BEDFORD, Mass February 24, 2005 Interactive Data Corporation (NYSE: IDC) today reported its financial results for the fourth quarter and full year ended December 31, 2004. Fourth-quarter 2004 service revenue grew 4.0% to $125.2 million from $120.4 million in the fourth quarter of 2003.
Net income for the fourth quarter of 2004 increased by 15.7% to $21.1 million, or $0.22 per diluted share, from $18.2 million, or $0.19 per diluted share, in the same quarter last year.
"Our fourth-quarter 2004 results were impacted by a reversal of $6.8 million in service revenue and $5.6 million in direct costs, with an associated reduction of $1.2 million in income from operations," stated Stuart Clark, president and chief executive officer. "These service revenues, direct costs and income from operations were recognized in prior periods and were attributable to services delivered to one international customer. The reversal was due to the fact that while we were providing services to, and receiving payment from the customer, there was no definitive service contract in place. We recently executed a definitive contract with this customer, and the service revenue, direct costs and income from operations that were reversed in the fourth quarter of 2004 will be recognized in the first quarter of 2005."
"Interactive Data's business performed very well in the fourth quarter. We saw continued strength at eSignal and in our FT Interactive Data North American business, as well as improvement at FT Interactive Data's European operations. In the institutional segment of our business, which is composed of FT Interactive Data, ComStock and CMS BondEdge, fourth-quarter 2004 renewal rates remained at or above 95% worldwide. In addition, new sales in the fourth quarter were well in excess of cancellations, driven by demand for value-added services such as evaluated pricing," said Clark.
Commenting on 2004, Clark noted, "Interactive Data enjoyed another successful year of growth and expansion. We generated double-digit net income growth for the third consecutive year, a notable accomplishment in light of challenging market conditions that have persisted during this period. We made good progress on a number of fundamental elements of our strategy, including elevating our relationships with institutional customers, developing new and enhanced service offerings, pursuing acquisitions, and strengthening our technology infrastructure. As a result, we enhanced our leadership position in each of the areas we serve."
"Many financial institutions worldwide are recognizing Interactive Data as a trusted business partner with the critical data and tools necessary to facilitate their operational workflow and address major industry challenges, including ongoing regulatory change. Entering the new year, we anticipate stable market conditions consistent with recent quarters. Each of our core businesses is poised for growth in 2005, and we will continue to invest in completing our data center consolidation initiative, developing new and enhanced offerings, and implementing other key programs that will continue to strengthen our customer relationships," concluded Clark.
Other Fourth-Quarter Operating and Financial Highlights
Â· Before the effects of foreign exchange, Interactive Data's
fourth-quarter 2004 service revenue grew by $3.1 million, or 2.6%, over the comparable period in 2003. Before the effects of foreign exchange, fourth-quarter 2004 total costs and expenses were in line with the fourth quarter of last year. The net effect of foreign exchange for the fourth quarter of 2004 was a $0.6 million increase in income from operations, resulting from a $1.7 million increase in service revenue offset by a $1.1 million increase in total costs and expenses.
Â· FT Interactive Data generated fourth-quarter 2004 service revenue of
$87.8 million, a 6.6% increase over the prior year's fourth quarter (or an increase of 4.5% before the effects of foreign exchange). North American service revenue for the fourth quarter of 2004 grew 5.2% over the prior year's fourth quarter, reflecting increased demand for evaluated and descriptive services. The number of Fair Value Information Service customers increased to 101 at the end of the fourth quarter of 2004, up from 89 at the end of the third quarter of 2004, and 29 at the beginning of the year. Fourth-quarter 2004 European service revenue increased by 12.0% (or an increase of 9.2% before the effects of foreign exchange and excluding the Index Services business that was closed at the end of 2003) from the fourth quarter last year and improved from the third quarter of 2004. While FT Interactive Data's fourth-quarter 2004 European service revenue did reflect certain one-time items, the underlying service revenue trend in this region is now positive. Asia-Pacific fourth-quarter 2004 service revenue was roughly flat in absolute dollars compared with the prior year's fourth quarter.
Â· ComStock generated fourth-quarter 2004 service revenue of $10.3
million, a decrease of 41.7% over the same quarter last year (or a decline of 41.1% before the effects of foreign exchange). The decline reflects the previously mentioned adjustment to reverse $6.8 million of service revenue and $5.6 million in direct costs with an associated reduction of $1.2 million in income from operations. These service revenues, direct costs and income from operations were recognized in prior periods and were attributable to services delivered to one international customer. The reversal was due to the fact that while ComStock was providing services to, and receiving payment from, the customer, there was no definitive service contract in place. ComStock recently executed a definitive contract with this customer and the service revenue, direct costs and income from operations that were reversed in the fourth quarter of 2004 will be recognized in the first quarter of 2005. The adjustment had no material impact on any historical reporting periods. During the fourth quarter of 2004, ComStock continued to win new business as well as invest in initiatives aimed at expanding capacity and facilitating integration into institutional enterprise-wide applications.
Â· CMS BondEdge service revenue for the fourth quarter of 2004 increased
3.7% over last year's fourth quarter to $8.1 million. Fourth-quarter highlights included eleven new client installations, increased service bureau business, and the release of the latest version of BondEdge.
Â· eSignal's fourth-quarter 2004 service revenue grew 58.8% to $18.0
million over 2003's fourth quarter. FutureSource, whose assets were acquired by the Company in September 2004, represented approximately 32% of eSignal's fourth-quarter 2004 service revenue. eSignal ended the fourth quarter of 2004 with more than 43,700 direct subscription terminals, which includes approximately 6,550 terminals as a result of the FutureSource asset acquisition.
Â· Interactive Data's other service revenue has been primarily composed
of broadcast services and real-time foreign exchange data services. In April 2004, we completed the phase out of broadcast services. As expected, other service revenue for the fourth quarter of 2004 decreased 25.2% from the same quarter last year to $0.9 million primarily as a result of the broadcast services phase out. In 2005, real-time foreign exchange services will be classified as part of ComStock, which took responsibility for managing this product line during the past year.
Â· Total fourth-quarter 2004 costs and expenses increased by $0.7 million
to $92.6 million from $91.9 million in the fourth quarter of 2003.
Included in the Company's fourth-quarter 2004 costs and expenses was an insurance reimbursement to the Company of $1.3 million for the Heartland settlement and related legal expenses, almost all of which were incurred in 2003. Total costs and expenses for the fourth quarter of 2004 declined by
$6.2 million, or 7.0%, before total costs and expenses associated with businesses acquired or closed in the past 12 months, the effects of foreign exchange and data center consolidation initiative costs.
Â· Regulatory compliance, including compliance with rules under the Sarbanes-Oxley and the Investment Advisers Acts, continued to be an area of investment for the Company in the fourth quarter of 2004. In particular, Interactive Data continues to commit significant resources to develop, test and refine the Company's internal control over its financial reporting as required by Section 404 of the Sarbanes-Oxley Act.
Twelve Month Results
For the twelve months ended December 31, 2004, Interactive Data reported service revenue of $484.6 million, an increase of 9.5% over $442.7 million for 2003. Total costs and expenses for 2004 rose 9.6%, or $31.4 million, to $358.7 million from $327.3 million in 2003. Income from operations increased 9.1% from $115.3 million in 2003 to $125.9 million in 2004. Net income in 2004 increased 11.2% to $80.3 million, or $0.84 per diluted share, from $72.2 million, or $0.76 per diluted share, in 2003.
As of December 31, 2004, Interactive Data had no outstanding debt and had cash, cash equivalents and marketable securities of $210.3 million, an increase of $35.2 million from September 30, 2004. Under the one million share buyback program initiated in September 2004, Interactive Data repurchased a total of 145,000 shares at an average price of $20.57 per share during the fourth quarter of 2004. This is the first quarter in which Interactive Data has repurchased shares under this buyback program.
We anticipate similar business conditions in 2005 to those that we experienced during the second half of 2004. We believe customers in the financial services sector will continue to be focused on cost containment initiatives. We currently anticipate that 2005 service revenue and net income growth will be in the high single-digit to low double-digit range.
The effective tax rate for 2005 is expected to be in the range of 38.0% to 38.5%. Capital expenditures for 2005 are expected to be in the range of $24.0-$26.0 million. This outlook does not include an estimate for the cost associated with expensing stock options in the second half of 2005.