Fair Isaac Announces Third Quarter Fiscal 2005 Results

MINNEAPOLIS – Fair Isaac Corporation, the leading provider of analytics and decision technology, today announced financial results for its third fiscal quarter ended June 30, 2005.

Third Quarter Fiscal 2005 Results
The company reported third quarter revenues of $203.8 million in fiscal 2005 versus $173.2 million reported in the prior year period. Net income for the third quarter of fiscal 2005 totaled $36.6 million, or $0.53 per diluted share, compared with net income of $28.8 million, or $0.37 per diluted share, reported in the same quarter last year. Net income for the third quarter of fiscal 2005 included an adjustment that reduced income tax expense by $4.4 million, or $0.06 per diluted share. The adjustment represents revisions made to estimates of prior years’ tax liabilities which resulted from a recently completed tax study. In addition, the company reduced its estimated effective income tax rate to 37% for the fiscal year.

The impact of the adoption of EITF Issue No. 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share (EITF Issue No. 04-8) had no effect on the third quarter of fiscal 2005 diluted earnings per share and reduced third quarter of fiscal 2004 diluted earnings per share by $0.02.

Fiscal 2005 Year-to-date Results
The company reported revenues of $595.4 million year-to-date versus $515.8 million reported in the same period last year. Year-to-date net income totaled $98.8 million, or $1.34 per diluted share, compared with net income of $88.4 million, or $1.11 per diluted share, reported in the same period last year. Year-to-date net income in fiscal 2005 was also affected by the year-to-date adjustments that reduced income tax expense by $10.3 million, or $0.14 per diluted share.

The impact of the adoption of EITF Issue No. 04-8 reduced year-to-date diluted earnings per share by $0.08 in fiscal 2005 and $0.09 in fiscal 2004.

“We are pleased with our results this quarter as we continued our trend of record-setting performance – including revenue, bookings, sales proposals and earnings per share,” said Thomas Grudnowski, Fair Isaac’s chief executive officer. “We are particularly pleased with the results from our core Consumer, Enterprise Decision Management, Fraud and Scoring market units.”

Third Quarter Fiscal 2005 Revenues and Bookings Highlights
Revenues increased across each of the company’s four operating segments. Strategy Machine Solutions revenues increased to $115.1 million in the third quarter of 2005 from $105.7 million in the prior year quarter, or by 9%, primarily due to revenues generated by collections and recovery solutions, and mortgage banking solutions associated with the acquisition of London Bridge; as well as increased revenues from both the fraud solutions and consumer scoring products. These gains were partially offset by a decline in revenues associated with marketing services and insurance solutions. Scoring Solutions revenues increased to $40.7 million in the third quarter from $36.3 million in the prior year quarter, or by 12%, primarily due to an increase in revenues derived from the PreScore® Service and from risk scoring services at the credit reporting agencies. Professional Services revenues increased to $33.2 million in the third quarter from $23.2 million in the prior year quarter, or by 43%, primarily due to the acquisitions of London Bridge and Braun Consulting, Inc. Analytic Software Tools revenues increased to $14.8 million in the third quarter from $8.0 million in the prior year quarter, or by 85%, due to revenues generated from sales of the Enterprise Decision Management suite of products.

The company achieved record bookings of $143.3 million in the third quarter of 2005, as compared to its previous guidance of $123.0 million. 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 $310.3 million at June 30, 2005 as compared to $364.3 million at September 30, 2004. Significant changes in cash and cash equivalents from September 30, 2004 include cash provided by operations of $150.2 million; $49.4 million received from the exercise of stock options and stock issued and $22.7 million sourced from the November 2004 sale of the company’s subsidiary, London Bridge Phoenix Software, Inc. Cash used year-to-date includes $14.0 million related to purchases of property and equipment, $32.6 million (net of cash acquired) related to the November 2004 acquisition of Braun Consulting, Inc., and $231.8 million to repurchase company stock under the current and previously authorized share repurchase plans.

Outlook
The company expects revenue for fourth quarter fiscal 2005 of approximately $207.0 million and earnings per diluted share of about $0.49. The company also expects fiscal 2005 total revenue of approximately $802.0 million and earnings per diluted share of about $1.83. This guidance reflects the continuation of top-line growth in its core market units and further expansion of its operating margin.