Source: Interactive Data
Interactive Data Corporation (NYSE: IDC) today reported its financial results for the first quarter ended March 31, 2006.
First-quarter 2006 service revenue grew 2.7% to $143.4 million from $139.7 million in the first quarter of 2005. Net income for the first quarter of 2006 was $19.8 million, or $0.21 per diluted share, which includes $2.1 million of after-tax, stock-based compensation expense associated with the first-time adoption of Financial Accounting Standards Board Statement No. 123 (FAS 123R), compared with $23.7 million, or $0.25 per diluted share, in the same quarter last year.
"Interactive Data's core businesses remained strong and performed in line with our plan for the first quarter of 2006," stated Stuart Clark, Interactive Data's president and chief executive officer. "Our growth was driven primarily by our FT Interactive Data business while ComStock, CMS BondEdge and eSignal achieved good underlying progress against their respective business plans. The first quarter of 2006 was also the first full quarter of ownership of the IS.Teledata business that we acquired in mid-December 2005 and integration activity is now underway. One of our top priorities with this German-based business has been to bring its accounting in line with US GAAP standards and this initiative resulted in the deferral of $1.6 million in first-quarter 2006 service revenue, which we expect to recognize later this year. We also completed our acquisition of the Quote.com business in early March, resulting in the inclusion of approximately 3 weeks of operating results for that operation. Based on our progress thus far and the opportunities in front of us, we remain on track to achieve our 2006 financial targets."
Clark commented, "Our first-quarter service revenue growth of 2.7% over the same period last year was influenced by a number of factors including a strong performance from our FT Interactive Data business plus the contributions from our IS.Teledata and Quote.com acquisitions. Our growth, however, was muted by the fact that the first quarter of 2005 included the previously disclosed recognition of $8.1 million in ComStock-related service revenue that was reversed and deferred in the fourth quarter of 2004. The decline in our net income for the first quarter of 2006 largely reflects the inclusion of stock-based compensation expense, a higher effective tax rate, higher depreciation and amortization costs associated with our recent acquisitions, the profit impact associated with the deferred IS.Teledata service revenue and approximately $0.9 million in after-tax profit associated with the recognition of the $8.1 million in service revenue in the first quarter of 2005. Despite lower reported net income, we generated excellent cash flow from operations."
"Operationally, our businesses executed well in the first quarter of 2006. Within our institutionally oriented businesses, renewal rates remained at approximately 95% for the first quarter. FT Interactive Data achieved an important milestone with its strategic alliance with Markit Group, announcing a new service in March 2006 to provide independent valuations of credit default swaps. Within Interactive Data's institutional businesses, collaboration on product development and sales initiatives is also yielding some very positive results," Clark noted.
Clark concluded, "During the first quarter of 2006, we spent $30.0 million to acquire the Quote.com assets, $2.7 million to increase our ownership of IS.Teledata to 99.6% from 95.1% at the end of 2005, and $5.6 million for stock repurchases. Even with these investments, we ended the first quarter with $165.7 million in cash, cash equivalents and marketable securities, and we remain debt free. We move forward with the financial strength, service offerings, customer relationships and talented team necessary to continue expanding our business around the world."
Other First-Quarter and Recent Operating and Financial Highlights
2006 to 2005 Comparisons - Service Revenue and Total Costs and Expenses:
Institutional Services Segment:
FT Interactive Data's first-quarter 2006 service revenue of $89.8 million grew 4.4% over the prior year's first quarter (or an increase of 6.2% before the effects of foreign exchange). North American service revenue for the first quarter of 2006 increased 6.5% over the prior year's first quarter primarily as a result of new evaluated services and related reference data sales closed in late 2005. First-quarter 2006 European service revenue declined by 2.2% (or increased 5.5% before the effects of foreign exchange) from the first quarter of last year. FT Interactive Data generated strong new sales in both the United States and Europe, and attracted robust client interest for its new credit default swap valuation service during the quarter. FT Interactive Data's Asia-Pacific first-quarter 2006 service revenue declined 2.7% (or increased 1.2% before the effects of foreign exchange) compared with the prior year's first quarter.
ComStock generated first-quarter 2006 service revenue of $26.7 million, a decline of 3.8% over the same quarter last year (or a decline of 1.9% before the effects of foreign exchange). ComStock's 2006 first-quarter service revenue includes $7.9 million from the IS.Teledata business, which was acquired in mid-December 2005. In addition, as detailed above, $1.6 million in service revenue associated with IS.Teledata services was deferred in the first quarter of 2006 although such amounts are expected to be recognized later this year. First-quarter 2005 service revenue included the previously disclosed recognition of $8.1 million that was reversed and deferred in the fourth quarter of 2004 as well as $0.9 million from providing real-time services to IS.Teledata and Quote.com (both IS.Teledata and Quote.com were subsequently acquired by Interactive Data and, accordingly, service revenue associated with these businesses is now classified as an intercompany transaction). During the first quarter of 2006, ComStock upgraded its data distribution network and won new business with a number of hedge fund clients who are using ComStock's real-time market data to power their algorithmic trading applications.
CMS BondEdge's service revenue for the first quarter of 2006 increased by 1.8% over last year's first quarter to $8.1 million. CMS BondEdge's first-quarter 2006 performance was highlighted by nine new client installations, additional purchases by existing customers and the launch of an enhanced evaluations service in Europe in collaboration with FT Interactive Data that takes advantage of CMS BondEdge's analytical capabilities.
Active Trader Services Segment:
eSignal's first-quarter 2006 service revenue of $18.9 million increased 5.3% over 2005's first-quarter service revenue (or an increase of 5.7% before the effects of foreign exchange). The increase reflects the contribution of Quote.com, which was acquired in early March 2006, and growth in eSignal's direct subscriber base, partially offset by the expected cancellation of a distribution relationship for FutureSource-related services in early 2005. The Quote.com business contributed $0.8 million in first-quarter 2006 service revenue. eSignal ended the first quarter of 2006 with approximately 61,200 direct subscription terminals, which includes approximately 13,900 direct subscription terminals for Quote.com-related services. In late March and early April 2006, eSignal launched new private-label services with partners such as the Chicago Board of Trade and America Online.
Acquisition of Quote.com:
On March 6, 2006, Interactive Data completed the acquisition of the assets of Quote.com and certain other related assets from Lycos, Inc. for $30.0 million in cash. The acquisition included the subscription-based QCharts and LiveCharts services that provide real-time streaming data and decision support tools that help active traders formulate investment strategies, as well as Quote.com, a financial news and analysis website, and RagingBull, an online investment community and message board site.
Approximately $1.9 million, or 30%, of the $6.5 million in first-quarter 2006 capital expenditures were associated with facility relocation activities.
Cash Position and Stock Buyback Activities:
As of March 31, 2006, Interactive Data had no outstanding debt and had cash, cash equivalents and marketable securities of $165.7 million. Interactive Data repurchased a total of 248,000 shares at an average price of $22.66 per share during the first quarter of 2006. Entering the second quarter of 2006, 200,000 shares of common stock remained available for repurchase under the Company's current stock buyback program.
We anticipate that market conditions will remain unchanged to those experienced during the first quarter of 2006. We believe that spending on market data and related services by customers in the financial services industry will be balanced by their continued focus on cost containment initiatives. As a result of both the organic expansion of our business and the impact of the previously announced IS.Teledata and Quote.com acquisitions, we currently expect that 2006 service revenue growth will be in the mid-teens. We expect that 2006 net income will decline slightly versus 2005 as a result of recording $8.0 million to $10.0 million of estimated after-tax, stock-based compensation expenses associated with the adoption of Financial Accounting Standards Board Statement No. 123, "Share-Based Payment." The effective tax rate for 2006 is expected to be in the range of 38.0% to 39.5%. We anticipate that non-GAAP income from operations, which excludes the impact of Financial Accounting Standards Board Statement No. 123, will grow in the high single-digit to low double-digit range in 2006.
2006 capital expenditures are expected to be in the range of $40.0 million to $43.0 million. This includes capital expenditures of approximately $10.0 million to $12.0 million associated with the planned relocation of Interactive Data's corporate headquarters in Bedford, Massachusetts and ComStock's Harrison, New York facility during the year. Approximately 50% of the capital expenditures associated with these facility activities will be reimbursed by the landlords of these facilities during 2006.