INTERACTIVE DATA CORP/MA/ Item 1A Risk Factors We face intense competition |
We operate in highly competitive markets in which we compete with other distributors of financial market data, analytics and related services |
We expect competition to continue to be rigorous |
Some of our competitors and potential competitors have significantly greater financial, technical and marketing resources than we have |
These competitors may be able to expand offerings and data content more effectively, use their financial resources to sustain aggressive pricing and to respond more rapidly than us to new or emerging technologies, changes in the industry or changes in customer needs |
They may also be in a position to devote greater resources to the development, promotion and sale of their services |
Increased competition in the 11 _________________________________________________________________ [65]Table of Contents future could adversely affect our market share or margins and could have a material adverse effect on our business, financial condition or operating results |
A prolonged outage at one of our data centers could result in reduced service revenue and the loss of customers |
Our customers rely on us for the delivery of time-sensitive, up-to-date data |
Our business is dependent on our ability to rapidly and efficiently process substantial volumes of data and transactions on our computer-based networks and systems |
Our computer operations and those of our suppliers and customers are vulnerable to interruption by fire, natural disaster, power loss, telecommunications failure, terrorist attacks, acts of war, Internet failures, computer viruses and other events beyond our reasonable control |
We maintain back-up facilities for each of our major data centers to seek to minimize the risk that any such event will disrupt operations |
In addition, we maintain insurance for such events |
However, the business interruption insurance we carry may not be sufficient to compensate us fully for losses or damages that may occur as a result of such events |
In addition, a loss of our services may induce our customers to seek alternative data suppliers |
Any such losses or damages incurred by us could have a material adverse effect on our business |
Although we seek to minimize these risks through security measures, controls and back-up data centers, there can be no assurance that such efforts will be successful or effective |
If we are unable to maintain relationships with key suppliers and providers of market data, we would not be able to provide our services to our customers |
We depend on key suppliers for the data we provide to our customers |
In other cases, although the data may be available from secondary sources, the secondary source may not be as adequate or reliable as the primary or preferred source, or we may not be able to obtain replacement data from an alternative supplier without undue cost and expense, if at all |
We generally obtain data via license agreements |
The disruption of any license agreement with a major data supplier, such as the New York Stock Exchange, could disrupt our operations and lead to an adverse impact on our results of operations |
Our inability to maintain relationships with service bureaus and custodian banks would decrease our service revenue |
Part of our strategy is to serve as a major data supplier to service bureaus and custodian banks and thereby to benefit from the trend of major financial institutions in North America outsourcing their back office operations to such entities |
While we believe the importance of back office operations will continue to increase, if this trend shifts or any of these relationships are disrupted or are terminated, our results of operations could be materially adversely impacted |
A decline in activity levels in the securities markets could lower demand for our services |
Our business is dependent upon the health of the financial markets as well as the financial health of the participants in those markets |
Some of the financial market data demand is dependent upon activity levels in the securities markets while other demand is static and is not dependent on activity levels |
In the event that the US or international financial markets suffer a prolonged downturn that results in a significant decline in investor activity or adversely impacts the financial condition of our customers, our service revenues could be materially adversely affected |
We have experienced lower demand, contract cancellations or renegotiations as a result of declines in activity levels in the securities markets in prior years and such cancellations or downgrades may continue |
Consolidation of financial services within and across industries could lower demand for our services |
As consolidation occurs and synergies are achieved, the number of potential customers for our services decreases |
There are two types of consolidations: consolidations within an industry, such as banking, and across industries, such as consolidations of insurance, banking and brokerage companies |
When two companies that separately subscribe to or use our services combine, they may terminate or reduce duplicative subscriptions for our services or if they are billed on a usage basis, usage may decline due to synergies created by the business combination |
We experienced cancellations in prior years as a result of this trend and these consolidations and cancellations may continue |
A large number of cancellations, or lower utilization resulting from consolidations, could have a material adverse effect on our service revenue |
Many customers within the financial services industry are striving to reduce their operating costs |
To achieve this goal, customers may seek to reduce their spending on financial market data services and related analytics |
If customers elect to reduce their spending with us, our results of operations could be materially adversely affected |
Alternatively, customers may use other strategies to reduce their overall spending on financial market data 12 _________________________________________________________________ [66]Table of Contents services, either by consolidating their spending with fewer vendors or by selecting vendors with lower-cost offerings |
If customers elect to consolidate their spending on financial market data services with other vendors and not us, or if we cannot price our services as aggressively as the competition, our results of operations could be materially adversely affected |
New offerings by competitors or new technologies could cause our services to become less competitive or obsolete or we may not be able to develop new and enhanced service offerings |
We operate in an industry that is characterized by rapid and significant technological change, frequent new service introductions, data content and coverage enhancements, and evolving industry standards |
Without the timely introduction of new services, or the expansion or enhancement of our data content and coverage, our services could become technologically obsolete or inadequate over time, in which case our service revenue and operating results would suffer |
We expect our competitors to continue to improve the performance of their current services, to enhance data content and coverage and to introduce new services and technologies |
These competitors may adapt more quickly to new technologies, changes in the industry and changes in customers’ requirements than we can |
If we fail to adequately anticipate customers’ needs and technological trends accurately, we will be unable to introduce new services into the market and our ability to compete would be materially adversely impacted |
Further, if we are unsuccessful at developing and introducing new services that are appealing to customers, with acceptable prices and terms, or if any such new services are not made available in a timely manner, our ability to compete would be materially adversely impacted |
In both cases our ability to generate service revenue could suffer and our business and operating results could be materially adversely affected |
We will need to successfully enhance or add to current services in order to effectively expand into new geographic areas |
In addition, new services, data content and coverage that we may develop and introduce may not achieve market acceptance; lack of market acceptance would result in lower service revenue |
We may not be able to negotiate and enter into strategic alliances or acquisitions on favorable terms, if at all, and we may fail to derive the anticipated benefits from these transactions |
Our growth depends upon market growth, our ability to enhance our existing services, and our ability to introduce new services on a timely basis |
A significant part of our growth strategy has been and continues to be growth through strategic acquisition |
We intend to continue to address the need to develop new services, enhance existing services and expand into complementary service areas through acquisitions of other companies, service offerings, technologies, and personnel |
The success of any acquisition depends in part on our ability to integrate the acquired business or assets, including customers, employees, operating systems, operating procedures and information technology systems |
We may not be able to effectively integrate and manage the operations of any acquired business |
In addition, the process of integrating acquired businesses or assets may involve unforeseen difficulties and integration could take longer than anticipated |
Integrating any newly acquired businesses may require a disproportionate amount of management’s attention and financial and other resources, and detract from the resources remaining for our pre-existing business |
Further, we may not be able to maintain or improve the historical financial performance of acquired businesses |
Finally, we may not fully derive all of the anticipated benefits from our acquisitions, for example, supply cost synergies or reduced operating costs due to centralized or shared technical infrastructure |
Strategic alliances have also been and continue to be important to expanding our customer base and enhancing the appeal of our offerings |
We have established strategic business alliances with companies who redistribute our services to their customers or who provide us with additional content that we can redistribute to our customers |
The success of these alliances depends in part on our ability to work collaboratively with these business partners to jointly market our services and content |
We may not be able to effectively or efficiently deliver our services to these business partners or redistribute their content under financial terms that are mutually satisfactory, or achieve the desired benefits from these alliances |
We are subject to regulatory oversight and we provide services to financial institutions that are subject to significant regulatory oversight, and any investigation of us or our customers relating to our services could be expensive, time consuming and harm our reputation |
The securities laws and other regulations that govern our activities and the activities of our customers are complex |
Compliance with these regulations may be reviewed by federal agencies, including the SEC, state authorities and other governmental entities both in the US and foreign countries |
Any investigation by a regulatory agency of one of our customers or us, whether or not founded, could cause us to incur substantial costs and distract our management from our business |
To the extent any of our customers become the subject of a regulatory investigation or a civil lawsuit due to actual or alleged violations of one or more of their regulatory obligations, we could become subject to intense scrutiny |
The intense scrutiny could 13 _________________________________________________________________ [67]Table of Contents involve an examination of whether the services we provided to the customer during the time period of the alleged violation were related to or had contributed in any manner to the commission of the violation |
We may be required to expend a significant amount of resources explaining and/or defending the services we provided |
In addition, the negative publicity associated with any public investigation could adversely affect our ability to attract and/or retain customers |
Certain of our subsidiaries are subject to complex regulations and licensing requirements |
Our FT Interactive Data subsidiary is a registered investment adviser with the SEC and is subject to significant regulatory obligations under the Investment Advisers Act of 1940 |
The securities laws and other regulations that govern FT Interactive Data’s activities as a registered investment adviser are complex |
If we were to ever lose our investment adviser status, we could no longer operate those portions of our business that require us to qualify as an investment adviser |
Recently, the financial services industry, and in particular the mutual fund industry, has received negative publicity, which has led to increased legislation, regulation, review of industry practices and private litigation |
As the regulatory obligations applicable to investment advisers increase, our compliance costs likewise increase |
Similarly, our Interactive Data (Australia) Pty Ltd subsidiary is licensed by the Australian Securities and Investment Commission, or ASIC, to provide certain financial services in Australia under the Corporations Act 2001 |
The financial services laws and other regulations that govern its activities are complex |
If we were to lose this license, the subsidiary could no longer operate those portions of our business in Australia that require the license to be held |
In addition, in order to offer new financial services we could be required to extend the license authorizations, which is at the discretion of ASIC The inability to provide one or more of our services would adversely impact service revenue and could have a material adverse effect on our business and results of operation |
We may not be able to attract and retain key personnel |
We depend on our ability to attract and retain qualified personnel to operate and expand our business and we may not be able to retain the services of our key personnel |
Our ability to replace any key personnel who resigns may be difficult and may take an extended period of time because of the limited number of senior individuals in the financial information industry with the breadth of skills and experiences required to operate and successfully expand a business such as ours or perform some of the key business functions we require |
Competition to hire from this limited pool is intense, and we may not be able to hire or retain these personnel |
Pearson has the ability to control us |
Pearson indirectly holds approximately 62prca of our issued and outstanding common stock |
Accordingly, Pearson has the ability to exert significant influence over our management and our affairs, including the ability to elect all of the directors and to approve or disapprove any corporate actions submitted to a vote of our stockholders |
The foregoing discussion of risks, uncertainties, and assumptions is by no means complete but is designed to highlight important factors that may impact our results of operation and our business |