Fair Isaac (FICO)

Q1 2012 Earnings Call

January 26, 2012 5:00 pm ET


Mark N. Greene - Chief Executive Officer and Director

William J. Lansing -

Michael J. Pung - Chief Financial Officer, Chief Accounting Officer, Senior Vice President and Vice President of Finance & Investor Relations

Steven P. Weber - Treasurer and Senior Director of Investor Relations


Manav Patnaik - Barclays Capital, Research Division

Carter Malloy - Stephens Inc., Research Division



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Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the FICO First Quarter Earnings Conference Call. [Operator Instructions] Mr. Steve Weber, Vice President of Investor Relations, you may begin your conference call.

Steven P. Weber

Thank you, Rob. Good afternoon, and thank you for joining FICO's first quarter earnings call. I'm Steve Weber, Vice President of Investor Relations, and I'm joined today by our CEO, Mark Greene; CFO, Mike Pung; and Will Lansing, our newly appointed CEO. You'll find on the Investor Relations portion of the FICO website a copy of today's news release, our Regulation G Disclosure schedule and our financial highlights. While our press release describes financial results compared to the prior year, today, management will also discuss results in comparison to the prior quarter in order to facilitate understanding of the run rate of our business. Certain statements made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Those statements involve many uncertainties that could cause actual results to differ materially. Information concerning these uncertainties is contained in the company's filings with the SEC, in particular, in the Risk Factors and Forward-Looking Statements portions of such filings. Copies are available from the SEC, from the FICO website or from our Investor Relations team.

In order to provide additional information to investors, we will use certain non-GAAP financial measures on this call. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, entitled Regulation G Disclosure, is available on the Investor page of our website under the Presentations tab. A replay of this webcast will be available through February 27, 2012.

Now I'll turn the call over to Mark Greene.

Mark N. Greene

Thanks, Steve, and good afternoon. Today, we announced the results for our fiscal first quarter of 2012. In addition, we announced that I'm retiring as CEO, but will remain with FICO in an advisory role. Will Lansing has been named Chief Executive Officer and will assume those duties effective tomorrow, January 27. Will has a 30-year track record in the technology industry, and has been a member of the FICO Board for the past 6 years. Will is joining us on today's call, and he'll have some remarks in a few moments. I look forward to working with him through a seemless transition. We'll take your questions after our prepared remarks. But first, I'll summarize the quarterly results, and Mike Pung will then provide financial details.

I'm pleased to report that we have a strong start to our fiscal year 2012. Our revenue of $170 million was the highest since the fourth quarter of 2008, and with an increase of 9% over the same period last year. We delivered $30 million of net income versus $16 million last year and earnings of $0.81 per share versus $0.40 per share last year.

We also continue to produce strong free cash flows, $33 million this quarter versus $31 million last year. All 3 segments of our Decision Management portfolio grew in the quarter. The first segment is our Decision Management applications or business offer used by clients to understand and predict consumer behavior in order to make smart decisions over customer life cycle. Revenue from these applications was solid this quarter, up 13% both sequentially and year-over-year. This is a particularly strong quarter in our Fraud Management Application business, which saw a year-over-year revenue growth of more than 50% due to several large term license renewals.

Our second segment is Scores, which consists of predictive analytics used to assess risk. Overall Scores revenue was up 4% from the prior year. We track 2 subsegments here, business-to-business or B2B, which are Scores sold to financial institutions, and business-to-consumer or B2C, which is Scores sold directly to consumers at myFICO.com on a direct basis or as Scores sold indirectly to consumers through bureau partners.

The B2B Scores subsegment performed well, up 6% from the same quarter last year, making it our best first quarter since 2009. We continue to invest in this business and are beginning to see the results in both our core business, as well as our innovations that will provide new revenue streams.

Highlights for the quarter include the following: Revenues from Scores sold across all parts of the life cycle, acquisitions, Originations and account management were up year-over-year. Scores sold for acquisition or marketing purposes to solicit new customers were up 14% year-over-year. Second, market adoption of FICO 8, which is the latest ventures of our classic Score continues to grow. 7,500 lenders have now standardized on FICO 8, accounting for over half of our revenues. And thirdly, we're gaining good traction on 2 recent Score innovations, particularly the FICO Medication Adherence Score for the healthcare industry and our strategic default solution for the mortgage industry.

The B2C Scores subsegment saw a small revenue decline in the quarter of 1% versus the prior year. This week, we announced the introduction of a Spanish language website as part of our ongoing efforts to expand credit literacy and empowerment to all U.S. consumers. This website, which is the Spanish version of myFICO.com, is the first website where some $34 million Spanish-speaking consumers in the U.S. can obtain their personal credit report, FICO Score and analysis all in Spanish. We're committed to serving this consumer marketplace and are continuing looking for innovative ways to grow this business.

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