IDC Revs Up, EPS Declines

Interactive Data Corp. (IDC) reported its second quarter 2010 results after market close on July 19th, 2010.

Revenues for the second quarter was $194.0 million, up 4.9% from $185.0 million reported in the year-ago quarter. The revenue grew organically, helped by contribution from the recent acquisition. This apart, the company continues to witness strength in the fixed income evaluation and reference data business, especially in the U.S. The web-based and Income Analytics business also contributed to the growth in the last quarter. On the other hand the challenges in its eSignal services business (relating to active traders) and the real time market data services remain.

Within Institutional Services, Pricing and Reference Data reported revenues of $125 million, a 1.5% increase over the year-ago period. Excluding the effects of foreign exchange, and related inter-company eliminations associated with the Online Financial Solutions (“OFS”) data and tools assets that were acquired in December 2009, organic revenues grew by 2.1% from the same period last year, attributable to the reference data services mainly in the U.S. Real-Time Services generated revenues of $40.5 million, up 23.3% year over year. 

Organic revenues, which excludes the effect of foreign exchange, the full quarter contribution of acquired OFS assets, contribution from the 7ticks assets and the inter-company eliminations related to acquisitions, segment revenue declined 5.6% on a year-over-year basis. The Fixed Income Analytics segment reported revenues of $8.5 million, up 3.5% from the year-ago quarter.

In the Active Trader segment, eSignal generated $20 million in revenues, down 3.8% year over year (or a decline of $0.7 million, or 3.3% before the effect of foreign exchange). This may be attributed to declines in average subscription fees and advertising revenues. By the end of the quarter, eSignal gathered around 55,700 direct subscription terminals and also lowered its advertising revenues.
 
Geographically, Interactive Data’s total second-quarter 2010 revenues in North America was $142 million, an increase of 7.4% from the same period last year; Europe generated $44.4 million, down 2.3% compared to the year-ago quarter. Interactive Data’s Asia-Pacific revenue of $7.6 million in the second quarter of 2010 was up 3.5% from the year-ago quarter.
 
Operating results
 
GAAP operating income for the second quarter was $35.5 million (18.3% of revenues), down 29.7% from $50.6 million (27.3% of revenues) reported in the year-ago quarter. The decline in operating income can be attributed to higher Selling, General and Administrative expense, merit based salary increase, and increase in depreciation and amortization, as a result of higher capital spending. Excluding special items like costs related to the recently acquired business, inter-company adjustments and the effect of foreign currency, non-GAAP income from operations for the quarter was $49.6 million (25.6% of revenue).
 
Net Income attributable to shareholders for the second quarter was $25.2 million or 26 cents per share, down from $33.1 million or 34 cents per share reported in the year-ago quarter.
 
Balance Sheet

At the end of the second quarter, Interactive Data had no outstanding debt and had cash, cash equivalents and marketable securities of $347.1 million. During the second quarter of 2010, the company did not repurchase any common stock.

Conclusion

We consider IDC’s second quarter numbers mediocre at best, with EPS declining on a year over year basis. While IDC is upgrading its datacenter to serve its customers more efficiently, the cost control measure was not really successful. Moreover, while the company has been successfully expanding its business in Europe and winning new clients, the economic crisis in the region could temper growth. IDC generates healthy cash flow and has a strong balance sheet.

This apart, on May 4, 2010 the company entered into an agreement with the investment management fund, Warburg Pincus, which has agreed to acquire Interactive Data for a total value of $3.4 billion, or $33.86 of cash per share, which is in line with the trading price of $33.71 on July 19th. As such, we maintain our Neutral recommendation on IDC, with a short term Sell rating, implying Zacks#4 rank.

Read the full analyst report on IDC