The company was required during the first quarter to adopt Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123 (R)). As a result, effective October 1, 2005, the company began recording compensation expense for stock options and purchases under its Employee Stock Purchase Plan on that date in the consolidated statement of income. Results for prior periods have not been restated. Financial guidance previously provided by the company of $0.50 per diluted share for the first quarter 2006 and $2.15 per diluted share for fiscal 2006, excluded share-based compensation expense related to SFAS 123(R).
First Quarter Fiscal 2006 Results
The company reported first quarter revenues of $202.8 million in fiscal 2006 versus $195.5 million reported in the prior year period. Net income for the first quarter of fiscal 2006 totaled $28.5 million or $0.43 per diluted share in accordance with generally accepted accounting principles (GAAP). First quarter fiscal 2006 results included compensation expense of approximately $6.1 million after-tax, or $0.09 per diluted share, due to the adoption of SFAS 123(R). Excluding the effect of this expense, net income for the first quarter of fiscal 2006 was $34.6 million, or $0.52 per diluted share, on a non-GAAP basis. Net income for the first quarter of fiscal 2005 totaled $27.9 million, or $0.36 per diluted share. First quarter fiscal 2005 results were reduced by $0.03 per diluted share from the adoption last year of EITF 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share. SFAS 123(R) was not effective for the first quarter of fiscal 2005.
"We are pleased with our continued management of expenses and our strong performance in earnings per share growth," said Thomas Grudnowski, Fair Isaac's chief executive officer.
First Quarter Fiscal 2006 Revenues Highlights
Revenues for first quarter fiscal 2006 across each of the company's four operating segments were as follows:
- Strategy Machine Solutions revenues were $112.0 million in the first quarter of 2006, compared to $117.8 million in the prior year quarter, or a decrease of 5.0%, primarily due to a decline in revenues associated with marketing services and insurance solutions. These declines were partially offset by solid growth in consumer scoring products, and collections and recovery solutions.
- Scoring Solutions revenues increased to $46.2 million in the first quarter from $39.4 million in the prior year quarter, or by 17.1%, primarily due to an increase in revenues derived from risk scoring services at the credit reporting agencies, and PreScore® Service.
- Professional Services revenues increased to $32.8 million in the first quarter from $29.5 million in the prior year quarter, or by 11.4%, primarily due to revenues from industry strategic consulting services and implementation services for our Blaze Advisor products.
- Analytic Software Tools revenues increased to $11.8 million in the first quarter from $8.8 million in the prior year quarter, or by 33.7%, due to revenues generated from the sales of Blaze Advisor and Model Builder products.
The company achieved bookings of $127.8 million for first quarter fiscal 2006 versus $115.4 million in the same period last year, an increase of 10.8%. The company defines a "new booking" as estimated future contractual revenues, including agreements with perpetual, multi-year and annual terms. Management regards the volume of new bookings achieved, among other factors, as an important 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 marketable security investments were $372.2 million at December 31, 2005, as compared to $288.1 million at September 30, 2005. Significant changes in cash and cash equivalents from September 30, 2005 include cash provided by operations of $60.7 million for the first quarter fiscal 2006 and $36.2 million received from the exercise of stock options and stock issued under an employee stock purchase plan. Cash used during the first quarter of fiscal 2006 includes $2.5 million related to purchases of property and equipment and $12.8 million to repurchase company stock under the current authorized share repurchase plan. The remaining balance of the existing share repurchase authorization is $158.7 million.
Second quarter fiscal 2006
The company expects revenue for second quarter fiscal 2006 of approximately $210.0 million, of which Product (Scoring, Strategy Machines and Analytic Software Tools) revenue will account for approximately $174.0 million and Services revenue will account for approximately $36.0 million. The company also expects GAAP earnings per diluted share for the quarter to be approximately $0.42, which includes an after-tax compensation expense of approximately $6.6 million, or $0.10 per diluted share, related to SFAS 123(R). Excluding the effect of SFAS 123(R), non-GAAP earnings per diluted share for the quarter would be $0.52.
The company expects revenue for fiscal year 2006 to remain in line with prior guidance of approximately $860.0 million to $900.0 million. The company also expects GAAP earnings per diluted share for fiscal 2006 to be approximately $1.77, which includes an after-tax compensation expense of approximately $26.0 million, or $0.38 per diluted share, related to SFAS 123(R). Excluding the effect of SFAS 123(R), non-GAAP earnings per diluted share for fiscal 2006 is expected to be approximately $2.15.
Guidance reflects top-line growth in our core market units and operating margins consistent with prior quarters.
"We continue to respond to the growing demand for our industry-standard solutions in areas like fraud management, scoring, and customer account management," said Grudnowski. "We have seen terrific response from existing and prospective customers in these areas. Furthermore, we continue to experience growing market appreciation for our Enterprise Decision Management capabilities."
Non-GAAP Financial Measures
This news release includes the non-GAAP financial measure "EPS before Share-Based Compensation" which excludes the expense related to all stock-based compensation. The company excludes these amounts in order to facilitate the comparison of current results with those of prior periods and with previous guidance provided by the company, which did not include such expenses, and because these amounts are non-cash expenses. Wherever this non-GAAP financial measure has been included in this news release, the company has reconciled it to GAAP EPS. This non-GAAP financial measure is not prepared in accordance with accounting principles generally accepted in the United States of America and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
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 first quarter fiscal 2006 results, and outlook for the remainder of fiscal 2006. The call can be accessed live on the Investor Relations section of the company's Web site at www.fairisaac.com, and a replay will be available approximately two hours after the completion of the call through February 22, 2006.
About Fair Isaac Corporation
Fair Isaac Corporation (NYSE:FIC) makes decisions smarter. The company's solutions and technologies for Enterprise Decision Management give businesses the power to automate more processes, and apply more intelligence to every customer interaction. Through increasing the precision, consistency and agility of their decisions, Fair Isaac clients worldwide increase sales, build customer value, cut fraud losses, manage credit risk, reduce operational costs, meet changing compliance demands and enter new markets more profitably. Founded in 1956, Fair Isaac powers hundreds of billions of decisions each year in financial services, insurance, telecommunications, retail, consumer branded goods, healthcare and the public sector. Fair Isaac also helps millions of individuals manage their credit health through the www.myfico.com website.
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 company's 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 risks described from time to time in Fair Isaac's SEC reports, including its Annual Report on Form 10 K for the year ended September 30, 2005. If any of these risks or uncertainties materialize, Fair Isaac's results could differ materially from its expectations. Fair Isaac disclaims any intent or obligation to update these forward-looking statements.
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