Interactive Data Corporation (NYSE: IDC) today reported its financial results for the first quarter ended March 31, 2010.
Interactive Data's first-quarter 2010 revenue increased 5.8% to $196.9 million from $186.0 million in the first quarter of 2009. Income from operations in the first quarter of 2010 was $44.5 million, an 8.0% decrease from $48.3 million in the same period one year ago. Net income attributable to Interactive Data for the first quarter of 2010 was $29.5 million, or $0.30 per diluted share, a decrease of 7.6% over net income of $31.9 million, or $0.33 per diluted share, in the first quarter of 2009.
"Interactive Data's revenue grew by 5.8% in the first quarter of 2010 thanks to the contributions from our recent acquisitions, the positive impact from foreign exchange and another good quarter of new sales and revenue growth for our fixed income evaluations, reference data, and web-based solutions," stated Ray D'Arcy, Interactive Data's president and chief executive officer. "Our income from operations for the first quarter was affected by several factors. First, we incurred approximately $3.4 million in costs associated with the review of strategic alternatives, which reduced net income by approximately $2.2 million. Second, higher capital spending in prior periods and our recent acquisitions increased depreciation and amortization expenses by $3.6 million. Third, personnel costs increased as a result of expanding our fixed income evaluations organization in 2009 to address continued demand, and implementing our annual merit-based salary increase in January 2010 after deferring this action last year. In addition, our expense base reflected the addition of our newly acquired businesses."
D'Arcy continued, "We were pleased to see that our overall organic revenue growth rate for the first quarter of 2010 improved over fourth-quarter 2009 levels as our core markets continued to stabilize. Our Pricing and Reference Data business continued to experience solid demand for its fixed income evaluations and reference data services. In addition, we produced another strong quarter of revenue growth for our web-based solutions in the U.S. and experienced an improved revenue performance with our fixed income analytics offerings. These dynamics offset expected revenue softness from our real-time market data services and eSignal product areas. Our recent acquisitions of the Online Financial Solutions (OFS) and 7ticks assets are important elements in our plan to help drive top-line growth and improved long-term profitability in our real-time business by expanding our penetration within the electronic trading and wealth management sectors. In addition, we continued to make tangible progress with key development initiatives that are designed to further elevate our value proposition to customers worldwide, including our ongoing efforts to significantly enhance our award-winning global Global Corporate Actions service and the introduction of our new Options Analytics service."
D'Arcy concluded, "We are excited about the planned acquisition of Interactive Data by Silver Lake and Warburg Pincus, which we announced last week. We believe this agreement represents a very positive outcome for customers, employees and shareholders. We expect that the transaction will be completed by the end of September, and we look forward to a smooth transition in ownership."
Segment Reporting, Related Operating Highlights and Revenue by Geography
Institutional Services Segment:
* Interactive Data Pricing and Reference Data reported first-quarter 2010 revenue of $126.5 million, an increase of $4.7 million, or 3.8%, over the prior year's first-quarter 2009 revenue. First-quarter 2010 organic revenue for Interactive Data Pricing and Reference Data, which excludes the effects of foreign exchange, and related intercompany eliminations associated with the OFS assets that were acquired in December 2009, grew 1.6% from the same period last year primarily due to improved performance in the U.S. During the first quarter of 2010, Interactive Data Pricing and Reference Data began providing daily independent evaluations for fixed-rate reverse mortgage-backed securities (HMBS) issued under the Government National Mortgage Association (GNMA) Home Equity Conversion Mortgage (HECM) program - becoming one of the first data providers in the industry to offer daily evaluations for fixed rate GNMA HMBS. This business also signed an agreement with Korea Bond Pricing (KBP) under which KBP will help promote Interactive Data's international bond evaluations services to its clients in Korea.
* Interactive Data Real-Time Services generated first-quarter 2010 revenue of $41.5 million, an increase of $6.6 million, or 18.9%, over the same quarter last year (or an increase of $4.9 million, or 14.1% before the effects of foreign exchange). Organic revenue for Interactive Data Real-Time Services, which excludes the effects of foreign exchange, the first full quarter contribution of the acquired OFS assets, a two and one-half month contribution from the 7ticks assets that were acquired in mid-January 2010, and acquisition-related intercompany eliminations, decreased 2.3% from the same period last year. The decline in organic revenue reflects the impact of higher cancellations in real-time datafeed services primarily resulting from market conditions during the past several quarters. The decline in real-time datafeed revenue was partially offset by strong organic revenue growth for its Web-based solutions in the U.S. During the first quarter of 2010, Interactive Data launched Options Analytics, a new service that delivers real-time advanced analytics capabilities for U.S.-listed equity and index options. In addition, Interactive Data expanded its ultra low-latency trading network on the East Coast, further enhancing its exchange co-location capabilities for access to leading equities exchanges.
* Interactive Data Fixed Income Analytics reported revenue for the first quarter of 2010 of $8.6 million, an increase of $0.4 million, or 5.3%, over the first quarter of 2009 due to improved net new business levels in recent quarters and client migrations to its next-generation BondEdge platform. This business recently released BondEdge® Version 3.2, which contains enhancements to help institutional investors assess risk related to prime and sub-prime residential mortgage-backed securities.
Active Trader Services Segment:
* eSignal's first-quarter 2010 revenue of $20.2 million decreased by $0.8 million, or 4.0%, from the first quarter of 2009 (or a decline of $1.3 million, or 6.1%, before the effects of foreign exchange) due to lower average subscription fees and lower advertising revenue. As of March 31, 2010, eSignal managed approximately 56,500 direct subscription terminals, which is essentially unchanged from the fourth quarter of 2009, and 1.7% lower than the same period one year ago. During the first quarter of 2010, eSignal began working with Dorman Trading to integrate Dorman Trading's unfiltered tick data, unique market access and high-speed Zen-Fire connection with the streaming market data charting package and customizable formulas of eSignal and eSignal OnDemand - Mini Futures.
Revenue by Geography:
* Interactive Data's North American first-quarter 2010 revenue of $140.6 million increased by $7.6 million, or 5.7%, from the same period last year. Organic revenue for Interactive Data's North American business, which excludes the first full quarter contribution of the acquired OFS data and tools assets, a two and one-half month contribution from the 7ticks assets that were acquired in mid-January 2010, and acquisition-related intercompany eliminations, increased 1.5%. Organic revenue growth in the Company's fixed income evaluations, reference data services, fixed income analytics and web-based solutions areas more than offset revenue weakness from its real-time market data and eSignal offerings. The Company's first-quarter 2010 revenue in Europe of $48.5 million grew by $2.2 million, or 4.7%, from revenue in the first quarter of 2009. Excluding the effects of foreign exchange, first-quarter 2010 organic revenue in Europe declined by 3.7% primarily due to the impact of certain anticipated cancellations mostly associated with client mergers, and more moderate usage-related revenue growth. Interactive Data's Asia-Pacific revenue of $7.8 million in the first quarter of 2010 grew by $1.0 million, or 15.5% from the first quarter of 2009. Excluding the effects of foreign exchange, revenue for the Asia-Pacific region was essentially unchanged.
* A table comparing revenue by geography, including the impact of foreign exchange as a percentage of total revenue for the three-month period ended March 31, 2010 and 2009, for each of Interactive Data's major geographic regions has been included on page 13 of this press release.
Other First-Quarter 2010 Financial and Recent Operating Highlights
Effects of Foreign Exchange:
* Interactive Data's first-quarter 2010 revenue was favorably impacted by $4.9 million due to the effects of foreign exchange resulting from a weaker U.S. dollar in comparison with the first quarter of 2009. First-quarter 2010 revenue before the effects of foreign exchange increased by $5.9 million, or 3.2%, over the same period in 2009. Total costs and expenses in the first quarter of 2010 were unfavorably impacted by $3.8 million as a result of the effects of foreign exchange. First-quarter 2010 total costs and expenses before the effects of foreign exchange increased by $10.9 million, or 7.9%, over the first quarter of 2009.
* A table comparing the average foreign exchange rates during the three-month period ended March 31, 2010 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, 2010, Interactive Data had no outstanding debt and $305.9 million in cash, cash equivalents, short-term marketable securities ($299.2 million) and long-term marketable securities ($6.7 million included in other assets on its balance sheet). Interactive Data did not repurchase any of its common stock during the first quarter of 2010. Entering the second quarter of 2010, approximately 1.5 million shares of Interactive Data's common stock were available for repurchase under the existing stock buyback program. During the first quarter of 2010, Interactive Data paid $19.0 million to stockholders in connection with its regular quarterly dividend of $0.20 per share.
* As disclosed last week, under the terms of the Company's agreement to be acquired by Silver Lake and Warburg Pincus, Interactive Data is prohibited from declaring future regular quarterly dividends or any special dividends to stockholders. In addition, Interactive Data is prohibited from repurchasing its common stock.
Acquisitions by Interactive Data:
* As previously announced, 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. Revenue and expense associated with TSL were not material for the first quarter.
* As previously announced, 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 subscribe to Interactive Data 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. The 7ticks business is operated as part of Interactive Data's Real-Time Market Data and Trading Solutions Group. 7ticks generated first-quarter 2010 revenue of $2.5 million.
Acquisition of Interactive Data by Silver Lake and Warburg Pincus:
* On May 4, 2010, Interactive Data announced a definitive agreement for the Company to be acquired by investment funds managed by Silver Lake and Warburg Pincus in a transaction with a total value of $3.4 billion. Under the agreement, Interactive Data's stockholders will receive $33.86 in cash for each share of Interactive Data common stock they own. This represents a premium of approximately 32.9 percent over the closing share price on Thursday, January 14, 2010, the last trading day before the Company announced that its Board of Directors was conducting a review of strategic alternatives. Completion of the transaction is expected to occur by the end of the third quarter of 2010, following regulatory approvals and other customary closing conditions. Interactive Data's majority stockholder, Pearson has executed a written consent to approve the transaction, thereby providing the required stockholder approval for this transaction. No further action by non-Pearson stockholders is required to approve this transaction.
In light of last week's acquisition announcement, Interactive Data will not be updating prior financial guidance, last provided on February 23, 2010, for the full year 2010.