The company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123 (R)) for fiscal 2006. As a result, effective October 1, 2005, the company began recording compensation expense for stock options and purchases under its Employee Stock Purchase Plan in the consolidated statement of income. Results for prior periods have not been restated.
Third Quarter Fiscal 2006 Results
The company reported third quarter revenues of $207.1 million in fiscal 2006 versus $203.8 million reported in the prior year period. Net income for the third quarter of fiscal 2006 totaled $26.0 million, or $0.40 per diluted share versus $36.6 million, or $0.53 per diluted share reported in the prior year period.
Third quarter fiscal 2006 results included share-based compensation expense of $6.7 million after-tax, or $0.10 per diluted share, due to the adoption of SFAS 123(R), and costs associated with the previously announced restructuring plan of $3.4 million after-tax, or $0.05 per diluted share.
Third quarter fiscal 2005 results included an increase to net income due to a reduction to income tax expense of $4.4 million, or $0.06 per diluted share, related to revisions made to estimates of prior years' tax liabilities.
Fiscal 2006 Year-to-date Results
The company reported year-to-date revenues of $618.1 million versus $595.4 million in the prior year period. Net income for year-to-date fiscal 2006 totaled $81.4 million, or $1.23 per diluted share versus $98.8 million, or $1.34 per diluted share reported in the prior year period.
Year-to-date fiscal 2006 results included share-based compensation expense of $19.3 million after-tax, or $0.29 per diluted share, due to the adoption of SFAS 123(R), and restructuring and acquisition-related costs of $4.4 million after-tax, or $0.07 per diluted share.
Year-to-date fiscal 2005 results included a decrease in diluted earnings per share of $0.08 related to the adoption of EITF Issue No. 04-8, and an increase in diluted earnings per share of $0.14 related to revisions made to tax liabilities.
Third Quarter Fiscal 2006 Revenues Highlights
Revenues for third quarter fiscal 2006 across each of the company's four operating segments were as follows:
- Strategy Machine® Solutions revenues were $114.8 million in the third quarter compared to $115.1 million in the prior year quarter, or a decrease of 0.2%, primarily due to a decline associated with marketing services and insurance solutions, offset by an increase in revenues derived from fraud solutions.
- Scoring Solutions revenues increased to $43.7 million in the third quarter from $40.7 million in the prior year quarter, or by 7.4%, 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 $36.7 million in the third quarter from $33.2 million in the prior year quarter, or by 10.6%, primarily due to an increase in revenues from strategic consulting services.
- Analytic Software Tools revenues were $11.9 million in the third quarter compared to $14.8 million in the prior year quarter, or a decrease of 19.8%, due to a decline in revenues generated from sales of the Blaze Advisor™ product.
Fiscal 2006 Year-to-date Revenues Highlights
Year-to-date revenues for fiscal 2006 across each of the company's four operating segments were as follows:
- Strategy Machine Solutions revenues increased to $345.7 million from $344.2 million in the prior year period, or by 0.4%, primarily due to growth in consumer scoring products and fraud products, offset by a decline associated with marketing services and insurance solutions.
- Scoring Solutions revenues increased to $131.7 million from $119.5 million in the prior year period, or by 10.2%, 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 $108.2 million from $96.3 million in the prior year period, or by 12.4%, primarily due to increases in revenues from strategic consulting services and implementation services for EDM products, offset by a decline in consulting services related to precision marketing.
- Analytic Software Tools revenues were $32.5 million compared to $35.5 million in the prior year period, or a decrease of 8.3%, due to a decline in revenues generated from sales of the Blaze Advisor product.
The bookings for the third quarter were $94.5 million versus $143.3 million in the same period last year. 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 $353.2 million at June 30, 2006, 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 $153.9 million for fiscal 2006 and $56.2 million received from the exercise of stock options and stock issued under an employee stock purchase plan. Cash used during fiscal 2006 includes $24.3 million related to purchases of property and equipment and $124.1 million to repurchase company stock under the currently authorized share repurchase plan. The remaining balance of the existing share repurchase authorization is $47.3 million.
On June 15, 2006, the company announced the details of a restructuring plan designed to accelerate growth. As part of the restructuring, the company incurred severance and related costs of $3.4 million after-tax, or $0.05 per diluted share, in the third quarter of fiscal 2006.
Separate from the restructuring, the company has identified excess real estate that will be vacated in the fourth quarter of fiscal 2006. Vacating the excess real estate will result in a fourth quarter charge of approximately $8.4 million, after-tax, or $0.13 per diluted share, representing future cash obligations under the lease, net of sublease income. The company expects that the future lease obligations will be paid out over the next five years, which represents the remaining lease period. The company also expects to yield an annualized reduction of rent expense of approximately $2.3 million to $2.8 million, after-tax, through the remaining lease period.
Fourth Quarter 2006
The company expects revenues for fourth quarter fiscal 2006 of approximately $207.0 million, of which Product (Scoring, Strategy Machines and Analytic Software Tools) revenues will account for approximately $170.0 million and Professional Services revenues will account for approximately $37.0 million. The company also expects earnings per diluted share for the quarter to be approximately $0.33, which includes an expected after-tax compensation expense of approximately $7.1 million, or $0.11 per diluted share, related to SFAS 123(R) and approximately $8.4 million, or $0.13 per diluted share related to vacating excess real estate as noted above.
"We remain confident that our client-centric approach will accelerate our growth in new vertical and international markets," said Thomas Grudnowski, Fair Isaac's chief executive officer. "We also expect continued steady growth in core areas, including FICO® scores, our Falcon™ Fraud franchise and our TRIAD™ solutions. The ongoing demand for our EDM solutions is a testament to our customers' and prospects' growing appreciation of the unique value we can deliver."
Q3-06 Earnings Release Financials (PDF)
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 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 August 23, 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 and quarterly report on Form 10-Q for the period ended March 31, 2006. 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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