Fair Isaac Corporation ( FIC)

F4Q2010 Earnings Call Transcript

November 3, 2010 5:00 pm ET

Executives

Mike Pung – VP, Finance and IR

Mark Greene – CEO

Tom Bradley – CFO and EVP

Analysts

Carter Malloy – Stephens

Nat Otis – KBW

Presentation

Operator

Good afternoon. My name is Alicia and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2010 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you Mr. Mike Pung, you may begin your conference.

Mike Pung

Thank you, Alicia. Good afternoon and thank you for joining FICO's fourth quarter earnings call. This is Mike Pung, Vice President of Finance and Investor Relations. And I'm joined today by CEO, Mark Greene and CFO, Tom Bradley. You will find on the Investor Relations portion of the FICO website, a copy of our press release, our Reg G disclosure schedule and our financial highlights. While our press release describes financial results compared to the prior year, today management will discuss results in comparison to the prior quarter, in order to facilitate an understanding of the run rate of our business.

Certain statements made in the 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 statement portions of those filings. Copies are available from the SEC, from our website or from the Investor Relations team.

In order to provide additional information to investors, we will use certain non-GAAP 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 the webcast will be available through December 3.

I will now turn the call over to Mark Greene.

Mark Greene

Thanks, Mike and good afternoon. We’ll proceed today as usual in three parts. First, I will summarize the quarter results and assess our business in light of current market conditions. Tom Bradley will then provide further financial details. And then finally, I’ll discuss our business and fiscal 2011 guidance before we take your questions.

For the fourth quarter of fiscal 2010, revenue was $155 million, consistent with prior quarter results. GAAP earnings per share in the quarter were $0.38, down sequentially but up 9% year-over-year and they included a $0.03 per share charge for one-time restructuring activities.

GAAP earnings per share for the entire 2010 fiscal year totaled $1.42, an increase of 6% from fiscal 2009. Bookings in our fourth quarter, which are an indicator of future revenue, were $106 million, up 66% sequentially.

Now, let me break out our quarterly performance by the three segments of our decision management portfolio. First, the application segment consists of business software used by clients to help make smarter decisions over customer life cycles. Revenue from these applications totaled $96 million, up 5% sequentially.

We saw improved performance across most of our applications with impressive results from our marketing, customer management and fraud products. The marketing solutions saw continued strong growth driven by our retail action manager product, with volume increases at several of our customers.

Bookings and marketing solutions totaled $20 million in the quarter, the largest amount in almost three years. Customer management sub segment recorded $12 million of bookings in the quarter. The largest amount in two years, including several sizable triad license deals in the EMEA and Latin America.

The fraud area consisting of our insurance fraud manager and the Falcon product for banking also had a solid quarter with $26 million in bookings including an enterprisewide license with the leading European bank for the latest version of our Falcon product version 6.

Total fraud bookings for the 2010 fiscal year exceeded $70 million, the largest in several years. And finally, in this application segment, during the quarter, we signed an agreement with PNC Financial Services Group, one of the nation's largest diversified financial services organization to provide an integrated solution that supports the bank's growth strategy.

While terms of this agreement cannot be disclosed, it was one of the largest transactions in FICO’s history. When delivered with the FICO solution – when delivered the FICO solution, we will provide the bank a connected learning and decision capability that allows PNC to grow its customer base and expand share of wallet.

Turning now to our score segment, which consists of predictive analytics used to assess risk. Overall scores revenue was $42 million in the quarter, down 10% from the prior quarter, in which we had benefited from a one-time true-up of several million dollars in credit bureau royalties.

We track the score's business in two sub segments

B2B, which are scores sold to financial institutions and B2C, which is scores sold to consumers at myFICO.com website. The B2B sub segment was essentially flat when adjusted for the prior quarter true-up.

We have now seen five quarters of this stability, following the steep fall-off that we observed during recession. In this quarter, we observed the following on B2B. First, a 22% increase in the volume of scores used for marketing and an 8% increase in the volume of scores used in originations.

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