Dear Fellow Shareholder:
Having served as Interactive Data’s president and chief executive officer since the February 2000 merger with publicly traded Data Broadcasting Corporation until just prior to the production and delivery of this annual report, I felt it would be important to share my thoughts about Interactive Data’s performance in 2008 and express my confidence about the Company’s future.
Interactive Data posted record results in 2008 as our business grew strongly during a year marked by unprecedented turbulence across the broader financial markets, which in turn is reshaping the financial services industry that we primarily target. We made considerable progress in further fortifying and expanding our institutional customer relationships, extending our geographic reach outside of North America and putting in place the leadership succession plans and organizational framework that we believe will position Interactive Data for prosperity well into the future.
Our growth during 2008 was primarily driven by four powerful trends that we believe will be enduring, even in difficult market conditions. These trends encompass the heightened scrutiny around the valuation of securities; increased regulation and its associated impact on risk management and compliance; increasing adoption of low latency data and related solutions to power automated trading systems; and the continued need to differentiate wealth management offerings in order to attract high net worth customers. Our success in the past year was influenced by our efforts to position the capabilities across our organization to help our clients address these trends. Through both investment in internal development and acquisition, we have added new capabilities, brought innovative new offerings and product enhancements to the marketplace, and expanded the data content within our services. We are well positioned to continue helping our customers in this way.
Today’s Interactive Data moves forward with the requisite scale in terms of the content, technology, distribution channels, support resources, financial strength and everything else that has enabled us to earn the trust of our institutional customers around the world. That trust serves as the foundation upon which we can work collaboratively with our customers and it underpins our ability to win new business within their organizations.
Financial Review
Interactive Data’s financial performance in 2008 was excellent, particularly when viewed against market conditions that became increasingly more challenging during the second half of the year. Revenue grew 8.8% to $750.5 million in 2008 primarily as a result of sustained global demand for our evaluations, reference data and real-time datafeeds, as well as strong revenue growth in the U.S. for our managed solutions offerings. We remained diligent about controlling costs while directing investment into areas of our business that we believe will continue to deliver attractive returns. Net income grew 13.2% to $142.6 million, or $1.48 per diluted share, due primarily to ongoing improvements to our operating profitability, which more than offset lower interest income and a higher effective tax rate in 2008 compared with 2007.
Interactive Data has historically managed its business with an emphasis on generating high levels of net cash provided by operating activities. This was certainly the case in 2008 as we generated $196.2 million in cash from operations. We completed two acquisitions totaling a net of $43.7 million that served to substantially increase our presence in two key international markets while also making capital investments totaling $45.5 million to enhance our technical infrastructure and advance product development. We also returned $103.6 million to shareholders through our regular quarterly dividend and a special dividend, and spent $52.5 million on our stock repurchase program.
Highlights from 2008 and into 2009
One Company, One Vision
Several years ago, we began the process of gradually evolving our organizational structure to a more centralized approach from one that was largely decentralized with branding, sales, marketing, product development and support activities being conducted at a business unit level. As we’ve grown and gained scale, operating as “one company” has become a driving theme within our Company. We view our “One Company, One Vision” initiative as a key to accelerating innovation, enhancing our existing services, strengthening our technical infrastructure and building stronger relationships with our customers.
During the past year, we made important progress with our “One Company, One Vision” initiative. In that regard, we completed our efforts that began in 2007 to unify all of our institutionally oriented businesses under a single management structure. From a client-facing perspective, we integrated the previously separate Pricing and Reference Data, and Real-Time Services sales teams. We also expanded the number of customers we managed as part of our Major Accounts Group, which provides centralized sales, account management and support to many of our largest and most strategic institutional customers. In addition, we took steps last year, including the appointment of a chief technology officer, to more tightly coordinate our development, information technology and operations resources.
International Expansion and Acquisitions
Interactive Data services an expansive global base of thousands of institutional customers and nearly 55,000 active trader subscribers. In 2008, we continued to grow our institutional business in the European and Asia-Pacific regions, both organically and through acquisition. Although certain economies in those regions slowed in 2008, we continued to take advantage of attractive growth opportunities as a result of the trends cited earlier and drove strong adoption of our evaluated pricing, reference data and real-time datafeed services.
At the same time, we completed two acquisitions that give us a more substantial direct presence in Italy and Japan, two markets that we believe present attractive growth opportunities. We ended 2008 with 29.4% of our revenue generated outside of North America — and we will continue to fund initiatives aimed at growing our presence abroad.
Innovation and Product Development
Interactive Data continued to enhance its existing offerings and develop new ones. In our Pricing and Reference Data business, we’ve continued to expand the universe of instruments we cover by adding new asset classes. Related to this, we established an exclusive strategic alliance with Prism Valuation, a small but highly innovative firm that specializes in valuations of complex OTC derivatives and structured products. In addition to redistributing Prism’s services, we also made a minority investment in this company. At our Real-Time Services business, we kept pace with continuing surges in market data volumes, added new market sources and brought additional services to the marketplace. In Fixed Income Analytics, we advanced development of the next-generation version of our flagship BondEdge® offering. At eSignal, we added new features and capabilities with an emphasis on those features that can help us drive adoption of the eSignal platform within the U.S. regional brokerage market. We also continued efforts to drive collaboration on product development initiatives across our Company.
Leadership Succession
Interactive Data has always prided itself on having a strong and deep bench of talented, experienced executives and managers. During the past year, we added to our team by appointing a number of important business, sales and operations leaders. We also put a CEO succession plan in place to provide for an orderly transition of leadership as a result of my plans to retire later this year. We completed this transition when Ray D’Arcy, who has held a variety of senior sales leadership roles during his 30-year tenure at Interactive Data, became the Company’s president and chief executive officer at the beginning of March. As I have stressed during the past year, my decision to retire has nothing to do with my feelings about the future of our business. I am, in fact, more confident about our prospects than at any other time in my career. I have been fortunate in working for Interactive Data for 40 years, and it is the right time for me to move on to another phase in my life.
I have known Ray for more than 20 years and think he is an excellent choice to be the Company’s next leader. I brought Ray on to my senior management team after I became Interactive Data’s leader in 1995, and he did an outstanding job in directing the market-facing side of our institutional business through 13 consecutive years of growth. Since Ray’s selection by our Board, I worked closely with him to ensure a seamless, orderly transition. I encourage you to read Ray’s commentary on our business and its future within this year’s annual report.
Outlook
Despite slowing economies around the world and a weakened financial services landscape that has been altered by major customer consolidations, we remain confident about our ability to continue to help our customers address the powerful trends affecting their businesses. Going forward, we expect that customers will be understandably cautious about their spending plans for market data and related services.
Parting Thoughts
Recognizing that this will be my last shareholder letter, I wanted to express my gratitude to those who have helped me in my career at Interactive Data, and helped make our Company what it is today. Interactive Data is a fantastic company, composed of great people who have instilled an outstanding culture. I am very proud of all that we’ve achieved, especially during the past 13 years as Interactive Data established itself as a tier-one player in our industry. And as proud as I am about what we’ve accomplished, I am equally as enthusiastic about our future.
The progress and achievements during the past year did more than just contribute to another year of impressive results; they helped fortify the foundation upon which we will build future success. I have tremendous confidence that Ray and his management team, with the full support of the Board, will lead the Company to new levels of success.
I would like to thank our employees for their dedication, commitment and hard work in making 2008 another very successful year at Interactive Data. We also thank our customers and business partners for their ongoing commitments to our Company. Finally, I would like to express my sincere appreciation for the support that you, our shareholders, have provided over the years.
I believe that Interactive Data is positioned for continued success and I look forward to seeing what our Company will accomplish next year and beyond.
Stuart Clark
Former President and Chief Executive Officer