Fair Isaac Corp (FICO) 2002 Q4 法說會逐字稿

Ladies and gentlemen I would like to read the Safe Harbor statement.

Under the Private Securities Reform Act of 1995, statements made in this call that are not strictly historical are forward-looking statements that involve risks of uncertainties, many of which are not under the control of Braun Consulting.

The risks and uncertainties could cause the actual results to differ materially from those involved in the forward-looking statements.

Such risks and uncertainties involve but are not limited to competition, overall general business and economic conditions, the nature of Braun Consulting clients, attracting and retaining highly skilled employees, the ability of Braun consulting clients to pay for services, friendly payment by clients for services rendered and Braun Consulting's ability to efficiently manage growth and client relationships as well as other risks identified in Braun Consulting's annual report on form 10K for 2001 and other filings with the Securities and Exchange Commission.

Braun consulting is under no duty to update any forward-looking statements after the date on this report or to confirm those statements to actual results or change in its expectations.

Thank you for standing by.

I would like to welcome you to the Braun consulting fourth quarter and fiscal year end 2002 conference call.

During the presentation all participants will be in a listen-only mode.

Afterwards we will conduct a question-and-answer session.

At that time, if you have a question, you will need to press a one followed by the -- on your telephone.

As a reminder this conference is being recorded Wednesday February 5, 2003.

I would now like to turn the conference over to Mr. Steve Braun and Tom Schuler, senior vice president of corporate development.

Please go ahead.

Thank you, Jennifer.

This is Steve Braun.

Good afternoon and thank you for joining us today.

During today's call we will cover the following, a review of the fourth quarter's financial results which were announced at the close of markets today, a discussion of the specific trends that impacted our performance during the quarter and a review of the strategic initiatives and investments designed to enhance our position going forward, guidance for the first quarter, and then we will open the call for questions.

At this time I would like to turn the call over to Tom Shuler for a discussion of Q4 results and an update on the financial metrics.

Thank you Steve.

Good afternoon everyone Everyone and thank you for joining us on the call.

I will begin with a review followed by an analysis of the metrics and -- continue to be negatively impacted during the quarter by the loss of revenue during the largest client, Pharmacia.

We did see positive trends in the core revenue base as well as significantly lowering our operating cost over the quarter and we completed our stock repurchasing programs that were in place.

Revenue before expense reimbursements was 8 million, a decrease in 47.7 from $15.3 million in Q4 of 2001.

Total revenue fourth quarter 2002 including reimbursable expenses was 9 million for the same period a year ago.

Proforma net loss was 16 cent per share including special charges of 20.5 million compared with the proforma loss of 1.7 million or 8 cent per share for the fourth quarter of 2001 excluding certain none cash items and special charges totaling 2.1 million.

Non-cash touches including none tangible assets and stock compensation.

Special charges included severance cost, expenses -- and valuation allowance for tax deferred assets.

On a GAAP basis, 21.7 million -- revenue before project expense reimbursement for the year ended December 31, 2002 was 45.9 million, down 40.1% from 76.7 million for the prior year.

Total revenue for the year ended December 31, 2002 was 50.8 million, a decrease of 39.8% from 84.4 million the prior year.

Proforma net loss excluding certain non-cash items of 24.2 million for the year ended December 31, 2002, was 7.4 million or 36 cent per share compared with proforma net loss excluding charges of 26.9 million for the year ended December 31, 2001, or 2.1 million or 10 cent were share.

Non-cash items included intangible assets prior to January 1, 2002 and stock compensation.

Special charges include severance costs, costs associated with office space consolidation and valuation of all tax deferred assets.

On a GAAP basis, net loss ended December 31 was -- or $1.39 per share.

Net interestincome was 146,000, a decrease from 192,000 earned in the previous quarter.

Our client base statistics continued to be impacted by the second half decline in connection with the merger with Pfizer.

As you may recall, revenue from Pharmacia declined from 6 million in Q1 to 4.2 million Q2, 1.8 million in Q3 and only 15,000 in Q4.

However the positive trend imbedded in the revenue data is that excluding Pharmacia we experienced 14.3% growth in client revenue from 7 million in Q3 to 8 million in Q4.

Our client concentration for top five clients was 55%, compared with 57% in Q3.

Top 10 accounted for p 77% of our revenue and top 20 clients accounted for 95% of our revenue in Q4 which was consistent with Q3 results.

The average revenue from the top 20 clients was 1.5 million in Q4 versus 1.7 in Q3 and average revenue from the top 10 clients was -- -- -- did -- revenue from integrated products was 57% in Q4 compared to 58% in Q3.

Our overall repeat for approximately 74% of total revenue compared to 56% in Q3 the significant increase in repeat business was due to growth among key clients including Pfizer, Elie, hill Andy a few others.

Health care pharmaceuticals continues to be our strongest vertical-- retail demonstrating continued growth and providing improved industry diversification.

Our industry -Health Care was 42% in Q4 versus 53% in Q3.

Media and Telecom was 32% versus 15% in Q3.

Consumer package goods account for 17% in Q4 versus 12% in Q3 and manufacturing and other areas accounted for 10% in Q4 versus 19% in Q3.

We added four significant new clients in the quarter and serviced 42 clients overall.

Our percentage of fixed price was 56% fixed price, 44% time and materials which compared to 64% fixed price -- -- international business was 11% in Q4 compared to 5% in Q3.

We ended the fourth quarter with 271 total employees, consulting head count decreased from 272 consultants in Q3 and total employees in 354 in Q3: Billable utilization was 57% in the fourth quarter compared to 54% in Q3, annualized revenue, approximately 150,000 compared to $148,000 last quarter.

Voluntary employee turn over was 12.9% in Q4 -- this continues to be better than our long-term goal.

Our balance sheet remains stronger in the quarter.

Cash and marketable securities position was 32.1 million, down from 35.4 million at the end of Q3.

This was at the high end of our guidance.

We are particularly pleased with this result as our guidance did not include the use of 1.1 million of severance pass or 1.9 for the stock repurchase program.

We ended the quarter with 1.76 cash per share.

Account receivables declined from 9.8 million in Q3.

Weighted average DSO's were 53 days.

This compares favorably to our total revenue of 6.4% over the same period.

These results continued to demonstrate our -- to manage cash, credit and debit collection policies.

During the fourth quarter-- these charges included approximately 1,400,000 in costs associated with Q4 reduction in force which included 1.1 million in cash payouts. 3.4 million of costs associated with office base consolidation including adjustments in the sub lease market, and 15.7 million in non-cash charge as an valuation allowance for future deferred tax asset which are primarily related to the operating loss carrying forward.

This allowance was taken -- reflects the uncertain economic conditions.

Braun retains the long-term economic beneficial of these assets which expired beginning in 2019 and have a life of 20 years.

This charge has no impact on our current cash balances and the net operating loss carry-forward will shield future income from taxes for an extended period of time significantly enhancing our future cash flows.

We anticipate the collectively the cost initiatives taken in Q4 will provide annual savings of $8 million.

The company completed its initial 1 million share repurchase program in November of 2002 with an average price of $1.72 per share for a total cost of 1.7 million.

The company initiated second stock repurchase program with a 2 million-dollar limitation.

As of December 31, 2003, the company had repurchased approximately 1.8 million shares at an average price of 97 cent per share for a total price of 1.7 million, the company completed this inventory in January of 2003 with the purchase of an additional -- average price of a dollar per share for a total cost of $296,000 depleting the second program.

The company has repurchased the total of 3,055,848 shares with average price of 1.22 per share for total of 3.7 million.

The board of directors has approved a new repurchase Prime Minister for $2 million that we will be actively pursuing.

On a weighted average basis our basic share capita was 19 million-- and diluted count was 19 million due to the large shares purchased during the quarter, our shares were higher.

I will return you to Steve Braun.

Steve?

Thanks, Tom.

Given the environment, we're pleased by our ability to exceed our revenue guidance during the fourth quarter.

Specifically we were encouraged to ex-pand the business base from 7 million in Q3 to 8 million in Q4 when you adjust for the 1.8 million in revenue generated by pharmacia in Q3 compared with no revenue from Pharmacia in Q4.

It is important to note we were able to accomplish this in a particularly down quarter in our industry due to holidays, vacations and the end of the budget cycle.

From where we stand today we are seeing a positive trajectory in the business.

Clearly demand has not returned to the desired levels and we're not certain when that will occur but we are seeing a gradual sign of stabilization.

In particular, we are encouraged that demand for our services remain that and in some areas above the levels we expected, both during the fourth quarter and coming into the first quarter.

Recent discussions with some of our key accounts confirm that companies will continue to invest in the types of services we deliver.

In fact, with several accounts, there are significant long-term growth opportunities.

During Q4 and earlier this year as part of our account planning process, members of the executive team met with key accounts to determine both budget levels for the coming year and to identify areas of future opportunity.

With several accounts, we have an opportunity to both expand our current client relationships and the scope of the projects that are under way.

What we are hearing is that, yes, there are budget constraints but the problems we're helping clients address are critical to our clients' future growth.

These include helping companies improve organizational focus on their customers, increase growth and profits through customer understanding and strategy, improving the organization's ability to benefit from all of its interactions and touch points with its customers and finally, to apply technology that improves the ability to understand, serve, and manage their customer base.

Specifically during the quarter, we secured contract extensions with several top accounts including hillen brand, Pfizer, 7-11, Elie lilly and American greetings.

We added four significant new clients including New York life and Oxford health.

During the first quarter, we have already entered into several new agreements with clients such as Minnesota Mutal Life, Pep Boys and the Trivian Company .

We have many strong pursuits under way with several new and existing clients.

Clearly, the prolonged economic slow down and the IT spending freeze continues to make for an uncertain out look.

But from where we stand today, almost midway through the quarter, we are encouraged by the activity levels we seeing to date.

In addition, general market trends around our core competences and business intelligence and customer analytics point to stabilization.

Some cases increase demand in these areas.

Particularly in the business intelligence space.

Several key partners are starting to see a rebound in sales.

This is one early indicator that IT spending in select areas may be starting to turn around.

Related to this, several research studies report that within today's constrained spending environment, the priority spends is on integration, business intelligence, marketing analytics and customer care applications.

Over the last several years, what we saw was strong spend in developing and building transactional applications and systems.

Unfortunately, with economic slow down, companies were unable to get the true yield from these investments.

That is, they were unable to unlock the value of these transactional systems and make the data actionable and meaningful.

According to our own research, which is also supported by industry firms such at gardener, CRM spending is expected to be strong in the areas of Braun strength.

Marketing and customer care applications.

CRM initiatives will shift from an operation and tactical focus to an emphasis on analytics and business intelligence.

During the quarter and in conjunction with the normal planning process, we invested a significant amount of time redoing the business, both taking a hard look at the demand environment and evaluating our internal operations and resources to formulate our strategy for 2003.

While we continue to execute against our core strategy around key accounts and industry-focused solutions we recognized areas that could be better aligned for performance and execution.

As we stated in our last call, returning to profitability is our top priority.

But at this point, we believe that it is in the company's long-term interest to do so in a way that enables us to remain competitive and protect our core assets.

As part of this process, we made some key investments in the business and under took some strategic actions that Tom discussed, designed to position the company to achieve desired short-term financial targets while establishing a platform to return (inaudible) profitability over the course of the year.

Right now I would like to briefly highlight some of these initiatives.

First, as previously announced, Craig Lashmitt joined the company in November as president.

He brings wealth of experience and an impressive track record at building and growing professional services firms.

His appointment comes at a critical point in the business where the duties of the senior management team have expanded and there's a need for additional leadership to help drive the business in overall strategy.

Specifically Craig is focused on the management and growth of client relationships, employee development, and delivery quality.

Since November, he has been working closely with our management team to better align the business around key disciplines and industries of focus and ensure that we are more efficient in our we deliver our services, measure our performance and manage the business.

He has been a tremendous addition to the team.

I will continue to be integrally involved in the business serving as C.E.O. and chairman of the board of directors.

However, by transitioning from my role as president, I will be increasing my focus on the strategic management of the firm including strategic initiatives, shareholder relations and working closely with the board of directors.

We also added senior talent over all of our disciplines.

We're also investing in our sales engine.

We added three development business managers during the quarter, each of which possesses significant steps in the health care, media, and financial services.

We have also been able to add additional experience delivery talent throughout the organization.

And finally, as I stated earlier, we took a series of organizational action ins the fourth quarter designed to improve our cost structure improve operations and accelerate our return to profitability.

We took a hard look at the operational side of the business and balanced the organization's cost structure with targeted revenue levels for Q1 and beyond.

By rationalizing our cost structure and managing the business against the realities of the marketplace, we expect to generate annual cost savings in excess of 8 million.

We also expanded our share repurchase efforts during the quarter.

We believe the stock continues to be under valued.

The stock is trading at 50% of our cash per share of $1.76.

Our second share repurchase program established in November was successfully completed in January and we are instituting a new $2 million share repurchase program to go into effect immediately.

In the long-term we see this as bringing significant value to our shareholders.

As we enter 2003, I am confident we have made and will continue to make substantive improvements in our efficiency and competitiveness.

The combined positive impact of the strategic actions taken and investments made in the business during the fourth quarter have placed us back on a growth trajectory.

We have made significant progress stabilizing and expanding our client base.

However, the prolonged economic slow down and IT spending freeze continues to make for an uncertain out look.

We expect revenue fort first quarter to be at or above fourth quarter results of 8 million.

Based upon continuing investments in the business, we expect balances to be 28 million or $1.53 per share prior to any share repurchases.

Before we open up the call for questions I want to reinforce the importance of reviewing our fourth quarter results and first quarter expectations within the context of some specific business factor.

The fourth quarter was an important quarter from several perspectives.

First we demonstrated an ability to grow our core business revenues beyond the loss of our largest client Pharmacia.

Secondly we took the necessary steps to balance our cost structure in addition we added depth and experience to our management team, our delivery personnel and our sales organization.

And finally, based on our Q1 guidance, we believe we have seen some stabilizing factors in the marketplace that will provide a platform for future growth and profitability.

Jennifer at this time let's open the call for questions.

Thank you.

Ladies and gentlemen, if you would like to register for a question you will need to press the 1 followed by the -- you will hear three prompts to acknowledge your request.

If would you like to withdraw your registration, you may do so followed by the one followed by three.

One moment please while the first question.

First question is from the line of Ashwin Shrivikar in New York, please go ahead.

Couple of questions.

First, just looking at the kinds of clients you signed, how do you see the vertical mix changing?

Do you see it changing significantly in the next several quarters in.

Yes, Ashwin Shrivikar.

Certainly we believe health care and pharmaceuticals is going to continue to be a significant portion of our business, with the factor that Pharmacia was not part of our fourth quarter revenues, I would say that I believe that health care and pharmaceuticals will be somewhere between 35 and 45% of our business, our largest vertical.

We expect that on a go forward basis.

But we are seeing significant trending around our media and Telecom, significant growth in that area as well as consumer packaged goods and retail verticals and we also believe that we're just beginning to see some strong momentum in the financial services area.

So those are really the four key industries that we expect to continue to contribute significantly to revenue in the next several quarters.

Okay, and as that mix gradually evolves, is there a difference that you see in terms of either contract sizes or billing rates or profitability in the newer -- I shouldn't say newer, but in the other verticals?

We certainly expect to continue to see our client size increase.

As we stated earlier, we have gone to a formalized approach to managing accounts with a stated objective of growing these accounts and broadening our services into specific accounts and that is true across industries.

The types of project we are doing are complex.

They're large.

They typically involve an integrated set of services across our customer strategies down through our technology implementation around packaged applications and the analytical applications and business intelligence applications we implement around that so, as we push to sell full services into key managed accounts our expectation is that we will see both client size and project size grow.

Okay.

Just -- feel free not to answer this last question here, but, you know, would you in any condition, any specific criteria be a seller of the business?

There are several very positive aspects of the business, the client list, the market position in terms of, you know, depth of knowledge and so on, so forth.

I would think it would be an attractive target to a number of companies.

Is that in the plans here?

Well, I would certainly agree that we have a core expertise that is very meaningful in the marketplace.

We think, in fact, that our integrated model and our core competences around the business intelligence and other components are unique and differentiated.

We think this is where there will be a lot of investment from clients in the marketplace, so we do believe our skill sets are very valuable.

Everything that we're focused on right now is continuing in the positive trajectory that we see in the business and growing it organically.

And we're extremely pleased and enthused to be in a position where we do see ourselves back on a growth trajectory, without the need to look to the outside.

Okay.

Now, I apologize, one last question.

I said last one the last one, but in terms of, you know, competition, have you seen, you know, the Indian offshore shore IT providers be more of a force in the marketplace and is that causing a debt mental impact on your business?

In fact, it has not for us.

We do not see them involved in the types of competitions that we are involved in.

This last quarter in Q4 and moving into Q1, we have actually formalized relationship with an Indian partner where we are using their services with ours on a substantive basis.

We continue to see that as a strong compliment to what we are doing.

And our approach of being able to own client relationships at high levels and work is what we think is a real core strength of ours.

I'm sorry.

I missed that.

Who was the partner that you said?

We haven't formally announced it but I would like to withhold that information right now.

Okay.

Thank you.

Thank you.

Next question comes from the line of Jay Whitdale in Wisconsin.

Go ahead.

Could you -- near the end of your dialogue you talked about the fact that cash at the end of the Q1 will be $1.53 a share.

Can you just explain the prior -- prior to repurchase where that cash use is going?

High, Jay, this is Tom Shuler.

Basically it will be used for the operations.

Steve mentioned we're giving guidance to flat to modestly up revenues so that is off of an $8 million revenue base W that, we anticipate -- with the $8 million portion of that guidance, we would expect losses to be about 9 cent per share.

So it's just going to fund operations.

Okay.

When do you get the full benefit of the $8 million expense (Inaudible).

You faded out slightly there, Jay, but I believe the question was when do we expect to get the full benefit of the cost savings.

We think we're going to have most of it during the quarter.

So if you look at it that way, our overhead nut will be -- net will be 10.8 to 11 million.

Thank you.

Any comment as to when you would target cash flow break-even?

You know, I think we have tried to position the cost structure of the company to hopefully get us to a point -- we mentioned this on the last quarterly call that by the end of the year, we hope to have grown the revenues to manage that situation.

Thank you.

: Gentlemen I am showing no further questions.

Please continue with your presentation or the closing prarks

Thank you, Jennifer.

I would like to thank everyone for joining us today and extend special thanks to all Braun consulting employees for their efforts during the quarter and look forward to seeing you next quarter.

Gnaw.

This does conclude your conference for today.

We thank you for your participation and ask that you please disconnect your line.