Fair Isaac Corp (FICO) 2008 Q1 法說會逐字稿

Good afternoon.

I will be your conference operator today.

At this time I would like to welcome everyone to the Fair Isaac Corporation Q1 2008 earnings release conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session.

(OPERATOR INSTRUCTIONS) Mr.

John Emerick, you may begin your conference.

Thank you, and good afternoon, everyone.

This is John Emerick of Fair Isaac, and thank you for joining us for our fiscal 2008 first quarter earnings conference call.

We issued a press release after the market closed this afternoon, and you may access it on the Investor Relations page of our website.

A replay of this call will be available on our website approximately two hours after the completion of this call through March 22, 2008.

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 of the federal securities laws including the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

These statements may include statements concerning our business strategies and our intended results as well as statements concerning anticipated future events and expectations.

The forward-looking statements made on this call and in the news release distributed today should be viewed with caution.

These statements are subject to risk and uncertainties which could cause actual results to differ materially from those expressed and/or implied by these statements.

Additional information concerning these risk and uncertainties are described from time to time in our SEC filings including our annual report on Form 10-K for the fiscal year ended September 30, 2007.

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

Fair Isaac however reserves the right to update all information including forward-looking statements or any portion thereof at any time for any reason.

For reconciliation of pro forma information that we provide to the most come comparable GAAP information is posted on the presentations page found within the Investor Relations portion of the Fair Isaac website.

On the call with me today are Mark Greene, our Chief Executive Officer; and Chuck Osborne our Chief Financial Officer.

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

Now I will turn the call over to Mark.

Thanks, John.

As you know last Monday we issued preliminary earnings for our fiscal 2008 first quarter ended December 31, 2007.

Today I will review the final results for that quarter and update you on our strategy and actions to drive revenue growth.

Then Chuck will provide further details on our recent financial performance and our guidance for the balance of the fiscal year.

This quarter we reported fully diluted earnings per share of $0.39 versus the $0.37 to $0.39 we guided to last week and the $0.52 we reported in the same period last year.

We reported revenue of $199 million and net income of $20 million.

Finally, we had a solid quarter from a bookings perspective with $102 million of aggregate bookings including 19 deals of over $1 million in value, four deals over $3 million in value, a revenue yield from the quarter's bookings of 18%, and a weighted average life of 2.5 years for all executed booking contracts.

This represents the third consecutive quarter of growth in our bookings.

These results are all within the ranges indicated in last week's call.

However, we clearly fell short of our original plan.

Here is how we assess that shortfall.

Our revenues came in $6 million lighter than our plan.

Expenses came in as expected, so that our revenue shortfall translated directly into the earnings miss.

We enjoy good margins and cash flow, but we obviously struggle generating top line growth this quarter.

Virtually our entire miss occurred in software sales to North American financial institutions.

We had difficulty closing large software license deals in the final weeks of the quarter.

Several large opportunities, eight deals worth roughly $7 million pushed at the end of the quarter into this current quarter.

This was not lost business, indeed many of those deals are now closing, but it does suggest the sales cycle may have lengthened by several weeks.

I attribute this equally to market forces and internal execution issues.

Either way, we need to work harder to bring the business in on time even as clients take somewhat longer to approve purchases.

Fortunately clients are still buying the types of solutions we sell as they understand the importance of our fraud, collections, and risk management solutions in this challenging financial environment.

One other take away from last quarter.

Our scoring business essentially met its plan which was a 4% revenue decline year-over-year with some scoring prices compressing as we had expected while volumes held steady in the aggregate.

We did notice in the closing weeks of the quarter diminished volumes of prescores which are the scores that banks use to target marketing programs such as credit card campaigns and mortgage solicitations.

This decline in prescore volumes squares with recent comments by several U.S.

retail banks about their reduced level of marketing activities.

Now we factored these insights into our revenue guidance for the current quarter of $205 million for the balance of the fiscal year of between 825 million and $835 million.

We have near term visibility into a pipeline of qualified opportunities that does support this guidance, but we acknowledge that the current economic turmoil in the U.S.

imposes some uncertainty on these projections through the balance of the fiscal year.

We look to mitigate this uncertainty by ensuring that our clients understand how our decision management tools can be used to ensure sound origination activities, to identify and prevent fraud and to assist in collecting receivables.

The very capabilities that businesses need in these difficult times.

Let me turn now to the central focus of our management team which is driving revenue growth.

We have a set of operational and strategic updates to share with you as well as three important news items.

We have completed a top to bottom review of our business as discussed on last quarter's call, and now have an updated plan to achieve industry growth rates of 7 to 10%.

This plan is being executed under a Companywide program with three main elements.

First element is scoring leadership.

As creators of the industry standard FICO score, we can rightfully claim leadership in the scoring and predictive analytics market.

Lately that position has been challenged by our ongoing conflicts with the three credit bureaus and by market confusion about the role that FICO scores play in the subprime market.

In response we've launched several initiatives to solidify our leadership including strengthening our collaboration with the bureaus even as we pursue the vantage score lawsuit, mounting a marketing campaign to fortify the longstanding position of the FICO score as the real score as the real score and the one most relied upon by lenders, and delivering value to clients through accelerated innovation in scoring.

This includes working aggressively with Trans Union and Experian to make our latest score known as FICO '08 available at those bureaus in May 2008.

In this context I will highlight the first of three news releases issued today announcing a few Fair Isaac credit risk management suite.

This offering available next quarter supplements conventional FICO scores with innovative tools to assess the capacity of individual consumers to assume more debt and tools to assess the impact of changing macroeconomic conditions on banks loan portfolios.

In essence what we're doing is leveraging our 50 years of scoring expertise to help clients navigate through these difficult financial times.

Second element of our plan is core market expansion.

Fair Isaac has an impressive footprint in our core financial services market, but one that has been fairly static in recent years.

We see ample opportunity to grow this base.

Internationally we're reallocating resources towards 10 important countries which represent over 80% of our total market opportunity.

The UK, Canada, Australia, Japan, Spain, Brazil, Mexico, South Korea, Germany and China.

We'll be putting more focus on these countries with less diffusion of resources in other less promising areas.

Domestically we're pursuing an active cross-sell strategy.

We have many U.S.

clients with only one or two of our products.

We're incenting our teams to sell multi-product bundles and likewise incenting clients to buy suites.

This cross-sell campaign is one of the most promising initiatives for near term growth.

Cross-selling of course becomes easier when our software products talk to each other which is why our enterprise decision management suite is so exciting.

We remain on schedule against the product road map announced last spring to being delivering on our first integrated EDM products before the end of this calendar year.

This brings me to my second piece of news today which will accelerate our ability to deliver EDM products to these core franchise clients.

We're issuing a press release tomorrow announcing a comprehensive technology agreement with IBM supplementing our existing go to market partnership.

Under this new technology partnership Fair Isaac's decision management products are being built on top of IBM's industry leading middleware products including WebSphere and VB2.

Clients will have the option of obtaining these middleware components either from Fair Isaac or directly from IBM.

Standardizing our offerings on the IBM stack shortens our development time, let's our sales teams leverage IBMs strong position in financial services and minimizes the amount of integration work that takes place at client locations.

Clearly this global multi-year IBM technology partnership is quite strategic for Fair Isaac.

The third part of our expansion plan is adjacent market expansion.

We define our home market as enterprise decision management applications for financial services.

This suggests two kinds of expansion opportunities into adjacent markets.

First, we're aggressively pursuing the financial supply chain elements of the insurance, life sciences, and retail industries.

We have good traction in helping clients in these industries improve their share of customer spending and manage risk and fight fraud.

These are natural extensions of our core EDM solutions into these three industries and we're focused just on those three insurance, life science, and retail.

Again, reallocating resources from nonstrategic areas of the business.

Second, we see opportunities to expand from our decision applications into the adjacent space of decision middleware.

We're already the acknowledged leader in (inaudible) business rules with our Blaze products and in analytics with our models and scorecards.

There is only one element missing from our portfolio to produce a complete decision middleware environment namely in optimization capability.

This brings us to our final news item today.

I am happy to a unanimous that Fair Isaac acquired Dash Optimization, a U.K.-based global leader in optimization and makers of the express MP product, the leading software product for decision modeling.

We've been working as close partners with Dash for the last five years, and have been consistently impressed by how their tools help clients solve such complex problems as rebalancing securities portfolios and maximizing profitability in retail financial services.

We're bringing the Dash team into our research organization as a new optimization unit and we will add their optimization capabilities to our decision middleware solution suite.

Thus Fair Isaac now offers a full decision middleware capability including business rules and management, optimization, and predictive analytic solutions.

We therefore not only lead, not only in decision applications but decision middleware as well.

These are the central pullers of our revenue growth program, sustaining leadership in scoring.

Expanding our core market of financial services.

And growing in a focused way in adjacent industries and markets.

We're supporting this work with a cluster of foundational initiatives to manage expenses and ensure efficient operations.

These include streamlining both our product portfolio and our product management process as well as completing our Companywide rollout of a unified sales discipline.

We're also closely managing our expenses with an emphasis on controlling costs in the non-client facing parts of our business as Chuck will detail in a moment.

Our executive team is committed to these revenue growth and cost containment initiatives as our management agenda for the coming here.

While we're proud of our technology and our expertise, we understand that these assets only matter to the extent that they drive profitable growth.

Hence today's announcements.

New scoring products to drive growth through innovation, a new technology alliance with IBM to drive growth through partnership and the acquisition of Dash Optimization to drive growth in the decision middleware space.

Our unifying theme remains a commitment to provide trusted advice, leading analytics, and innovative applications to help clients make smarter decisions.

You'll likely have questions on much of this which I will be happy to answer in a moment, but first let me ask Chuck to provide further financial details.

Chuck.

Thank you, Mark, and good afternoon, everyone.

I would like to now provide a summary of our final first quarter results and then conclude with our guidance for both the second quarter and for the full fiscal year 2008.

As we stated in our release this afternoon, our revenue for the first quarter of 2008 was $199 million, a 4% decrease from prior quarter and from the same period last year.

This decline partially results from the sale of the mortgage business unit in the second quarter of 2007, so adjusting for this sale we are off about 2% from the comparable period in fiscal 2007.

The net income for the quarter was $20 million, an $8 million or 28% decrease over last quarter and $11 million or 35% decrease from the same period last year.

Our net income suffered from our revenue miss, higher personnel expenses from both payroll increases, and net new hires and a first quarter 2007 tax adjustment that lowered the marginal tax rate to 31% in that period.

We reported fully diluted GAAP earnings per share for the first quarter of $0.39, a 25% decrease from last quarter and from the same period last year.

This was within the guidance provided last week.

The bookings for the first quarter were $102 million from which we generated $18 million of current period revenue as compared to bookings of $72 million in the same period last year, a 42% increase.

This quarter's bookings were within last week's estimate of 100 million to $105 million.

However, the current period revenue was below the $20 million we guided at the beginning of the fiscal year.

As we mentioned last week these results included several large and long contracts signed within our marketing solutions and bill review business units.

In fact, the average contract term for bookings executed this quarter increased from 1.8 years to 2.5 years, also the result of the marketing solutions and bill review contracts I just mentioned.

Our acquisition of Dash Optimization for $32 million is consistent with our strategy of adding innovative technologies, people, and assets that complement and increase the value of our Company's existing product and technology offerings.

We view this acquisition as a tuck-in to our tools or decision middleware business.

In particular it completes our suite of rules, predictive analytics, and optimization and will position us to compete strongly against both our existing competitors and potentially new competitors evolving from the consolidation of the business intelligence space.

Let me walk through some of the more specific financial details looking at our segments, our revenue contribution by market segment is as follows.

Scoring contributed $43 million or 21% of the total revenue for the quarter.

The scoring revenue for this quarter reflects a decline of approximately $2 million or 5% year-over-year.

This decline is mainly the result of a drop in free score revenues and is largely the result of the pricing pressure mentioned in last quarter's earnings release as well as a decrease in prescreen marketing initiatives by our clients.

Strategy machines contributed $106 million or about 53% of the total revenue for the quarter as compared to $110 million or 53% in the prior year period.

The decrease in the strategy machine revenue over the prior year is largely due to the sale of the mortgage business unit in March 2007 which included approximately $4 million of revenue in the year-over-year period.

This quarter's results included year-over-year increases in collections and recovery, consumer and fraud, offset by year-over-year declines in customer management, bill review, and marketing services.

Analytic Software Tools totaled about $14 million or 7% of total revenue in the quarter compared to $14 million or 7% of the revenue in the quarter same of last year.

This also represented a $4 million or 21% decrease in the tools revenue reported last quarter.

However, last quarter was a comparatively strong quarter for Blaze license sales in which revenue is recognized at the time of sale rather than ratably over time.

The Professional Services segment of our business contributed $37 million or about 19% of total revenue for the quarter as compared to $39 million or 19% for the same quarter of the prior year.

As mentioned last week, the decline against the first quarter of last year is mostly due to several unusually large Professional Services milestones that were recorded in the first quarter of last year as well as several transactions that were closed this quarter.

However, the revenue is deferred for accounting and reporting purposes.

Looking at verticals, the percentage of this quarter's revenue by vertical market was as follows.

The financial services vertical was 62%, the insurance and healthcare vertical was 9%, telecom was 5%, retail was 9%, and all other verticals which consist of government, myFico, consumer branded goods and other miscellaneous categories were 15%.

The Company's transactional or recurring revenue for the quarter represented approximately 75% of our total revenues versus 74% reported in the same quarter in the previous year.

Percentage of consulting and implementation revenues held constant at 18% of our total revenues this quarter.

And finally, one-time or license revenue was 7% of our total revenue, essentially the same percentage as reported in the same quarter a year ago.

Our international revenue increased from last quarter to this quarter with approximately 31% of our total revenue coming from outside the United States.

This is also an increase from the 29% that international revenue represented in the same quarter of last year.

This international strength was delivered from the Canadian financial services market as well as from the Asia Pacific region.

Looking at our expenses, the breakdown of our operating expenses shown as a percentage of revenue during the quarter was as follows.

Cost of revenues for the first quarter of fiscal 2008 was approximately 38% as compared to 34% in the same quarter last year which is mostly the result of higher personnel costs and higher direct costs associated with a greater mix of revenue from products that required data acquisition such as myFico and marketing solutions.

Our research and development costs were 10% for the first quarter of fiscal 2008 compared to 9% for the same quarter last year.

This is the result of the increased product development initiatives presently underway all somewhat offset by the continued shift of certain personnel to lower-cost regions such as India.

Finally, selling, general, and administrative costs for the first quarter were approximately 34% as compared to 33% for the same quarter last year.

Although the absolute costs were slightly lower than last year due to reduced incentives and commissions expense, total costs as a percentage of revenue increased due to the total revenue decline.

Total operating income for the first quarter was $33 million compared to $45 million in the first quarter of last year.

The pro forma operating income was $45 million before amortization of intangible assets of $4 million and $8 million of noncash expense relating to 123R stock option expense.

The amortization expense declined by another $1 million this quarter as certain intangible assets related to the HNC acquisition reached the end of their accounting life and have no remaining balance left to amortize.

Lastly, the lower stock compensation expense resulted from our decision to grant fewer equity awards.

The reported operating income equates to our stated pro forma operating margin before amortization and 123R stock option expense of 23%, a significant decline from the equivalent 29% pro forma operating margin reported in the same quarter last year.

This decline is mainly due to the lower level of revenue reported this quarter, an increase in personnel related expenses, a higher mix of revenue from products requiring direct costs, and finally from an increase in a variety of other smaller sales and marketing costs.

As already mentioned, net income for the fourth quarter was $20 million, a 35% decrease from the $31 million reported in the same period last year.

This decrease was further impacted by a higher tax rate this quarter lain last year's first quarter the net result of last year's favorable tax adjust adjustments.

Our effective tax rate for the year is approximately 35.1%.

Turning to our balance sheet, our cash and investments as of December 31, 2007, decreased by $8 million to $239 million as compared to $247 million as of September 30, 2010.

The primary contributors to the changes in cash and cash equivalents included the receipt of cash provided by operations of $48 million, $13 million received from the exercise of stock options and stock issued under our employee stock purchase plan.

And finally, a $20 million draw under the revolving line of credit.

Significant uses of cash during the period included $82 million used in our stock buyback activity, and $7 million related to the purchase of property and equipment.

To highlight our free cash flow for the trailing twelve months, we define free cash flow as cash flow from operations, less capital expenditures and dividends paid.

The free cash flow for the trailing twelve months is currently $138 million versus the $152 million of trailing twelve-month free cash flow we reported at the end of fiscal 2007.

This decline is mainly attributed to the lower cash flow from operations in two of the four quarters included in the calculation as well as the increase in capital expenditures this quarter related to our continued effort to migrate to our data center in Minneapolis.

Improvements in our receivable collection process as well as the likely refinancing of our convertible debenture will have a further impact on our free cash flow in the quarters ahead.

Net accounts receivable as of December 31, totaled $159 million, a $19 million decrease over the September 30, 2007, balance.

Our DSO or day sales outstanding was approximately 73 days for this quarter compared with the 79 days reported at the end of the fiscal 2007.

While we continue to improve our collection process through more attention from client relationship channels, we still attribute a portion of our DSO to longer payment terms with certain international clients which we believe is an appropriate use of our capital given the financial strength of our client base.

Our property and equipment balance was 451 million compared to the $52 million reported as of September 30, 2007.

This is the result of a net impact from the $6 million of depreciation expense recorded this quarter offset by the $7 million of CapEx recorded during the same quarter.

We increased the amount outstanding under our revolving credit facility by $20 million this quarter bringing the total outstanding to $190 million.

The proceeds were used mainly for the share repurchases we made this quarter.

We were able to be aggressive this quarter in the open market and repurchased a total of 2.1 million shares at an approximate cost of $82 million representing roughly 4% of our total outstanding shares at the start of the quarter.

As of December 31, 2007, we still have 182 million remaining under this authorization.

In light of the recent developments with our share price and the markets in general, the Company firmly believes the repurchase of our stock remains an attractive use of our cash.

Looking at our staffing levels, our total head count at the end of the quarter was 2,896 compared with 2824 reported at the end of the fiscal year.

This includes approximately 876 client facing position versus the 705 client facing positions we employed at the end of fiscal 2006 and the 846 such positions we employed at the end of fiscal 2007.

Turning now to our guidance, our guidance for the second quarter of fiscal 2008 is $205 million for revenue and $0.44 in GAAP earnings per diluted share.

Further our full year revenue guidance for fiscal 2008 is 825 million to $835 million.

From this guidance we expect GAAP earnings per diluted share of $1.80 to $1.90 for the full year fiscal 2008.

The GAAP EPS guidance stated does include the potential impact on the possible refinancing of the contingent convertible which can be put or called in August 2008.

For modeling purposes we have assumed a 35% effective tax rate for all of fiscal 2008 and we expect open market share repurchase activity will continue at the pace of about 1 million shares per quarter.

As for bookings, we expect bookings for the full fiscal year 2008 to be approximately 375 million to $400 million with roughly $175 million of revenue from these bookings needed to deliver our guided annual revenue of 825 million to $835 million.

In the coming quarter we will need to deliver about $23 million of revenue from new bookings in order to deliver our guided revenue of $205 million.

Over the last several reporting periods we have provided for increased expenses in several key areas for the Company: development, market-facing positions, and infrastructure.

These conscious investments have been to support our products and expand our reach into the market.

In support of this guidance we have now set in motion several internal cost saving initiatives aimed at non-client facing expenditures such as T&E, use of consultants and contractors in non-revenue producing roles, and other variable expenses that we can delay to protect our margins.

We are not lessening our investment in our products or markets but simply looking for ways to bring more to the bottom line while we restart our revenue growth.

That concludes my prepared remarks.

I would now like to turn it back over to Mark before we open up for your questions.

Thanks, Chuck.

Let me wrap up.

Our management team fully understands the importance of achieving profitable revenue growth.

We like the markets we operate in and the assets we bring to bear.

Now we're executing on a focused set of plays to strengthen our scoring business and boost revenues in both our core market and adjacent markets.

Until we see that revenue growth actually occur, we're closely managing costs, especially in the non-client facing parts of our business.

We're excited about where our Company is headed, particularly with the day's announcements about new scoring products, our new technology alliance with IBM, and the acquisition of Dash Optimization.

With that, operator, let's please begin the question and answer period.

Your first question comes from Tony Wible of Citigroup.

Good evening.

I was hoping we could start with the Dash acquisition.

Could you share some of the growth and profitability drivers behind that acquisition, just for our modeling purposes, it would be helpful?

Tony, we're not actually disclosing any of the historical data on Dash.

This is really the purchase of an optimization -- a capability that will find its way into our suite of products, and we feel will drive our ability to address some of the needs of our largest customers.

As you can tell from the purchase price, it is a relatively small company.

By virtue of of this we haven't really adjusted our guidance for their revenue alone but instead recognizing this as a capability that will fuel our growth here in the future.

Your current guidance that you're providing includes integration assumptions on Dash?

Correct.

Correct.

Can you walk us through what led you I guess to go down the path of buying Dash as opposed to doing share repurchases with the stock down at these levels?

Two parts.

I will take the strategy reason and then Chuck can speak to it financially.

We had a very high win rate with these guys.

One of the things that makes for a successful acquisition is when you partner with somebody and you realize that you win consistently against the competition.

We had very high odds of winning when we were partnered with Dash.

It was something the market values and it was filling in a hole in our product portfolio so strategically made a lot of sense.

As to whether this deal was the best use of our working capital.

Chuck?

Well, we certainly, as part of an M&A agenda, we certainly target returns much higher than what we would think even at these prices our cost of capital is, Tony, so the objective here is to invest in an operation that frankly fuels recurring revenue and recurring revenue growth over time over an incentive period of time and puts us in a very good competitive position against others in the marketplace as opposed to simply the one-time repurchase of in this case maybe 1.5 million shares at these prices.

Just to double check, I didn't hear anything along the lines, but in the sales cost line item, were there any one timers that drove it down to that level in dollar terms?

I guess we hadn't seen it down at this level in about a year, in other words would there have been bonuses or something that's been pulled out of that number?

On the expense side, no.

This is reflecting the investment, as we said we increased as you may recall from the -- we speced out the number of client facing positions, we've ramped up our approach into the marketplace and at the same time as we have several other very expense initiatives going on in both development and then our costs associated with the vantage score.

So we have a number of things going on that drive our operating expenses up at the moment but in terms of selling, sales and marketing, it is not any single one-time expenditure.

Instead, the laying in of those folks we feel necessary to address the marketplace.

I was referring it going the other way.

It looked like it was relatively low, and I am just kind of trying to figure out if that is something that's sustainable?

No, no.

We get some relief with sales -- with revenues at this level, we have some relief on the commission line, but it is relatively small.

Again, I am a little confused, so is it sustainable at this level of sales expense?

We think so.

Great.

Thank you.

Your next question is from Michael Nemeroff of Wedbush.

Hi, guys, can you hear me?

Yes.

Just following up on Tony's first question, I am just trying to understand what the reason is you're not disclosing any of the historical financials or the revenue run rate for the acquisition of Dash?

Let me see if I can be definitive here.

First of all, this is a relatively small company that actually was operating as a partnership, and while it will bring some revenue into us as you know in our -- the UK-based company, we'll be applying and running its revenue through our rev rec rules for U.S.

GAAP.

Some of this will certainly fall into our revenues.

We incorporated that frankly, within the range of revenue estimates you see that we've already disclosed.

It's own revenue is relatively small.

The value that we acquired here really is the capability that this gives us in the competitive dynamic against others in the marketplace providing a new tool in optimization.

We've been partnering with them, but this is going to give us an opportunity to spread that throughout our products.

How many people did Dash have?

23.

23.

And was the company profitable?

Yes.

Mark, this new IBM announcement, will the IBM sales people be given quota credit for selling Fair Isaac products?

Yes, as a standard for these kinds of strategic relationships, it is written on IBM paper there is flow-through revenue credit to the IBM salesforce, so that is our intended model here.

This will be a -- will often lead by having it written on IBM paper.

Are there -- is there a minimum built into that contract as well, Mark?

There are not disclosed.

Okay.

And if you could just talk about the myFico revenue.

I know it is relatively small.

Has that been affected by the Vantage score at all?

I know that you've talked about the prescore marketing being impacted by Vantage score.

As myFico been affected at all.

No, myFico has not been affected by Vantage score.

myFico has fluctuations based really on market events and market demand.

For instance, when there have been recent shows on some of the consumer oriented TV financial programs, that tends to drive traffic to myFico.

We have seen some of that in recent weeks, but those volume fluctuations are not based on Vantage score, they're based really on whether there is any external event that drives demand towards our website.

That's it for me now.

Thank you.

Thank you.

Your next question comes from Chitra Sundaram from Cardinal Capital.

It is Chitra Sundaram from Cardinal Capital.

Two questions.

Firstly on the IBM relationship, is it possible that with -- assuming that relationship does fairly well that you can then easier to pay back on your consultant or salesforce because IBM and similar channels have become the key driver for sales out of FIC?

I think I understood the question.

The question is really how we go to market with IBM, and we have arranged a blended services model whereby our consulting and professional services team will do the work close to our products if you will, so we are the experts in how our software is meant to be installed and configured.

Conversely, the IBM consulting team which is typically IBM Global Business Services will engage in the rest of project system integration, back end office, back office renovation work, et cetera, so they do the heavy lifting if you will, and we do the part that's particular to our software.

Yes.

I am just saying does that mean that over time you could then be paring back off your consultant and your salesforce which has (inaudible) dramatically, because now you have--?

I don't think we look at this as an opportunity to pare back our resources but rather to grow our market footprint.

They're going to take us to new customers tha we haven't gotten to ourselves.

We don't look at it as a way of ramping down our team, rather ramping up the number of customers we can get to.

Of the eight deals worth roughly $7 million that you said had moved into second quarter, you indicated some of them had closed.

Can you give us a sense of what percentage maybe of that $7 million has closed thus far?

I think half is in the process of closing, whether we actually have paperwork or not, I couldn't tell you, but we're in a closing stretch of half of them and we feel comfortable about the other half also closing this quarter.

Okay.

Thank you.

Thank you.

Your next question comes from Frederick Searby of JPMorgan.

Hi.

Thank you.

Two questions.

One, can you comment at all on how prescreen is faring here in January as we we're closing out the month, whether you have seen incremental deterioration or trends that remain the same, and I wondered if you could just break out for us on the scoring side price and volume in that 5% decrease?

Thank you.

Okay.

No.

I don't yet have data for January.

We tend to get the numbers sort of just at the end of the month, right, so we don't yet have a read on the month of January other than what we hear anecdotally from our customers, and my comment in the script was that customers have talked both to us and publicly about diminished levels of marketing activity that would use prescreen scores, so we wouldn't be surprised to see scores maintaining a low level of volume, probably roughly comparable to the way we exited December, but I don't have the data yet.

I only have anecdotal information.

And your second question was about the break out between the price and volume aspect?

We really -- we're not yet to the end of the month, we really don't have our true-up reports yet from the bureau, so it would be a little early even if we were going to disclose that to try and break out the difference in price and quantity.

I am talking about in historical fourth quarter scoring solution revenues down 5%, 4.9, if you could give us just price and volume that you attributed that mostly to--?

That was mostly priced as per plan because the volume comment that I made occurred late quarter, so it was not a phenomenon during most of the quarter, but it was notable in the closing weeks which is why we used it in a factor in setting guidance for the current quarter.

The volume sentiment was a sentiment as we exited the quarter more so than throughout the quarter.

Okay.

Okay?

Thanks, Frederick.

Your next question comes from Kevane Wong of JMP Securities.

My questions were mostly around Dash, and I believe they've been asked.

Thank you.

Thank you.

Your next question is from [Brett Huff] of Stephens Inc.

Good afternoon.

Thanks for taking my call.

Just two quick questions.

Number one, a follow-up on the IBM relationship.

Are there going to be any expenses associated with that and sort of a subpar there is is this one of those relationships that you've been working on and are there others in the near term or can you give us an update on those?

Sure.

There are modest expenses associated which we've actually already incurred.

We've built out a mid-sized channel partner support program here, and we are essentially good to go against that IBM partnership with the resources already on board, so the current rates of expenses you see should support this partnership.

I am sorry, the second part of your question about IBM?

Is this one of those partnerships that is you've been working on and are there more of them--?

That's correct.

We've talked about wanting to have three or four such partnerships, and so we've talked about the likelihood of one other partnership with a large consulting company and perhaps one other technology player, and we are pursuing initiatives in each of those areas, no announcements today, but we would expect to have three or four partnerships by the time we're done.

We're obviously starting with the IBM one.

Then just the second quick question, can you give us a little more detail on the cost-cutting?

You talked a little bit broadly about it, but is there any additional detail or color?

Have we incurred or have we gotten through most of those cost cuts or when do we expect to see those?

No.

Those are initiatives actually we're bringing into place here in our second quarter, and so we have not yet seen the impact of that, and we would expect to report some impact of that in the second quarter and as the year progresses.

We're not releasing any measurement details.

This is -- yet, certainly after the fact we will report on the effect of those initiatives, but this is fairly broad-based.

We have several initiatives under way to help us grow revenue in this Company, and we're going to make sure that we're saving in other areas to help pay for at least a portion of that, mostly in the non-client facing realm, some of the more discretionary expenditures that we can delay or push off mostly doing as I said in the comments, some of our infrastructure and our T&E and use of contractors.

There are some other ways that we can structure some of the work that we do that will offset the increases we've seen in both development and legal.

Okay.

Thank you.

Thank you.

Your next question is from Thomas Ernst of Deutsche Bank.

This is (inaudible) on behalf of Tom.

A question about the IBM relationship again.

Looks like you're making a significant, or at least it sounds like a change to your product architecture.

Is that -- what does it mean for your R&D expenditures and in return what sort of revenue upside do you see?

So the product architecture is for our enterprise decision management or EDM suite which since its inception last year has been designed around open standards and open architecture.

So this is very much an environment where one can plug and play with different components that support the relevant standards such as service oriented architecture.

You need to start someplace.

We're starting with the IBM products, WebSphere, DB2, et cetera as products that are particularly prevalent in this market space, but that is not meant to be an exclusive.

We'll be able to connect to other similar products that support the same standards down the road.

You are correct that the benefit of standardizing on one set to start with is that it shortens the development time and to a certain extent decreases development expense although in the early stages there is a cost associated with getting the tools in place and learning them.

So I wouldn't promise you any near term cost savings.

This is a cost-saving opportunity down the road, but it will accelerate the delivery schedule, It will allow us to comfortably make the dates that we talked about which begin with products shipping before the end of this calendar year.

I wouldn't say that there is significant new upside revenue opportunities here beyond what we've already guided to.

We're assuming that we do quite a bit of work with IBM in getting out to new customers, prospecting new territories, and that's reflected in the guidance that we provided.

Thank you.

Thank you.

You have another question from Chitra Sundaram of Cardinal Capital.

Thank you.

Just wanted to understand the amortization run rate.

It won't down to about 3.5 for Q1.

You now have the small little acquisition that is helping mostly amortization, so as we model for the rest of the year, should we sort of be going at this run rate or maybe get closer to 4.5?

Could you please guide us?

The amortization did decrease because of the tolling of some of the intangibles acquired in the HNC acquisition, and we would expect to be roughly these levels the remainder of this year.

There may be with M&A activity some modest increase due to purchased intangibles, but that remains to be seen.

Okay.

And just on the cost savings, sorry to be repeating really the question from the other questioners, but not clear which buckets you all could see the most sort of paring back of because you do have some large projects that you're working on.

There is probably some negative operating leverage flowing through the income statements.

Could you help us understand where you might be able to see the most benefit from the cost centers, just SG&A?

We would hope that you would see that mostly in the SG&A line.

And data acquisition cost likely to remain a significant portion?

You talked about two pieces in the cost of goods sold or cost of revenues, sorry, the operating leverage and the data acquisition costs.

Is the product mix such that data acquisition costs would remain a significant contributed cost of revenues going forward?

Yes.

Okay.

Our cost of data acquisition per product don't change much over time but the mix of what we sell drives how much of those data acquisition costs we'll incur.

Yes.

Thank you.

Thank you.

At this time, there are no further questions.

Thank you all very much.

If you have any questions, feel free to contact either Marci or myself.

Thanks.

This concludes today's conference call.

You may now disconnect.