Fair Isaac Corp (FICO) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Braun Consulting second quarter 2004 financial results conference call.

During the presentation all participants will be in a listen-only mode. (Operator Instructions).

Statements made in this call that are not strictly historical or forward-looking.

Statements that involve risks or uncertainties may, many of which are not under the control of Braun Consulting, with uncertainties could cause actual results to differ materially from those described in the forward-looking statements.

Such risks and uncertainties include, but are not limited to, the nature of the market and the (indiscernible) where Braun Consulting service, offerings, competition, overall, general, business and economic conditions, the nature of Braun Consulting’s clients and project engagements, attracting and retaining highly skilled employees, the ability of Braun Consulting clients to pay for services, timely payment by clients for services rendered and Braun Consulting’s ability to effectively manage growth and client relationships.

As well as other risks identified in Braun Consulting's annual report on Form 10-K for 2003 and other filings with the Securities and Exchange Commission.

Braun Consulting is under no duty to update any of the forward-looking statements after the date of this report or to confirm these statements to actual results or changes in its expectation.

I would now like to turn the conference over to Mr. Steve Braun, Chief Executive Officer and Chairman of the Braun Consulting.

Please go ahead, sir.

Good afternoon and thank you for joining us.

By now I hope you've had an opportunity to review the press release that was issued at close of market.

During today's call we'll provide the following.

A review of our second quarter financial results, an update on our strategy and approach to the marketplace, an update on our client development efforts and other strategic initiatives, guidance for the third quarter and then we will open up the call for questions.

This time I would like to turn the call over to Tom Schuler for a detailed discussion around our Q2 results.

Tom?

Thanks, Steve and good afternoon everyone.

Revenue before expense reimbursements for the second quarter 2004 was $7 million, a decrease of 5.3 percent from revenue of 7.3 million for the same period a year ago.

Total revenue for the second quarter 2004, including reimbursable expenses, was 7.6 million, a decrease of 7.8 percent from total revenue of 8.2 million for the same period a year ago.

A net loss for the second quarter of 2004 was 1.9 million, or $0.11 cents per share compared to a net loss of 3.2 million or $0.19 cents per share for the same period a year ago.

Pro forma net loss excluding certain non-cash items and special charges of $1 million for the second quarter of 2004 was 956,000 compared with a pro forma net loss, excluding certain non-cash charges, of 1.2 million for the same period a year ago of 2 million dollars.

Revenue before project expense reimbursements for the 6 months end of June 30th, 2004 was 16.2 million, up 9.1 percent from revenue of 14.8 million for the same period a year ago.

Total revenue for the 6 months end of June 30th, 2004 was 17.5 million, an increase of 6.3 percent from total revenue of 16.5 million for the same period year ago.

The net loss for the 6 months end of June 30th, 2004 was 4.4 million, or $0.25 cents per share compared to net loss of 7.6 million, or $0.44 cents per share for the same period a year ago.

Pro forma net loss, excluding certain non-cash items of 3.9 million for the 6 months end of June 30th, 2004, was 1.4 million compared with pro forma net loss, including certain non-cash items and special charges of $3 million in the same period year ago, was 4.6 million.

As we previously announced, second quarter consulting revenue was below the low end of our guidance range.

The shortfall was a result of a combination of factors, including a project related delay of several new and existing clients, which counted for approximately 700,000 in the shortfall.

And our inability to close anticipated additional project opportunities in the second quarter with both existing clients and new prospects.

The shortfall in revenue had a negative impact on many of our client metrics.

Our client concentration for our top 5 clients was 50 percent in the second quarter compared to 49 percent in Q1 2004.

Our top 10 clients accounted for 73 percent in Q2 compared to 70 percent in Q1 and our top 20 accounts accounted for 96 percent of revenue in Q2 compared to 93 percent in Q1.

The average annualized revenue for our top 20 clients is 1.3 million in Q2 compared to 1.7 million in Q1 and for our top 10 clients it was 2 million in Q2 compared to 2.6 million in Q1.

In addition, our overall repeat business accounted for approximately 75 percent of our total revenue in Q2 compared to 49 percent in Q1.

Healthcare and pharmaceuticals continues to be our strongest vertical followed by media and telecom and consumer packaged goods and retail.

We also saw significant growth and financial services.

Our industry concentration was as follows -- health care and pharmaceuticals was 50 percent in Q2 versus 49 percent in Q1.

Media and telecom was 17 percent in Q2 versus 20 percent in Q1.

Consumer packaged goods and retail accounted for 19 percent in Q2 versus 18 percent in Q1.

Financial services grew to 9 percent in Q2 from 2 percent in Q1.

And others, including hospitality services and manufacturing was 5 percent in Q2 versus 10 percent in Q1.

We developed 7 significant new clients in the quarter and serviced 31 total clients.

Our percentage of fixed-price versus time and materials project was 52 percent fixed-price and 48 percent time and materials in Q2 compared to 45 percent fixed-price and 55 percent time and materials in Q1.

We had 136 consultants and 175 total employees at the end of the quarter compared to a consulting headcount of 143 and total employees of 182 at the beginning of Q2.

Billable utilization was 64 percent in Q2 compared to 68 percent in Q1.

Annualized revenue per consultant was 191,000 down from 224,000 in Q1.

Annualized voluntary employee turnover was 24 percent in Q2.

We continue to make improvements in our cost structure.

We reduced costs and project and personnel expenses by 11 percent in Q2 compared to Q1 and lowered our G&A expenses by 13 percent in the same period.

We ended the quarter with 12.6 million in cash and marketable securities and no debt.

Account receivables increased from 8.1 million in Q1 to 8.6 million in Q2.

Our weighted average DSOs decreased to 40 days in Q2 compared to 44 days in Q1.

The increase in account receivable balances was the result of billing cycles which occurred late in the quarter due to the structure of some of our fixed fee projects and due to some changes in our billing practices.

We have subsequently made improvements to our practices in the beginning of Q3 and have seen positive results.

We expect account receivable balances due to decline significantly in Q3.

As of June 30th, 2004, the Company had 17,169,487 shares outstanding.

With that, I'll return you to Steve Braun.

Thanks Tom.

As you are aware, second quarter consulting revenue was below the low end of our guidance.

The shortfall was a result of a combination of factors including project start date delays at several new and existing clients including Abbott, AIG, Allstream, Dow Jones, Harley-Davidson and several others.

And our inability to close additional project opportunities in the second quarter with new prospects and existing clients such as Hillenbrand, Schering-Plough, Aventis, Oxford and others.

While these were not the results we were looking for heading into the quarter, I am pleased by the fact that we are now billing with all the clients that we're experiencing project related delays.

Furthermore, we're experiencing a general improvement in the business development pipeline with new work at Aventis, Novartis, Aon, Pfizer, Roger's and many other clients and prospects.

We also continue to make improvements in our infrastructure costs and anticipate subleasing additional space in Chicago and New York in the near-term.

We are making positive headway during the second quarter.

We have secured 7 significant new clients.

I was particularly encouraged by the strategic nature and scope of these new projects.

New clients included Allstream, Cabela’s, the Kauffman Foundation and Novartis.

The growth of our financial services group revenue had a significant impact on our business in Q2.

We began targeting this sector Q4 of 2003 and have seen the business grow from 0, at that time, to 9 percent of our revenue in the second quarter.

We anticipate continued growth in this area and are currently working with the market leaders such as AON, AIG, ChoicePoint and UBS.

From a cost standpoint, as Tom mentioned, we have seen significant improvements.

Lowering our total operating costs by 10.6 percent from Q1 to Q2 and reducing overhead by greater than 1 million per quarter.

On our last call we discussed our internal business strategy review.

As a reminder the goals of this process were to carefully consider shifts in the marketplace, including offshore competition, outsourcing and M&A amongst our competitors and charter a course to align our business and financial model accordingly.

Our marketplace perspective remains focused around architecting customer value.

We believe companies will need shift from a focus on cost reduction to revenue growth strategies to drive the next wave of corporate profit improvement.

Our recent success in helping clients drive profitable growth combined with our growing pipeline, which we will address later, confirms our perspective on our business model.

With regard to offshore partners, we have seen opportunities to help our clients access the benefits of this market.

We're in process of developing our initial offshore partnering agreement and have large-scale projects in our pipeline that could effectively leverage offshore capabilities.

Our tact will be to have a limited number of best of breed partnerships that will support our clients' needs.

From an internal perspective we have streamlined our operations and reduced layers of management.

In addition, we have simplified the management of our delivery organization with an increased emphasis on senior management involvement with project delivery.

We have spent the bulk of our efforts in Q2 advancing our sales and marketing approach.

Even though projects start date delays was an important factor in our missing our guidance range, our inability to convert pipeline opportunities and fill the gaps was ultimately our biggest issue.

In recognition of this we invested significant effort during the quarter updating our core market offerings.

We packaged the offerings, developed new thought leadership around the offerings, aligned up sales and marketing and alliance partnerships, and finally, began aggressive lead generation campaigns to bring the offerings to the marketplace.

The results have been dramatic.

A 58 percent increase in pipeline activity over the last several months.

This should lead to improved revenue in late Q3 and Q4.

Finally, to assist us in addressing the strategic opportunities in the market, we have hired the Investment Bank of Robert W. Baird & Co. to review possible acquisitions, mergers, alliances and growth financing opportunities.

I believe Baird understands and embraces our business model and can be effective in helping us expand our customer value architecture platform in a way that is consistent with our objectives to drive the profitable growth of our business, improve our financial strength, create a positive work environment that provides for the professional growth of our employees, and ultimately, build sustained value for our shareholders, clients and employees.

As was the case in Q2, we have a significant number of projects that are in early phase completion stages that we expect to move forward into large implementation phases.

Again, the timing of our ability to smoothly transition these projects will impact Q3 revenue.

We're also seeing similarities to last year spending patterns with potential budget releases beginning in late Q3 and early Q4.

With the uncertainty of these events we continue to maintain a conservative outlook.

We expect revenue for the third quarter to be in the range of 7 to $8 million.

I would like to take this opportunity now, to thank all of our employees for their continued efforts on behalf of our clients and the Company.

Now at this time I will open up the call to any questions.

(Operator Instructions).

As a reminder (Operator Instructions).

We have no questions at this time.

I will turn the call back over to the Mr. Steve Braun.

Thank you.

I would like to thank everybody for joining us on the call today.

Thank you.