Fair Isaac Announces Second Quarter Fiscal 2006 Results

Fair Isaac Corporation, the leading provider of analytics and decision technology, today announced financial results for its second quarter ended March 31, 2006.

The company adopted Statement of Financial Accounting Standards No. 123®, Share-Based Payment (SFAS 123 ®) 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.

“We are pleased with the year-over-year growth in earnings, excluding special items,” said Thomas Grudnowski, Fair Isaac’s chief executive officer. “We had continued strong revenue performance from our Enterprise Decision Management (EDM) services, and consumer, scoring, and fraud products.”

Second Quarter Fiscal 2006 Results

The company reported second quarter revenues of $208.2 million in fiscal 2006 versus $196.0 million reported in the prior year period. Net income for the second quarter of fiscal 2006 totaled $27.0 million, or $0.40 per diluted share versus $34.3 million, or $0.45 per diluted share reported in the prior year period.

Second quarter fiscal 2006 results included share-based compensation expense of approximately $6.5 million after-tax, or $0.10 per diluted share, due to the adoption of SFAS 123®, and costs associated with an abandoned acquisition of approximately $1.4 million after-tax, or $0.02 per diluted share.

Second quarter fiscal 2005 results included a decrease in diluted earnings per share of $0.05 related to the adoption of EITF Issue No. 04-8, and an increase to net income due to a reduction to income tax expense of $6.0 million, or $0.08 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 $410.9 million versus $391.6 million in the prior year period. Net income for year-to-date fiscal 2006 totaled $55.4 million, or $0.83 per diluted share versus $62.2 million, or $0.82 per diluted share reported in the prior year period.

Year-to-date fiscal 2006 results included share-based compensation expense of approximately $12.6 million after-tax, or $0.19 per diluted share, due to the adoption of SFAS 123®.

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 the reduction to income tax expense of $0.08 per diluted share for the reason described above.

Second Quarter Fiscal 2006 Revenues Highlights

Revenues for second quarter fiscal 2006 across each of the company’s four operating segments were as follows:

• Strategy Machine Solutions revenues increased to $118.9 million in the second quarter from $111.3 million in the prior year quarter, or by 6.8%, primarily due to an increase in revenues derived from consumer scoring products and fraud solutions, partially offset by decreases associated with marketing services and insurance solutions.
• Scoring Solutions revenues increased to $41.8 million in the second quarter from $39.3 million in the prior year quarter, or an increase of 6.2%, 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 $38.7 million in the second quarter from $33.6 million in the prior year quarter, or by 15.2%, primarily due to revenues from industry strategic consulting services and implementation services for EDM products.
• Analytic Software Tools revenues were $8.8 million in the second quarter compared to $11.8 million in the prior year quarter, or a decrease of 25.3%, 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 $230.8 million from $229.1 million in the prior year period, or by 0.8%, primarily due to solid growth in consumer scoring products, fraud products, and collection & recovery products, offset by declines in marketing services and insurance solutions.
• Scoring Solutions revenues increased to $87.9 million from $78.8 million in the prior year period, or by 11.6%, 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 $71.5 million from $63.0 million in the prior year period, or by 13.4%, primarily due to revenues from industry strategic consulting services and implementation services for EDM products.
• Analytic Software Tools revenues were $20.7 million compared to $20.7 million in the prior year period, or virtually unchanged.

Bookings Highlights

The company achieved bookings of $106.0 million for second quarter fiscal 2006 versus $136.6 million in the same period last year. However, the bookings yield (current quarter revenue divided by new bookings) increased to 20.0% for second quarter fiscal 2006 from 13.7% 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 $425.7 million at March 31, 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 $109.7 million for fiscal 2006 and $45.6 million received from the exercise of stock options and stock issued under an employee stock purchase plan. Cash used during fiscal 2006 includes $8.1 million related to purchases of property and equipment and $12.8 million to repurchase company stock under the currently authorized share repurchase plan. The remaining balance of the existing share repurchase authorization is $158.7 million.

Outlook

Third quarter fiscal 2006

The company expects revenues for third quarter fiscal 2006 of approximately $210.0 million, of which Product (Scoring, Strategy Machines and Analytic Software Tools) revenues will account for approximately $170.0 million and Services revenues will account for approximately $40.0 million. The company also expects earnings per diluted share for the quarter to be approximately $0.44, which includes an expected after-tax compensation expense of approximately $6.6 million, or $0.10 per diluted share, related to SFAS 123®.

Fiscal 2006

The company expects revenues for fiscal year 2006 of approximately $836.0 million to $846.0 million. The company also expects earnings per diluted share for fiscal 2006 to be approximately $1.75, which includes an expected after-tax compensation expense of approximately $26.0 million, or $0.38 per diluted share, related to SFAS 123® and costs associated with an abandoned acquisition of approximately $1.4 million after-tax, or $0.02 per diluted share.

“As we anticipated, we continue to see strong global performance and continued market leadership in our core product areas including FICO® scores, our Falcon™ Fraud detection franchise and TRIAD™ account management systems,” said Grudnowski. “This ongoing demand for our industry-standard solutions in a competitive environment is a testament to the marketplace’s continued recognition and appreciation.”