Fair Isaac Corporation (FICO) Q4 2012 Earnings Report, Transcript and Summary

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.

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.

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…

Thanks, Will, and good afternoon everyone. Today, I'll emphasize 3 points in my prepared comments: First, we had a solid fourth quarter delivering $186 million of revenue, a 16% increase over the same period last year. For the year, we delivered $676 million, an increase of 9% over fiscal '11. More importantly, as Will said, we saw growth across all product portfolio and throughout all geographies. We have set the bar extremely high for fiscal 2013. Second, for the fiscal year, we delivered $92 million in net income and $2.55 of GAAP earnings per share, increases over the prior year of 29% and 43%, respectively. Finally, our adjusted operating margins increased 400 basis points to 30% from the prior year. We had a number of non-recurring expenses that impacted our margins this quarter, and I'll walk through those, their total impact and what you should expect going forward. Now to speak more to revenue. Revenue for the quarter was $186 million, a $26 million increase over the prior year and a $26 million increase over the prior quarter. Full year revenue of $676 million was an increase of $57 million over last year. I'll break down the revenue into our 3 operating segments. The first segment, Decision Management Applications. Revenue from these applications was $120 million, up 22% from last quarter and up 23% versus the same period last year. While we saw strength across most of the portfolio, we achieved particularly strong results in our TRIAD and Falcon products, driven by software license sales and related implementation services. In addition, we recorded $4 million of revenue related to our acquisition of Adeptra, which closed in early September. The second segment is Scores. Overall, Scores revenue was $47 million, an increase of 4% from the same quarter last year and…

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: First, we're diversifying our strong -- beyond our strong foundation and financial services into other industries, where analytics can generate great value; second, we've acquired SaaS offerings, while we're cloud-enabling FICO applications analytics and decisions. Together, these solved important customer problems in ways that are relatively quick, inexpensive and painless for our clients to implement and easy for us to sell; and third, we're advising and serving our clients as they grapple with the implications of big data, the vast new streams of information that are changing the way business is done around the world. Finally, we're are providing guidance today for what we expect in our fiscal year 2013. We expect revenues to be in the $740 million to $750 million range, an increase of 9% to 11% versus fiscal '12. Of that we expect the revenue from Adeptra products to be $55 million to $58 million. We expect net income to be at least $100 million on a GAAP basis, an increase of about 9%. Finally, we expect GAAP earnings per share of $2.80, an increase of 10%. This is based on our current diluted share count of around 36 million shares outstanding. I'll now turn the call back to Steve for Q&A.

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

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

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?

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.

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

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.

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

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?

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

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

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.

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?

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.

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

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

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

Ladies and gentlemen, you may now disconnect.