Fair Isaac Announces Third Quarter 2007 Results

Fair Isaac Corporation (NYSE:FIC), which combines trusted advice, world-class analytics and innovative applications to help businesses make smarter decisions, today announced the financial results for its third quarter ended June 30, 2007. Third Quarter Fiscal 2007 Results The company reported third quarter revenues of $205.8 million in fiscal 2007 compared to $207.1 million reported in the prior year period. Net income for the third quarter of fiscal 2007 totaled $23.8 million, or $0.42 per diluted share, compared to $26.0 million, or $0.40 per diluted share, reported in the prior year period. Third quarter fiscal 2006 results included $4.4 million in revenues from the mortgage product line, which was sold in March 2007. Third quarter fiscal 2006 results also included restructuring costs of $3.4 million after-tax, or $0.05 per diluted share. Third Quarter Fiscal 2007 Revenues Highlights Revenues for third quarter fiscal 2007 across each of the company’s four operating segments were as follows: Strategy Machine® Solutions revenues were $113.2 million in the third quarter compared to $114.8 million in the prior year quarter, or a decrease of 1.4%, primarily due to the divestiture of the mortgage product line last quarter and a decline associated with customer management and originations products. The declines were offset by an increase in revenues derived from collections and recovery, consumer and fraud products. Scoring Solutions revenues increased to $47.2 million in the third quarter compared to $43.7 million in the prior year quarter, or by 8.0%, primarily due to an increase in revenues from risk scoring services at the credit reporting agencies and the FICO® Expansion™ score. Professional Services revenues were $35.3 million in the third quarter compared to $36.7 million in the prior year quarter, or a decrease of 4.0%, primarily due to a decline associated with industry consulting, fraud, and collections and recovery implementation services, offset by an increase in revenues derived from customer management and Blaze Advisor™ implementation and consulting services. Analytic Software Tools revenues were $10.1 million in the third quarter compared to $11.9 million in the prior year quarter, or a decrease of 14.8%, due to a decrease in revenues generated from sales of the Blaze Advisor™ and Model Builder products. "I am encouraged by our progress over the past several months toward building a solid strategic, organizational and operational foundation for renewed and sustainable growth,” said Mark Greene, Chief Executive Officer of Fair Isaac. "Our strategic focus on Enterprise Decision Management, product innovation and international development enable us to advance and expand our relationships with clients and prospects. Further, we continue to strengthen our leadership team with proven executives who are firmly committed to accelerating Fair Isaac’s growth and creating more value for our shareholders.” Fiscal 2007 Year-to-date Results The company reported year-to-date revenues of $615.0 million in fiscal 2007 compared to $618.1 million reported in the prior year period. Net income for year-to-date fiscal 2007 totaled $76.4 million, or $1.31 per diluted share, compared to $81.4 million, or $1.23 per diluted share, reported in the prior year period. Year-to-date fiscal 2006 results included $15.0 million in revenues from the mortgage product line, as compared to $7.7 million in revenues for the year-to-date fiscal 2007 period. Year-to-date fiscal 2006 results also included restructuring costs of $4.4 million after-tax, or $0.07 per diluted share. Fiscal 2007 Year-to-date Revenues Highlights Revenues for fiscal 2007 year-to-date across each of the company’s four operating segments were as follows: Strategy Machine® Solutions revenues were $335.6 million compared to $345.7 million in the prior year period, or a decrease of 2.9%, primarily due to a decline associated with originations and insurance bill review products, and the sale of the mortgage product line, offset by an increase in revenues derived from collections and recovery products. Scoring Solutions revenues were $134.5 million compared to $131.7 million in the prior year period, or an increase of 2.1%, primarily due to an increase in revenues derived from risk scoring services at the credit reporting agencies. Professional Services revenues increased to $111.2 million compared to $108.2 million in the prior year period, or by 2.7%, primarily due to an increase in revenues derived from customer management, Blaze Advisor™ implementation services and model development services, offset by a decline associated with collections and recovery implementation services, and industry consulting. Analytic Software Tools revenues increased to $33.7 million compared to $32.5 million in the prior year period, or by 3.8%, due to an increase in revenues generated from sales of the Blaze Advisor™ product. Bookings Highlights The bookings for the third quarter were $89.8 million compared to $94.5 million in the same period last year. The company defines "bookings” as estimated future contractual revenues, including agreements with perpetual, multi-year and annual terms. Management regards the volume of bookings achieved as one indicator of future revenues, but they are not comparable to, nor should they be substituted for, an analysis of the company’s revenues. Balance Sheet and Cash Flow Highlights Cash and cash equivalents and investments were $270.5 million at June 30, 2007, as compared to $267.8 million at September 30, 2006. Significant changes in cash and cash equivalents from September 30, 2006, include cash provided by operations of $129.2 million, $77.2 million received from the exercise of stock options and stock issued under an employee stock purchase plan, borrowings under the revolving credit facility of $70.0 million, and $13.9 million received on the sale of the mortgage product line. Cash used year-to-date during fiscal 2007 includes $282.4 million to repurchase common stock, $17.3 million related to purchases of property and equipment, and a $10.0 million minority investment in a company that operates in the healthcare market. Increase in Revolving Credit Facility The company today announced that it has doubled to $600 million its current revolving credit facility with a syndicate of eleven financial institutions. The company plans to use the proceeds of the revolving credit facility for working capital and general corporate purposes; the proceeds may also be used for refinancing of existing debt, acquisitions and the repurchase of common stock. Operational Updates Fair Isaac’s executive leadership team is guiding the company’s efforts to achieve accelerated and sustainable growth through strengthened client relationships, product innovation and focused global expansion. The company’s growth initiatives are designed to advance its leadership in Enterprise Decision Management (EDM), which combines the company’s world-class analytics and innovative applications to help clients automate, improve and connect decisions. Since the second quarter of fiscal 2007, Fair Isaac has made several organizational and operational enhancements to further focus its sales initiatives, including: Simplification of the company’s sales structure by consolidating nine industry verticals to five; Addition of 37 client support and relationship positions to enhance industry coverage and client service; Successful launch of the company’s first intensive client satisfaction survey, which will influence future client service offerings and product innovation efforts; and Introduction of a comprehensive education program designed to increase the skills of the company’s sales and service teams. Fair Isaac continues to invest in innovation and product development. The company recently announced the release of FICO® 08 as the newest update to the industry-standard FICO® credit score, which has demonstrated an increase in the predictive power of the score by 5% to 15% in industry tests. In addition, since the end of the first quarter, the company has been conducting extensive analysis of its product portfolio and has divested the mortgage product line. The company will continue to evaluate its product portfolio in further support of its EDM strategy. Fair Isaac also is focused on growth through international expansion of its products and service offerings. The company continues to capitalize on global market opportunities, as demonstrated by its formal entry into China with the opening of a Beijing office and the appointment of a new managing director for that market. Additionally, for the first time, the company will host its InterACT customer conference in both China and Japan in November 2007. During the last five months, the company has made significant additions to its executive leadership team: Greg Corgan, formerly of IBM and Computer Associates, was named vice president of global sales; Holger Mueller, formerly of Oracle and SAP, was named vice president of product development; Bob Berini, formerly of IBM, was named vice president of alliances and partnerships; Dick Stewart, formerly of SAP, was named vice president of professional services; Mark Scadina, formerly of Liberate and InterTrust, was appointed vice president, general counsel and corporate secretary; and Larry Rosenberger, head of research, has now assumed the full-time role of analytic science fellow; while Fair Isaac product innovation veteran Andrew Jennings has assumed the research leadership role as vice president of research. Outlook The company expects revenues for fourth quarter fiscal 2007 to be approximately $200.0 million and earnings per diluted share to be approximately $0.40. The company expects revenues for fiscal 2007 to be approximately $815.0 million and earnings per diluted share to be approximately $1.71. Company to Host Conference Call The company will host a conference call today at 5:00 p.m. Eastern Time (4:00 p.m. Central Time/2:00 p.m. Pacific Time) to discuss its third quarter fiscal 2007 results, and outlook for the remainder of fiscal 2007. The call can be accessed live on the Investor Relations section of the company’s website at www.fairisaac.com, and a replay will be available approximately two hours after the completion of the call through August 22, 2007. About Fair Isaac Corporation Fair Isaac Corporation (NYSE:FIC) combines trusted advice, world-class analytics and innovative applications to help businesses make smarter decisions. Fair Isaac’s solutions and technologies for Enterprise Decision Management turn strategy into action and elevate business performance by giving organizations the power to automate more decisions, improve the quality of their decisions, and connect decisions across their business. Clients in 80 countries work with Fair Isaac to increase customer loyalty and profitability, cut fraud losses, manage credit risk, meet regulatory and competitive demands, and rapidly build market share. Fair Isaac also helps millions of individuals manage their credit health through the www.myFICO.com website. Learn more about Fair Isaac online at www.fairisaac.com. Statement Concerning Forward-Looking Information Except for historical information contained herein, the statements contained in this news release that relate to Fair Isaac or its business are forward-looking statements within the meaning of the "safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the success of the Company’s Enterprise Decision Management strategy, its ability to recruit and retain key technical and managerial personnel, the maintenance of its existing relationships and ability to create new relationships with customers and key alliance partners, its ability to continue to develop new and enhanced products and services, competition, regulatory changes applicable to the use of consumer credit and other data, the possibility that the anticipated benefits of acquisitions, including expected synergies, will not be realized and other factors that could affect the Company’s business and financial results that are described more fully under the captions "Risk Factors” and "Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Fair Isaac’s SEC reports, including its Annual Report on Form 10-K for the year ended September 30, 2006, and its quarterly report on Form 10-Q for the period ended March 31, 2007, which are on file with the SEC and available at the SEC’s website at www.sec.gov. All information, including forward-looking statements, set forth in this press release is as of July 25, 2007. Fair Isaac does not intend, and disclaims any obligation to update this information, including the forward-looking statements, to reflect future events or circumstances. Fair Isaac, however, reserves the right to update such information including forward-looking statements or any portion thereof at any time for any reason. Fair Isaac, FICO, myFICO, FICO 08, Falcon, Blaze Advisor, TRIAD, Strategy Machine, FICO Expansion score, and PreScore are trademarks or registered trademarks of Fair Isaac Corporation in the United States and in other countries. Other company names contained in this release may be trademarks of their respective owners. FAIR ISAAC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the Quarters and Nine Months Ended June 30, 2007 and 2006 (In thousands, except per share data) (Unaudited)     Quarter Ended Nine Months Ended June 30, June 30, 2007 2006 2007 2006   Revenues $ 205,782 $ 207,129 $ 615,009   $ 618,076   Operating expenses: Cost of revenues 73,731 71,497 218,472 211,686 Research and development 17,275 21,370 52,775 65,794 Selling, general and administrative 72,476 66,338 209,139 193,878 Amortization of intangible assets 6,036 6,302 18,778 18,825 Restructuring and acquisition-related - 5,290 - 6,800 Gain on sale of product line assets   -   -   (1,541 )   - Total operating expenses   169,518   170,797   497,623     496,983 Operating income 36,264 36,332 117,386 121,093 Other income, net   184   2,713   1,221     5,053 Income before income taxes 36,448 39,045 118,607 126,146 Provision for income taxes   12,680   13,042   42,176     44,713 Net income $ 23,768 $ 26,003 $ 76,431   $ 81,433     Earnings per share: Basic $ 0.43 $ 0.41 $ 1.34   $ 1.27 Diluted $ 0.42 $ 0.40 $ 1.31   $ 1.23     Shares used in computing earnings per share: Basic   55,776   63,664   56,928     64,303 Diluted   56,896   64,973   58,518     66,003 FAIR ISAAC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2007 and September 30, 2006 (In thousands) (Unaudited)     June 30, September 30, 2007 2006   ASSETS: Current assets: Cash and cash equivalents $ 90,242 $ 75,154 Marketable securities 151,328 152,141 Receivables, net 179,443 165,806 Prepaid expenses and other current assets   22,162   20,209 Total current assets 443,175 413,310   Marketable securities and investments 28,888 40,479 Property and equipment, net 53,510 56,611 Goodwill and intangible assets, net 763,591 786,062 Other noncurrent assets   21,099   24,743 $ 1,310,263 $ 1,321,205   LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and other accrued liabilities $ 55,229 $ 53,809 Senior convertible notes 400,000 400,000 Revolving credit agreement 70,000 - Accrued compensation and employee benefits 40,745 34,936 Deferred revenue   40,885   48,284 Total current liabilities 606,859 537,029   Other noncurrent liabilities   13,403   14,148 Total liabilities 620,262 551,177   Stockholders’ equity   690,001   770,028 $ 1,310,263 $ 1,321,205 FAIR ISAAC CORPORATION REVENUES BY SEGMENT For the Quarters and Nine Months Ended June 30, 2007 and 2006 (In thousands) (Unaudited)     Quarter Ended Nine Months Ended June 30, June 30, 2007 2006 2007 2006   Strategy machine solutions $ 113,200 $ 114,820 $ 335,585 $ 345,658 Scoring solutions 47,229 43,745 134,482 131,669 Professional services 35,252 36,714 111,198 108,236 Analytic software tools   10,101   11,850   33,744   32,513 Total revenues $ 205,782 $ 207,129 $ 615,009 $ 618,076 FAIR ISAAC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended June 30, 2007 and 2006 (In thousands) (Unaudited)     Nine Months Ended June 30, 2007 2006 Cash flows from operating activities: Net income $ 76,431 $ 81,433 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 39,219 36,529 Changes in operating assets and liabilities, net of disposition (23,619 ) 4,081 Other, net   37,190     31,868   Net cash provided by operating activities   129,221     153,911     Cash flows from investing activities: Purchases of property and equipment (17,315 ) (24,321 ) Cash proceeds from disposition of product line assets 13,904 - Net activity from marketable securities 24,747 (13,565 ) Other, net   (10,213 )   500   Net cash provided by (used in) investing activities   11,123     (37,386 )   Cash flows from financing activities: Proceeds from revolving line of credit 70,000 - Proceeds from issuances of common stock 77,245 56,221 Repurchases of common stock (282,407 ) (124,107 ) Other, net   8,382     2,221   Net cash used in financing activities   (126,780 )   (65,665 )   Effect of exchange rate changes on cash   1,524     224     Increase in cash and cash equivalents 15,088 51,084 Cash and cash equivalents, beginning of period   75,154     82,880   Cash and cash equivalents, end of period $ 90,242   $ 133,964