Edgar Online positioned for windfall

When Rockville-based Edgar Online started developing an interactive system for electronic financial filings several years ago, relatively few companies in this country dabbled in its technology of choice.

Overseas the technology called XBRL (extensible business reporting language) was revolutionizing the way firms viewed and analyzed data, but it was slow to catch on in the United States.

That is until the Securities and Exchange Commission issued a mandate in 2008 requiring all publicly traded U.S. companies and mutual funds to convert to XBRL by the end of this year. With the largest phase of the transition set to get under way this summer, industry experts anticipate Edgar Online could profit handsomely.

The company, known for offering financial information from the SEC’s Edgar database, has indeed positioned itself for the windfall. In February, it inked a deal with outsourcing firm SunGard Global Services to increase its staff in India from 89 to 250 to help companies process their filings in the new format. Edgar Online also acquired XBRL pioneer UBmatrix last June, gaining an extensive portfolio of XBRL-based software options.

Edgar Online has poured so much of its resources into XBRL that it has been operating at a loss for several quarters, despite continuous revenue growth. The company recorded a 26 percent year-over-year sales increase to $6 million in the first quarter, but posted a net loss of $3.1 million.

Robert J. Farrell, Edgar Online president and chief executive, expects to drive profitability by further streamlining the filing process and anticipates 25 percent annual growth in the next three years. He pointed to the 152 percent increase in revenue from XBRL filings during the quarter as proof of the market potential.

“We’ve got the credential now as a thought leader,” Farrell said. “The market is still emerging and solidifying, but we’re consolidating a lot of things XBRL into one set of offerings that is very unique in the market.”

About 2,000 public companies have already converted under the mandate, with another 8,000 required to get moving come the end of June.

The process is pretty involved. Filers make their data interactive by “tagging” financial line items, such as net income, with identification codes. They can either manually input the data into a company program, hire someone to do the tagging through automation or use a computer program to convert data into tags. The line items can then be downloaded, searched and analyzed in a multitude of ways.

Considering the slew of line items in the average quarterly statement, companies will likely turn to firms like Edgar Online to do the work, said OV Metrics analyst Miles P. Jennings Jr. The data outfit, he added, has a competitive edge in offering analytic products because its XBRL database of filings goes back further than any other domestic company. This could be useful for investors looking for historical context in analyzing financial data.

“There’s huge potential in the data filing and solutions business going forward,” he said. “I’m guessing by the September quarter they will be showing positive results.”

To the SEC, Edgar Online, and the other handful of early XBRL adapters, played a pivotal role in developing the language and coding needed for the format.

“The expertise from a number of areas — financial, accounting, technological— was indispensable in the creation of the XBRL standard,” said David Blaszkowsky, the SEC’s acting associate director of data and analytics. “Most of this work was done voluntarily with a strong focus on improving transparency in reporting financial performance.”