2010, approximately 1.5 million shares were available for repurchase under the existing stock buyback program. During the fourth quarter of 2009, Interactive Data paid $18.9 million to stockholders in connection with its regular quarterly dividend of $0.20 per share.
Formation of Interactive Data's Real-Time Market Data and Trading Solutions Group
In December 2009, Interactive Data announced the formation of the Real-Time Market Data and Trading Solutions Group, which combines the resources of its eSignal, Managed Solutions, and Real-Time Services businesses into a single organization. The formation of this new group, which is led by Jeffrey Banker, supports the Company's plans to integrate its suite of real-time market data and innovative, hosted technology services and solutions to more effectively capitalize on opportunities in the wealth management and electronic trading sectors.
On December 1, 2009, Interactive Data acquired the data and tools assets of Dow Jones & Company, Inc.'s OFS business. This acquisition substantially expands Interactive Data's growing Web-based solutions business in North America, and also creates opportunities for Interactive Data to offer OFS customers a broader range of sophisticated Web-based offerings, real-time market data services and other desktop solutions. The Company is integrating the acquired OFS assets into its U.S. Managed Solutions group, which is part of Interactive Data's newly formed Real-Time Market Data and Trading Solutions Group.
On January 14, 2010, Interactive Data purchased the assets of Dubai-based Telerate Systems Limited ("TSL"), a long-time sales agent that had marketed the desktop solutions from Interactive Data's eSignal division to the commodities, financial futures and foreign exchange trading community in the Middle East. This transaction advances Interactive Data's strategy of expanding internationally by establishing a direct presence in the Middle East. Through this transaction, and by making investments in local content and product development, Interactive Data plans to more effectively market its entire portfolio of products and services in this region. TSL has been rebranded under the Interactive Data name.
On January 15, 2010, Interactive Data acquired the assets of 7ticks, LLC, an innovative provider of electronic trading networks and managed services. A growing base of proprietary trading groups, clearing firms, global investment banks, brokers, market makers, hedge funds and independent software vendors rely on 7ticks for direct exchange access, proximity hosting, and support services that are designed to facilitate ultra low latency electronic trading of North American derivatives, options and commodities securities. This acquisition supports Interactive Data's strategy to address the latency sensitive trading needs of its institutional customers. Acquiring 7ticks accelerates Interactive Data's plans to increase the flexibility, agility and resiliency of its network infrastructure, thereby supporting a broader range of high-quality direct exchange access and consolidated datafeed services. The 7ticks business is operated as part of Interactive Data's newly formed Real-Time Market Data and Trading Solutions Group.
Review of Strategic Alternatives:
On January 15, 2010, Interactive Data announced that its Board of Directors was conducting a review of strategic alternatives for the Company. There can be no assurance on the potential outcome or timing of this review process.
Full-Year 2009 Results
For the year ended December 31, 2009, Interactive Data reported revenue of $757.2 million. Foreign exchange unfavorably impacted revenue by $29.1 million and acquisitions contributed a net of $14.7 million during 2009. Excluding the effects of foreign exchange and the net impact of acquisitions, 2009 organic revenue grew by 2.8%. Total costs and expenses for 2009 increased by $8.6 million, or 1.6%, to $549.5 million from 2008 levels. Net income attributable to Interactive Data for 2009 was $141.2 million, or $1.47 per diluted share. The effective tax rate for 2009 was 32.5% compared with 34.3% for 2008.
Interactive Data's results for 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.