The Daily Magic Formula Stock for 08/16/2008 is Interactive Data Corp. According to the Magic Formula Investing Web Site, the ebit yield is 9% and the EBIT ROIC is >100%.
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We are a leading global provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. Our customers use our offerings to support their portfolio management and valuation, research and analysis, trading, sales and marketing, and client service activities. We market and sell our services either by direct subscriptions or through third-party business alliances.
Our Institutional Services segment primarily targets financial institutions such as banks, brokerage firms, mutual fund companies, hedge funds, insurance companies and money management firms. In addition, our Institutional Services segment markets its offerings to financial information providers, information media companies, third-party redistributors and outsourcing organizations. The Institutional Services segment is composed of three businesses, each of which was renamed in February 2007 as part of a global marketing initiative to reinforce our value proposition and emphasize the Interactive Data brand to institutional customers:
Interactive Data Pricing and Reference Data (formerly FT Interactive Data). Our Pricing and Reference Data business provides financial institutions, third-party redistributors and outsourcing organizations with historical, intraday and end-of-day pricing, evaluations and reference data for an extensive range of securities, commodities, and derivative instruments that are traded around the world. This business accounted for $429.4 million, or 62.3%, of our revenue in 2007.
On May 2, 2007, we acquired the net assets comprising the market data division of Xcitek LLC, as well as the market data assets of its affiliate Xcitax LLC (collectively, the â€śXcitek Market Data Assetsâ€ť), for $25.1 million in cash. These assets, which are now managed as part of Interactive Data Pricing and Reference Data, included a broad range of North American corporate actions data, such as reorganization, cost basis, and class action data. We began integrating these assets into our Interactive Data Pricing and Reference Data business during 2007. We funded this acquisition from existing cash resources. The Xcitek Market Data Assets accounted for $5.3 million, or 1.2% of Interactive Data Pricing and Reference Data revenue in 2007, and 0.8% of our total revenue in 2007.
Interactive Data Real-Time Services (formerly ComStock). Our Real-Time Services business provides financial institutions, financial information providers and information media companies with global real-time and delayed financial market information covering equities, derivative instruments, futures, fixed income securities and foreign exchange. Our Real-Time Services business also offers customized financial information portals and terminals. We acquired this capability as a result of the December 2005 acquisition of IS.Teledata AG, which we subsequently renamed Interactive Data Managed Solutions in 2006. Interactive Data Real-Time Services accounted for $139.4 million, or 20.2%, of our revenue in 2007.
Interactive Data Fixed Income Analytics (formerly CMS BondEdge). Our Fixed Income Analytics business provides financial institutions with sophisticated fixed income analytics. This business accounted for $32.4 million, or 4.7%, of our revenue in 2007.
Active Trader Services
Our Active Trader Services segment targets active traders, individual investors and investment community professionals. We consider investors who typically make their own investment decisions, trade frequently and may earn a substantial portion of their income from trading to be active traders. The Active Trader Services segment is composed of one business:
eSignal. Our eSignal business provides active traders, individual investors and investment community professionals with real-time financial market information and access to decision-support tools to assist in their analysis of securities traded on all major markets worldwide. eSignal also operates financial websites that provide investors with free financial information and news about global equities, options, futures and other securities. This business accounted for $88.4 million, or 12.8%, of our revenue in 2007.
For revenue, income from operations, identifiable assets and the relevant percentages for each of our segments, in addition to revenue and long-lived assets by geographic region, please refer to Note 13 in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), are made throughout this Annual Report on Form 10-K. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words â€śbelieves,â€ť â€śanticipates,â€ť â€śplans,â€ť â€śexpects,â€ť â€śseeks,â€ť â€śestimates,â€ť and similar expressions are intended to identify forward-looking statements. While we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and investors should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of the filing of this report.
A number of important factors could cause our results to differ materially from those indicated by such forward-looking statements, including those detailed under the heading, â€śRisk Factorsâ€ť in Part I.
On February 29, 2000, the businesses of Data Broadcasting Corporation (now known as Interactive Data Corporation), which included the eSignal and CMS BondEdge (now known as Interactive Data Fixed Income Analytics) businesses, were merged with the historical and end-of-day pricing, evaluations and information business then known as Interactive Data Corporation (now known as Interactive Data Pricing and Reference Data), an entity which has been in the financial data business for 40 years and at the time of the merger was 100% indirectly owned by Pearson plc. Principally as a result of this merger, Pearson plc indirectly owns approximately 61% of our issued and outstanding common stock. Interactive Data Corporation (formerly known as Data Broadcasting Corporation) was incorporated in 1992 under the laws of the State of Delaware.
In January 2002, we acquired certain assets from Merrill Lynch, Pierce, Fenner & Smith Incorporated used in its Securities Pricing Service business.
In February 2003, we acquired from The McGraw-Hill Companies, Inc. the stock of S&P ComStock, Inc., and the non-US assets of certain related businesses in the United Kingdom, France, Australia, Singapore and Hong Kong, collectively referred to as ComStock.
In October 2003, we acquired the real-time datafeed customer base of HyperFeed Technologies, Inc., a provider of enterprise-wide real-time data processing and transaction technology software and services.
In September 2004, we acquired the net assets of FutureSource, LLC, and its subsidiaries, or FutureSource, a leading provider of real-time futures and commodities data.
In December 2005, we acquired 95.1% of the stock of IS.Teledata AG and its subsidiaries, or IS.Teledata, a leading provider of customized financial information portals and terminals. In 2006, we subsequently acquired the remaining IS.Teledata shares from minority stockholders, increasing our total ownership in IS.Teledata to 100%. As discussed above, the IS.Teledata business was subsequently renamed Interactive Data Managed Solutions.
In March 2006, we acquired the net assets of Quote.com and certain other related assets from Lycos, Inc. These assets include subscription-based services for active traders, QCharts and LiveCharts, and financial websites, Quote.com and RagingBull.com.
In May 2007, we acquired the net assets comprising the market data division of Xcitek LLC, as well as the market data assets of its affiliate Xcitax LLC. These assets included a broad range of North American corporate actions data, such as reorganization, cost basis and class action data.
The financial services industry utilizes a broad range of financial market data and analytics to assist in valuing and transacting securities, to facilitate investment decision making, and to address various regulatory requirements. Such financial market data and analytics include real-time and historic pricing and evaluation information, and reference data such as dividend, corporate actions and key descriptive information about securities, other related business or financial content, as well as access to sophisticated decision-support tools that analyze this content.
It is costly and complex for financial institutions, information media companies and others to directly obtain, aggregate, store, evaluate and distribute financial market data from the securities exchanges and other financial markets worldwide. In addition, financial institutions and other organizations using financial market data typically strive to consistently obtain their content in a timely manner without sacrificing quality or security. Further, financial institutions often seek to seamlessly integrate financial content from third parties into analytical tools used for investment research as well as into the systems used in their operational workflow to help address their customer service and support, sales and marketing, regulatory compliance and other business challenges. In addition, active traders, individual investors and investment community professionals seek real-time information and related tools to assist them in formulating, validating and executing their trading strategies.
Extensive expertise and technical know-how about the financial market data industry are required to effectively obtain, aggregate, store, evaluate and distribute the volume and diversity of financial content utilized within the financial services industry. This expertise and know-how is highly specialized and diverse, as are the underlying technical infrastructure and related systems for delivering such content and analytics to customers.
For these reasons, financial institutions and other organizations work with financial market data vendors like us that specialize in aggregating and delivering financial content directly from many sources around the world, including securities exchanges such as the New York Stock Exchange and the London Stock Exchange; other financial markets that encompass fixed income, foreign exchange and derivatives including options and futures; and information providers such as news services. Aggregating this data requires establishing relationships with each of these sources to acquire this data and creating a global technical infrastructure capable of collecting the source data and incorporating it into a uniform structure so that it can be delivered in a reliable, consistent and timely manner. In addition, specialized financial market data vendors like us invest significant resources to identify and minimize source or other errors in reporting, collecting, aggregating, storing and distributing information to customers. Further, specialized financial market data vendors like us produce content such as evaluations that can assist financial institutions in their efforts to value their holdings, particularly fixed income securities, that trade infrequently, if at all, in the secondary market. In addition, customers often invest in applications that aggregate content from third-parties together with internal information to support their client service, sales and marketing and operations activities. Moreover, to make timely decisions in support of their investment strategies, many customers access sophisticated analytics like ours, or they utilize financial information portals and terminals that seamlessly integrate financial content from an extensive range of market sources as well as provide access to advanced analytical tools.
Services and Customers
We offer our services to financial institutions, active traders and individual investors. Our businesses address the financial market data and analytics needs of these customers by providing time-sensitive information regarding a broad spectrum of securities, commodities and derivative instruments as well as access to sophisticated decision-support tools. We target our customers through the businesses within our Institutional Services and Active Trader segments.
Our Interactive Data Pricing and Reference Data, Real-Time Services and Fixed Income Analytics businesses primarily focus on addressing the needs of financial institutions for financial market data, analytics and related services. We have historically achieved high retention rates within our Institutional Services segment.
Our Pricing and Reference Data business provides financial institutions, third-party redistributors and outsourcing organizations with historical, intraday and end-of-day pricing, evaluations and reference data for an extensive range of securities, commodities, and derivative instruments that are traded around the world.
We define reference data to encompass a broad range of relevant corporate actions and income-related information, identification and settlement data, and key terms and conditions for a wide range of securities. Examples of reference data include:
Corporate actions and income-related information such as capitalization changes, dividends, earnings and shares outstanding, reorganization announcements, and credit ratings, as applicable;
Identification and settlement data such as name, ticker symbol, CUSIP Â® , SEDOL Â® and ISIN codes, relevant currency, payment frequency, coupon rate, maturity date, dated date, settlement date, first payment date and accrual method; and
Key terms and conditions for a wide range of fixed income securities such as call, put and sinking fund terms, call announcement, conversion details, interest payment, original issue discount, and reorganization data, as applicable.
As of the end of 2007, this business supplied data directly to over 4,000 institutional customer accounts. A single financial institution may have more than one account. In addition, this business provides services to over 400 redistributors and outsourcing organizations such as custodian banks, service bureaus, prime brokers, financial software and systems companies, and information media firms. These redistributors and outsourcing organizations sublicense or redistribute data typically to medium and small institutions, and individual investors.
In addition to information concerning listed securities, Interactive Data Pricing and Reference Data provides evaluations for hard-to-value, non-listed fixed income securities through its evaluated pricing services as well as hard-to-obtain information relating to securities from emerging markets. Through our evaluated pricing services, this business provides evaluations for approximately 2.5 million fixed income and equity issues, including securities issued in North America such as corporate, government, municipal and agency fixed income securities, convertible bonds, debentures, pass-through securities and structured finance securities and foreign securities issued in markets outside of North America such as convertible bonds, debentures, Eurobonds, and sovereign and corporate bonds. Interactive Data Pricing and Reference Dataâ€™s evaluated pricing services also include our Fair Value Information Service through which we provide evaluations for certain international equity securities. The Fair Value Information Service is designed to provide customers with various information that can be used to estimate a price for an international, exchange-traded issue that would likely prevail in a liquid market in view of information available at the time of evaluation. This business is also addressing the intraday valuation and reference data needs of its customers through the introduction of new services. In September 2007, Interactive Data Pricing and Reference Data launched the Basket Calculation Service SM , a new web-based offering that calculates intra-day indicative valuations for equity and fixed income exchange traded funds or ETFs. In October 2007, this business introduced a new service designed to deliver comprehensive corporate actions information to clients throughout the day.
Interactive Data Pricing and Reference Data continues to refine and enhance its proprietary methodologies for evaluating infrequently traded fixed income securities by combining sophisticated modeling techniques, information from market sources and teams of skilled evaluators who take account of market conditions and specific price-impacting events. These evaluations represent our good faith opinion of the price a buyer in the marketplace would pay for a given fixed income security (typically in an institutional round lot position) in a current sale.
We believe that the combination of Interactive Data Pricing and Reference Dataâ€™s listed markets pricing information and evaluated pricing services help mutual funds, pension funds and money managers value their holdings. For example, each US mutual fund has a regulatory obligation to determine the fundâ€™s net asset value each trading day. The net asset value is the price per share for all investments in and redemptions from the mutual fund for that day. Many mutual funds consider the pricing and evaluation data from this business as an important part of their own daily valuation determinations.
Financial institutions also utilize Interactive Data Pricing and Reference Dataâ€™s content to support an array of other applications. For example, reference data provided by this business is used by financial services firms to settle purchases and sales of securities, and prepare reports and account statements internally and for clients. In addition, financial institutions utilize Interactive Data Pricing and Reference Dataâ€™s securities information as they perform activities required to meet various regulatory requirements. Historical, end-of-day and intraday data from this business is also used by customers to research investment decisions.
Interactive Data Pricing and Reference Data has developed proprietary methods for receiving and packaging source data. In addition, when possible, teams of professionals work to enhance the quality and completeness of the data before it is delivered to customers. Interactive Data Pricing and Reference Dataâ€™s customers receive a majority of their data through computer-to-computer links and Internet-based applications. This business also works closely with redistributors who typically use their own delivery systems or serve as an interface between their clientsâ€™ and Interactive Data Pricing and Reference Dataâ€™s delivery systems to redistribute and/or process the data provided by this business. Interactive Data Pricing and Reference Data designs its datafeeds to be compatible with third-party software applications and standard industry protocols to allow institutional customers to integrate these datafeeds into their infrastructures.
Interactive Data Pricing and Reference Data actively seeks to enhance its existing services and develop new offerings by establishing business alliances, automating key data collection and evaluation processes, expanding its data coverage, particularly in the area of hard-to-value securities, increasing the delivery frequency of its services, and adding new capabilities including those designed to assist customers with their operational workflow and regulatory compliance challenges. We believe that the importance of Interactive Data Pricing and Reference Dataâ€™s services will continue to increase as financial instruments become more numerous and complex, as regulatory requirements expand and as financial services firms continue to automate key processes across their front, middle and back-office operations.
Our Real-Time Services business provides financial institutions, financial information providers and information media companies with global real-time and delayed financial market information covering equities, derivative instruments, futures, fixed income securities and foreign exchange. Our Real-Time Services business also offers customized financial information portals and terminals. As of the end of 2007, Interactive Data Real-Time Services had approximately 2,300 direct customer accounts. A single financial institution or information media company may have more than one direct account.
There are two core product areas within Interactive Data Real-Time Services: real-time datafeeds and managed solutions. Within the real-time datafeeds product area, this business markets two real-time datafeed services: PlusFeed SM and DirectPlus SM . PlusFeed is our real-time, low latency global financial market datafeed service that consolidates real-time and/or delayed data from an extensive range of stock exchanges, electronic communications networks or ECNs, and other sources worldwide. PlusFeed has broad coverage of the US securities markets, as well as extensive international coverage in Europe, Asia Pacific, South America and Africa. The real-time data includes coverage of equities (including market depth), commodities and options, mutual funds and money markets, fixed income instruments, foreign exchange rates, and US and international news coverage from a range of sources. In addition to this content, PlusFeed offers comprehensive related information including global fundamental data, corporate actions records, historical data, and analytics capabilities. Interactive Data Real-Time Services offers a variety of delivery methods for PlusFeed, including leased line and Internet delivery via a secure virtual private network. Clients can also access the data via co-location cross connections. In 2007, this business introduced DirectPlus, an ultra-low latency (the time it takes for information to be received from a stock exchange and redistributed to a client) direct exchange data service that is designed to provide customers with access to sub-one millisecond data from major stock exchanges, thereby powering a range of low latency financial applications, including algorithmic trading engines and order management systems. In addition, this business also markets PlusTick SM , a service that provides financial institutions with access to tick and trade data for global securities. PlusTick can be used by clients to assist in their compliance with â€śbest trade executionâ€ť and other government mandates, and back-test and help analyze algorithmic trading applications designed to improve investment performance.
The second core product area within Interactive Data Real-Time Services is managed solutions, which involves designing and managing customized, web-based financial information portals and terminals. These offerings are hosted on our own technical infrastructure. We entered this product area as a result of our December 2005 acquisition of IS.Teledata AG, which was subsequently renamed Interactive Data Managed Solutions. The offerings from Interactive Data Managed Solutions aggregate content that may be sourced from both the customer and from a number of information providers including Interactive Dataâ€™s businesses, and then tailor the visual display of this content to the needs of its clients.
Interactive Data Managed Solutionsâ€™ offerings consist of financial market data, access to decision-support tools, and hosting services. These offerings utilize a flexible web services architecture designed to meet the needs of financial services users, from consumer portals to the front-office, middle-office and back-office professionals within financial institutions. Such offerings are designed to allow the integration of proprietary and third-party data and to meet the robust performance requirements of the financial services industry.
As part of its plans to enhance its services, Interactive Data Real-Time Services seeks to expand its market coverage by adding new stock exchanges, financial markets and news sources. In addition, this business plans to continue enhancing its delivery network to accommodate significant increases in the volume of financial market data, reduce the latency, improve the reliability of its datafeeds, and to add new features and offerings that will help its institutional clients address regulatory requirements and cost-effectively execute their trading strategies. This business also plans to enhance its suite of managed market data solutions by developing new web-based tools for displaying and analyzing investment portfolios, adding new capabilities to identify a broader range of derivative instruments, options, futures and investment funds, and by creating new statistical tools designed to enable customers to better track the performance of their investments.
Our Fixed Income Analytics business provides financial institutions with fixed income data and sophisticated fixed income analytics. Interactive Data Fixed Income Analytics markets BondEdge Â® , a service used by financial institutions to manage risks and understand the performance of diversified fixed income portfolios. This business also markets Analytix Direct SM , a fixed income datafeed service that provides a variety of risk measures independent of a dedicated software application. As of the end of 2007, more than 500 direct institutional accounts based primarily in North America subscribed to BondEdge and other services from Interactive Data Fixed Income Analytics. A single financial institution may have multiple accounts supporting different applications in various departments. The primary users of our services within these financial institutions are fixed income portfolio managers who invest in or sell fixed income securities, particularly those that require specialized modeling.
BondEdge enables clients to simulate various market environments to help forecast performance results, validate investment strategies against a variety of benchmark indices, and respond to reporting demands. BondEdge includes interest rate and credit risk management tools, access to an extensive global fixed income securities database as well as regulatory reporting and compliance tools. BondEdge interfaces with many of the major third-party accounting and asset/liability software packages in order to reduce duplicate data entry and to facilitate improved accuracy and efficiency within an organization. Interactive Data Fixed Income Analytics customers are provided access to daily financial market data updates via the Internet to assist in the creation of high-quality analytic calculations and reports. BondEdge is offered via an array of delivery options, including client-server (BondEdge), ASP/Internet accessible (eBondEdge) and local area network/wide area network configurations (BondEdge ES). In addition, this business provides a service bureau offering, which is an outsourcing option whereby Interactive Data Fixed Income Analytics professionals run BondEdge on behalf of the customers and provide customers with certain fixed income portfolio analysis and risk management information. In addition, to meet the needs of large financial institutions who operate centralized data warehouses to support multiple departments and various applications throughout the institution, this business offers analytical risk measures via its Analytix Direct datafeed service.
Interactive Data Fixed Income Analytics continues to invest in product and business development activities designed to expand business with existing and prospective customers in North America, Europe and Australia. In particular, this business is seeking to accelerate adoption of its Analytix Direct datafeed service through cross-selling initiatives with our Interactive Data Pricing and Reference Data business. In addition, this business plans to introduce its next-generation BondEdge service in 2008 and is expanding the potential market for BondEdge by targeting new liability-driven investing applications within current and prospective pension fund customers.
Stuart J. Clark (60) has been our president and chief executive officer, as well as a member of our board of directors, since February 2000, and has been employed in the financial information industry since 1968. Prior to his current position with us, he served as president of Interactive Data Corporation (as it existed before its merger with Data Broadcasting Corporation) since 1995. From 1993 to 1995, Mr. Clark was a director of UK-based Financial Times Information, with specific responsibility for the Market Data Division. Prior to 1993, Mr. Clark was a director of Extel Financial Limited, which was acquired by Pearsonâ€™s Financial Times Group in December 1993.
Myra R. Drucker (60) joined our board in December 2006. Ms. Drucker currently serves as an independent trustee of the Putnam Mutual Funds; a member of the board of NYSE LLC, a subsidiary of NYSE Euronext (NYSE: NYX); an advisor to RCM Capital Management; and an advisor to the Employee Benefits Investment Committee of The Boeing Company. She is chair of the board of Commonfund; vice chair of the board of Sarah Lawrence College; and a member of the investment committee of the Kresge Foundation. From November 2001 to August 2004, Ms. Drucker served as managing director of General Motors Asset Management and chief investment officer of General Motors Trust Bank. From December 1992 to November 2001, Ms. Drucker was chief investment officer of Xerox Corporation.
William T. Ethridge (56) has served as a member of our board of directors since October 2001. Mr. Ethridge is chief executive officer of Pearson Education, North America, a position he has held since March 2008. From March 2003 to March 2008, Mr. Ethridge was president and chief executive officer of Pearsonâ€™s Higher Education, International, and Professional Publishing Group. Since February 2005, Mr. Ethridge has been a member of the Pearson plc management committee. He also serves as vice chairman on the executive board of the Association of American Publishers and chairman of the board of CourseSmart. From January 1999 to March 2003, Mr. Ethridge was president of Pearsonâ€™s U.S. Higher Education and Professional Publishing Group. Prior to joining Pearson in November 1998, Mr. Ethridge held several positions at Prentice Hall, including heading the editorial and marketing operations for the college division and serving as president of Prentice Hallâ€™s sciences and technology divisions. Earlier in his career as an editor and editor in chief in the field of economics and finance, he signed and published a number of authors who produced leading texts in the field.
Rona A. Fairhead (46) has served as a member of our board of directors since February 2007 and became Chairman in September 2007. Ms. Fairhead has served as chief executive officer of the Financial Times Group since June 2006. She currently serves as a director of Pearson plc and is also a member of the Pearson plc management committee. From June 2002 to June 2006, Ms. Fairhead served as chief financial officer of Pearson plc. From October 2001 to June 2002 she was deputy finance director of Pearson. She joined Pearson plc from ICI plc, an international specialty chemicals and paints company where she was executive vice president, strategy and group financial control and a member of the Executive Board. Prior to her six years at ICI, she was a senior executive in the aerospace industry, working for Bombardier/Shorts Aerospace and British Aerospace. In her early career she worked for Bain & Co and Morgan Stanley. Ms. Fairhead serves on the board of directors of HSBC Holdings plc as a non executive director, and is a non-executive director of The Economist Group.
Donald P. Greenberg (74) has served as a member of our board of directors since 1996. Dr. Greenberg has been teaching at Cornell University, Ithaca, New York, for the past 43 years. He is the Jacob Gould Schurman professor of computer graphics and the director of the computer graphics program at Cornell University. In 1987, Dr. Greenberg received the ACM SIGGRAPH Steven A. Coons award for outstanding creative contributions to computer graphics and in 1991 was named a member of the National Academy of Engineering. He was the founding director of the National Science Foundationâ€™s Science and Technology Center for Computer Graphics and Scientific Visualization. Dr. Greenberg currently serves on the board of directors of Chyron Corporation, a designer and manufacturer of digital equipment for the broadcast industry.
Casper J. A. Hobbs (38) joined our board in November 2006. Mr. Hobbs is a co-founder and current chief executive officer of the London-based Mergermarket Group, where he is responsible for overseeing strategy, expansion, sales and marketing, and general management of this financial information company. Mergermarket, which was founded in 1999 and acquired by Pearson plc in August 2006, specializes in delivering mergers and acquisition news and tools, as well as other specialized services to the financial community. Prior to co-founding Mergermarket, Mr. Hobbs worked at Financial News and, before that, he served as an officer in the British Army.
Philip J. Hoffman (49) has served as a member of our board of directors since February 2000 and is executive vice president and head of corporate finance, strategy and business development for Pearson. Mr. Hoffman is also company secretary for Pearson plc and is a member of the Pearson plc management committee. From May 2000 to December 2001, Mr. Hoffman was chairman and chief executive officer of Learning Network Inc., Pearson plcâ€™s Internet-based education business. From January 1999 through December 2000, Mr. Hoffman was president of Pearson Inc. From January 1997 to December 1998, Mr. Hoffman was executive vice president and chief financial and administrative officer for Pearson plcâ€™s Penguin Group. Prior thereto, Mr. Hoffman held various executive positions at Pearson Inc.
Robert C. Lamb Jr. (52) joined our board in September 2006. Mr. Lamb is the co-founder, president and chief executive officer, and a director, of Tercet Capital LLC, which provides innovative and focused financial solutions for individuals, organizations, and institutions based on a time-tested, patent-pending investment methodology. From 2002 to 2004, Mr. Lamb served as executive vice president and chief financial officer of FleetBoston Financial, which was the seventh largest financial holding company in the United States prior to being acquired by Bank of America in 2004. His responsibilities included managing FleetBoston Financialâ€™s Corporate Accounting, Business Line Financial Management and Planning, Corporate Tax, and Investor Relations areas. From 2000 to 2002, Mr. Lamb served as Executive Vice President and Chief Financial Officer at BearingPoint, formerly KPMG Consulting, Inc. where he was responsible for the companyâ€™s financial management activities. Mr. Lamb currently serves as a director of Arlen Capital, LLC.
Carl Spielvogel (79) is chairman and chief executive officer of Carl Spielvogel Associates, Inc., an international investment and management company. Ambassador Spielvogel has been a member of our board of directors since February 1996, with a brief hiatus from August 2000 to April 2001, during which he served as the United States Ambassador to the Slovak Republic. Ambassador Spielvogel was chairman and chief executive officer of the United Auto Group, Inc., a publicly owned automobile dealership group, from February 1994 until April 1997. Ambassador Spielvogel was chairman and chief executive officer of Backer Spielvogel Bates Worldwide, Inc., one of the worldâ€™s largest advertising and marketing communications companies, from July 1987 until January 1994. Ambassador Spielvogel currently serves on the board of directors of Apollo Investment Corp., a publicly owned investment company. He is a member of the Board of Trustees of the Metropolitan Museum of Art, The Council of American Ambassadors, The Asia Society and the Lincoln Center for the Performing Arts. Ambassador Spielvogel is also a member of The Council on Foreign Relations.
MANAGEMENT DISCUSSION FROM LATEST 10K
We are a leading global provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. Our customers use our offerings to support their portfolio management and valuation, research and analysis, trading, sales and marketing, and client service activities. We market and license our services either by direct subscriptions or through third-party business alliances.
Our offerings are developed and delivered to customers through four businesses that comprise our two reportable operating segments: Institutional Services and Active Trader Services.
In the Institutional Services segment, we have the following three businesses, each of which was renamed in February 2007 as part of a global marketing initiative to reinforce our value proposition and emphasize the Interactive Data brand to institutional clients:
Interactive Data Pricing and Reference Data (formerly FT Interactive Data) provides historical, intraday and end-of-day pricing, evaluations, and reference data for an extensive range of financial instruments traded worldwide.
Interactive Data Real-Time Services (formerly ComStock) provides global real-time and delayed financial market information as well as customized financial information portals and terminals.
Interactive Data Fixed Income Analytics (formerly CMS BondEdge) provides sophisticated fixed income analytics.
On May 1, 2007, we acquired the net assets comprising the market data division of Xcitek LLC, as well as the market data assets of its affiliate Xcitax LLC, for $25.1 million in cash. These assets, which are now managed as part of Interactive Data Pricing and Reference Data, included a broad range of North American corporate actions data, such as reorganization, cost basis and class action data. We are integrating these assets into our Interactive Data Pricing and Reference Data business. We funded this acquisition from existing cash resources.
On December 13, 2005, we acquired approximately 95.1% of Frankfurt-based IS.Teledata AG and its subsidiaries, or IS.Teledata, for $54,628,000, offset by cash acquired of $5,212,000. We subsequently renamed this business Interactive Data Managed Solutions and it is managed as part of the Interactive Data Real-Time Services business. Financial institutions utilize offerings from Interactive Data Managed Solutions to build and operate customized web-based financial information portals and terminals. This acquisition enables us to market a suite of offerings that complement our core portfolio of financial market data services, and broaden our presence in continental Europe. During 2006, we subsequently acquired the remaining 4.9% of this business from minority stockholders for an aggregate purchase price of $2,914,000, which increased the net price paid for IS.Teledata to $52,330,000. We funded this acquisition from existing cash resources.
Active Trader Services
In the Active Trader Services segment, we have one business, eSignal, which was supplemented by the March 2006 acquisition of the net assets of Quote.com and certain other related assets:
eSignal provides real-time financial market information and access to decision-support tools, and operates financial websites.
On March 6, 2006, we acquired the net assets of Quote.com and certain other related assets from Lycos, Inc. These assets are managed as part of the eSignal business and include subscription-based active trader services, QCharts and LiveCharts, and the financial websites, Quote.com and RagingBull.com. The price paid in cash for the assets was $30,000,000. We are now in the process of integrating these assets into our eSignal business. We funded this acquisition from existing cash resources.
Development of Business
Our results of operations for 2007 include the activities of our Interactive Data Pricing and Reference Data (including nearly 8 months of Xcitek), Interactive Data Real-Time Services, Interactive Data Fixed Income Analytics, and eSignal (including Quote.com) businesses. Our results of operations for 2006 include the activities of our Interactive Data Pricing and Reference Data, Interactive Data Real-Time Services, Interactive Data Fixed Income Analytics, and eSignal (including nearly 10 months of Quote.com) businesses. Our results of operations for 2005 include the activities of our Interactive Data Pricing and Reference Data, Interactive Data Real-Time Services (including 19 days of Interactive Data Managed Solutions), Interactive Data Fixed Income Analytics, and eSignal businesses.
Business and Market Trends
In 2007, we experienced market conditions that were largely consistent with those we experienced during the past several years. Throughout this period, modest increases in spending by institutional customers for financial market data services were partially offset by the continuing impact of our customersâ€™ ongoing cost containment initiatives. We believe that spending by financial institutions on market data and related services in 2008 will be influenced by a focus on cost containment initiatives as customers spend prudently on such services. It is unclear at this time what impact the recent conditions of the financial markets will have on the operational spending of financial institutions in 2008. Current conditions may lead to an increased focus on containing or reducing market data spending, which could impact our revenues.
Within the Institutional Services segment, overall annual renewal rates for customer contracts remained at approximately 95% in 2007, consistent with our experience over the past three years.
We believe that much of the data we supply is mission critical to our customersâ€™ operations regardless of market conditions; however, we are affected, at least in part, by the continuing cost containment focus within our institutional customer base. If the data we provide were not mission critical, we believe a decline in market conditions would affect us more adversely.
The following are among the major trends influencing our institutional businesses:
There has been and continues to be a trend in North America for major financial institutions to outsource their back-office operations to service bureaus and custodian banks. We have established relationships with, and are a major data supplier to, many service bureaus and custodian banks. If an existing customer elects to terminate services with us because of a decision to outsource its back-office operations to a service bureau or custodian bank, we often continue to supply our data indirectly through our relationships with these institutions. In such cases, the revenue we earn per customer may be less than what we would earn if the customer obtained the data from us directly.
Over the past decade, there has been a consolidation of financial institutions both within and across the financial services industry. When financial institutions merge, they frequently look to gain synergies by combining their operations, including the elimination of redundant data sources. If our services are eliminated as a result of consolidation, there is generally a lag between the completion of the customerâ€™s consolidation activity and its impact on our revenue. Additional consolidation activity has the potential to adversely impact our revenue in the future.
Increased regulation within the global financial services industry continues to influence the ways in which financial institutions utilize financial market data. We believe that the use of real-time, intraday, end-of-day and historical financial market data from independent third-party providers like us will be increasingly important as firms seek to modify existing practices to effectively and efficiently address their regulatory compliance obligations.
The issuance of increasingly complex financial instruments continues to proliferate. Determining the fair value of these instruments requires specialized expertise, and the firms trading these instruments seek to leverage efficiencies by working with third-party providers like us who can assist them in their valuation of these instruments.
Financial institutions are creating automated algorithmic and electronic trading applications to efficiently execute their trading strategies. In order to rapidly execute their trading strategies, these applications require real-time market data with minimal latency. In addition, the trend toward algorithmic and other electronic trading programs is contributing to significant growth in market data volumes, thereby requiring both market data suppliers like us and the financial institutions themselves to increase network capacity to address these volume issues.
Interactive Data Pricing and Reference Dataâ€™s growth continues to be driven by new sales to existing customers, and, to a lesser extent, new sales to new customers. Interactive Data Pricing and Reference Dataâ€™s growth in 2007 was primarily driven by increased demand for its broad range of services, coupled with strong retention rates and higher usage revenue. Growth in the Interactive Data Pricing and Reference Data business is dependent, in large part, on our ability to continue the expansion of our data content offerings in order to meet the current and evolving needs of our customers, particularly as regulatory changes occur and as financial instruments become more numerous and complex.
Interactive Data Real-Time Services continues to generate growth for its real-time business both by sales to new customers and new sales to existing customers. In particular, financial institutions such as hedge funds are seeking to subscribe to our low latency data services in order to support their algorithmic and electronic trading applications. This business also continues to expand its Interactive Data Managed Solutions business globally with both existing and new clients. Interactive Data Real-Time Services continues to invest in enhancing and expanding its offerings and technical infrastructure.
Growth in our Interactive Data Fixed Income Analytics business in 2007 was largely offset by cancellations, the majority of which are resulting from client consolidation activities. We continue to invest in product and business development activities that we believe will help expand our Fixed Income Analytics business with existing and prospective customers in the United States, Europe and Australia.
Active Trader Services
eSignalâ€™s growth has been driven by a combination of the expansion of its direct subscriber base and increased online advertising. Expansion of the eSignal business is partly dependent on the growth in online trading accounts managed by active traders. In addition, stock market volatility is another important trend that can influence active trader subscriptions. When the major stock markets are less volatile, active traders tend to trade less frequently and cancellations of eSignalâ€™s services by active traders typically increase and new subscriptions slow. Other factors that may affect eSignalâ€™s growth include the contribution of its redistribution partners who resell its data and analytics, and online advertising on its financial websites.
We believe that eSignalâ€™s future growth is dependent on a combination of expanding its direct subscriber base for real-time financial market information and decision-support tools, and attracting increased online advertising on eSignalâ€™s financial websites. To address the evolving needs of active traders worldwide, eSignal continues to invest in adding new features to its various services, establishing strategic alliances, developing new offerings, and building traffic to and advertising on its financial websites.
Total revenue increased by $77,207,000, or 12.6%, to $689,610,000 in 2007. The Xcitek business contributed revenue of $5,299,000 in 2007. In addition, the Quote.com business, which we acquired in March 2006, contributed incremental revenue of $2,372,000 in 2007. This is coupled with strong revenue growth at our Pricing and Reference Data of $37,525,000 and Real Time Services of $12,189,000, and modest expansion at our eSignal business of $3,414,000. Foreign exchange had a favorable impact on revenue of $16,452,000 in 2007, mainly due to the weakness of the US dollar against the UK pound sterling and the Euro.
Revenue within the Institutional Services segment increased by $70,831,000, or 13.4%, to $601,247,000 in 2007. Foreign exchange had a favorable impact on revenue of $15,862,000 in 2007.
Revenue for the Pricing and Reference Data business increased by $42,824,000, or 11.3%, to $420,720,000 in 2007. The Xcitek business contributed revenue of $5,299,000 in 2007. The revenue increase for the Pricing and Reference Data business was attributable primarily to growth in both North America and Europe. Pricing and Reference Dataâ€™s North American business generated revenue growth of $27,746,000 or 9.6%, and revenue for the European business of Pricing and Reference Data increased by $8,805,000, or 10.7%, in 2007. This growth is mainly due to higher demand for our evaluated pricing and reference data content, lower cancellation levels, and increased usage levels. Revenue in 2007 for the Asia Pacific business of Pricing and Reference Data increased by $974,000, or 13.0%, mainly due to revenue growth in Australia.
Revenue for the Real-Time Services business increased by $12,189,000, or 10.2%, to $132,250,000 in 2007 primarily due to increased new business in both the real time datafeed and the managed solutions product areas.
Revenue for the Fixed Income Analytics business decreased by $44,000, or 0.1%, to $32,415,000 in 2007. This decrease in revenue is mainly due to higher levels of cancellations, the majority of which were associated with client consolidation activities.
Active Trader Services
Within the Active Trader Services segment, revenue grew by $6,376,000, or 7.8%, to $88,363,000 in 2007. Foreign exchange had a favorable impact on revenue of $590,000 in 2007. The Quote.com business, which was acquired in March 2006, contributed incremental revenue of $2,372,000 in 2007. The increase in revenue within the Active Trader Services segment also reflects the deferral of revenue in the second quarter of 2006 associated with sales of software in multiple element arrangements which were subsequently recognized ratably over the term of the associated customer contracts. This is coupled with a higher number of core eSignal direct subscription terminals, which grew 2.9% to 63,539 in 2007, and higher average net subscription fees.
Cost of Services
Cost of services expenses are composed mainly of personnel-related expenses, communication, data acquisition, and consulting costs and expenditures associated with software and hardware maintenance agreements.
Cost of services expenses increased by $25,449,000, or 12.8 %, to $223,987,000 in 2007. The Xcitek business contributed cost of services expense of $2,077,000 in 2007, and the Quote.com business contributed incremental cost of services expenses of $446,000 in 2007. The increase in cost of services expenses is mainly due to higher personnel-related costs of $9,796,000 associated with increased headcount levels, the effect of annual merit increases, and higher incentive compensation coupled with higher data acquisition expense of $2,112,000. Also contributing to the increase in cost of services expense in 2007 were increased expenditures associated with hardware and software maintenance agreements of $1,468,000, higher premises-related expenses of $1,421,000, and increased consulting-related expenditures of $1,360,000. Foreign exchange increased cost of services expense by $5,818,000 in 2007. Cost of services expense as a percentage of revenue was 32.5% in 2007 compared with 32.4% in 2006.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are composed mainly of personnel-related expense, outside professional services, advertising and marketing expenses, occupancy-related expenses, and commissions paid to third parties for distribution of our data to customers.
Selling, general and administrative expenses increased by $18,733,000, or 8.4%, to $240,520,000 in 2007. The Xcitek business contributed selling, general, and administrative expenses of $1,358,000 in 2007, and the Quote.com business contributed incremental selling, general and administrative expenses of $501,000 in 2007. The increase in selling, general and administrative expenses is mainly due to higher personnel-related costs of $9,476,000 associated with increased headcount levels, the effect of annual merit increases, and higher incentive compensation costs. This is coupled with increased commissions paid to third parties for distribution of data of $3,258,000 and higher marketing expenditures of $1,060,000 primarily related to our brand and market awareness initiative. This is partially offset by lower premises-related costs of $1,937,000, a decrease in audit expenditures of $1,167,000, and lower bad debt expense of $1,096,000. Foreign exchange increased selling, general, and administrative expenses by $6,821,000 in 2007. Selling, general, and administrative expenses as a percentage of revenue was 34.9% in 2007 compared with 36.2% in 2006.
Depreciation expense increased by $1,185,000, or 5.4%, to $23,110,000 in 2007. The Xcitek business contributed depreciation expenses of $44,000 in 2007, and the Quote.com business contributed incremental depreciation expenses of $46,000 in 2007. The increase in depreciation expense was mainly associated with the 2006 build-out and relocation of our corporate headquarters in Bedford, Massachusetts and the relocation of our Real-Time Services facility to White Plains, New York. Foreign exchange increased depreciation expense by $413,000 in 2007.
Amortization expense increased by $785,000, or 3.1%, to $26,373,000 in 2007 primarily due to $547,000 of amortization expense associated with the Xcitek business coupled with $181,000 of incremental amortization associated with the Quote.com business.
Net income increased by $32,621,000, or 34.9%, to $125,983,000 in 2007. The increase in net income is primarily due to higher income before income taxes coupled with a lower effective tax rate of 31.8% in 2007 compared with 38.1% in 2006. The decrease in the annual effective tax rate of 6.3% for 2007 in relation to the prior year effective rate is attributable to an increase in income generated in lower tax rate jurisdictions, a reduction in stock-based compensation expense recorded for incentive stock options under SFAS 123(R), the 2007 Research and Development Credit, increased Domestic Production Activities Deduction, an increase in Foreign Tax Credits, a German and UK tax rate reduction and a decrease in the 2007 Jersey (Channel Islands) corporate tax rate. In 2007, we recorded discrete tax benefits of $6,242,000, equivalent to 3.4% of our annual tax rate.
We generated basic net income per share of $1.34 and diluted net income per share of $1.30 in 2007, compared with basic net income per share of $1.00 and diluted net income per share of $0.98 in 2006.
Weighted average basic shares outstanding increased 0.9% and weighted average diluted shares outstanding increased 1.5% in 2007 compared to 2006. Options exercised by employees and the issuance of shares under the 2001 Employee Stock Purchase Plan were partially offset by repurchases of shares of outstanding common stock under our publicly announced stock buyback program.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Three Months Ended June 30, 2008 versus Three Months Ended June 30, 2007
Total revenue increased by $16,181,000, or 9.5%, to $186,149,000 in the second quarter of 2008. The Xcitek business, which was acquired in May 2007, contributed incremental revenue of $785,000 in the second quarter of 2008. Other factors which contributed to the increase in total revenue included strong revenue growth at both our Pricing and Reference Data business of $11,043,000 and at our Real-Time Services business, which produced a revenue increase of $1,960,000. In addition, revenue at our eSignal business increased $207,000. These factors were partially offset by a decrease in our Fixed Income Analytics business of $101,000. The change in foreign exchange rates in the second quarter of 2008 compared with the second quarter of 2007 had a favorable impact on revenue of $2,287,000 in the second quarter of 2008, mainly due to the weakness of the US dollar against the Euro.
Revenue within the Institutional Services segment increased by $15,924,000, or 10.8%, to $163,800,000 in the second quarter of 2008. The change in foreign exchange rates, as noted above, had a favorable impact on revenue of $2,237,000 in the second quarter of 2008.
Revenue for the Pricing and Reference Data business increased by $11,828,000, or 11.2%, to $117,466,000 in the second quarter of 2008. The Xcitek business contributed incremental revenue of $785,000 in the second quarter of 2008. The revenue increase for the Pricing and Reference Data business was attributable primarily to growth in both North America and Europe resulting from higher demand for our evaluated pricing and reference data content and increased levels of usage-related revenue.
Revenue for the Real-Time Services business increased by $1,960,000, or 5.8%, to $36,002,000 in the second quarter of 2008 primarily due to the continued expansion of the real-time datafeed business and the Managed Solutions business in North America. Revenue for this business in the second quarter of 2008 also included $1,017,000 of foreign exchange loss mainly related to the revaluation of accounts receivable in Europe.
Revenue for the Fixed Income Analytics business decreased by $101,000, or 1.2%, to $8,095,000 in the second quarter of 2008. This decrease in revenue is mainly due to lower new business and nonrecurring revenue in the second quarter of 2008.
Active Trader Services
Within the Active Trader Services segment, revenue increased by $257,000, or 1.2%, to $22,349,000 in the second quarter of 2008. The change in foreign exchange rates, as noted above, had a favorable impact on revenue of $50,000 in the second quarter of 2008. This revenue increase was primarily related to higher average subscription fees, partially offset by lower advertising revenue and a slight decline in the number of core eSignal direct subscription terminals which decreased 0.4% to 61,935 in the second quarter of 2008.
Cost of Services
Cost of services expenses are composed mainly of personnel-related expenses, communication, data acquisition, and consulting costs and expenditures associated with software and hardware maintenance agreements.
Cost of services expenses increased by $5,436,000, or 9.7%, to $61,319,000 in the second quarter of 2008. The Xcitek business contributed incremental cost of services expense of $210,000 in the second quarter of 2008.
The increase in cost of services expenses is mainly due to higher personnel-related costs of $2,225,000 associated with increased headcount levels and the effect of annual merit increases, coupled with higher communications expense of $1,281,000. Also contributing to the increase in cost of services expense in the second quarter of 2008 were increased expenditures associated with hardware and software maintenance agreements of $713,000, and higher consulting expenses of $522,000. This is partially offset by lower premises expense of $369,000, decreased data acquisition costs of $340,000, and a decrease in supplies and shipping expense of $116,000. The change in foreign exchange rates, as noted above, increased cost of services expense by $1,413,000 in the second quarter of 2008. Cost of services expense as a percentage of revenue was 32.9% in the second quarter of 2008 which is unchanged from the second quarter of 2007.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are composed mainly of personnel-related expense, outside professional services, advertising and marketing expenses, occupancy-related expenses, and commissions paid to third parties for distribution of our data to customers.
Selling, general and administrative expenses increased by $2,785,000, or 4.8%, to $61,153,000 in the second quarter of 2008. The Xcitek business contributed incremental selling, general, and administrative expenses of $121,000 in the second quarter of 2008. The increase in selling, general and administrative expenses is mainly due to higher premises expense of $1,244,000 primarily related to higher rent in our London office. This is coupled with higher personnel-related costs of $815,000 associated with increased headcount levels, the effect of annual merit increases, and higher incentive compensation-related costs. Also contributing to the increase in selling, general and administrative expenses in the second quarter of 2008 is higher bad debt expense of $609,000 primarily associated with a reversal of bad debt expense in the second quarter of 2007, higher travel expenditures of $466,000, and increased consulting costs of $303,000. Additionally, higher marketing costs of $229,000 and higher legal expense of $188,000 contributed to the increase in selling, general, and administrative expense in the second quarter of 2008. This is partially offset by a foreign exchange gain primarily due to the revaluation of Euro bank balances and inter-company balances of $1,557,000, coupled with decreased communications costs of $280,000, and lower commissions paid to third parties for distribution of data of $161,000. The change in foreign exchange rates, as noted above, increased selling, general, and administrative expenses by $882,000 in the second quarter of 2008. Selling, general, and administrative expenses as a percentage of revenue was 32.9% in the second quarter of 2008 compared with 34.3% in the second quarter of 2007.
Depreciation expense increased by $1,542,000, or 29.3%, to $6,805,000 in the second quarter of 2008. The increase in depreciation expense was mainly associated with an adjustment in the second quarter of 2007 of $695,000 associated with the reversal of previously depreciated capitalized development costs. This is coupled with higher capital spending in the second half of 2007 and first half of 2008, partially offset by the normal expiration of asset lives. The change in foreign exchange rates, as noted above, increased depreciation expense by $59,000 in the second quarter of 2008.
Amortization expense increased by $427,000, or 6.6%, to $6,901,000 in the second quarter of 2008 primarily due to an incremental $217,000 of amortization expense associated with the acquisition of the Xcitek business, coupled with an adjustment in the second quarter of 2007 related to expiration of certain intangible asset lives.
Other Consolidated Financial Information
Income from operations increased by $5,991,000, or 13.6%, to $49,971,000 in the second quarter of 2008 due to the factors discussed above.
Interest income decreased by $96,000, or 4.7%, to $1,966,000 in the second quarter of 2008.
Income before income taxes increased by $5,895,000, or 12.8%, to $51,937,000 in the second quarter of 2008 mainly due to higher income from operations discussed above.
Thank you very much operator. Good morning everybody and thank you for participating in Interactive Data Corporationâ€™s second quarter 2008 financial results conference call. Joining me are Stuart Clark Company's President and Chief Executive Officer and Andrew Hajducky, our Chief Financial Officer.
As is our practice and as we referenced in our news release this morning, we are presenting a set of slide as an optional visual compliment to our remarks. You can download and print these slides from our website to follow on or you can view in advance of the slides through the webcast view, if you are listening to the call over the Internet.
Turning to slide number one, I will briefly review the agenda. After I recite the safe harbor statement, Stuart will briefly review our financial performance and then share his thoughts on highlights across the organization. Andrew Hajducky will then review our results in 2008 outlook in details. We will then open the call for questions and answers.
With that said, slide number two covers our safe harbor statement. This conference call will contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reformat Act of 1995 and Federal Securities Laws, including statements regarding the company's future financial performance, future operating results and plans and expectations and other statements that are not historical facts.
These forward-looking statements are based on management current plans, expectations, and assumptions. They are subject to known and unknown risks, uncertainties, and other factors that may cause the companies actual results to be materiality different from those contemplated by the forward-looking statements. The company undertakes no obligation to update these forward-looking statements to reflect subsequent events.
For further information on risks factors that may effect these forward-looking statements in the company's business, please refer to the press release issued by the company today as well as to its most recent annual report on From 10-K and quarterly report on From 10-Q filed with the SEC which are available on the company's website at www.interactivedata.com. An audio reply of this call will also be made available on Interactive Data's website. Further, more during this conference call management will make reference to certain non-GAAP financial measures such as organic revenue growth, adjusted revenue, adjusted cost and expense amount.
The reconciliation of these measures to GAAP measures are set forth following the financial tables in our earning release or in the slides relating to this conference call. Both of which are posted on company's website under the heading Investor Relations. Please note, that all the numbers in our prepared remarks are either for the second quarter of 2008 for the first six months of 2008 or comparisons are with the comparable period in 2007 unless otherwise noted and all comparisons are done on a GAAP basis unless otherwise noted.
With that said, I will now turn the call over to Stuart.
Thank you Andy. Good morning everybody and thank you for joining us. As Andy has mentioned there are slides available on our website that support our commentary. We will indicate these slides while referencing as we move along.
So letâ€™s turn to slide 4 to start my commentary. I am pleased with our results for the second quarter of 2008, particularly in light of the turbulent market conditions. Our total revenue grew 9.5% to 186.1 million. Thanks in large part to our Pricing and Reference Data business. This business will see us again, a stand out performer delivering 10.5% organic revenue growth. Its third consecutive quarter of organic revenue growth is accepted 10%. This is important, we saw a continued momentum for our Real-Time Data Feed business, which reported organic revenue growth above the 9%. Overall our organic revenue growth was 7.7% for the quarter.
On a geographic basis, we enjoyed growth in all regions. Our growth in North America has continued to be strong, which is noteworthy given that the US economy appears to be the hardest hit thus far by the after shocks of the credit crunch. Our solid growth in Europe continued primarily as a result of gains that our pricing on Reference Data business. Our growth in Asia Pacific was very strong although it is all a relatively small base.
With that said, we believe that this region has an outstanding long-term growth prospect. Our operating performance was consistent with prior quarters as our second quarter revenue growth outpaced operational spending. This led to a 13.6% increase in income from operations and 15.1% growth in net income. Net cash provided by operating activities was particularly strong this quarter with a 29.1% increase.
In terms of strategic and operational highlights during the quarter, there were several that is fair mentioning. First we announced plans to acquire Kler's Financial Data Service, a leading provider of reference data to the Italian financial market place. Second, we made good progress with our product development activities by delivering range of enhancement and new capabilities across our broad range of offerings. I will expand all these activities in a few minutes, when I will review the progress in each of our businesses.
Third, we have implemented a formalized CEO succession process to identify the next leader for Interactive Data consistent with my plans to retire during 2009. As we lead into the discussion on our businesses, I would like first of all to keep my perspective on the market close, so letâ€™s turn to slide 5. While market conditions have been volatile for much of the past quarter, we have continued to generate strong new sales level while renew rates across our institutional businesses remained at approximately 95%.
In this market environment, we expect that our customers will be cost conscious, but at the same time we also expect that they will make the necessary investments to respond to key trends affecting in their businesses. These trends encompass the heightened scrutiny around valuation of securities, increased regulation, and its associated impact on risk management and compliance, the increasing adoption of low latency data to power automated trading systems and the continued need to differentiate management operating income in order to attract high network customers.
We have invested in and we will continue to invest in a high value data services, analytics and solutions, invite the best position then to be relevant to these trend for the foreseeable future. Geographically, we have continued to see market conditions as better in Europe and Asia than in North America. With that said, we are pleased with our progress in most major geographic areas.
Looking ahead, we expect to produce another year of solid results and have raised our full year outlook for revenue and income from operations. As I have already mentioned, we will continue to invest in high value offerings across our organization and to start this, we are making a modest increase in our capital expenditure plan in order to increase our capacity to manage the expected growth in market data volumes.
Let's turn to slide 6, so that we can discuss key highlights of the business unit level. As is our custom, we will begin this review, with our Institutional Services Segment and start with our Interactive Data Pricing and Reference Data business. This business reported revenue of a $117.8 million up 11.5% or 11.2% before the effects of foreign exchange. Excluding the impact of foreign exchange and the Xcitek business we acquired last May, the organic revenue growth for this business was 10.5% primarily due to new evaluations in Reference Data business, with a 15 customers in both North America and Europe.
We are seeing that this business is extremely well positioned to help customers worldwide with evaluation, regulation and risk management activities. These are areas where spending is simply not discretionary.
In this context, our evaluated pricing and Reference Data services continued to gain interaction in the marketplace with new and existing customers, as well as a growing range of redistribution partner. We are also seeing that new accounting rules like FAS157 are opening up new opportunities for us to showcase our capabilities and expertise.
In this context, we are actively working with clients to help them better appreciate the ways in which we produce our evaluation, as well as pursuing initiatives to develop new offering that could address clients need for greater transparency of evaluation and information. During the quarter we also made important progress in enhancing key evaluation and Reference Data services.
A major highlight in the quarter occurred in late June, when we announced an agreement to acquire Kler's Financial Data Service, a leading provider of reference data to the Italian financial community. We believe that acquiring Kler's, which is based in Rome, would allow us to accomplish two important objectives simultaneously. First it support our goal of growing our business internationally by giving us a more substantial presence in Italy.
Second, it will enhance the reference data content to interactive data already collects processes and delivers to 1000 of financial institutions and redistribution partners around the world. Kler's will bring us access to a very rich platform of Italian fixed income data, tax and regulatory information, any form of data, as well as adjusting relationships with all the major Italian banks and local software companies.
Although the Kler's business is relatively small today, we are very confident that it has attractive growth prospects, as we take its content to our global customer base, bring out global content and products from across our other businesses to their Italian customers and develop new evaluated pricing services for unlisted Italian bonds.
Looking ahead, expanding the breadths and depths of the data we cover, remains a top priority especially in the area of derivatives. We are making good progress in this area to cost effectively accelerate our ability to deliver independent evaluation of highly complex OTC derivative products and we hope to be in a position to share more news on this front later this quarter.
I would now like to move on Slide 7 to review our Real-Time services business. This business reported second quarter 2008 revenue of $37.9 million, which was up 11.3% or 5.8% excluding the impacts of foreign exchange. We saw another strong quarter performance within our Real-Time Data Feed services business, which turned of at 9% in the quarter on an organic basis. Our Managed Solutions business, however, was unable to continue on its growth trajectory and was up only marginally on an organic basis.
Within our Real-Time Data Feed business, we are continuing to win business within the global institutional marketplace. We made good progress in both the U.S. and Europe to win new institutional customers and also enjoys success in expanding our existing relationships with a number of large mutual and hedged fund customers.
Earlier this month, we introduced our new generation high-speed data distribution network, which is designed to allow us to more effectively manage rapidly growing data volumes. In combination, with the launch of the European Real-Time ticker plant earlier this year and our on going efforts to broaden our markets coverage. We have made steady incremental progress in enhancing our capacity and content.
As a result, interacted data is increasingly viewed as a critical alternative for providing Real-Time Data for applications within the institutional market segment. It is also important to note that the operations support to this business and the investment to fortify our Real-Time infrastructure benefit all of the Interactive Data's businesses, not just our Real-Time Data business. Andy will discuss this dynamic in more details in terms of our capital spending plans. With regards to our Managed Solution business, which is the smaller part of our Real-Time services, we continued on our growth trajectory in the US. In Europe, however our growth rate was reduced last quarter due to more difficult market conditions in the general marketplace, which is where a significant percentage of the Managed Solution business is based.
Never the less we believe that our long-term prospects for this business remain attractive as reflected in our recently announce business wins at Bank Julius Baer and Contois Contour.
Moving on to slide 8 the third business in our institutional services segment is Interactive Data Fixed Income Analytics, which reported second quarter 2008 revenue of $8.1 million, which was essentially flat compared with the prior years quarter.
We are making some good progress on the new sales front, as this was the first quarter in some times where new sales exceeded cancellation in each month of the quarter. We are on schedule with the transition for the next generation bondage offering, which will enter the beta test phase later this summer.
As you may recall, this business is also in the midst of a leadership transition. We have made considerable progress on this front and hope to finalize our selection of the Managing Director for this business later during the third quarter.
Let's turn to slide 9 for a review of our eSignal business, which comprises our active trader services segment. eSignal is a leader in providing real-time streaming market data platform and decision support tool to nearly 62,000 active traders, individual investors and investment community professionals. This business reported second quarter 2008 revenue up $22.3 million, a slight increase of 1.2% or 0.9% before the effects of foreign exchange. The core market for this business, the active trader who relies on technical trading strategies, continues to be relatively soft, as reflected in our subscriber numbers. In terms of progress with product development, we introduced a number of new features across the newest versions of our eSignal, eSignal pro, eSignal advance care offerings to see better growth prospects for the active trader segment, sorry we see better growth prospects for the active trader service segment outside of North America. To that end eSignal announced an adjusted these reseller agreement to extend the sales and support capabilities for that region. We believe however, that the most promising near term prospects for this business lie in the institutional marketplace with regional on online brokerages. During the quarter, we closed the small deal with a Southeastern regional brokerage firm that we believe has potential to grow above the time.
Finally moving to slide 10, I would like to briefly cover the CEOs succession process that was initiated two months ago based on my previously announced intention to retire as President and CEO of Interactive Data during 2009. As I explain at our annual meeting and in subsequent conversations with our staff, business partners, customers, and shareholders, I feel absolutely committed to my roll at Interactive Data and I remain as enthusiastic as I have ever been about our prospects.
However, in September this year I celebrate 40 years of working with Interactive Data or one of it is predecessors companies and I turn 61 years old later this year. As a result, I believe that it is an appropriate time to formally start the succession planning process in order to identify the executive who will lead Interactive Data into it is next phase of growth. Led by Rona Fairhead, the Nominating and Corporate Governance Committee of the Board has moved ahead with its plan to identify and screen potential successors and has engaged the services of an executive recruiting firm to ensure that this process is as rigorous as possible. My role has not and will not change during the search process. Once the board has appointed my successor, I plan to work closely with this individual to ensure an orderly, seamless transition of leadership consistent with my plan to retire at some point next year.
That said, our expectations for 2008 will be another year of solid financial results at Interactive Data and I look forward to sharing news of our progress, achievements and performance over the coming quarters.
I would now like to transition the call to Andy for the financial review. Over to you, Andy.
Thank you, Stuart. Let's begin our discussion on slide number 12. As a reminder, all of the numbers in my commentary are for the second quarter of 2008. All comparisons are with the second quarter of 2007, unless otherwise noted. All comparisons are done on a GAAP basis, again unless otherwise noted.
Total quarterly revenue of $186.1 million grew 9.5% from the prior year's quarter. Before the effects of foreign exchange, our revenue grew 8.2%. The Xcitek market data assets, which we acquired back in May of 2007, contributed an incremental $785,000 of revenue in this quarter. As Stuart mentioned, excluding the impact of foreign exchange, acquisitions and related inter-company eliminations, our organic revenue growth was 7.7%. Our growth this quarter was primarily due to the strong performances at Interactive Data Pricing Reference Data, and the Real Time Data Feed Card of our Real Time services.
Now on slide number 13, which gives you our revenue mix by geography. As you can see, we are expanding our business in each major region. We continue to generate outstanding growth in North America. As Stuart discussed our European growth rate has moderated due to the slowdown in our Managed Solutions business in this region. We are generating good growth in Asia Pac region albeit on a small revenue base.
Moving on to slide number 14, I will review our operating performance. Cost of services increased by $5.4 million or 9.7% to $61.3 million. The increase primarily reflects the effect of foreign exchange, higher communication data acquisition cost and higher personal related expenses associated with increased head count and our annual merit increase.
SG&A expenses increased by $2.8 million or 4.8% to $61.2 million. The primary factors for this increase were again, the effects of foreign exchange, higher personal related expenses, primarily attributable to increased head count and increased premises expenses. Depreciation, amortization expense increased 16.8% or $13.7 million, due to the timing of the capital expenditures in prior quarters, and adjustment in the second quarter 2007 that was associated with the reversal of previously appreciated capitalized development cost and the amortization then associated with the acquisition Xcitek.
Income from operations grew 13.6% to $50 million. Our revenue growth has continued to outpace spending and is then driving consistent year-over-year improvement in our operating margins. Even the timing and magnitude of our acquisition, this trend has become even more transparent in our GAAP results and will continue to provide non-GAAP operating metrics, which further illustrate the operating leverage in our business model.
Income before income tax is up $51.9 million increased 12.8% as a result of lower interest income caused primarily by lower interest rates. Our effective tax rate was 35.4%, which is a slight decrease from the rate applied in the year ago quarter. We reported 15.1% increase in net income to $33.5 million or $0.35 per diluted share.
Turning now on to slide number 15, I will briefly review our balance sheet and cash flow highlights. Starting with our cash position, Interactive Data ended the second quarter 2008 with no outstanding debt and our cash, cash equivalents and marketable securities totalled $254.8 million, which is a $7.6 million increase over our balance at the end of the first quarter. The increase in our cash, cash equivalents and marketable securities reflects another strong quarter of net cash provided by operating activities, which was partially offset by the payment of our regular quarterly dividend, stock repurchase activity and modest changes in working capital.
In terms of upcoming uses of cash, we are expecting that the acquisition of Kler's will be completed shortly and that will consume close to $30 million, depending upon the exchange rate at the date of closing. Our Board recently declared our regular, quarterly dividend of $0.15 per common share and that will be paid at the end of the third quarter. In addition, we anticipate being active with our ongoing stock buyback program.
Now, to move on slide 16, in the second quarter of 2008, we generated $38.8 million in net cash provided by operating activities. This represents a 29.1% increase over the last year, primarily due to the increase in net income and higher non-cash expenses. As you can see from the table on this slide, this translates into a 29% increase in net cash provided by operating activities per diluted share to $0.40 per diluted share.
In terms of shareholder returns, 73% of the net cash provided by operating activities was retuned to shareholders as a result of $14.1 million that we used to pay our regular, quarterly dividend and the $14.2 million that we spent to repurchase our common stocks during the quarter.
Slide 17, provides further insight into the strength of our balance sheet. Our accounts receivable balance at quarter-end was $114.6 million, which translate into DSOs of 58 days. This is down one day compared to the first quarter 2008, and 2007 year-end DSO levels and unchanged from the same time last year.
Our current ratio was 2.8 at the end of the second quarter, which is at the high-end of our historical range, up from 2.5 at the end of the first quarter of 2008, 1.9 at year-end and 2.5 for the second quarter of 2007. In terms of capital spending, our capital expenditures during the quarter totaled $7.8 million. We continued to direct the majority of our capital spending, back into our technical infrastructure, particularly to scale our ability to stay ahead of the curve in terms of the anticipated growth in real time market data volumes.
On slide 18, we provide an update on our stock buyback activity. During the second quarter, we repurchased 512,000 shares of our common stock at an average price of $27.74 per share for a total expenditure of $14.2 million. Entering the second quarter 2008, we have more than 1.8 million shares available for repurchase under our current program.
Now moving on to slide 19, I will review our outlook for 2008. As Stuart mentioned, we have raised our 2008 outlook in several areas. More specifically, we are planning for 2008 revenue growth over 2007 in the 8 to 10% range versus our original expectation for top line growth in the 7% to 9% range. We now expected our 2008 income from operations will grow in the range of 11% to 13% compared with our original forecasted growth in the 9% to 11% range. We anticipate that our 2009 effective tax rate will be in a range of 36% to 38%, which is unchanged from our prior guidance.
As a reminder, this is a notable increase on our effective tax rate over 2007, as our effective tax rate last year of 31.8% benefited from a number of discreet and one time items that are not expected to reoccur in 2008. Our 2008 net income growth target, we are targeting 2008 net income growth in the 3% to 6% range. This target is unchanged despite our expectation of higher income from operating growth due to the expected impact of lower interest rates on our interest income.
In terms of capital expenditures, we have modestly accelerated our spending plans and now anticipate 2008 CapEx of approximately $49 million, which modestly exceed original guidance in the range of $45 to $47 million.
The increase reflects our decision to continue scaling our technical infrastructure to support our ability to take advantage of the growth opportunities we see. More specifically, we are making additional investments in our real time infrastructure, which is aimed at helping us stay out in front of the surging market data volumes.
The company's updated 2008 outlook does not include the impact of the Kler's acquisition, which is expected to be completed within next several weeks. Once completed the contribution from Kler's is not anticipated to have a material impact on the company's updated 2008 outlook. Well, that concludes my review; I will turn the call back to Stuart, so we can begin the Q&A session.
Thank you very much Andy. That concludes the management commentary. At this stage, we would be very happy to take questions. So operator, could you please open up the call?