Fair Isaac Corp (FICO) 2009 Q4 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 FICO fourth quarter earnings 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).

Thank you.

Mr.

John Emerick, you may begin your conference.

Thank you very much, Steven.

Good afternoon, everyone, and thank you for joining FICO's fourth quarter earnings call, this is John Emerick, VP of Corporate Development and Treasurer of Fair Isaac, and I am joined by CEO, Mark Greene, and CFO, Tom Bradley.

You will find on the Investor Relations portion of the FICO website a copy of today's press release, a Regulation G disclosure schedule, and our recently introduced financial highlights presentation.

A replay of this webcast will be available through December 4, 2009.

Certain statements made in this presentation may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995.

Those statements involve many uncertainties that could cause actual results to differ materially.

Information concerning these uncertainties is contained in the Company's filings with the SEC, in particular in the risk factors and forward-looking statements portions of such filings.

Copies are available from the SEC from the FICO website, or from our Investor Relations team.

In order to provide additional information to investors, we will use certain non-GAAP financial measures on this call, including free cash flow, adjusted EBITDA, and operating expenses excluding restructuring charges.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, entitled Regulation G disclosure is available on the investor page of our website under the presentations tab.

Now I will turn the call over to Mark Greene.

Thank you, John.

We'll proceed today in three parts.

First, I will summarize the quarterly results and assess our business in light of current market conditions.

Tom Bradley will then provide further financial details, and finally I will discuss our strategy and business outlook for the year ahead before we take your questions.

Turning to fourth quarter 2009 results, revenue was $152 million.

This is down 3% from the prior quarter, but reflects a 1% increase in revenue when adjusted for the sale of telecom assets in that prior quarter.

Bookings, an indicator of future revenue, totaled $86 million, significantly stronger than both the prior quarter and the year ago quarter.

In the face of the continued challenging revenue environment, we maintained stringent cost controls to protect earnings.

These efforts continue to help our profitability, as we reported GAAP earnings per share of $0.35 and non-GAAP operating margins of 27% in the quarter.

Let me discuss the revenue results according to the segments of our decision management portfolio, namely scores, which are the predictive analytics used to assess the risk of various transactions or entities, applications, which use these scores to help businesses make smarter decisions over a customer life cycle, and, finally, software tools, such as rules and optimization engines on which the applications are based.

Beginning with scores, scores revenue was $32 million, a decrease of 8% from the prior quarter.

This decline reflects the continued low volume of scores generated by the three credit bureaus, which in turn is linked to diminishing lending activity, particularly in the mortgage and credit card sectors.

While it is premature to say that our scores business has stabilized, we do see some promising signs such as increased interest by clients in using FICO scores as they resume marketing activities to acquire new customers.

Three updates for you on our scores business.

First, we're making good progress on the rollout of FICO 8, the latest version of the classic FICO credit score.

It is now commercially available at all three credit bureaus, thus removing the last barrier to access by lenders.

More than 500 lenders are now using or testing FICO 8, which provides up to twice the improvement in predictive power compared to previous FICO revisions.

Several top ten US lenders which already committed to adopting FICO l in the coming months.

Second, we announced that the FICO credit capacity index is now available at our partner, Equifax.

This score used in conjunction with FICO 8 improves the precision of lenders risk assessments by measuring the ability of consumers to take on additional dealt.

We're now validating this credit capacity index with most of the top ten lenders in the United States and we have begun deployments with selected non-US institutions including Korea Credit Bureau.

Third, we're likewise gaining traction with the new FICO Score View service which makes FICO scores available online to lenders internet banking sites.

This month, a leading US financial services firm will be begin rolling out the service to millions of its online customers.

These consumers will have free access to their individual FICO score information when they bank online, and they will be provided free educational offerings on credit literacy, along with the opportunity to purchase credit products from our MyFICO website.

We know from experience that making FICO score information available this way generates additional revenue for our consumer scoring business.

Turning now to applications, applications revenue was $83 million in the quarter, up slightly from the prior quarter.

When excluding the $5 million of revenue related to telecom product lines that were divested last quarter, applications revenue actually increased by about $6 million or 8%.

Revenue was particularly strong in applications used in the late stages of the financial life cycle, namely collections and fraud management.

As is to be expected during an economic down cycle.

Revenue from our fraud management applications totaled $29 million, up from the prior quarter despite the spin off of a fraud product for the telecom industry.

We signed $22 million in new fraud bookings, the largest figure in three years.

And we released three major decision management applications this quarter.

The sales pipeline for one of those, Insurance Fraud Manager, has doubled over the last two quarters.

Turning to tools, tools revenue was $12 million, essentially flat with the prior quarter.

This segment, which consists of our rules management, modeling, and optimization tools, has been under pressure as spending has been impacted by the economic downturn.

We continue to invest in the tools business, adding support for our a word winning Blaze Advisor business rules management system on the Microsoft platform as well as improving decision simulation capabilities.

We believe that this continued investment positioned FICO to remain a category leader in decision management tools.

Now we support these scores, applications and tools with service offerings, chiefly consulting and systems integration work.

Services revenue in the quarter was $25 million, a decrease of 9% from the prior quarter.

Despite this downturn, we're maintaining a healthy roster of service professionals because we anticipate that their skills will be in demand as many projects booked in the quarter begin to come online.

Turning now from revenue to bookings, we signed $86 million in new bookings last quarter.

Our best result in six quarters.

We saw strength in bookings for our collections and recovery, and for fraud management applications, but also from marketing applications.

Again, suggesting that clients are beginning to focus on the early stages of the financial life cycle, i.e.

acquiring new customers.

So to summarize the quarter, we stabilized revenue and indeed grew it modestly when adjusted for the sale of the telecom assets.

We take heart in strong bookings, which should boost revenues in future quarters, and thanks to our continued discipline in managing costs, we once again delivered good bottom line results despite a challenging operating environment.

We have now completed all planned spin offs and product rationalization work.

These reengineering efforts have positioned us for even stronger profitability when the economy recovers.

Now let me pass the call to Tom Bradley for further financial details.

Thank you.

As Mark mentioned, revenue for the quarter was $152 million, a 3% decline from the prior quarter.

However, when excluding the $5 million of revenue related to the telecom product line assets divested last quarter, revenue actually increased about 1%, our first increase since the recession began last year.

Recurring revenue derived from transactional and maintenance sources represented 76% of total revenues versus 77% in the prior quarter.

Consulting and implementation revenues were 16% of total, versus 18% last quarter and finally one time license revenues were 8% of total revenue versus 5% last quarter.

Internationally this quarter 33% or $50 million of total revenue came from outside the United States, compared with 30% or $47 million last quarter.

We continue to emphasize revenue generation in markets that enjoy healthier economies than the US, notably in Asia.

The bookings of $86 million this quarter created $15 million of current period revenue, a 17% yield.

As a reminder we include in bookings only the net new or incremental revenue that we expect to realize on contracts signed during the period.

Generally, this new revenue is recognized over the future life of the underlying contracts with some of this yielded in the current period.

The strength of our fourth quarter bookings, which grew 21% year-over-year and 75% sequentially, is an early indication that our customers are beginning to commit future spending on our products.

Of the 86 million in bookings almost 30% relates to fraud and insurance fraud -- Falcon and Insurance Fraud Manager, the highest amount of fraud management bookings we have seen in several years.

These high margin bookings tend to be long inner duration, generally three years or more, and are a critical component of our recurring revenue.

We had 12 booking deals this quarter in excess of $1 million, five of which exceeded $3 million.

This is the largest quarterly number in both categories for the year.

One large booking was particularly noteworthy.

We signed a major multi-year agreement with Best Buy to use FICO's new Retail Action Manager which identifies the best next product to offer consumers based on their individual buying behavior.

We expect that this Retail Action Manager solution which we're now marketing to other large retailers will give us the opportunity to generate big ticket, high margin bookings going forward.

Finally, together with our partner EDS we signed a large Insurance Fraud Manager deal with the state of Texas, representing a renewal as this customer migrate from a legacy fraud product.

Although such renewals are not reported in this new bookings number, they're a key to building momentum for new products such as IFM, and strengthening our partnership with important clients such as the state of Texas.

Moving to expenses.

The fourth quarter saw continued benefit from our expense reengineering efforts with operating expenses equal to $119 million, down slightly from the prior quarter.

We continue to manage our operating expenses tightly to deliver the highest possible profitability in this environment.

As you can see in our reg G schedule.

non-GAAP operating margin before charges, amortization, and stock-based comp was 27% for the fourth quarter, approximately the same as the third quarter.

For full year fiscal 2009, operating expenses before restructuring and asset sale charges were $502 million, more than $100 million below the 2008 total of $612 million.

As we noted in past calls these savings cut across most cost categories but we are intentionally maintaining investment in sales, delivery and R&D.

As a result of this cost discipline, our non-GAAP operating margin improved from 23% in fiscal 2008 to 26% in fiscal 2009.

On the bottom line, net income this quarter was $17 million, down slightly from last quarter.

The effective tax rate was about 39% for the quarter and 33% for the full year.

The rate was negatively impacted by adjustments to our tax reserves associated with the proposed settlement of an IRS audit, and the full-year impact of a mix change between domestic and foreign income.

Going forward, we anticipate an effective tax rate of about 31%.

Next on cash flow, we define free cash flow as cash flow from operations less capital expenditures and dividends paid.

The free cash flow for the quarter was $24 million or 16% of revenue, compared to $39 million or 22% of revenue for the same period last year.

Our year-to-date free cash flow is $134 million or 21% of revenue, compared to $132 million or 18% of revenue from the prior year period.

This was due to the previously discussed expense reductions and by effective management of our accounts receivable.

Our ongoing cash flow continues to strengthen FICO's liquidity position.

We now have $379 million in cash and marketable securities on the balance sheet, plus $260 million available against our revolving credit facility.

This provides $639 million in immediately available liquidity.

Our debt remains unchanged, consisting of a $295 million balance out standing on our revolver with an all in interest rate of 1.23% and $275 million in outstanding notes.

The ratio of our total net debt to adjusted EBITDA is now down to 1.3 times, well below the covenant level of three times.

Also, our total fixed charge coverage ratio is at 4.2 times, well above the covenant level of 2.5 times.

As a reminder, we do not have any maturities of this debt until October of 2011.

This quarter, we repurchased 831,500 shares in the open market at a total cost of $18 million, or an average cost of $22.25 per share, bringing our share count outstanding at September 30th to 48.1 million shares.

We have $130 million remaining under our existing share repurchase authorization.

In light of the increasing cash position on our balance sheet and our on going ability to generate free cash flow, we will continue to evaluate how to best deploy accumulating cash to maximize shareholder value.

On a final note, many of you are aware that John Emerick will be leaving FICO at the end of the year.

I would like to personally thank John for all of his contributions, and service to our shareholders during the past five years.

He will be missed, and we wish him well.

Our Vice President Finance Mike Pung is assuming John's Investor Relations responsibilities.

Mike and I look forward to meeting with many of you in the months ahead.

I will now turn the call back to Mark.

In this concluding section I will discuss the health of our business and our prospects for fiscal 2010.

Let me begin with an update on how we're managing the business and how we'll be reporting financial results as we enter this new fiscal year.

We have now organized the Company around the three decision management areas discussed on today's call, scores, applications, and tools.

These are the segments that we'll be reporting throughout fiscal 2010, replacing prior segment descriptions such as strategy machines.

I will use these three new segments so discuss our business outlook starting with scores.

In scores, our bureau of partners report early signs of stabilization and transactional volumes but not yet a recovery.

Recent reports of strength in consumer spending in the US suggest recovery may be at hand, but it is not clear how much of this is due to one time stimulus such as Cash For Clunkers.

One area of focus is scores using the credit card industry, which accounts for two-thirds of our overall scores business.

This sector is undergoing major transformation due to the recent passage of the Card Act, which takes effect next February.

Near term card will likely boost score volumes as credit card issuers seek to identify and retain their most profitable consumers.

Longer term, the picture is less clear.

Given concerns that the Card Act may render to credit card sector less profitable, prompting a reduction in the size of the sector.

Now, we continue to view our score segment as a good proxy for the health of the overall US economy and our scores revenue as a co-incident indicator of the business cycle.

Given the conflicting evidence provided by recent macroeconomic reports, it is hard to predict exactly where our score business is headed.

The way I read the tea leaves at the moment is that FICO score volumes, revenues, and margins will stabilize over the next few quarters, and then begin modest growth in the latter part of 2010, as the unemployment picture and housing markets both recover.

We're not sitting still waiting for an improving economy to improve our business.

Instead, we're pursuing several tactics to increase score usage, even in today's environment.

On the business to business side, we're encouraging lenders to adopt the more predictive FICO 8 version of our products and pull these FICO credit scores more frequently and in more parts of their business as a sound risk management tactic.

We're also expanding the portfolio of scoring products that are sold as add-ons to FICO 8.

We'll soon be rolling out a new service, which allows lenders to model the likely future performance of FICO scores under various economic scenarios and offering what we believe will be a significant interest in these volatile times.

On the business to consumer side, we continue our efforts to promote financial literacy among consumers, with a range of educational offerings and best practice pointers on our MyFICO.com website.

Forrester recently presented its Groundswell award to FICO for success at building a digital community that empowers consumers to manage their credit more effectively.

Next regarding applications.

We're very excited about the growing momentum that we have for application products.

We have a pipeline of over $220 million worth of opportunities in the fraud management space alone, and we expect to make good head way in converting these into signed deals in the months ahead.

We're conscious that the sales cycle is lengthy and we know that the new deployments take six to nine months before they generate transactional revenue.

Our revenue ramp here will be gradual.

FICO's long had a point of view about the value of using business applications to connect decisions across an enterprise and across the customer life cycle.

We made very good progress realizing this vision during 2009, rolling out new applications for the late stages of the financial life cycle, including debt manager and the collection space and Falcon and Insurance Fraud Manager in the fraud management space.

In the months ahead we'll be flushing out applications for the rest of the life cycle with early stage applications such as our new originations manager all based on the same underlying tools.

By the end of 2010 we'll have the industry's first full suite of interoperable applications that is fully deliver on the promise of connected decisions, all built on an industry standard service oriented architecture.

Let me note that our applications work is not limited to the banking market that we traditionally serve.

It is an important part also of our expansion into retail, healthcare and insurance.

For example, you heard Tom mention our win at Best Buy with the new Retail Action Manager product.

Well, which application, the same application is at the heart of a groundbreaking membership benefit program, recently launched nationwide by Sam's Club, dubbed E-Values, this program grants personalized savings to Sam's Club Plus members using the FICO Retail Action Manager to optimized offerings for each member based on historical purchasing patterns.

It is a great example of predictive analytics applied to the retail industry.

Finally, regarding out tools business, we're making focused investments to accomplish two things.

First, we to want ensure all of our own applications make deep use of our tools to helpful fill the connected decisions vision, and, second, we're strengthening and broadening our network of distribution partners including OEMs, system integrators and retailers to drive sales of our decision management tools.

In short, our strategy for fiscal 2010 is to drive synergies across the three facets of our portfolio, scores, applications and tools, to continue providing the industry's most advanced and valuable decision management solutions.

Now to guidance going forward.

We're encouraged by client's positive reaction to our new products.

Our visibility into their spending intentions is improving, but it remains limited.

So while we're not yet providing specific quarterly guidance, we can say that we expect to grow it year-over-year GAAP earnings per share by a high single-digit percentage over the course of fiscal 2010.

We expect relatively flat results in the first half of the year, and stronger performance in the back half of the year.

As I wrap up, let me comment on how weathered the past year and why I am cautiously optimistic about the year ahead.

Four thoughts.

First, FICO has built a trusted brand upon decades of delivering innovation and value, and in fact we recently changed our corporate identity to recognize that value.

Second, FICO has strengthened relationships with our well established loyal clients, clients who come to us in good times and bad for help solving their biggest most strategic business problems.

Third, we demonstrated that we have the management discipline to adhere to our business strategy despite unprecedented volatility in our operating environment.

Fourth, our decision management solutions give clients measurable competitive advantage.

This last point is especially important as we look out for the year ahead.

While we're hearing from our clients across the globe is that while 2009 was about survival, 2010 will be about competitive advantage.

Our customers are telling us that they need the latest and best scores, tools and applications to manage decisions that affect customer acquisition and retention, collections, and fraud mitigation.

That's exactly what we do.

FICO products help banks, insurance companies, retailers and healthcare companies connect decisions across the enterprise and across the customer lifecycle.

Our solutions generate significant and measurable competitive advantage, and in the year ahead, competitive advantage is going to be the name of the game.

With that, John, I turn it back to you for questions and answers.

Thank you very much, Mark.

This concludes our prepared remarks, and we're ready now to take your questions.

Steven, can you please open up the lines for any of these questions?

(Operator Instructions).

Your first question comes from the line of Carter Malloy.

Your line is open.

Thanks for taking my questions.

First question is on scoring, just looking at it sequentially, wondering what the discrepancy between your performance and the euros, both Equifax and Experian were down quite a bit less than that, low single digits versus you guys, I think 8% sequentially.

Hi, Carter.

Two answers to that question.

First, we report on slightly different timing than they do.

We report with what is effectively a six week lag relative to them, by the time we get information from them and recording periods they use versus us, so there is a little phase shift here.

They may be seeing improvement which we think is current in the marketplace sooner than it shows up in our numbers.

The second answer is we're more concentrated than they are overall in the credit card space, and that's a space that has not yet seen the kind of recovery that you're seeing from auto and mortgage.

That makes sense.

Have credit cards, in the time since you guys closed the quarter, are you seeing improvement in that environment?

Well, what we're seeing is actually not yet the improvement in transactional volumes in cards but rather an increasing number of discussions with card issuers about them getting back in the marketing business, so it is not yet showing up in actual results.

It is showing up in the headlights of our conversations with them that they are talking now about resuming marketing activity of the sort that has largely been absent over the last year.

Great.

And looking out on next year, can you give us an idea of what you expect the expense base to be?

I think the fourth quarter run rate is pretty close.

It is consistent with Mark's high level guidance that we have done a lot of infrastructure work in the past year and we don't have that kind of lift coming again this year, so what you see as a fourth quarter run rate is probably a good path for next year.

Okay.

I think I have somewhat of that in my model, but I am just curious looking at if I use that run rate, and run through next year, there is some implied revenue growth, but also if I look at fiscal 2009 EPS on a GAAP basis where you guys were penalized quite heavily this year on GAAP, to the tune of probably $0.15 or $0.17 on restructuring charges and whatnot, that ran through the models, so on a normalized GAAP basis this year it looks like your EPS would have been in the $1.40s or even $1.50, so I am wondering if you want me to use that or if it is off of the -- I guess the affected GAAP so essentially down year-over-year?

The guidance is relative to their reported GAAP earnings.

Okay.

Sorry.

That was a confusing question, I know.

I understand your question.

Yes, we're talking about the reported GAAP number.

Like a mid-$1.40s number for 2010?

$1.34 times low high digits, high single digits, yes.

You're a good math guy, you get it.

And that would imply some at least some revenue growth on a year-over-year basis?

Correct.

Particularly relative to losing the telecom revenue which is in, three quarters of which is in the 2009 numbers.

Okay.

So an improvement off of 4Q run rate then?

Yes.

Quite an improvement.

Okay.

Thanks.

Your next question comes from the line of Michael Nemeroff, Wedbush Securities.

Your line is open.

Hi.

This is David for Mike.

Hi, David.

A few questions here.

Can you clarify on the bookings how much of the $85 million in Q4 was from brand new customers versus new signings from existing customers?

No.

I think we'll have to do some homework on that for you.

It was -- there was some new customers, but I would guess the majority was existing customers signing up for new business and recall the point that Tom made bookings is really only new incremental business, right, renewal of replenishment of existing revenue does not show up in that number, so we had quite a bit I guess the answer to your question is we had quite a bit of new business from existing customers, probably had a little bit less new customers.

Okay.

Great.

And how about the average duration of the bookings contract and how has that been trending for the last few quarters, please?

The last three or four quarters prior to the fourth it was down around two years, down around 22, 20 per month.

With this last quarter with that large volume the average duration is actually 37 months, so we're seeing bigger longer term deals which are nice in terms of replenishing the baseline business, and a number of those are four and five year deals, but 37 would be the weighted average.

37 months.

Right.

For the expenses going back to the expenses and the EPS growth next year, are there specific line items where you think you can get a little bit more EPS growth out of in the next year?

Well, we're going to keep going at expenses, but mostly to generate the ability to invest in our business, so a lot of infrastructure and personnel costs last year, we will continue to go after facilities and consultants and the other nooks and crannies of costs around the Company, our contracts and other infrastructure costs, but mostly, we'll be looking to invest any of these savings back into the business, so that's why I think the run rate, we won't get additional lift from an earnings standpoint out of the expense line in 2010.

Thank you.

One final one here.

Why are you so confident that the second half of next year is going to be better than the first half?

Is there -- do you have empirical evidence or is it just sentiments?

It is not sentiment.

The bookings result that we saw in the quarter, we waterfall through as we say.

We model how that booking will translate into quarter by quarter revenue based on the project plans we have with the customers, so we have done that modeling for the $86 million of new bookings last quarter, and as you might guess it doesn't have great lift this quarter or next but as you move through the fiscal year it starts to have measurable impact, so that's the first phenomenon.

The second phenomenon is a bit more of a forecast and that is assumption about improving macro conditions which we think will at least stabilize if not actually boost our scoring transaction volumes.

Thank you very much.

Thank you, David.

Thank you.

Your next question comes from the line of Mike Latimore, Northland Securities.

Your line is open.

Great.

Good afternoon.

Hi, Mike.

On the scoring business, you had a sequential increase last quarter and then down this quarter.

How much of the sequential change this quarter would you attribute just to lower mortgage volume?

Fair amount.

Mortgage for us is about 15% of the business of the scores business, and as I think we have observed in the past calls, movements in volumes there is sort of binary based on whether effective mortgage rates are above or below 5%.

For much of the quarter they were above 5% and re-fi activity sort of dried up and we saw that in your numbers.

Of late the numbers have actually trended down a little bit on interest rates, and I think we're seeing recently volumes go back up accordingly, but the mortgage sector was not a strong performer for us for the reason that interest rates were high.

Okay.

And then on the professional services, that was relatively stable, and then it declined sequentially in a quarter when you started to add more bookings and applications revenue.

How should we think about professional services?

Should that start to improve as you deploy some of these new bookings?

Absolute right.

There is a bit of a lag.

You sign the business.

You get started on project planning and so on, and it is typically three months, four months, something in that range before the customer says, now, show me your people, so last quarter the quarter that we're reporting on this call, we were seeing not a lot of new activity because we hadn't had a lot of strong bookings in prior quarters.

We knew we were looking the at a very big opportunity pipeline and thought we were going to need those people so we kept them on the payroll and indeed we did have a good bookings quarter in the last quarter.

Those engagements will start to come online in the next three, four, five months and we'll need to deploy those people at that time.

You should expect going forward stronger performance from our professional services business.

Okay.

Great.

And in the past you have given some operating margin ranges ranges by segment.

Do you have that data for this quarter?

I don't think there is any material change.

And then last just as you go through renewals in the scoring business, what are you seeing from a pricing standpoint or minimum commitment standpoint?

Pricing has held up well.

We're actually gratified by that in this environment.

As we renew, there is different outcomes with respect to quantities, minimum commitments of volumes by customers, good number of them are willing to sign up.

One or two are looking for lower volume commitments, but the price aspect is generally done well.

We always have normal competitive pressures pricing, but we haven't seen any particular severe impact on pricing due to the economic situation.

Okay.

Just last on marketing solutions.

Was that up sequentially in the quarter?

One second.

We'll check for you here.

Slightly up, yes.

Okay.

All right.

Thanks.

Thank you.

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

Your line is open.

Good evening, gentlemen.

Just a couple of clean up questions.

First, what was the head counted in the quarter?

I think it is 2085.

Just shy of 2,100.

Can you also run through your vertical market mix in the quarter?

Yes.

Hang on one second.

Banking $111 million, insurance $19 million, retail $9 million, healthcare $6 million, other $6 million.

Okay.

Great.

And the last just more general question you talked about international, seemed like it was doing well in the quarter.

Can you give a little bit more color where you're getting traction out there?

Yes.

Particularly Asia, so we're seeing nice growth in both Australia and China.

We are seeing growth selectively across Europe, although not in the two countries where we're most present in the UK and Spain so elsewhere in continental Europe, and although we haven't yet seen it in the numbers that we reported, we're feeling good about prospects in Latin America, and particularly Brazil where there is a lot of activities these days, so hot markets for us are Brazil, Australia, China and Germany.

Great.

Thank you, gentlemen.

Thank you.

Your next question comes from the line of Carter Malloy of Stephens.

Your line is open.

I had I few follow-up housekeeping questions.

On foreign exchange what was your head wind year-over-year this quarter?

It was $3 million reduction relative to same quarter last year.

And what about on a sequential basis?

Let's see.

I think it was 4 or 5 last quarter.

5 last quarter, 3 this quarter, 18 for the full year.

Okay.

Perfect.

Thank you.

And then also, I am still trying to figure out on the EPS and the expense run rate next year, if I run out expenses at kind of the current run rate, or even a little bit from there, and then to get to the implied EPS number I have to get my revenues down to like the 600 million, 595 range, so can you can you walk us through that scenario a little more?

I may be confusing the model here.

It would imply revenues down mid-single digits next year.

Assuming you're adjusting for the telco, just come straight off the top in terms of adjusting off the $1.34.

That was $15 million.

Right.

Okay.

So if I take out 15 million of telco, this year 615, but even still with a similar operating expense base to get to the $1.45 range for EPS next year, I have to bring my revenues down to 600 million and that's assuming the 31% tax rate.

Yes, I don't know how exactly your math there.

We wouldn't be projecting a decrease off of that adjusted revenue number.

Okay.

Maybe I will walk through it off line with you later.

Sorry for taking up the call.

That's fine.

Happy to discuss.

Thank you.

(Operator Instructions).

Your next question comes from the line of Michael Nemeroff from Wedbush Securities.

Your like is open.

Hi, David again.

Following up on the modeling question, can you guys provide a little color to the cash flows you expect next year, please?

Yes.

Good question.

We're $130 million this year kind of running 30 to $35 million a quarter range, about $30 million of the cash flows this year related to improvements in the receivable.

We don't expect to get that sequentially again next year which was the case in the fourth quarter, so again I think the fourth quarter run rate is a good indicator on cash flow.

Looking for a run rate for is the good run rate for all the quarters next year, that's what you're saying?

Yes, plus or minus, I think that's right.

Great.

And then could you just follow back to why the scoring slipped down again?

I am not following along entirely with that.

Can you just hit that again, please?

Scoring is down in the fourth quarter a little bit more than you hear from some of the bureaus.

That was the earlier question I answered for two reasons.

Our timing reported revenue scoring is a little different, it lags by about six weeks the reports that you're getting from the bureau, so they're seeing something, if there is an up turn in the market they see is a little sooner than we are able to see it in the numbers we get based on how royalty accounting works in our relationship with the bureaus.

That's the first phenomenon.

Second phenomenon is relative to the bureaus we are over weighted in the credit card sector which remains comparatively sick, so they're benefiting from up lift for instance in autos.

We are much less weighted in autos than the average bureau is.

Okay.

Thanks again.

All right.

Thank you.

Have you no further questions at this time.

Do you have any closing remarks?

That's perfect, Steven.

Thanks very much, everybody, and one of us will talk to you in the near term.

Thank you.

This concludes today's conference call.

You may now disconnect.