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Fair Issac Plummets on Shortfall

The credit scoring software company misses estimates in the first quarter.
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SAN FRANCISCO -- Investors roughed up Fair Isaacundefined stock on Tuesday after the company warned that its first-quarter earnings would come up short.

Shares plummeted $5.24, or 18.5%, to $23.10 on unusual volume in recent trading.

The Minneapolis, Minn., developer of credit-scoring software and services said net income will be $19 million to $20 million, or 37 cents to 39 cents a share. Analysts had been expecting a bottom line of $24.1 million and EPS of 45 cents.

It also said revenue in its first quarter ended in December would be about $5 million to $7 million lower than its prior guidance.

On the revenue shortfall, executives attributed $5 million of it to enterprise decision management software tools and applications and a $1 million to professional services. The tools and applications business "are not losses but deals that we expect to close near term," CEO Mark Greene said on a conference call.

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The lower professional-services revenue was "due to revenue deferral requirements on several implementation projects," Greene said.

Greene noted that although the company's credit scoring business met its goals, "we are starting to see signs that the volumes for both prescores ... and risk scores" may drop in the coming quarters. Mortgage marketers use prescoring services to prescreen candidates for solicitations, while risk scores are used in underwriting.

CFO Charles Osborne said he expects operating margins to compress further in 2008, "based on the decline in revenue and our operating leverage model."

North America accounted for the entire revenue shortfall, Greene said. "Our business outside North America remains healthy."

Wedbush Morgan analyst Michael B. Nemeroff reaffirmed his hold rating on the stock Tuesday, but lowered his 12-month price target to $29, from $38. The firm makes a market in Fair Isaac.