Fair Isaac Corp (FICO) 2008 Q3 法說會逐字稿

At this time, I'd like to welcome everyone to the Fair Isaac Corporation quarter three earnings release conference call.

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

After the speaker's remarks there will be a question and answer session.

(OPERATOR INSTRUCTIONS) I would now like to turn the call over to Mr.

Emerick, Vice President of Investor Relations.

Thank you, Ken, and good afternoon everyone.

I'm John Emerick of Fair Isaac and thank you for joining us for our fiscal 2008 third 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 by webcast on our website approximately two hours after the completion of this call through August 20th.

I'd 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 are 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 risks and uncertainties, which could cause actual results to differ materially from those expressed and/or implied by these statements, including the company's ability to execute the re-engineering plan in the manner and timeframe described in this call, the actual expense, revenue and net income impact associated with the re-engineering plan.

Additional information concerning these risks and uncertainties are described from time to time in our SEC filings, including our annual report on form 10Ka for the fiscal year ended September 30, 2007, and our quarterly report on form 10Q, for the period ending March 31, 2008.

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

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

Fair Isaac believes its products, [maps] and similar markets materials should be considered forward-looking and subject to future change at Fair Isaac discretion.

An future functionality, features or enhancements discussed today are Fair Isaac's current projections on the product direction, but are not specific commitments or obligations.

A reconciliation of certain supplemental pro forma information that we provide to most comparable GAAP information is posted on the presentation's page found within the investor relation's portion of the Fair Isaac website.

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

I will turn the call over to Mark.

Thank you, John, and thanks to all of you joining today's call.

I will start by summarizing our results from last quarter and presenting our view of market conditions.

Chuck will then provide financial details and I will conclude with a strategy update and forward-looking guidance.

We'll be happy to take your questions after our prepared remarks.

We reported mixed results for our fiscal third quarter which ended June 30.

We reported revenue of $183.3 million, compared with Wall Street consensus of $190 million based upon our guidance for the second half of the fiscal year.

Most of this shortfall occurred in our scoring business in the US and in general weakness in the sale of software licenses.

At the same time, we managed our expenses well and were able to protect profits.

In fact, we reported GAAP earnings per share of $0.54 and earnings per share from continuing operations of $0.38, which met Wall Street consensus.

What this means is that the cost re-engineering work we started last quarter was effective and allowed us to weather the economic challenges that confront us and our financial services clients.

Let me describe our revenue results more fully.

We make money four ways: by selling new software licenses; by charging maintenance for the software; by providing professional services; and through transactional services, such as scoring and hosted applications where clients pay per click.

Year-to-date, three of these revenue streams have grown nicely.

Software license revenue was up 11%, maintenance is up 16% and professional services is up over 3%.

However, our transactional services revenue is down nearly 8% year-to-date.

That decline in transactional revenue is notable since it's both the largest and most profitable of our revenue streams.

Clearly the slowdown in US financial markets is directly impacting our business.

Nearly half of Fair Isaac's revenue comes from banks in the US and many of those institutions are seeing double digit percentage declines in their own business.

As their volumes decrease, banks used fewer scores.

It's, therefore, not surprising that our financial services revenues have shrunk by 6% so far this year.

While we hoped that the sector will stabilize in the near future, it's not likely that the US banking industry will grow again before late 2009.

Ing in, we saw signs last quarter that the slowdown is now spreading to western Europe, especially the UK and Spain.

The challenging environment has a secondary effect.

It's causing financial institutions to become more conservative when purchasing new software licenses and hosted applications.

Many of our clients have added new layers of review and approval to their purchasing processes, which lengthens our sales cycle.

Last quarter, this caused a significant number of deals that we expected to close in June to push into the current quarter.

This is not business that we lost.

It's just business that is harder and taken longer to close.

Let me turn the call over to Chuck for further discussion of our financial results, then I will return with an update on our strategy and forward-looking guidance.

Thank you, Mark, good afternoon, everyone.

My remarks will be geared to the continuing operations of our business.

Since we completed the sale of our insurance bill revie business on April 30, the results for that unit are reported as a discontinued operation in our financial statement.

As a reminder, the insurance bill review unit generated about $40 billion of annual revenue and was slightly negative in its contribution margin.

Our revenue from continuing operations in the quarter was $183.3 million, a 5% decrease from the prior quarter and the 7% decrease from the same period last year.

This reflects a one-time revenue reversal of $2.3 million, which is a true-up relating to our recent agreement with Equifax.

Net income from continuing operations was $18.8 million, a $1 million or 6% increase over last quarter, and a $7.3 million, or 28% decrease from the same period last year.

Net income was helped by lower personnel expenses, lower commissions and lower direct materials cost, was hurt by $1.4 million after tax charge for severance cost and charges relating to facilities closures.

The reported fully diluted GAAP earnings per share from continuing operations of $0.38, a 6% increase from the prior quarter and a 17% decrease from the same period last year.

These results are consistent with the second half guidance of $0.74 that was offered, that we offered in April.

Bookings from continuing operations were $64.2 million from which we generated roughly $15.6 million of current period revenue, a 18% decrease, compared to bookings of $78.7 million, yielding $18 million in the same period last year.

This reduced yield is consistent with shorter-term bookings.

The average contract term for bookings executed this quarter was 1.5 years, down from last quarter's average contract term of 2.2 years.

Overall, we experienced reduced levels of bookings as financial institutions slowed their investments in new projects.

Some of our largest deals are presented renewals of business already in place and, therefore, are not reflected in the new bookings.

Income associated with the discontinued bill review operations for the third quarter totaled $7.7 million or $0.16 for fully diluted share, primarily derived from a tax benefit that was received upon the completion of the sale of the unit.

Our transactional or recurring revenue for the quarter represented 73% of our total revenues, against the 75% reported in the previous year.

Consulting and implementation revenues increased to 21% of total revenues this quarter from 18% in the same period last year.

Finally, one-time relations revenue was 6% of total revenue versus 7% in the same period last year.

This quarter 31% of total revenue came from outside of the United States, comparable to the 32% international share reported last year.

Turning to expenses, our operating expenses presented as a percentage of revenue breakdown as follows: cost of revenues was 37% compared to 33% in the same quarter last year.

This is primarily the result of higher personnel costs relating to increased salary rates and the shift in our revenue mix towards labor incentives professional services activities.

Research and development costs were 10% compared to 9% in the prior year.

This reflects increased investments in our scoring initiatives and developments of our decision management application.

Finally, SG&A costs were 33% compared to 35% for the same quarter last year.

The decline is the result of lower commissions, reduced share-based compensations and travel expenses under our re-engineering programs.

Net income from continuing operations in the quarter was $18.8 million, 28% decrease from the $26.1 million reported in the same period last year.

The decrease resulted from lower revenue, continued investment in China, re-engineering charges and lower net interest income, all of which were partially offset by lower operating costs and the lower effective tax rate for the quarter of 33%.

Looking at our free cash flow, we define free cash flow as cash flow from operations, less capital expenditures and dividends saved.

Free cash flow for the trailing 12 months is currently $136.8 million, this decline from historic norms can be contributed to lower revenue, re-engineering costs, new investments and growth initiative.

Here, the capital structure in May, we announced the completion of a private placement of $275 million in senior notes.

Senior notes were issued in four series with maturities ranging from five to 10 years.

Notes have a weighed average interest rate of 6.8%, and a weighted average maturity of 7.9 years.

We used the proceeds from the private placement to reduce the amount outstanding under our revolving credit facility by $175 million and to purchase $100 million of the convertible debenture in the open market, taking full advantage of the short-term rate arbitrage.

This quarter, we also purchased a total of 414,000 shares of our common stock at a cost of $10 million in the open market.

The fully diluted share count is decreased from the 48.9 million shares reported last quarter, 48.7 million shares, and that result of both share repurchase activity and share issuances relating to share-based compensation.

As of June 30, we had $148 million remaining under the existing share repurchase authorization.

The company continues to believe that the repurchase of our stock is attractive use of our cash.

I will hand the call back to Mark to discuss our strategy and forward guidance.

Thanks, Chuck.

Let me turn to an update on how we're running the business.

We have three priorities in these challenging times: first, to stay disciplined in our sales execution; second, to continue to tighten the amount of expenses; and third, to keep investing in our discretion decision management growth initiatives in order to capture market spending when the economy eventually improves.

In the sales arena, our teams have completed a formal sales management training program to convert opportunities into signed deals in an orderly predictable way.

We're following this discipline closely during the fourth quarter when timely completion of deal can be challenging due to vacation schedules.

Internally concerning expenses, we announced in April a re-engineering program designed both to protect earnings by reducing costs and to reallocate resources towards growth initiatives.

Although the target for the initial re-engine earring exercise was to eliminate $35 million in current and planned operating expenses, we ultimately identified $48 million in such savings, which are largely now in place.

In light of continued weakness in the markets we serve, we believe it's now prudent to eliminate a further $26 million of existing and planned expenses as part of our ongoing re-engineering work.

We will achieve this additional expense reduction by further trimming our facilities costs, honestly reducing our current on board head count and restricting new higher activity to critical roles for the rest of the fiscal year.

By concentrating these cuts in support and back office areas, they're able to maintain healthy stocking levels in areas that produce revenue, such as sales and professional services.

The net result of these actions and the investments that we continue to make in our business is reflected in the guidance that we will provide you today for the fourth quarter and which will provide in the fall for fiscal 2009.

All this re-engineering work allows us to reallocate resources towards the three prongs of the decision management strategy: analytics, tools and applications.

And I would like to update on you those areas now.

In analytics, we continue to strengthen our leadership sharper in scoring, an industry that Fair Isaac helped to create.

We accomplished this through constant innovation, including the updated FICO '08 scores that are being rolled out, as well as new offerings such as a timely credit capacity index, which helps lenders to assess a borrower's ability for capacity and take on a particular amount of new indebtedness.

Perhaps the best way to strengthen our scoring leadership is by improving our relationship with major credit bureaus.

Last month, we announced an important partnership with Equifax, the largest US credit bureau, under which we're now cooperating to sell existing analytic products and develop new ones.

I feel good about this Equifax partnership, which is off to a promising start.

Given the difficult economic environment, it will take some time before the Equifax relationship and our product innovation work is to our growth our scoring.

But an important building block is now in place.

Analytics are Fair Isaac's competitive differentiation and we plan to keep investing in these key assets.

Next, our tools business is already on a growth path, having grown 15% year-to-date.

Much of this growth comes from our flagship Blaze product, which continues to win awards as the best rules management engine and continues to rank number one in terms of market share.

We're investing to maintain our leadership position for Blaze, including integrating the optimization capabilities from our dash acquisition needed earlier this year.

Most encouraging is our progress in the applications area.

Where we are pruning our portfolio of older products and working hard to develop the next generation of decision management products.

Nearly 300 of our employees in development and product management are now at work on this decision management suite and they being very productive.

After years of talking about decision management applications, we're now within a few months of actually shipping these applications.

We're on track to ship the first of the products, Debt Manager 7.0 in December of 2008.

Followed by an exciting new version of our Falcon Fraud Manager product in April of 2009.

These and subsequent offerings will be enterprise ready, meaning they support multiple financial products, multiple channels and use a common service-oriented architecture and common components including Blaze to achieve a high degree of interoperability.

We'll be providing updates on the expected revenue ramp from those new products when we issue our fiscal 2009 guidance this fall.

For now, let me just say our largest and most demanding clients are watching the development of these decision management products carefully.

They like what they see and several banks in the US and Europe are beginning to adopt key components of our key decision management architecture.

Our integrated technology organization is making good progress in this development work, even in the face of tight resources and organizational flux.

The ITO leadership continues to deliver against its goals, despite the recent departure of our Chief Technology Officer.

I am confident that our search for a new CTO will result in a new successor.

Our re-engineering work also allows us to keep investing in targeted market and industry vertical growth initiatives, helping to diversify our revenue mix.

In particular, we're well along in building flagship offerings for healthcare, which is our predictive analytic works in partnership with Conex, formally known as HAI, and for retail industry where our product is called [bethnex action] and the insurance industry, where our product is called multiline claims fraud.

We're all superceding growth opportunities geographically and in Latin America and in China, where we have secured engagements with seven of the top 10 Chinese banks since opening our offices there one year ago.

So our re-engineering work is not just about cutting costs to protect earnings, it's also about reallocating resources towards decision management.

I see growing evidence that this will be one of the next hot spots in technology and Fair Isaac aims to be the leader in this space.

Turning to guidance from continuing operations for our fiscal fourth quarter, we forecast $187 million in revenue in GAAP earnings for fully diluted share of $0.36.

Therefore, our full-year fiscal 2008 revenue guidance from continuing operations is now $753.6 million, reducing GAAP earnings for fully diluted share of $1.52.

This reflects the impact of the previously-announced divestitures and the further reduction of $26 million in operating expenses that is now underway.

This guidance assumes to be payment of the senior convertible notes between now and August.

For modeling purposes, we have assumed a 35.0% effective tax rate for the remainder of fiscal 2008.

Finally, we expect bookings from continuing operations in the the fourth quarter to be $90 million yielding roughly $20 million -- $24 million of current period revenue.

To wrap up, clearly our business is challenged in the near term by the unprecedented turmoil in financial markets.

But we continue to believe strongly in our strategy and our long-term growth prospects.

The management team is committed to navigating successfully through the current rough waters and we've ask all employees to tune out the noise and focus on the work at hand.

We do so keeping our core values in mind, including a strong focus on clients, an emphasis on innovation and a quest for high performance.

Chuck and I will now be happy to take you questions and discuss any of these matters further.

Ken, please begin the question and answer session.

Absolutely, sir.

(OPERATOR INSTRUCTIONS) and I'll begin the question and answer session with the line of Michael Nemeroff from Wedbush.

Sir, your line is open.

Thank you, thanks for taking my question.

Good evening, gentlemen.

Good evening, Michael.

Just a couple of questions.

It's been a couple of years since we have seen the scoring revenue this low.

If you can just parse out how much of that decline is coming from the decline in volumes, what is coming from pricing pressure.

I know Vantage Score in the past -- you've said that Vantage Score has been making you sharpen your pencils on pricing and how much has been lost just flat out from competition?

Can you just -- and then I have a followup, please.

Okay.

In past calls, we have talked a lot about pricing pressure on scoring.

This quarter, it seems like that is less of a factor.

This is largely volume related, particularly in the prescore area.

We do not sense that there is -- it's hard to know how much of that volume reduction is related to competition, but it does seems to be tied to the diminished business volumes of many of our banking clients.

So, American Express had made a comment on their call that their business would not get better until the economy improves.

Do you feel the same way for the scoring business for you guys?

We're taking conservative view, that says the scoring business will remain at depressed levels for some time into 2009.

And then Chuck, a question for you.

Could you tell us what you're expecting in terms of a free cash flow target for fiscal 2008, and then roughly how we should think about free cash flow for 2009 relative to net income?

I think, number one, you would, for this year, we're pretty close to the number (inaudible) in the talk, is a four quarter rolling average.

So we might see that actually stay sort of at that level of the quarter that we're dropping off, the quarter that we're adding are about the same that $136 million, then I would expect that to grow as we expect revenue to grow and we issued guidance for fiscal year '09.

I think you pick that up by the increase that you see in -- the increase you that would see then in our expectations for revenue, which will provide them.

We're not expecting anything dramatic in terms of tax rate yet on the corporate side and CapEx and dividends right now, the expectations --

We would be safe that that is somewhere in the mid single digits for now until we get the other guidance?

Yes.

Until we give you further guidance, I think you should stick with whatever you've been using for a revenue growth.

Okay, and then just one last one.

Could you tell us what the proceeds are that you are seeing from the sale of the insurance bill review unit?

Hi.

This is John.

It's about $14 million.

$14 million.

So it was doing $40 million run rate and you got $14 million for it.

Right.

Okay.

I'll let someone else ask.

Thank you very much for taking my questions.

Thank you, Michael.

Your next question comes from the line of Kyle Evans from Stephens.

Sir, your line is open.

Thank you for taking my question, guys.

Maybe we can start off with the $2.3 million trueup from Equifax.

Maybe a little bit more detail on exactly what that is.

Sure, our relationship with all of the bureaus entails periodic audits of the royalties they pay us, actually money from both directions in the course of negotiating the recent partnership with Equifax, we determined that there was an accidental overpayment by them to us and we have agreed to reverse the $2.3 million as a result.

So it's a one-time issue.

Nothing systemic there.

Okay, so the longer-term impact of the agreement that you reached, what does that do to the scoring economics over time?

Well, we haven't characterized it in any detail.

I think what you will find is that it is substantially stabilized a business that has otherwise has been in a trend decline.

I probably would limit my remarks that way, but we certainly have ambitions together with Equifax to sell more scores in our existing footprint and then to look for opportunities to sell news scores in that footprint and new scores other marketplaces as well.

Could you give us a progress report on your dealings with the other two bureaus?

Not at liberty to discuss given the litigation that is pending, but I would stay with my earlier comments that it has been our desire to keep market resolution with all participants, we're more interested in making money in the marketplace than we are in litigation.

So, given the pending litigation, I can't say too much more at this point.

Okay, in the strategy machine's segment, your press release, I'm a little bit confused by some of the trends that are detailed there.

I can certainly understand the decline in marketing solutions in that segment, but not the decline in fraud, unless that is just transaction volume slowing there, and I definitely don't understand why the collections and recovery would be down and originations would be up.

Could you help me and I can go through those again more slowly if that would help.

But I don't, mainly I don't understand why checks and recovery would be down, strategy machines, when is others are reporting strength there and originations are up.

Let me just comment on the transaction-based businesses, Falcon TRIAD are clearly a reflection of usage in general economic activity.

These are functions of both a number of accounts that are out there, open and they're being processed and accessed.

With respect to Debt Manager and collections in some cases, this is simply the timing of transactions in this quarter versus a year ago.

And when we had some large transactions in '07 hit, and so on a relative basis, the transactions, or should say the software sales where the revenue comes in at the beginning of the contract term appear lower, but I'd suggest that is mostly a timing of transactions between quarters.

Okay.

I don't really see that as a trend.

Certainly Debt Manager has been a very popular and necessary product for us right now in our pipeline to demonstrate that.

Okay, are you seeing SAS in the marketplace trying to sell Raptor yet?

We have seen some indication that they have early customers that are, evaluating, yes.

So you're seeing them go after somebody besides HSBC.

Principally HSBC.

But not just HSBC.

I think that marketing activity underway elsewhere, and we're not aware of any competitive wins a part from HSBC.

Okay, lastly and I'll get out of the way and let someone else talk.

The re-engineering that was originally supposed to take $35 million in operating expenses out, it's now going to take out $48 million in operating expenses, which are already largely taken out.

I just want to make sure I understand this right.

In that you have kind of circled another $26 million through more facilities consolidation and more headcount reduction that you're going to take out going forward.

Exactly.

Our full-year has been to free up resources for our -- in the reengineering effort for our reallocation to others, principally the development of our decision management product line and so we have -- we previously announced the $35 million.

We actually were able to bring that number up to $48 million and now we're adding another $26 million in combination as Mark indicated, facilities costs and our head count reduction which we have to -- intend to have built into our run rate by the end of this fiscal year.

Great.

Thanks, I'll get back into the queue, thank you.

Your next question comes from the line of Michael [Minchak] from JPMorgan.

Sir, your line is open.

Great.

Thank you, one other question on the true-up with Equifax there or two questions on the true-up.

I think you said the deal, the true-up is just a normal periodic audit and I understand that, but you said the deal helped stabilize a business that has been trending down.

But you wouldn't comment on the economics.

Can you just talk a little bit more about that.

So is there no change to the economics going forward?

There will be a change in the economics the bulk of which will occur next fiscal year.

So I would expect additional guidance on next quarter's earnings call when we talk about fiscal '09.

So we're still in ramp-up period.

But clearly the intention of the partnership is to boost our revenue as well as theirs and you will hear more about that as you go forward.

Okay.

But change meaning more or less favorable to you?

Well, I think, I think the answer is we're trying to go after a larger pie, so while it may feel initially revenue neutral, the idea is that we're somewhere sourced and, therefore, jointly participate in a larger pie.

So to our mutual benefit.

Okay, understood.

Another question, if I back out the true-up, it still looks like scoring was down about 15% in the quarter.

And if -- can you talk a little bit about what else was pulling down that number?

If I look at the bureau's volumes, they were probably down mid-single digits.

So what else in there?

We also continue to experience some pricing pressure, as we've indicated on our prescore line, and that is the contracts negotiated from time to time and impact hits us as the campaign goes forward and we have seen a reduction in campaigns generally for scoring.

I can't comment on whether the bureau's numbers are reflective of the prescore type activity or simply the ongoing rate for an increase based on origination.

But generally speaking, they and the -- their financial institution partners have seen a net reduction in -- significant reduction in the demands for scoring in recent periods.

So you --

I'm sorry, go ahead.

So you're saying nonbureau scores were weaker than --

That's right.

Correct.

The prescore part, which is the part that's used for marketing and new demand generation that part of the business was down significantly consistent with what you hear banks talking about in their own businesses.

Okay.

Okay and last question for me and Kyle kind of touched on this, the incremental annualized cost savings, you said you're hoping to get to the run rate by the end of the quarter, so is your guidance for the quarter incorporate any of that cost savings in the quarter?

Yes.

That would be metered in.

You may recall that we issued guidance for the back half of the year as opposed to either quarter.

Of course, now remaining simply for the quarter, but going into this quarter, we were not certain when certain restructuring charges would hit, the associated severance charges that go along with it.

The case of facilities, we often have lease termination charges that will impact the period and then the unknown, as well within our workforce is, as Mark indicated, we're not going to be replacing certain attrition.

The timing and attrition impacted.

But our intension is to have that out of our -- those -- we're going after those costs to have them out of our run rate by the end of this quarter, so that we'll get a full-year impact in '09.

Now, I would hasten to add that if not the net, the numbers are excited and not the net or incremental impact, certain amounts of that large portion of that would be reinvested in the business as I indicated into the investments we're making in the applications side development and certain marketing efforts and those will be metered in as well, and so our guidance both for this fourth quarter and the guidance in the issue for '09 will be reflective of the impact of the net results.

Is there any rule of thumb how we should think of how the net benefit to earnings should be?

So if you're saying $26 million incremental, is that the number?

Yes.

Okay, but is there a certain percentage that you would hope to have through?

I would not offer that right now except to indicate the -- will be reflective of the impact of those and as mostly goes to the issue of reinvestment.

Hard for us to engage in the timing and the reinvestments, they involve hearing decisions, purchases of licenses and tools and things we're using in development and we're giving you by these numbers and indication of the effort they were putting behind the freeing up resources to invested business.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Chitra Sundaram with Cardinal Capital.

Your line is open.

In your guidance for Q4, are you including any restructuring charges additional?

Chitra, I'm sorry, the last part of your question?

Restructuring charges.

The $0.38 -- no, whatever the outlook for the fourth quarter is.

Just wondering if that includes the restructuring charges.

Yes, the fourth quarter guidance of $0.38 earnings per share reflects and include restructuring charges, which are generally offset by the savings of salary from the individuals that are affected.

It's essentially awash for the quarter.

Both numbers are in that net volume of $0.38.

But would you be able to give us an idea, quantify what that charge would be?

We expect it to be small at this point, maybe net of $1 million to $2 million.

Okay.

And then when we talk about the scoring business, is it possible to delineate from a volume and then from the revenue perspective, what percentage is coming from prescores versus loan origination, versus whatever other products, so we can understand the impact.

Because I think all of us have a general idea of what the trends in the industry have been on the prescore versus origination size.

Chitra, is your question to what percent of my business comes from prescore and bureau-related or the impact of diminished demand by area?

Take it any way you like.

I was trying to understand from the volume perspective how much of the scoring business was coming from prescore versus, I'm assuming origination and then on the revenue side, how much is coming from prescore versus origination.

Because I think in general, prescore has been, as you correctly also pointed out, down maybe 40%, 50%.

Origination seemed to have, maybe depending on the product, held up a little bit better outside of mortgages.

So if you could help with that.

Prescore as a percentage of our total revenues is still relatively small compared to the volume to the bureaus and the impact perhaps on prescore year-over-year is, say a third of the impact in total of volume.

The $2.3 million adjustment for Equifax, about in round numbers, similar to the prescore impact and our volume impact a little over twice that.

Twice that.

So say $5 million in volumes and prescore down about $2.5 million and Equifax adjustment about another $2.5 million.

Okay.

Okay.

That is actually great.

From a module perspective, you make more module I think on the origination side than the prescore side.

Am I right or wrong?

Margins generally for scoring it's a royalty stream.

Generally speaking, margins are healthy across the product set.

Our price point, there is lower prescore because of volumes and they're purchased in quantities like our archived scores and historical scores are, and the channel, the bureau channel results in online calls or calculations of scores, batch that actually carry a contract price and we have a number of means by which the bureaus financial institutions pay up, generally depending on the volume of the transaction.

Yes, you're absolutely right and that margin was actually the wrong question.

And also the prescore side, it sounds like the majority comes directly from the issuers of credit and not so much to the credit bureaus.

Or has that piece been more stable than the director of financial institutions?

It's contracted for in both ways, depends on the relationship between the institution and the bureaus and the cash flows come by both means as well.

Is one bigger than the other when it comes to prescore versus origination?

Actually I think it's pretty even.

Okay.

Thank you very much.

Thank you.

Mr.

Michael Nemeroff from Wedbush has a follow-up question.

Your line is again open, sir.

Thank you, thanks for taking my call.

Mark, you can talk a little about, you talked about contracts that slipped out of this quarter, into -- last quarter into this quarter.

Can you talk about whether those have closed subsequent to the start of the quarter, where they were geographically and the kinds of customers they were and for which products, please?

They tended to be larger multinational banks.

They tended to be based in Europe and about half of those contracts have closed since the end of last quarter.

So, we're confident that there really was a push situation and not something else going on.

Okay.

And that was for diverse products.

So there was no pattern in terms of what they were buying.

They were just across the board for pretty much all the different products that you saw?

Yes.

Okay.

And in Europe, generally, as in the US, the emphasis these days is on collections and recovery.

So there's probably skew in that direction than I realized, but there were mixtures across the board.

Right.

And do you see the, kind of, do you see the light at the end of the tunnel in terms of the US financial services, Mark?

I know you said 2009, maybe 2010 for recovery here.

Michael, you're probably in a position as we are to know, I think it's appropriate for us, given the mixed tea leaves here, to take the stance we're taking, which is to be prepared for a slow recovery.

That doesn't look pronounced before late 2009.

Fiscal 2009 or calendar 2009?

I would love to be pleasantly surprised, but -- and I don't have great certainty about our predictions here, but we're taking the stance that we need to be able to hit our numbers and manage the company through for another 12 or perhaps 18 months sitting here today.

Chuck, just the head count, a housekeeping question there what was at the end of the quarter and could you tell us, break it down by unit as well, sales and marketing versus G&A?

That is 2,600 in total.

I don't have the breakout between sales and marketing.

Give me a second and I'll get that for you.

Sure and just one another question.

Obviously, you're talking about this, you're talking about continuing operations and the release.

Can you tell us what the status is or maybe have John give us an update on the status of the other operations or units that you're looking to divest?

Should we expect more activity over the next couple of months within the next year and what the environment is out there for selling these types of assets?

The remaining units were relatively small and we have got some transaction scheduled out that will not have a significant impact on our financials.

As for the environment, I, our assets are specialized that I would be perhaps misleading in characterizing the reception.

Usually a very specialized interest in sorts of analytic assets that we're parting with.

Sometimes we're doing it with management or they're aligning themselves with a financial bio that is helpful.

So it's tough to characterize.

Okay.

Thanks for taking my followup, guys.

Thank you.

You have another followup from Mr.

Kyle Evans from Stephens.

Your line is again open, sir.

Thanks.

Mark, at your analyst day, it sounded like you were through the worse of the pricing pressure on the prescore business.

Has that proven out and been the case?

I think so.

The main emphasis this quarter was volume as we talked about much less on price.

Okay, and just to follow up on Chitra's question, I want to make sure I got this right.

$2.5 million year-over-year decline in prescore, $2.3 million on the true-up and the rest of it is volume?

That's correct.

Okay, and specifically the volume and prescore.

You mentioned that was a pretty significant driver and we have seen that at the bureaus, 25% to 40% off year-over-year.

What was your decline?

I tell you, I don't know If I can characterize it.

I don't have it in front of me.

I'm looking at total dollars and just a combination of that, Kyle.

I guess -- this is not business that has gone away forever, right.

You can tell stories under which it's coming back.

The question is timing.

But we're not operating under the assumption that prescore is gone never to return.

But the pricing that you gave up doesn't come back when the business does necessarily.

That may be the case.

We're probably looking at pricing levels that remain about where they are now.

But volumes eventually come back.

Okay.

And lastly, to follow up on one of Michael's questions, you mentioned that you were looking at a revenue neutral impact from the Equifax agreement in fiscal '09, but your didn't mention anything about margin.

Should that also be neutral?

I would say so.

The margin for this business as a royalty stream is very healthy, so the impact of this agreement is intended to be neutral going forward in the immediate term, and as Mark indicated, give us opportunity for now sales together both to new scores sold and new product.

But is it only margin-neutral going forward if you get incremental new product and new sales as a result of the agreement?

No, I would say it was geared to be neutral from the offset.

Okay.

Thank you.

Let me do a followup on Michael's call, the question on head count.

The 2,600 remains at about 380 of those people were in sales and marketing.

Your next question comes from the line of Nat Otis from KBW.

Your line is open, sir.

-- rehash again, but I want to try to take a SEC again and understand the true-up, just having a little difficulty between what your statement on the call is saying that it was pretty much a periodic overpayment true-up and in the press release, talking about a one-time charge relating to the agreement with Equifax.

Just they seem a little different and I just wondering if there is anymore color you could provide.

I would appreciate it.

They're the same thing, and I apologize for the confusion.

This error, which was an inadvertent error on both parts was discovered as we negotiated with Equifax around the new partnership.

So the partnership discussion triggered a review of financial records that surfaced a one-time miscalculation that we have now trued up.

So, it's not a feature of the partnership, it was discovered in the process of negotiating.

That is actually very helpful, thank you.

Next question, last quarter you talked about possibly buying back about a million shares a quarter for the rest of the year.

It looks look you were shy about this quarter.

Any reason for that and any expectation that we can have in the fourth quarter?

Yes, as we were negotiating our agreement with Equifax, we decided that this makes a lot of sense for us in the marketplace.

We were concerned about the appearance about that later and we backed away.

Okay, and then just last question.

Do you have what the currency impact was on revenues this quarter?

Just a slight increase.

It's just positive slightly.

We've hedged a lot of this.

And it's John.

It was under $100,000.

Okay, alright, thank you.

And there is no more questions in queue.

Okay.

Thank you all for joining.

Thank you, operator.

You're very welcome.

This now concludes your Fair Isaac Corporation's quarter three earnings release.

You may now disconnect.