Fair Isaac Corporation (FICO)

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Fair Isaac (FICO)

Q3 2013 Earnings Call

July 30, 2013 5:00 pm ET

Executives

Steven P. Weber - Vice President of Investor Relations and Treasurer

William J. Lansing - Chief Executive Officer, President and Director

Michael J. Pung - Chief Financial Officer, Chief Investor Relations and Executive Vice President

Analysts

Manav Patnaik - Barclays Capital, Research Division

Lauren Slabaugh - Stephens Inc., Research Division

Presentation

Operator

Good afternoon. My name is Lita, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fair Isaac Corporation Third Quarter Earnings Call. [Operator Instructions] Thank you. Mr. Steve Weber, you may begin your conference now.

Steven P. Weber

Thank you, Lita. Good afternoon, and thank you for joining FICO's Third 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.

Today, we issued a press release that describes the financial results compared to the prior year. On this call, management will also discuss in comparison to the prior quarter in order to facilitate an understanding of the runway 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.

This call will also include statements regarding certain non-GAAP financial measures. Please refer to the company's earnings release and Regulation G schedule issued today for a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measures. The earnings release and Regulation G schedule are available on the Investor Relations page of the company's website at fico.com or on the SEC's website at sec.gov. A replay of this webcast will be available through August 30, 2013.

Now, I'll turn the call over to Will Lansing.

William J. Lansing

Thanks, Steve. Today, we announced the results for our third quarter of fiscal 2013. I'll briefly recap those results, talk about the performance of our different segments and give our view on the macro environment.

In our third quarter, we reported revenue of $184 million, an increase of 15% over the same period last year. On a GAAP basis, we delivered $20 million of net income and earnings of $0.54 per share for the quarter, down 5% and 8%, respectively, from the same period last year. The GAAP results included a noncash tax charge of $0.07 per share. We delivered $29 million of non-GAAP net income and non-GAAP EPS of $0.80 per share, increases of 14% and 10%, respectively, from the same period last year.

Recurring revenues throughout our business were strong again this quarter. We are pleased with the continued momentum we're seeing in our Scores business, which I'll discuss in a minute.

One area of disappointment is the lengthening of the license sales cycle, particularly among North American banks. While we still feel the size and quality of our pipeline provides us with the ability to deliver against our previous guidance, we had expected to close more deals at this point in our fiscal year. As a result, we are adjusting our guidance down modestly. Mike will explain this when he reviews the financials, but first I'll discuss the results in each of our business segments.

Our Application revenue this quarter was $115 million, up 17% from the same period last year. Most of the increase is attributable to the acquisitions of Adeptra and CR Software, but we continued to deliver very good results in fraud banking, which is up 14% year-over-year. As I said earlier, Applications is an area where we have seen delays in license sales. While we had a decent quarter, posting $13 million in license revenue, we had expected to close even more deals in Q3 but did not because of the lengthening sales cycle.

Our Tools revenue was $22 million this quarter, up 7% from the same period last year. The increase was driven primarily by services revenue, as we work with our customers to implement and customize our Blaze and Xpress products. We are also seeing an increase in maintenance revenues as we reap the benefits of previous license sales and the high rate of maintenance contract renewals.

Our final segment is Scores. We're very pleased with the results in this segment, and particularly with the momentum that we've seen in both the B2B and B2C portions of the business. As you know, this quarter we renewed our contract with Experian. While I won't go into details, I will say that I'm very happy that we extended our long-standing relationship serving U.S. financial services customers. I'm also thrilled that the new agreement allows us to offer U.S. consumers their FICO Scores based on Experian data. Our website, myFICO.com now offers consumer FICO Scores based on credit data from each of the 3 bureaus. Our B2C business was up 21% versus last year, including a modest benefit from the sale of Experian-based scores, which we began to offer in June. We will see a full quarter impact in the fourth quarter and expect to see continued momentum in our subscription business to consumers.

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