Fair Isaac Corporation
Q4 2012 Earnings Call Transcript

Published: 1 Nov 2012

[Operator:]

Good evening. My name is Leticia, and I would like to welcome everyone to the Fair Isaac Corp. Fourth Quarter Earnings Call. [Operator Instructions] I would now like to turn the call over to today's host, Mr. Steve Webber. Mr. Weber, you may begin your conference.

[Steven P. Weber:]

Thank you, Leticia. Good afternoon, and thank you for joining FICO's fourth quarter earnings call. I'm Steve Weber, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing; and our CFO, Mike Pung. Before we begin today, we'd like to offer our best wishes to those impacted by the recent hurricane. We know many of our employees, customers and partners have been directly impacted, and our thoughts are with you. Today, we posted on the Investor Relations portion of the FICO website a copy of our 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 those 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 December 1, 2012. Now I'll turn the call over to Will Lansing.

[William J. Lansing:]

Thanks, Steve. Today, we announced the results for our fourth quarter fiscal 2012. I'll briefly summarize those results, and then discuss some of the exciting things we've been working on and what they mean for the growth of the business. I'm pleased to report we had a very strong finish to our fiscal year. Our revenue of $186 million was an increase of 16% over both the same period last year and the previous quarter. For the full fiscal year, revenues were $676 million, up 9% from the previous year. We delivered $21 million of net income and earnings of $0.60 for the quarter, which include $0.09 per share of one-time charges taken in the quarter and $92 million of net income and $2.55 EPS for the year. We saw revenue growth throughout our portfolio and across all regions, both in the fourth quarter and for the fiscal year in total. Our Applications business was up 23% versus the same quarter last year, and full year revenue was up 11% over the previous year. Tools were up 9% versus the same quarter last year, and full revenue was up 12% over the previous year. Scores also had a good year, with both the quarter and full year up 4% versus the previous year. Geographically, our Americas region was up 13% this quarter versus prior year quarter and 8% for the full year. APAC was up 12% this quarter versus the prior year and 9% for the full year. And we're very pleased with our EMEA region, where this quarter's 2011 were 33% higher than the same quarter last year, and the full year revenues were 13% higher this year than last. These numbers are a testament not only to our strong execution, but also the resilience of our products, even in unsure economic times. I would add these results included about one month of contributions from our acquisition of Adeptra during the quarter. Mike will provide more details as he looks at the numbers. But I'd like to first talk about how well that integration is going, and how we are building a strong growth engine at FICO. I'm delighted with the progress that's already been made in bringing Adeptra and FICO together. This has been an easy integration, as both cultures and technologies have come together well. We are putting several members of our Adeptra senior management team into key roles at FICO, with their helping not only with the integration, but adding valuable leadership. And I'm hearing great things from the field that reinforced the beliefs we've had when we were evaluating the transaction. At the recent annual sales meeting, there's a genuine buzz about the pipeline of opportunities for Adeptra. I heard again and again how customers are excited with what many view as a natural extension to our existing product set and how our salespeople have another best-in-class product available to sell immediately. Both the Adeptra and Entiera acquisitions helped us in 2 strategically important areas. First, we believe Adeptra gives us valuable opportunities to diversify from our base and financial services by taking our core competencies to other vertical industries. Entiera strengthens our position in the retail space and Adeptra, in addition to its application and financial services, helps us in telecom, retail and other industries looking to improve customer engagement. These are industries where analytics-based products can generate great value, and we aim to build our business in them as a compliment to our strong financial services foundation. Second, these 2 acquisitions both provide extensions to our line of SaaS-enabled offerings. As we've said, we're committed to providing innovative software as a service solutions to our customers, and both Entiera and Adeptra are helping us immediately to expand those offerings. Before I turn things over to Mike, I'd like to highlight a deal we signed this quarter with People's Bank of China, the central bank of the People's Republic of China, which controls monetary policy and regulates financial institutions in Mainland China. Our Scores division is working with PBOC to help it develop an industry standard score, and we'll participate in the validations of the score across major banks in China going forward. This project is a start of new initiatives in China for using analytics to manage consumer credit risk on a broader and more standardized basis. The relationship will allow PBOC to lever FICO's industry-leading analytics capabilities for credit risk management, understand and incorporate the national regulatory standards associated with credit risk into a standardized score and scale the score in to China's banks as a common credit risk scoring standard. China Score division is also helping PBOC to understand and manage the privacy implications associated with consumer information, as well as helping to broaden the foundational structures of consumer and credit education across the China financial services marketplace. FICO is the only foreign company working with PBOC on these strategic initiatives. These are exciting times at FICO. As I've said before, we are in a unique position to extract value from data and ultimately help our customers make smarter business decisions. As we look ahead, we're excited about the future. With the new growth opportunities we're pursuing both through internal investments and through the complementary acquisitions we've made, we're building our business for sustainable growth. With that, I'll pass the call to Mike for further financial details.

[Michael J. Pung:]

Thanks, Will, and good afternoon everyone. Today, I'll emphasize 3 points in my prepared comments

[William J. Lansing:]

Let me take a few minutes to discuss where we've been, and where we're headed. Over the past 2 years, we focused on growing our software businesses organically, while managing our expenses tightly, driving significantly improved operating results. We've also seen improvement in our Scores franchise, instep with a mostly improving U.S. economy. Our free cash flow was invested wisely and in an aggressive share repurchase plan, while we look for opportunities that made good strategic sense. During this past year, we identified opportunities to grow and diversify our business, and we are investing some of the margin expansion toward those areas, where we see the highest potential. We made 2 important acquisitions that will drive revenue growth in fiscal 2013, an additional margin improvement as we deliver the expected synergies. In short, we view fiscal 2013 as a year on which we will continue to put into place long-term growth initiatives. We're focused especially in 3 areas

[Steven P. Weber:]

Thanks, Will. This concludes our prepared remarks, and we're ready now to take your questions. Leticia, please open the lines.

[Operator:]

[Operator Instructions] And your first question comes from the line of Carter Malloy from Stephens, Inc.

[Carter Malloy:]

Can you remind us what you're actual rotations are for Adeptra's contribution to the model for 2013 in terms of revenue and expenses?

[Michael J. Pung:]

Yes, Carter, so this is Mike. We're expecting Adeptra revenues to be on a full year basis next year around $55 million to $58 million. And we expect it to be GAAP accretive of around $0.02 to $0.03 per quarter, so about $0.09 to $0.10 for the full year. That includes about $6 million of incremental amortization expense related to the intangible assets.

[Carter Malloy:]

Got it. So then externally of that then, where are the other incremental investments coming next year in terms of your P&L?

[Michael J. Pung:]

So what we're planning to and we have begun to put some dollars into [Audio Gap] R&D function, in particular adding some features and functionalities around our business on the mobility side, which is an extension of what we're doing with Adeptra. We're also planning to invest, and we have started to invest in some areas around our fraud products by expanding the capabilities within that offering set.

[Operator:]

And your next question comes from the line of Ty Lilja from Feltl and Company.

[Ty M. Lilja:]

I'm wondering if perhaps you can provide some color just on the impact to higher mortgage origination during the quarter, and how that affected your various lines of business. I was wondering if that was part of the reason for the bump in B2B stores?

[William J. Lansing:]

Yes, Ty, great question. So we did see a nice increase [Audio Gap]

[Ty M. Lilja:]

Kind of a lift in Originations Solutions revenue in and applications.

[William J. Lansing:]

A slight lift. Most of that, frankly, is driven from new license sales. But we saw modest increases on the Originations side on it on a sequential basis.

[Ty M. Lilja:]

And also wanted to ask I think your press release referred to the pre-configured Decision Management solutions. I think you guys were kind of talking about versions of those solutions aimed at smaller financial institutions. Where are you on that?

[Michael J. Pung:]

We are very focused on taking our products and offerings and making them easier to implement and offering them on a SaaS basis. And so we're working our way to SaaS-enabling our product line.

[Ty M. Lilja:]

And finally, was just wondering if you could provide an update on what happened in your Marketing Solutions business this quarter.

[Michael J. Pung:]

Yes, Marketing solutions revenue was up. I can give you a percentage. It was up in mid-single digit as we rolled on our new customer for the first full quarter. The third largest Retail Action Manager deal we did. Let me look and find the exact number. It's up roughly about 7% on a year-over-year basis, 4% sequentially.

[Operator:]

[Operator Instructions] And there are no further questions at this time. Do you have any closing remarks?

[William J. Lansing:]

No, thank you. This concludes today's call. Thank you, all, for joining.

[Operator:]

Ladies and gentlemen, you may now disconnect.