Fair Isaac Corp (FICO) 2005 Q4 法說會逐字稿

Good afternoon and welcome to Fair Isaac Corporation's fourth quarter and fiscal 2005 earnings conference call.

The lines have been placed on a listen only mode until today's question and answer segment.

Today's conference is being recorded.

If you have any objections, please disconnect at this time.

I would now like to turn the call over to J.D.

Bergquist, Fair Isaac's Director of Investor Relations.

Thank you.

Ms. Berquist, please go ahead with your call.

Thank you Wade and good afternoon, everyone.

Thank you for joining us for Fair Isaac's fourth quarter and fiscal 2005 earnings conference call.

We issued our earnings release after the market closed this afternoon.

You may find the news release on our investor relations page through our website www.fairisaac.com.

A replay of this call will be available on our website approximately two hours after the completion of the call through November 30th.

I would like to remind everyone that except for historical information, the statements made on this call should be considered forward-looking within the meaning the federal securities laws, including a Safe harbor provision of the Private Securities Litigation Reform Act of 1995.

These statements include statements concerning our business strategies and our intended results and similar statements concerning anticipated future events and expectations.

The forward-looking statements made on this call and in the news release distributed today are subject to risks and uncertainties, which could cause actual results to differ materially from those expressed and or implied by these statements provided.

Additional information concerning potential factors that could affect future financial results is included in our annual report and periodically in our FCC filings, including the reports on 10K for fiscal 2004 and quarterly report on form 10Q for the period ended June 30th, 2005.

Fair Isaac disclaims any intent or obligations to update these forward-looking statements.

On the call today are Tom Grundnowski, Chief Executive Officer and Chuck Osborne, Chief Financial Officer.

They'll quarterly and year-end results, both operations and financials.

In addition, we'll discuss guidance for the first quarter and the fiscal year 2006.

Once we've completed our prepared remarks, we'll open the call for questions.

Now I'll pass the call to Tom.

+++ presentation Thank you J.D. and welcome everyone to our year end earnings call.

As you can see by our news release, issued an hour ago, we had another excellent quarter.

The high-level overview of our results are as follows. $23.3 million, income of 35.7 and diluted EPS of 53 cents, but the good news is that's 4 cents higher than consensus and Chuck will provide more color around those numbers later.

Revenue $23.3 million, was a net income of 35.7 and diluted EPS of $0.53 cents, but the good news is that's $0.04 cents higher than the analysts consensus and our previously issued guidance.

Chuck will provide more color around those numbers later.

Our current pipeline entering the new fiscal year is our strongest ever.

We issued approximately 1300 new proposals in the last quarter alone.

We met our objective of a year ago getting our operating margins before amortization this quarter.

Almost at 30%, very, very close.

Our pretax earnings were record again.

And our earnings per share were significantly better than our guidance.

And mainly as a result of timing, our bookings number was a little light this quarter around $110 million, which did contribute to our top line miss against target.

But note that our sales force at this point as we've been working on all year is 50% bigger than it was a year ago, so the fact that our pipeline is growing should be no surprise.

That's what we'vwe been trying to work on hard.

Now we just have to get those new sales resources to gain the experience and learn how to close deals more predictively throughout the quarter.

Even with this little lighter bookings this quarter, we still beat our annual plan and guidance for bookings and hit $505 million in bookings this year, and you can see the waterfall report for the details.

In summary, we increased our EPS for the quarter by 179% over the same quarter last year.

We increased our revenue by 7% over the same quarter last year.

Our EPS for the year ended at $1.86, which was an increase of 42% over last year.

And our revenue for the year was at $799 which was 13% higher than our fiscal 2004 numbers.

Our U.S. revenue grew 8%, and our rest of the world revenue, if you will, grew 33%, which was consistent with our hard work this year to try to grow our global -- the global dimension of Fair Isaac.

This was again consistent with our plans in fiscal '05, to focus on execution around our core products, invest in new

global markets, grow our market sales, our consulting capabilities and start to build a new franchise around enterprise position management, or EDN as we call it.

To summarize then for the year, we believe we are at a very unique position.

We see continued growth and opportunities of our core products.

I'll give you some numbers here in a second.

While at the same time, we see success growing around our new EDM valued proposition.

I just want to spend a couple of minutes on this, because this is becoming bigger and more important part of our story here, so I'll just spend a few minutes on this.

As you may recall, EDM is the new emerging and fast-growing market for our new customers that value the integration of map and analytics into their realtime and daily operations to help -- to help solve some major business problem.

Over the last 20 years, our many successful solution products like Triad and Falcon were all examples of this proposition, but now businesses across, not only financial services, but other industries, can actually see the benefit that analytic integration can bring to their bottom lines.

And they've realized they need partners with proven experience to help apply this science to their problems.

So our EDM software and analytics and brand help put us in a unique position of defining this new market place and evolving and growing in it.

Back to some numbers to help substantiate these objectives.

On the product side of our company, again, this year was led, really by the success of our franchise or core market units if you will.

Scoring had a phenomenal year, up 28% for the quarter and 17% for the year.

Fraud was 13% for the quarter and 21% for the year.

Consumer 41% for the quarter and 25% for the year. [ludkins] and recovery was 32% for the quarter.

Customer or account management was 110% for the quarter and 6% for the year, and EDM was 6% for the quarter and 27% for the year.

Like I've done a the last couple of calls, those six areas represent now about 68% of our total revenue for last year.

And those groups -- just those groups alone, grew at an upstanding 25%.

So, we focused hard on those areas and we saw the results this year.

From the EDM perspective we've spent the last three years -- really since the [Faceandsea] merger -- investing to redefine our company to adjust the broader EDM marketplace.

And given our hard work and success in '05, we believe our transformation is now well down the road.

We now have software products, data sources via scorenet, analytic delivery capabilities, consulting capabilities, and an enhanced sales force to address this market place at a greater scale than ever before.

And we are confident that fiscal '06 will be the breakout year for our EDM practice.

Sometimes these words sound ambiguous.

And I thought I would very quickly try to run down a few customers that we would call part of this EDM revolution to give you some perspective.

And you'll note that I won't be trying -- I'll try and [talk them] for the next minute.

Examples would be, Dell computer who uses EDM as a universal decision engine for everything they do online -- risk management, fraud, marketing.

Some microsystems use EDM now for analysis of computer network configurations for their customer.

Pacer, a truck building company -- they build Peterbuilt trucks -- use it in the truck design process.

ESPN, they use it for TV commercial slotting.

Fidelity National uses it for insurance underwriting.

Web Methods, now uses it for decisioning around complex message routing within their middleware products.

The California DMV uses it for taxation decisions for auto licensing.

The Norwegian Police Center -- yes, the Norwegian Police Center -- uses it for managing their [peep] schedules.

People magazine uses it for print advertising management.

And British Telecom uses it for network management for the billions of daily network connections they need to control.

All of these things represent to us, what we call EDM.

And two years ago we didn't have the capability to talk about it and now we do, and we believe this is going to be the year where our momentum in this area accelerates.

Let me make a couple of comments about the fourth quarter.

Then I'll do guidance for next year.

I'll highlight again, those major units I mentioned earlier.

Scoring solutions, market unit had incredible record revenue quarter, almost $48 million.

We ended the year at around $170 million.

This is one of our revenue segments that we report, which was an organic growth rate of 17%, that's our best performance in this category in six years, at least as long as I've been here.

The results can be attributed to our focus on organic growth, mainly from [credupor] activity and our sales, as you know we've also been working hard to increase revenue bookings from our new scores, the global scores, the qualify scores, and the expansion scores and we're starting to see some tractions as these numbers indicate And we hope this will propels us well into next fiscal year.

On the consumer side, our [myfair].com site had another excellent quarter, we experienced a 41% growth, as I mentioned earlier.

The newest product in this area is our [Scorwatch] product which we built together with Equifax.

And we measured this through the number of [Scorwatch] subscribers which grew by 55% over the prior quarter and this is increasing our subscription revenue if you will on this site, which is as you know is one of our key objectives to turn this site into a recurring revenue source in this fiscal year.

And we're well along the way to doing that.

On the fraud side, our fraud market unit had one of the strongest organic growths this your of 21%.

Falcon Fraud Manager and Fraud Predictor have led the charge this year, and will continue to lead the charge next year.

In addition, our telecom solutions and fraud risk analytics for telecom are continuing to be supported, not only by new customers, but by industry experts such as, Oracle and others who are recognizing these products as true industry leaders.

And we see these doing a great job of leveraging us in the next fiscal year.

And in customer management, we had another good quarter with our sale in Triad sales and solid Processor Triad sales.

The annual growth rate here, as I mentioned, was 6%.

We saw a lot of this growth in the international marketplace.

And with several new product enhancements in this area like Triad Transaction scores, we see this -- continue to grow next year.

Actually, this was the one area where we fell a little short this quarter.

We had several very large deals, which we thought were going to close, which will close in the first quarter, which will give us a good boost for the first quarter.

This is one of those areas where we had several big deals -- didn't loose them, just moved them to the Q1.

Collections recovery, which was led by our Jet Manager and are MS product, had another great quarter -- quarter-over-quarter growth just under 32%.

So, I find with EDMs, I mentioned, with Blaze Advisor and Metal Builder has another strong bookings and revenue quarter -- 27% higher than last year.

We had five transactions over $1 million.

I won't mention them.

Some of them I just mentioned.

We see -- and most of this right now is in North America, and working hard to export some of this success in and around the rest of the world.

On the professional services side, we -- and maybe I should mention this more from the organizational perspective and just professional services.

We're now organized starting the fiscal year around three interrelated units.

We have services led by Greg Whites, and he's responsible for about $130 million of the '05 revenue.

Mike Campbell now runs the products group, which is about $600 to $169 million of our last year's revenue.

And Eric Educate still runs the sales organization which helps both of these units drive the bookings and revenue that they need.

The services are consulting market segment is first structured to ensure that all of our products can be delivered to any customer within all of their diverse environments.

This segment however also provides customer solutions by parting with enterprises across our verticals to solve unique decisioning and [outlook] delimmas, which was key to all of those EDM examples I just gave a second ago.

This unit now has 30 partners, and I call them that, because that's the level of expertise they have if they were still in the consulting industry.

For industry and domain experts, in applying our new EDM technologies across industries and problem sets.

And so this group is -- is key to a continued evolution of our EDM strategy.

Let me talk about '06.

That's just a quick summary of the quarter and our numbers for '05.

Let me move on to '06.

We estimate that our full-year revenue for '06 will be in the range of $860 to$900 million.

From a segment view-point, we expect strategy machines to be in the range $43 to $495 scoring from $170 to $172.

Analytic tools from $62 to $78.

And services from $145 to $155.

And this revenue estimate is organic and assumes no substantial acquisition take place, although we're still looking at several tuck-in opportunities, but at this point they're not the numbers.

These estimates is just arranged for our top-line growth of between 8% and 13%.

Furthermore, we expect our earnings per share for fiscal '06 will be $2.00 and 15%.

The 16% growth for fiscal 2005 diluted EPS, and that 215 is based on a lower 860 revenue figure.

This revenue range is within the street consensus of 877, but the $2.15 is actually $0.08 cents higher than the current $2.07 street number that's out there today.

So we're raising that.

As we demonstrate over the last year, we expect this growth to come again, primarily from our core products and scoring for [indiscernible] consumer and EDM,.

This group made up, as I said earlier, about 25% of -- had 25% growth from '04.

And just doing a little analysts of this group of units again -- group I say 18% -- and all the other units were flat, which we aren't planning by the way. that would extrapolate to revenue of about $900 million in fiscal year '06.

This group would have to slow down to 12% to get to the 60 low range of our guidance.

So assuming the good business market conditions continue to exist, which we expect, then we believe that revenue goals are very doable.

As far as [cueon] '06 guidance, we estimate profit and revenue in Q1 to be around $174 million and our service revenue to be a roughly $33 million for a combined total of about $207 million.

We are confident, we have made permeant progress in the expansion of our operating margins before amortization expense, and we estimate earnings per share at$0.50 cents for Q1.

Our EPS this year should grow a nice $0.02 to$0.03 cents per quarter on average to get to our plan of $2.15.

And again, EPS, tax is based on a low range of our revenue guidance.

In conclusion, our core products performed very well this past quarter and year.

We continue to evolve our strategies and execute against our growth strategy -- organic growth strategy -- we remain focussed on a global marketplace and continuing to develop new and innovative products around the EDM and expanding analytic marketplace.

Our platform of 15 existing industry leading applications, which spans seven industries with customers now in 60 countries combined with our merging EDM marketplace in which we are hopefully provide us an excellent opportunity for another strong year in '06.

So that's the quick analysis of '05 and the start of '06.

Let me turn it over to Chuck for more financial details.

Okay, thanks Tom and good afternoon everyone.

I'm going to provide a summary of our fourth quarter and year end financial results and then talk about our guidance for the 1st quarter of '06 and then conclude with our full-year guidance and objectives.

On revenue, we reported revenue for fourth quarter fiscal '05 of $203.3 million, essentially flat compared to the prior quarter.

A 7% increase over the same quarter in the prior year and $3.7 million under a guidance of $207 million.

The fiscal '05 revenue was $798.7 million, a 13% increase over fiscal '04 revenue of $706.2 million.

We reported $109.7 million of bookings for the quarter, and $505 million in bookings for fiscal '05, a 14% increase over the full year bookings in fiscal '04.

As we discussed in detail in our press release,a nd as Tom touched upon, our revenue contribution by products is outlined as follows.

Scoring contributed $47.8 million or 23% of total revenue for the quarter, against $37.5 million or 20% of total revenue in the same quarter of the prior fiscal year.

For the year, scoring contributed $167.3 million, up 17% from $142.8 million in fiscal '04.

Scoring continues to benefit from an increase in risk scoring services at the credit bureaus, as well as from strong sales of the prescore product.

Strategy machines contributed $109.6 million, or 54% of total revenue, against $115.1 million or 67% in the same quarter of the prior year.

For fiscal '05 the strategy machine products contributed $453.7 million, compared with $427.6 million in fiscal '04, an increase of 6%.

This increase was mostly attributed to increases in our consumer, collections and recovery, mortgage banking, and fraud solutions, all of which were partially offset by declines in marketing services and insurance [bill-review] solutions.

Analytic software tools contributed $12.6 million or 6% of the total revenue for the quarter, against $11.4 million, or 6% of revenues in the same quarter the prior year.

For the year, analytic software tools was $48 million, compared to $39 million in fiscal '04.

Which is a 23% increase.

The increase was mainly attributable to increased sales of the Blaze Advisor and Model Builder products.

Finally, the professional services segment of our business contributed $33.4 million or 16% of total revenue, against $26.4 million or 14% of total revenue in the same quarter of the prior year.

For the year, professional services totalled $129.6 million, up 34% from $96.7 million in fiscal '04.

This increase was driven by growth from prior -- projects supporting our products, independent projects delivering custom decision and analytic solutions to clients and from the acquisition of Braun Consulting in the first quarter of fiscal '05.

Our revenue by vertical markets was as follows.

From the financial industry we attributed 60% of the revenue for the quarter and 67% for the fiscal year.

From the insurance industry, we brought in 8% of the revenue for both the quarter and for the full year.

And the for the telecom industry, 5% of the revenue for the quarter and 6% for the full year.

And from the retail industry, 9% of the revenue for the quarter and 8% for the fiscal year.

And finally, from all other verticals, we brough in 11% for the quarter and 11% for the full year.

The companies transactional or recurring revenue for the quarter represented approximately 78% of our total revenues compared to 82% in the same quarter of the prior year.

International revenue, which is a key driver for both the reduction and the continuation of the company's lower affected tax rate, represented 24% of our total revenues for the current quarter and 22% for the same quarter of last year.

The international revenue for the full fiscal year was 25% in fiscal 2005, verses 22% in fiscal 2004.

This change was mainly from the addition of the London Bridge operations in the fourth quarter of fiscal '04.

On the expense side, total operating expenses for the fourth quarter prior to the amortization of intangible assets were $143.9 million.

Break down of these expenses represented as a percentage of the revenue during the quarter was as follows.

Cost of revenue was approximately 33%, compared to 36% in the same quarter last year.

Our research and development costs were 10.3% compared to 11% for the last year.

Finally, selling general and administrative costs were 27% against 29% in the same quarter last year.

Total operating income for the fourth quarter, prior to the ammonization of intangible assets was $59.4 million, producing an operating margin of 29.2% just below the 30% run-rate that Tom mentioned a few quarters ago.

This was a $13.4 million increase from the same quarter a year ago when operating expenses before amortization were $46 million.

Other income net was $1.1 million for the quarter and that includes interest expense from our convertible notes offset by interest income and a small gain from foreign exchange activity.

I know as your all aware, we adopted the provisions of the merging issues task force announcement 4-8 as of December 31, '04.

This accounting rule change mandates the addition of shares issuable from our $400 million contingent convertible bonds to our fully diluted share account.

As a result, the exchange offer completed on March 31, '05, we now only add the converted shares from the nominal bonds which does not accept our exchange offer to [indiscernible] our fully diluted share count for the quarter.

However, the company did not complete the exchange offer until March 3.

The conversion of convertible shares in the new accounting rules dilute the fiscal year 2004 earnings per share by $0.10 cents and dilute the fiscal year '05 earnings per share by $0.09 cents.

Looking at taxes, net income in fiscal '05 was affected by adjustments made in prior quarters that reduced income tax expense by $10.6 million or $0.14 cents per diluted share.

Excluding the adjustments the companies's income tax expense would have been $70.2 million or an effective tax rate of 36.2% for the year.

In conclusion on the financial performance for the quarter and the year, the company reported net income for the quarter of $35.7 million against net income in the same quarter of the prior year of $14.4 million.

Net income for the full fiscal '05 was $134.5 million against net income of the prior year end of $102.8 million, a 31% increase in the year of year results.

As for results expressed as diluted earnings per share, the company reported dilute earnings per share of $0.53 cents verses diluted earnings per share of $0.19 cents for the fourth quarter of fiscal '04.

The diluted earnings per share for fiscal '05 were equal to $1.86 verses diluted earnings share of $1.31 for fiscal '04, a 42% year-over-year improvement.

Report earnings per share improvement of 42% was significantly better than the 31% improvement net income.

Mainly because of the reduction of our shares outstanding during the year.

Turning to the balance sheet, cash and investments as of September 30th were approximately $288.1 million, which is down from the $364.3 million reported as of September 30, '04.

This decrease is mostly due to our share repurchase activity, capital spending, and small dividend paid, and the small acquisitions completed during the fiscal year.

These outflows were offset by the inflow of cash from our normal operating activities, a divestiture] as well as from the issuance of common stock under employee stock options and purchase plans.

Net accounts receivable as of September 30, '05 totalled $156.4 million, an increase from the prior year end balance of $140.8 million.

Our days sales outstanding, was 71 days as of September 30 '05.

This represented an increase from the 68 days reported as of the prior year end.

However it was a decrease from 73 days reported at the end of our last quarter.

We continue to focus on this component of working capital and continue to make progress in getting our day sales outstanding to our desired target of lower than 70 days.

Our property and equipment balance was $48.4 million against $53.3 million as of the prior year end.

This change was the net result of additions to property and equipment from cash purchases, acquisitions, and capitalized labor, all more than offset by the current year depreciation expense.

Regard to intangibles net goodwill and intangibles total $803.3 million, which is down from the $825.1 million reported as of the last fiscal year end. $803.3 million is compromised of $688.7 million of good will and $114.6 million of intangibles.

The $21.8 million decrease was mostly attributable to schedule amortization of the intangible assets.

Total current liabilities were $138.2 million, which is increased from the $120.3 million reported as of September 30, '04.

This increase is mainly related to an increase in other accrued liabilities of which the most significant change is related to increase in corporate taxes payable.

On the equity side, shareholders decreased to $805.1 million, down $111.4 million from $916.5 million as of the last fiscal year end.

Decreases principally due to the repurchase of company stock, partially offset by the current year income, and the exercising of the employee stock options.

During the quarter under both the former and current stock repurchase authorizations, the company purchased nearly 2.5 million shares of outstanding common stock at an average price of $39.46 for a total of $96.7 million.

We have approximately $171.4 million remaining under the current $200 million authorization approved by the board of directors in August of this year.

For the fiscal year we purchased a total of $9.2 million shares at an average price of $35.61 for a total of $328.5 million.

We continue to believe the stock is at a compelling value and will continue to use the current authorization whenever appropriate.

Looking at our head count, our total head count at the end of the quarter was 2,796, compared with 2,804 at the end of last quarter and 3,058 at the end of the last fiscal year.

Now focusing on our guidance.

We expect first quarter revenue of $207 million and fiscal 2006 revenue in the range of $860 to $900 million.

From the baseline revenue analysts to waterfall revenue report that is attached to the release, we believe we have a baseline forecast heading into the first quarter of approximately $182 million.

And we anticipate closing around $25 million in new revenue to derive the total of $207 million in the quarter.

Of course this $25 million of new revenue will mainly need to come from traditional license revenue and professional services.

First quarter's estimated revenue of $207 million will be about $174 million from our product segments -- that is scoring, strategy machines and analytic software tools -- and the remaining $33 million will be services related.

For fiscal 2006 we estimate that about $750 million to $745 million in revenue will come from the companies product segments.

Specifically, we expect our strategy machine revenue to be in the $483 to $495 million.

Scoring revenue from $170 to $172 million.

Analytic tools from $62 to $78 million.

And, finally services revenue from $145 to $155 million.

An aggregate, these amounts provide our annual revenue guidance to be in the range of $860 and $900 million.

Total operating expenses excluding the amortization of intangibles are forecast to be roughly $147.5 million for the quarter and $608.9 for the fiscal year.

Each broken down as follows.

For the quarter, cost of goods sold equal to $69.3 million or 34% of revenue.

RND equalled $21.2 million, or 10% of revenue.

And selling general administrative equalled $56.9 million, or 28% of revenue.

And then amortization of our intangible assets equal to $6.3 million or 3%.

Those same numbers for the year, cost of goods sold equals to approximately 34% of revenue, RND again, approximately 10%, SG&A in the area of 27% and then amortization of intangibles asset again at 3%.

Capital expenditures forecasted to remain in line with our prior expectations of approximately $6 million per quarter.

Depreciation will continue in the range of $6 million per quarter.

Other income net is principally interest in expense from our outstanding convertible note offset by interest income from our portfolio cash and marketable securities.

For the first quarter and for the fiscal year, we expect other income -- the net of interest income, interest expense, and foreign exchange activity to equate to a loss of approximately $1 million per quarter.

In summary, we expect our fully diluted earnings per share for the first quarter to be approximately $0.50 cents per fully diluted share.

And earnings per fully diluted share the fiscal year to be $2.15.

The earnings per share guidance we provide here excludes the impact of expensing stock options, which is required by the new accounting standards the company must adopt in fiscal 2006.

With that I'll turn the call over to the Operator and we can begin the question and answer session, thank you.

[OPERATOR INSTRUCTIONS] We'll pause briefly to compile the q and a roster.

The first question comes from the line of Brad Ikler with Stevens Incorporated.

Good afternoon, guys.

Couple of questions, first starting with the scoring business, it was obviously extremely strong in the fourth quarter.

I realize you've got new products in there, but was there something -- you mentioned pre-score -- were there any, you know, true-ups or anything like that that caused that big of a jump in the quarter?

Yeah, every -- as you know, every fourth quarter is usually our best quarter in scoring.

We go back with our partners and make sure that we got everything reconciled for the year.

There was some of that, but in general, it was just another growing, good quarter for scoring.

So -- there was some of that, Brad, but not an unusual amount compared to previous years.

Fourth quarter is always the strongest.

Okay.

Any comment as to how much the, like in the fourth quarter what the new scores of a percent of the total?

I don't know it off of the top of my head, so -- we don't usually give that number out anyway, so -- I don't know off of the top of my head.

Okay.

You mentioned being a little lighter -- and some of the business slipping, could you give a little bit more detail about what type of contract slipped, what revenue segment they fell into, and kind of the magnitude that that could have represented?

Yeah, the one I mentioned was -- we had several international triad deals that we thought would be done and they just didn't get done -- they just didn't get -- we didn't loose them, they just didn't get done.

And their either already done this quarter or will be done soon.

And there was a couple big EDM deals that, -- but you know, but we had another great EDM quarter but there were a couple that we thought we could get that got pushed to this quarter.

So it wasn't anything unusual.

It just happened a couple of quarters ago where we had a few that slipped at the end and that just happened.

So, you know, I think I'm learning with the European holidays having such a big impact, we've had to figure out maybe deal with that a little bit better in the future, especially as we're growing and depending on so much of this revenue from non-U.S.

But it generally wasn't that we lost deals, it was that they got -- we just didn't get them done.

And I -- sort of comments that I made was actually meant to be indictive of the relationship -- as you know as I've said, we've hired lots of new sales guys, we got lots of new pipeline and we just got to mature as an organization in closing these deals on a little bit more predictable fashion.

So, that's what it was.

Okay, then the final question is, over the last couple of quarters, you all have mentioned, you know, possibly some type of strategic partnership or relationship that would give you some more scale and profitability in your health care and marketing businesses, any update there?

Yeah, I wish I had one, we're still working on them.

We'll let you you know here soon, but no change in strategy.

That's still our intent.

We just haven't got them done yet.

Thanks, Tom.

Your next question comes from the line of Tony Wible with Citigroup.

Hi.

I was hoping that you could start off by talking about the guidance.

When we look at the $215 bottom line it looks like you guys are expecting about 20% bottom line and about, as you mentioned, 8% to 13% top line, which would imply you're seeing some leverage to be expected throughout '06.

But when you gave just the segment details of the percentage of revenue it looks like you were expecting cost of goods sold RND and SG&A pretty much to remain at the same percentage of revenue throughout the course of the year, can you discuss that and what we're missing?

I think you're right.

We still that the other income -- we've got that at about -- I think that's at about the same level, and the tax rate year-over-year if you're factoring that in, and you're comparing quarter to quarter, you may end up with differences that bring that a little more to the bottom line.

We also are giving you sort of a point estimate of things like costs of sales, and we still expect it in total on expenses across the unit -- T&E and related.

We can still pick up something against these.

But when I have to give out an estimate for you in guidance, you know, we're doing ranges ourself and we're giving you sort of the high-end of that just to be conservative.

Okay.

Would you anticipate the tax rate for next year being within a percentage point or two where it is now or --

Oh, yes.

I think I commented on sort of the normalized rate for the year at 36.2%, and I think, you know, in the 36.2% to36.7% ,perhaps area, we we'll do that again.

Part of what's been happening, as you know from the adjustments we spoke of in prior periods -- prior quarterly periods is simply an adjustment that have taken place in some of our RND credit calculations in -- for prior periods, and then our continuing effort to increase our international sales and the sourcing of our revenues from international sources helps to bring down our effective rate.

So we have -- it'll be an issue of performance as well as to where we source the revenue from.

Okay.

Two questions on the segment.

One is, does the bankruptcy legislation that went into effect just recently, was that one of the drivers behind the scoring business and would you expect some of that to carry forward into 1Q?

No, to answer the first question, and I suspect -- usually our Q1 is smaller than our Q4 in the scoring area.

I suspect that will happen again this quarter.

So, Q4 is usually our strongest.

So, I expect that trend will continues.

Okay.

You actually -- because going back, historically, you guys the last couple of years have been seeing the Q1s coming out stronger than the Q4s.

Usually --

I think it's been mixed.

I think last year, or course, because of fourth quarter was pummeled by some of the adjustment on the [coco] --

Right.

We had a large legal settlement and so I guess the comparison from last year would be problematic.

I think if you go back and look -- we'll still have a good first quarter.

Yeah, it's not going to drop a lot, but -- we probably won't do $48 million in the first quarter again is the point.

Account management, did I hear you correctly?

You said that was up 110%?

No, he meant to say 10%.

Oh, I'm sorry. 10%, sorry.

Thank you.

All right.

Last question, this with regards to quarterly guidance.

Can we get that $174 broken down within the three segments it's compromised of?

For the first quarter guidance?

The --

Strategy machine --

I think -- I think we -- didn't we do that?

Let's see.

Why don't we come back to that one.

We'll get some guys here or do you have a --

No, we did provide it -- scoring we gave you -- oh, we gave it to you for the full year.

We did not break it down for --

Let us -- give us a second

We'll break that down for you here a minute, Tony.

Okay, thanks, I'll jump off the line if you can revisit it.

Thanks.

Your next question comes from the line of Thomas with Deutshe Bank.

Good afternoon, thank you.

I guess I asked this question last quarter, but it's -- I think it's even more relevant this quarter.

You've already gotten a question on the guidance, but looking forward, it looks like you're guiding for first quarter booked revenue in that quarter to be a very healthy record kind of performance, and actually represent something like 30% growth over the last Q -- I would assume that good visibility in this and some of this must be the slipped international triad deals you mentioned.

Anything else you can help give us comfort for the pretty strong record performance?

Yeah, I think as you'll see, if you'll look at the waterfall, you know, we're expecting $25 this quarter, we did a $23.5 last year once.

You know, the visi -- yes, we have excellent visibilities of this number.

Some of it is a result of slipped deals, but in general, because our pipeline is so big in the EDM space, which is a major driver -- you know, Blaze and EDM sales and Consulting drive that number primarily.

The list of customers that we're trying to close in that area is very, very strong.

I've got a list in front of me of all of those numbers, and they add to a number -- I won't tell you how many times bigger, but a lot bigger than that number.

So if we come through with our normal delivery and closing down deals, we feel very confident that we can hit it.

Okay.

And as we go throughout the year, that number -- if you look at the waterfall -- goes up a little bit every quarter, or will go up a little bit every quarter for us to get to our revenue guideline.

So, by increasing our sales force last year so dramatically, and by increasing our consulting leadership so dramatically, we're hoping that those -- those tactics will drive this additional revenue growth.

One, real bright spot last quarter was the collection business, business unit, both the London bridge purchase product and your organic product.

Now, you mentioned the press release at least that it was a strong component.

Did you have a similar, I think it was 60% growth last quarter?

How should we think about the growth opportunity looking to '06 now that you've had a couple --

It's still growing and we're anticipating it to grow again next year. you know, again, in the 20% plus range, so -- so continues to be good news, lots of demands, you know, we're leader in this product area now.

A lot of the demand here is in the non-U.S.

This is a big growing product for us for the rest of the world.

A lot of U.S. customers, least in financial services already have it.

So we're growing primarily overseas, which is good for us.

So yeah, it's been a good performer, and we anticipate it will continue to be one.

All right.

Thank you, good afternoon.

Thank you very much.

Why don't I answer Tony's question while we've got everyone on the line.

For the $207 broken down by the four segments, we put strategy machines at $115, scoring at $43, tools at $16, and services at $33 million.

So that's your $207.

Sorry, Tony.

Your next question --

hello?

Your next question comes from the line of Kabane Wong with the JMP Securities.

Hi, how you doing guys?

Looking at the score -- obviously, you've pointed to a couple of things with the pre-score, which it has been strong and then just the euros -- I was wondering if you could go a little bit into the strength of the global score product, which [indiscernible] sort of an important grower.

And then on the also the expansion score, sort of how is that as far as ramping with sort of the take-off expectation on that one?

Let me see here.

Let me see if I can dig up some data here for you.

In the exp -- let's see here.

We set up six new big contracts with expansion score this quarter.

We got four new contracts and qualify scorer, and we entered a couple more countries with our global cycle score.

So, so every quarter we keep growing those and you know, again, the revenue there will be more significant in the out years as these products are installed and as transaction vibes increase, but the good news is we're, you know, we're growing this fundamental area for Isaac.

So I don't have a break down of old verses new, or by product, but those are the three products that are causing some of the growth to occur.

And sort of the exceptional strength in the quarter, was global score a meaningful contribute to that, or is that really something we have to look out to '06 or '07 to really see a meaningful impact?

That's part of of the future to have a meaningful impact.

Okay, and then just one other quickie.

Looking at the bookings of $110 million, just wondering if you could give us a breakdown of how much is international verses domestic on that?

Oh, okay.

I don't have that in front of me.

Let me -- let's see if we can get back to you on that one.

Okay, cool.

We can take it off line too.

I'll just jump to the next question while you're looking that up then.

This number right here, so that's total -- oh, and it's -- yeah, so it's about 22% of it international and 78% U.S.

In this particular set of bookings.

Oh, okay.

Wasn't last quarter like a $45 million or -- it was fairly large figures I remember.

Last quarter I think it was more international than that.

31% percent last quarter.

So it was 31% last quarter.

So those international -- the difference is those triad international deals that I talked about.

Got you, okay, great.

Thanks very much.

You bet.

Your next question comes from the line of Ed McGwire with Merrill Lynch.

Yes, good afternoon, could you comment on what you're expected stock option expense would be this quarter, and you know, what we might anticipate going forward since we will be expensing on a GAAP basis?

Yeah, the -- our grants of options -- what I would do -- what I would direct you to here, because I don't want to get out in front of our Board of Directors.

If you go to the annual report for last year, and I think it's on page 66, you can see our disclosure on stock option expensing under the [blackshoals] method.

And with the evergreen we have in our grants rolling forward, you should see a similar trend of expense rolling into fiscal year 2006.

The reason I don't want to be a more specific than that -- obviously we've done some estimates for our Board, but our Board has yet to make it's grants for the current year.

That would be an action at our their next Board meeting.

And one of the things, of course, they'll take into account, is various ranges of expense for the company, and then we'll be very specific about that in our first quarter release as to how much of it relates to grants in the current period and how much of it relates to grants in prior periods.

Because it's a combination of both of those components if you're familiar with the rule.

But you should expect at least for now, that the trend of that expense will -- will pattern what you see in that disclosure.

We've been providing that for some time and that's probably all I can say at this time.

Okay, fair enough.

Moving on to the expectations for analytic software tools for '06.

It looks like you're anticipating some fairly healthy uptake.

Could you talk about your assumptions behind that, in terms of your linear expectations.

Where -- how we should, you know, model growth in the segment going forward?

Well, our expectations are continued to be high there, as I said we're -- we have as many opportunities as we want to go seek in this particular field right now, and we're -- we're looking for continued big growth.

This will probably be, I would guess this [indiscernible] is probably going to be the fastest growing unit next year, would be sort of our guess the way we've got the numbers laid out right now.

So, the marketplace is hot, the companies that are in -- this is sort of a new field, the stuff we sell, others don't.

So those other software companies that are in this sort of business intelligence, if you will, space, you'll see all of them having very good revenue growth and the industry analysts like Gardner and others predicting, you know, strong spending in this particular area, so I think we are getting more than our fair share of that, you know, marketplace growth.

And by some of the names I mentioned earlier, I simply did that because those are not customers you would typically assume Fair Isaac was going after nor were they decisionary, that sounded like triad or collections.

They're all new solutions that customers are now trying to use our technology and our expertise to build.

So I think that's going to be -- one -- somewhat -- may have been you last quarter talked about a tipping point, I'm not sure it's quite a tipping point, but we're getting lots of action here, but we think this is going to be a very big year for this particular area.

We have enough experience and clients and track record.

I as I just mentioned ten.

I could mention many, many more that now are giving unconfidence that future clients will turn to us for this kind of technology.

Great, and moving on to just -- as you look out at your pipeline into '06, I mean, it looks like the internationally, you're really starting to get traction there.

How old you characterize the difference between your pipeline opportunity in the U.S., verses international and, you know, it looks like we're seeing a bit of deceleration in the U.S., maybe some law of large numbers coming into effect as well there.

You know, sort of everybody in the U.S. has bought most of a lot of our analytic applications like Felkin and Triad.

And so in the U.S. was generating growth, which I think will help accelerate a bit is the whole EDM cycle.

So, EDM is sort of our North American [bulkist] if you want to call it that.

Because it takes lots of the experts that we happen to have here in the U.S. to do it.

And the rest of the world is more focussed around global cycle scores, triad, Felkin, capstone, you know, the more traditional products that were sort of made their way in the world here in North America.

So think of it as the rest of the world is sort of the core products, that we're now simply selling in locations and with more vigor than we did in the past.

And in North America, we'll try to reenergize the growth there with new applications around EDM.

Great, thank you.

Your next question comes from the line of Phil Mickelson with J.P. Morgan.

Yeah, I was wondering could you -- what was the exact number of EDM, the greater than $1 million account and what does that compare to in the previous quarters?

Yeah, I didn't really give it out.

It's a little bit more than a handful, and it's -- usually we do a couple more, so we were a little short, and that's why we had a couple that fell into next quarter, so it wasn't that different.

The last couple of quarters -- I say typical now -- have been very, very big relative to the previous, you know, quarter, so it was consistent with our -- with all of the activity that we have going in this particular area.

You know, we did buy -- another thing that's helped to give us a little bit of a boost if we haven't seen it directly yet in terms of a lot of revenue, we did buy a small analytic algorithm company that we made announcement here a month or so ago called Rules Power that had an algorithm that makes inference engines go a lot faster than normal and we're adding that technology to Blaze, and we've gotten some good press and some new opportunities quite frankly from customers that were interested in that technology, so that is going to help us.

So, it's just a hot area, it's that simple.

Lots of activity, and we have -- we're hiring salespeople every day that try to take care of all of the opportunities that we're facing.

And just a reminder from last quarter, I think you had a couple large deals, I think the BT and [Delvue], and can you remind us just how the revenues recognized with the bulk of that in that quarter and, you know, looking into the pipeline, would we kind of expect similar kind of, really larger deals, you know -- any magnitudes higher than $1 million?

Well, yes, but it's interesting.

When we -- the reasons these numbers are getting bigger is twofold.

One, these companies are buying -- they're big companies, number one -- number two, they're buying enterprise level suites, so they're buying lots of seats, to process lots of transactions.

So, they're not just experimenting, they're really using it for big stuff and so the license fees tend to be higher, therefore.

But, finally, and most importantly most of these opportunities involve new analytic consulting and services around implementing these decision technologies in new ways.

So -- so, you know, we didn't have a way to do TV commercial slotting when ESPN called it.

We helped them build it.

So -- so you're seeing services revenues increase as well as the EDM marketplace increases now.

The good news from the perspective of growth is the percentage of revenue to license, you know, is still woefully low compared to what other software companies typically do and what I certainly are challenging our services organization to accomplish.

I think we still only do $0.20 some cents on the dollar, which is very, you know, low.

So our ability to sell the product is still greater than our ability to get the services around it to help the customers do some of these new things, and that's why we're trying to expand consulting faster to sort of catch up with the opportunities that are in front of us.

Because a lot of these customers want the analytics as well as the product, right.

They need that to solve their problems.

So -- so the deals will get bigger because in some of the companies I mentioned that were key companies, our services revenue was higher than our license revenue, and that we earned as you know as we do the hours.

So the license revenue we recognize at the time of the sale.

The professional services revenue, you know, that goes out over time.

So the Dell, for example, was a year installation, we'll be recognizing that revenue throughout the year.

So most of these EDM deals --.

Do you expect it, you know, within that pipeline then, more Dell sized deals is it a lot of elephant hunting within that space?

Yeah, absolutely.

I'm just trying to gauge the variability that we're going see in a quarter to quarter basis.

Good question.

We are elephant hunting in that space for sure.

We're spending -- our strategy is to, you know, get a lot more services revenue per product sale in this EDM space, and we're working hard to do that and it's probably a statistic that we should probably try to -- we use it internally to sort of gauge our progress over time on whether our strategy is working.

I suspect there will be some beta in this area in a sense, because when we get to those $2, $3, $4, $5 million deals that have losts of services with them, you know, one pushes out to the next quarter that has a pretty big impact on the next quarter.

So -- but --

Okay.

One other further question for Chuck.

What is the, and pardon me if I missed it, but the sharecount assumption for your 2006 estimates?

Repurchase assumption?

No, no, what do you have in the share quality in your $2.15.

Give me just a second.

Yeah, 64, 65 million shares.

Okay, thank you.

Your next question comes from the line of Alan Zwukler with First Manhattan.

Hi, great job, guys.

Thank you.

Just a couple things if I could drill down on the EDM.

The -- the, what was the actual EDM sales for the year, did you give that out?

Did I miss that, because I came in a little late.

That's part of your tool segment.

Yeah, so you've got to take, what's in the tools segment plus -- that doesn't have the professional services part that ties exactly to EDM, but the tools is sort of indicator.

I'm sorry, what was the tools, I didn't --

Hang on.

Okay.

I have 47 schedules in front of me right now.

That's all?

Yeah.

You're slowing down, Tom.

I know it.

I'm getting old.

Yeah, we've -- so this includes PFs?

So we did about -- we're about for '05 about $65 million in this EDM segment.

Which covers whatever's in which ever in the tools plus some of the PFs.

Right.

Okay.

And --

So, we see that growing significantly next year.

And just if you would to compare the margin of that business to the margin -- to the corporate average, what would you say it is?

Yeah, say higher.

Yeah, it's higher than the average, but --

Higher than the corporate average?

Oh yeah.

It's software and professional services that, you know, you sell -- you're charging out at more than the cost of, you know --

Right.

And what's the average length of these contracts, if there is such a thing?

That's a great question.

Now that this EDM thing is evolving, let me try to give some interesting -- I just went by -- we did five deals over $1 million last year, so I was right on that one.

I just found that.

They're all over the map, that's the problem.

How many total, how many total EDM deals did we do?

That's a lot.

Well -- for example, what would be the longest one, could you tell us that?

Over a year.

Typically a year for the big ones, so the guys developing something on a custom basis would traditionally be a year kind of project.

And is there any recurring revenue on that in a year two, or it's just --?

There's a maintenance of the EDM software.

So, there's the maintenance -- and you know, the good news is that, you know, these are all customers that we can build a relationship with and start to sell and cross sell some of the applications that we already have.

Right.

So we're hoping that -- quote recurring relationships, you know, revenue in the future is a result of building these -- you're right, it's not as recurring as selling a triad, that is true.

That's fine.

And -- and Tom. two other quick questions.

I want to say one more thing.

I want to say one more thing.

Okay.

It's really important to the strategy here that I -- that I, you know, if it turns out, you know, that we come up with a really good -- working with ESPN -- come up with a really good TV commercial slotting package, well we'll create a product out of it.

Right, so what's great about EDM, we're out there working on new segments and new areas where we've never worked before, and you know, he who has the most analytic applications wins at the end of the day.

We have 15 good ones now.

Hopefully with EDM as selling services and selling licenses, we'll discover with some of our best clients new products for the future.

So, you know, that's the realreason we're doing this.

So, it's fair to assume that when you go to these clients it's not a competitive situation, it's you -- it's your starting something new and somebody else doesn't have that something new, is that fair?

It's a combination.

It's both.

A lot of times we'll get called in -- the good news, what's happening, we'll get in because someone's looking for a development tool like Blaze or Model Builder and we'll enter in through -- remember this is the [convention], you enter in through the IT department and they'll discover who Fair Isaac is, because a lot of IT departments don't really know that yet.

And they find out what we've done with analytics and they introduce us to the guy who's trying to figure out how to do network configurations, or whatever.

And we make a pitch on how we can help them build their new applications.

So, yeah, it's new sources of revenue or new markets that we haven't typically entered before.

And so, yeah, these are all custom things.

They're building new analytic applications on top of our generic EDM technology.

They are all -- everyone I mentioned was something custom.

And just two other quickies.

What inning would you say you are in, in your decline in the marketing and the insurance business?

We're now stable.

We're now -- we're now going the other way again.

We're stable or going the other way, we're not declining.

So, do you mean in the fourth quarter, you didn't decline?

No, I'm saying for this, in our assumptions for fiscal '06, including Q1, we're assuming that all of the things that were passed in '05 are passed, and we're now -- those are behind us and we're now heading back up again.

Great.

And scoring, you're just being conservative I hope and pray.

Yeah.You know every year I -- I purposely try to be conservative on scoring, because, you know, if you miss that one by a lot, that's bad, and you know --

If you make it by a lot it's good.

And this year, we said we were going to do -- '04 scoring was like 146 and I think we said we were going to do 150 something and we ended up doing 170, so it was a nice surprise this year, and so we're going to be conservative.

Given -- usually our growth the last few years has been like 5%, 6%, 7%.

So we've almost doubled it this year, so we're being very conservative about '06.

Thank you very much.

Your next question comes from the line of Bruce Simpson with William Blair.

Good afternoon.

Hello.

Do you have a consolidated organic growth rate in the quarter and for the year?

We -- we haven't published that, but I think, you know, with the only thing that really influences that going forward is just a little bit of -- is a small acquisition that Tom mentioned.

So I think you're going forward rate we expect to be heavily weighted towards organic growth.

Yes, right, that was what I said.

So, right now there's no significant revenue in the $860 to $904 for acquiring revenue.

No, I'm not asking about that, I'm asking for the September period and for all of fiscal '05.

We don't, we aren't reporting that anymore.

We don't report that anymore.

But we can -- maybe look at offline, but we aren't making it public basically because of the way the units have been reorganized into the entity, prying it apart is problematic, and we've added a lot to all of these entities and we'd be guessing in many cases.

When earlier in the call somebody asked you about if they were unusual --

It would be less in '05 than we're projecting for '06.

Okay.

So, because some of our growth in '05 was acquired, the growth for grew 13% last year and now we're going to say 8% to13% next year and that's -- we're projecting as organic, so we are saying that our, organic growth has been good in the last couple two quarters is going to continue on in '06.

And earlier in the call somebody had asked you about true-up's in the prescore.

Is the amount of true-up's roughly equal to the difference between the revenue that was posted this quarter and the revenue forecast for the first quarter?

It's close.

Okay.

The reason it's tough to answer that one, Bruce, is that we have those true-up's --

All the time.

All the time.

And it's a timing of audits and when something comes due.

Sometimes they are multi year in nature and -- it's tough -- given it something -- an activity that goes on all the time, we just basically don't separate it out.

Can you give us an update on the sales force?

What's our number there?

What segment is getting growth in sales assets and where are we in this sort of evolution from sales to the back up kind of sales support guys becoming front line quarter carrying sales people?

Okay, let's see.

You asked that two ways -- Yeah, we have, you know, you can take the people in consulting who are selling and the people of Eric Educate's organizations who are selling or providing sales support, we're approaching 300 people.

So, that doesn't include the people who helped sale in the various P&Ls or product areas.

There's three categories of people in that comment.

There's sales executives who are commission based.

There's a lead-out called Partners, which are people in consulting that have -- they're sort of goal based.

I wouldn't call it commission based, but they survive if they continue to generate revenue.

They're selling EDM type services around the custom solutions.

And then finally product support folks, who help the consulting leads and the product sales leads in doing their jobs.

And that number is approaching 300 people now and that's over 50% of -- over 50% higher than what it was at this exact point last year.

We just had our, as we always do, we just had our kickoff with the sales organizations.

We also just had our interact in Europe this past week and a half, and so they're all trained and -- and ready to hit the ground running.

So, now of that, you know, 300 people, I don't have it here in front of me, but a very nice segment of it is, you know, rest of the world.

The rest of the world organization is growing faster than the North American organization, I don't have those exact numbers in front of me, but I should probably just leave it at that, and -- so it's, it's good.

We're -- we're -- as I said, we did 1300 proposals last quarter, you know.

Two quarters ago, you know, we've had less than half of that.

So we're -- we did a 1,000 a quarter ago and 1300 this quarter, so you know, there's on the street and there's getting stuff out the door.

And by segment, is most of that 50% growth going into professional services and tools?

Yeah, I would say that's probably -- yes.

I don't know that exactly off of the top of my head, but in general, that would be true.

Okay, last question is Chuck do you have any changes in the assumed yield of bookings to revenue that are integrated within the '06 guidance?

I think if you take a look at the waterfall, of course, we, you know, we only display the first quarter so your calculation there's 25 on 140, but I think you should assume that it's a -- if you look back a year and look at what happened there, you saw some improvement.

Particularly as we moved through the year, I think you would expect -- we would expect sort of a nominal level of improvement there, as well, but we're -- we're looking to inch that up when you, in terms of additional professional services as part of the component changes that as well.

Yeah, since a larger portion of next year's revenue percentage wise comes from consulting -- comes from EDM, EDM tends to be revenue that gets recognized faster than a five year contract for Felkin or a fiver year contract for Triad, which gets divided over five years.

So in theory, those, you know, the rate of earnings the revenue should increase a bit.

Yeah, and I think that's a safe assumption for the remaining three quarters which we will disclose as we --

All right.

Thanks.

Ladies and gentlemen, that's all the time we have today for questions.

Mr. Grudnowski, I will turn the call back over to you for closing remarks.

Thank you very much.

See you next year.

This concludes today's conference call, you may now disconnect.