IDC Interactive Data Corp.

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(R) (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: -- The following table highlights a number of items that may be considered when comparing Interactive Data's first-quarter 2006 financial results with the same period one year ago. -0- *T Q106 v. Q105 Q106 Notes Q105 Notes ------------------- ------------------- -------------------- Service Q106 service -- Includes $8.7 -- Includes the revenue revenue of $143.4 million in previously million, an service revenue disclosed increase of 2.7% from acquired recognition of from $139.7 businesses $8.1 million in million in Q105 service revenue -- Includes the that was negative impact reversed and of $2.2 million deferred from associated with prior periods foreign exchange -- Includes $0.9 million in -- Includes the ComStock service deferral of revenue from $1.6 million services associated with provided to IS.Teledata IS.Teledata and services that Quote.com, both did not meet of which were certain revenue subsequently recognition acquired by criteria Interactive Data. -- Includes $0.3 million in ComStock service revenue from services provided to Quote.com, which was subsequently acquired by Interactive Data. Total Q106 total costs -- Includes $3.6 -- Includes the costs and expenses of million in previously and $111.5 million, an pre-tax, disclosed expenses increase of $8.0 stock- recognition of million, or 7.8% compensation $6.7 million in from $103.5 expense direct SG&A million in Q105 associated costs that were with FAS reversed and No.123(R) deferred from prior periods -- Includes $11.1 million in total costs and expenses associated with acquired businesses -- Includes the positive impact of $1.7 million associated with foreign exchange *T 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(TM) and LiveCharts(TM) 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(TM), an online investment community and message board site. Capital Expenditures: -- 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. Outlook 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(R), "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(R), 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. Conference Call Information Interactive Data Corporation's management will conduct a conference call Thursday, April 27, at 11:00 a.m. Eastern Time to discuss the first-quarter 2006 results, related financial and statistical information, and additional business matters. The dial-in number for the conference call is (706) 679-4631; the related access code is 7524851. Investors and interested parties may also listen to the call and view related slides via a live web broadcast available through the Investor Relations section of the Company's web site at www.interactivedata.com and through www.StreetEvents.com. To listen, please register and download audio software at the site at least 15 minutes prior to the call. For those who cannot listen to the live broadcast, a replay of the call will be available from April 27 at 2:00 p.m. until Thursday, May 11, 2006 at 2:00 p.m., and can be accessed by dialing (706) 645-9291 or (800) 642-1687, using access code 7524851. This press release and other financial and statistical information to be presented on the conference call will be accessible on the Investor Relations section of the Company's web site at www.interactivedata.com. The web site is not incorporated by reference into this press release. Non-GAAP Information In an effort to provide investors with additional information regarding our results on a generally accepted accounting principles (GAAP) basis, we also disclose the following non-GAAP information, which management believes provides the following useful information to investors: -- Management refers to growth rates at constant foreign currency exchange rates so that business results can be viewed without the impact of changing foreign currency exchange rates, thereby facilitating period-to-period comparisons of our underlying business. Generally, when the U.S. dollar either strengthens or weakens against other currencies, the growth at constant currency rates will be higher or lower than growth reported at actual exchange rates. -- Management refers to organic growth, which excludes the contribution of businesses acquired or closed during the past 12 months, and the effects of foreign currency exchange rates because management believes that facilitating period-to-period comparisons of our organic revenue growth on a constant dollar basis better reflects actual trends. As part of determining organic growth, management refers to service revenue for our FT Interactive Data, ComStock, CMS BondEdge, and eSignal businesses. Management uses such information for evaluating its business, and for forecasting and planning purposes. In addition, since we have historically reported service revenue for these businesses to the investment community as part of our reports on Form 10-K and Form 10-Q, we believe that continuing to offer such information provides consistency in our financial reporting. -- Management includes information regarding total costs and expenses excluding total costs and expenses associated with businesses acquired or closed during the past 12 months, and the effects of foreign exchange, because management believes changes in our core total costs and expenses on a constant dollar basis better reflect actual trends. -- Management refers to non-GAAP income from operations, which excludes the estimated impact of the adoption of Financial Accounting Standards Board Statement No. 123(R), "Share-Based Payment," because our historical financial performance did not include this expense. As a result, we believe that continuing to offer such information about our financial performance provides consistency in our financial reporting. The above measures are non-GAAP financial measures and should not be considered in isolation from (and are not intended to represent an alternative measure of) revenue, total costs and expenses, earnings or cash flows provided by operating activities, each as determined in accordance with GAAP. In addition, the above measures may not be comparable to similarly titled measures reported by other companies. Forward-looking and Cautionary Statements This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and federal securities laws, and is subject to the safe-harbor created by such Act and laws. Forward-looking statements include our statements discussing our goals, beliefs, strategies, objectives, plans, future financial conditions, results of operations and cash flows or projections, including those appearing under the heading "Outlook," those statements about expected market conditions, current expectations and our expected growth, and product and service developments, and potential alliances and acquisitions. These statements are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, but are not limited to: (i) the presence of competitors with greater financial resources than ours and their strategic response to our services and offerings; (ii) the possibility of a prolonged outage or other major unexpected operational difficulty at any of our key facilities; (iii) our ability to maintain relationships with our key suppliers and providers of financial market data; (iv) our ability to maintain our relationships with service bureaus and custodian banks; (v) a decline in activity levels in the securities markets; (vi) consolidation of financial services companies, both within an industry and across industries; (vii) the continuing impact of cost-containment pressures across the industries we serve; (viii) new offerings by competitors or new technologies that could cause our offerings or services to become less competitive or obsolete; (ix) our ability to develop new and enhanced service offerings and our ability to market and sell those new and enhanced offerings successfully to new and existing customers; (x) our ability to negotiate and enter into strategic alliances or acquisitions on favorable terms, if at all; (xi) our ability to derive the anticipated benefits from our strategic alliances or acquisitions in the desired time frame, if at all; (xii) potential regulatory investigations of us or our customers relating to our services; (xiii) the regulatory requirements applicable to our business, including our FT Interactive Data Corporation subsidiary, which is a registered investment adviser; (xiv) our ability to attract and retain key personnel; (xv) the ability of our majority shareholder to exert influence over our affairs, including the ability to approve or disapprove any corporate actions submitted to a vote of our stockholders; and (xvi) other factors identified in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. We undertake no obligation to update these forward-looking statements. About Interactive Data Corporation Interactive Data Corporation (NYSE: IDC) is a leading global provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. The Company's businesses supply time-sensitive pricing, evaluations, dividend, corporate action and reference data for more than 3.5 million securities traded around the world, including hard-to-value instruments. Many of the world's best-known financial service and software companies subscribe to the Company's services in support of their trading, analysis, portfolio management and valuation activities. Through its businesses, FT Interactive Data, ComStock, CMS BondEdge and eSignal, Interactive Data has approximately 2,200 employees in offices located throughout North America, Europe, Asia and Australia, and is headquartered in Bedford, MA. Pearson plc (NYSE: PSO; LSE:PSON), an international media company, whose businesses include the Financial Times Group, Pearson Education, and the Penguin Group, owns approximately 62 percent of the outstanding common stock of Interactive Data Corporation. For more information, please visit www.interactivedata.com. The FT Interactive Data business includes FT Interactive Data Corporation, a Delaware corporation. The ComStock business includes ComStock, Inc., a New York corporation. -0- *T INTERACTIVE DATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands except per share data) Three Months Ended March 31, -------------------------- 2006 2005 Change -------- -------- ------ SERVICE REVENUE $143,429 $139,652 2.7% COSTS & EXPENSES Cost of services(a) 49,269 41,828 17.8% Selling, general & administrative(a) 50,785 51,663 -1.7% Depreciation 5,285 4,559 15.9% Amortization 6,197 5,444 13.8% -------- -------- ------ Total costs & expenses 111,536 103,494 7.8% -------- -------- ------ INCOME FROM OPERATIONS 31,893 36,158 -11.8% Other income, net 1,193 1,014 17.7% -------- -------- ------ INCOME BEFORE INCOME TAXES 33,086 37,172 -11.0% Income Tax expense 13,264 13,499 -1.7% -------- -------- ------ NET INCOME $ 19,822 $ 23,673 -16.3% NET INCOME PER SHARE Basic $ 0.21 $ 0.25 -16.0% Diluted $ 0.21 $ 0.25 -16.0% WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 93,458 93,238 0.2% Diluted 95,910 96,106 -0.2% ------------------------------------------- --------- --------- ------ Three Months Ended March 31, ------------------- 2006 2005 -------- -------- (a) Includes stock-based compensation expense related to the adoption of FAS 123(R) of: Cost of services $ 1,387 $ - Selling, general & administrative 2,178 - -------- -------- Total $ 3,565 $ - INTERACTIVE DATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) March December 31, 31, 2006 2005 ---------- -------- ASSETS Unaudited Current Assets: Cash and cash equivalents $ 132,782 $147,368 Marketable securities 32,870 25,019 Accounts receivable, net 90,439 84,553 Interest receivable 903 751 Prepaid expenses and other current assets 11,820 10,458 Deferred income taxes 1,711 1,509 ---------- -------- Total current assets 270,525 269,658 ---------- -------- Property and equipment, net 65,409 64,252 Goodwill 517,655 480,179 Other intangible assets, net 185,317 182,156 Other assets 689 675 ---------- -------- Total Assets $1,039,595 $996,920 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable, trade $ 15,758 $ 18,032 Payable to affiliates 112 892 Accrued liabilities 56,968 68,747 Income taxes payable 11,279 2,045 Deferred revenue 30,411 23,988 ---------- -------- Total current liabilities 114,528 113,704 ---------- -------- Deferred tax liabilities 36,891 23,864 Other liabilities 2,295 3,946 ---------- -------- Total Liabilities 153,714 141,514 ---------- -------- Stockholders' Equity: Preferred stock - - Common stock 984 979 Additional paid-in capital 861,404 848,137 Treasury stock, at cost (80,204) (74,587) Accumulated earnings 97,271 77,449 Accumulated other comprehensive income 6,426 3,428 ---------- -------- Total Stockholders' Equity $ 885,881 $855,406 ---------- -------- Total Liabilities and Stockholders' Equity $1,039,595 $996,920 ========== ======== INTERACTIVE DATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Three Months Ended March 31, (Unaudited) 2006 2005 -------- --------- Cash flows provided by (used in) operating activities: Net income $ 19,822 $ 23,673 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,482 10,003 Tax benefit from exercise of stock options - 1,221 Excess tax benefits from stock based compensation (2,047) - Deferred income taxes (776) (649) Amortization of discounts and premiums on marketable securities, net 53 618 Other non-cash items, net 4,662 251 Changes in operating assets and liabilities, net (4,073) (10,800) -------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 29,123 24,317 Cash flows used in investing activities: Purchase of fixed assets (6,485) (2,794) Acquisition of business (32,851) (112) Purchase and sale of marketable securities (7,904) (115,067) -------- --------- NET CASH USED IN INVESTING ACTIVITIES (47,240) (117,973) Cash flows provided by (used in) financing activities: Purchase of treasury stock (5,617) (8,289) Proceeds from exercise of stock options and employee stock purchase plan 6,627 4,275 Excess tax benefits from stock based compensation 2,047 - -------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,057 (4,014) Effect of exchange rate on cash 474 (993) -------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (14,586) (98,663) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 147,368 207,908 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $132,782 $ 109,245 ======== ========= RECONCILIATION OF NON-GAAP MEASURES Service Revenue Before Effects of Foreign Exchange, Acquisition-Related Service Revenue, Intercompany Eliminations Resulting from Acquisitions, and the Recognition of Reversed and Deferred Service Revenue (In thousands) Three Months Ended March 31, 2006 2005 Change -------- -------- ------ Service Revenue Institutional Services FT Interactive Data $ 89,772 $ 86,028 4.4% ComStock 26,678 27,734 -3.8% CMS BondEdge 8,091 7,948 1.8% -------- -------- ------ Institutional Services Total 124,541 121,710 2.3% Active Trader Services eSignal 18,888 17,942 5.3% -------- -------- ------ Active Trader Services Total 18,888 17,942 5.3% Total Service Revenue 143,429 139,652 2.7% Effects of Foreign Exchange 2,202 - - -------- -------- ------ Non-GAAP Service Revenue before Effects of Foreign Exchange 145,631 139,652 4.3% Service Revenue - Quote.com (805) - - Service Revenue - IS.Teledata (7,863) - - -------- -------- ------ Non-GAAP Service Revenue before Effects of Foreign Exchange and Acquisition-Related Service Revenue $136,963 $139,652 -1.9% Intercompany Eliminations Resulting from Acquisitions (288) (868) -------- -------- ------ Non-GAAP Service Revenue before Effects of Foreign Exchange, Acquisition-Related Service Revenue and Intercompany Eliminations Resulting from Acquisitions $136,675 $138,784 -1.5% Recognition of Service Revenue Reversed and Deferred in the Fourth Quarter of 2004 - (8,122) - -------- -------- ------ Non-GAAP Service Revenue before Above Factors $136,675 $130,662 4.6% ======== ======== ====== RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (CONTINUED) Total Costs and Expenses Before Effects of Stock-Based Compensation Expense, Acquisition-related Total Costs and Expenses, Effects of Foreign Exchange, and Recognition of Reversed and Deferred Costs and Expenses (In thousands) Three Months Ended March 31, 2006 2005 Change -------- -------- ------ Total Costs & Expenses $111,536 $103,494 7.8% Stock-based Compensation Expense (3,565) - - Total Costs & Expenses - Quote.com (528) - - Total Costs & Expenses - IS.Teledata (10,573) - - Effects of Foreign Exchange 1,733 - - -------- -------- ------ Non-GAAP Total Costs & Expenses Before Acquisition-related Costs and Effective of Foreign Exchange $ 98,603 $103,494 -4.7% Recognition of Costs & Expenses Reversed and Deferred in the Fourth Quarter of 2004 - (6,702) - -------- -------- ------ Non-GAAP Total Costs & Expenses Before Above Factors $ 98,603 $ 96,792 1.9% ======== ======== ====== *T