Fair Isaac Corp (FICO) 2011 Q1 法說會逐字稿

Good evening, my name is Tracy and I will be your conference operator today.

At this time, I would like to welcome everyone to the first quarter 2011 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.

I'd now like to introduce and turn the call over to Mr.

Steve Weber, you may begin your conference.

Thank you, Tracy.

Good afternoon and thank you for joining FICO's first quarter earnings call.

I'm Steve Weber, head of investor relations, and I'm joined today by CEO, Mark Greene, and CFO, Mike Pung.

You will find on the investor relations portion of the FICO website a copy of today's press release, our Regulation G disclosure schedule and our financial highlights.

While our financial release describes financial results compared to the prior year, today management will discuss results in comparison to the prior quarter in order to facilitate understanding of the run rate of our business.

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.

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

A replay of this website will be available through February 26, 2011.

Now I will turn the call over to Mark Greene.

Thanks, Steve, and good afternoon.

We'll proceed today, as usual, in three parts.

First, I'll summarize the quarter results and assess our business in light of current market editions, Mike Pung will then provide further financial details and finally, I'll discuss our business outlook for the balance of fiscal 2011 before we take your questions.

For the first quarter fiscal 2011, revenue was $156 million, up $1 million over the prior quarter and up $4 million, or 3%, year-over-year.

GAAP earnings per share in the quarter were $0.40, up 5% from last quarter and up 8% year over year.

Bookings were $84 million compared to $106 million last quarter and $60 million in the first quarter of 2010.

On our last call, I stated that we're positioned to realize growth across our business and I'm pleased with the progress we are making towards this objective.

Let me break out our quarterly performance for the for three segments of our Decision Management portfolio.

First, the Applications segment consists of business software used by clients to make smarter decisions over customer life cycle.

Revenue from these applications was $98 million, up 2% sequentially and up 5% versus the same period last year.

This represents the third consecutive quarter that we've seen growth in this segment.

We saw improved performance across most of our applications, with impressive results from our fraud, originations, customer management and marketing solutions.

We had another solid quarter in Fraud Management, which consists of Insurance Fraud Manager, and Falcon Fraud Management for banking.

In fact, Fraud Management bookings once again exceeded $30 million for the quarter and we delivered the largest revenue quarter since the third quarter of 2008.

Our Originations business also continued to grow, with the revenue up 6% over last quarter and 17% over the last year.

We now routinely bundle our Originations product in many of larger multi-product solutions that we sell.

In the quarter, we released the latest offering, Origination Manager 4, which is the third in a series of connected decision applications designed to work together on a single platform to help clients breakdown internal silos, driving towards profitability and growth.

As lenders emerge from the financial crisis, they're starting to shift their focus from loss prevention to responsible, profitable growth and FICO Originations Manager helps them ensure that loan applicants are appropriately reviewed, both for risk and fraud, then matched to the optimal terms to ensure the highest long-term profitability.

In our Customer Management business we followed up on a strong prior quarter with an even stronger Q1, with more than $18 million of bookings in the quarter, the largest number in 11 quarters, including several sizable Triad transactional deals that will provide future recurring revenue.

We also continue to deliver solid growth in our Marketing Solutions, led by our Retail Action Manager product with revenue up 3% over the previous quarter, or 8% over the prior year.

Finally, within the Application segment, we've grown our service revenue by 5% over the prior quarter and 15% over the prior year.

As we complete the implementation work associated with prior-quarter's bookings, we anticipate growth in our ongoing, recurring transactional revenue streams.

Turning now to our second segment, which is Scores, Scores consist of the predictive analytics that are used to assess risk.

Overall Scores revenue was $41 million in the quarter, down 2% from the prior quarter.

We track two subsegments here.

B2B, or business to business, which are scores sold to financial institutions, and B2C, or business to consumer, which are the scores sold to consumers at myFICO.com on a direct basis, as well as scores sold to bureau partners to consumers on an indirect basis.

The B2B score segment was flat from the previous quarter.

We've now seen six quarters of stability in B2B scores and three quarters in which early life cycle indicators appear to be improving.

This quarter we continued to see an increase in marketing acquisition activities across the business, with a 6% increase over the prior quarter and an 18% increase over the prior year, both in direct sales to customers, as well as to our distribution partners.

These acquisitions scores are one of the leading indicators of originations, which is also up 8% in the US over the prior year, and we view as a bullish indicator of future growth.

During the quarter we also saw increased adoption of the latest version of the classic FICO score, known as FICO 8, with approximately 3,500 lenders now using FICO 8 within their risk management practice.

That represents a 17% increase over the prior quarter and is a further sign of our strong market position and continued success in meeting the needs of customers.

In the consumer, or B2C, segment of our Scores business revenue decreased 11% sequentially but was essentially flat versus the prior year.

The sequential decline was due both to normal seasonality, which makes year-over-year comparisons a better benchmark, and due to a decline in revenue generated from our bureau channel partners selling scores to consumers.

This is offset by an 11% increase in direct sales to consumers through our myFICO.com website, a result of our ongoing efforts to reinvigorate our consumer business.

As previously discussed, we're shifting our marketing efforts at myFICO from one-time transactions to a subscription model.

This has begun to bear fruit as we now see healthy increases in lifetime customer value and average shopping cart revenues.

Our consumer team also launched a new website, scoreinfo.org, an educational website to provide consumers comprehensive information about new risk-based pricing rules and other federally mandated credit disclosure notices that took effect this month.

Under these new consumer financial protection regulations, millions of Americans will receive a notice about a lending decision from their financial institution, and their credit report information or their FICO score used as part of that lending decision.

We estimate that over 500 million such notices will be mailed to consumers this year.

As the industry leader, we took the initiative to develop scoreinfo.org to help consumers understand these changes and understand the compliance notices, how their FICO scores is used in making lenders decisions, and how to take control of their financial health.

Response to this website from consumer groups has been very encouraging, with coverage on Yahoo, thestreet.com, MSN Money, the Associated Press and CNBC.

Our third and final business segment is Tools, which consists of Rules's Management, Modeling and Optimization products embedded within our own applications and also sold stand-alone to clients building their applications.

Revenues in this Tools segment was $17 million during the quarter, consistent with the level achieved last quarter.

So to summarize the results, we had a solid performance across all three segments, with continued signs of stabilization in Scores and growth in our Application segment.

Bookings were $84 million, which is a 40% increase over the same quarter of prior year.

We delivered solid earnings, and are continuing to invest in critical sales and development resources.

Finally, as many of you are aware, Tom Bradley announced his retirement this past November and I want to thank Tom for his contributions to our organization and wish him the best.

And it's my pleasure now to turn the call over to our new CFO, Mike Pung, for further financial details.

Thank you Mark.

Today I want to emphasize three points in my prepared comments.

First, this quarter we delivered solid revenue, bookings, and free cash flow.

Second, quarter one marks the third straight quarter of stability across our business.

And more importantly, growth across critical parts of our Applications business.

Finally, although our SG&A expenses were higher this quarter than our plans, we are managing our discretionary costs tightly during the remainder of the year to deliver against our annual guidance.

With that, let's turn to revenue.

Mark has already discussed our revenue results by segment, so I'll provide some additional comments as they relate to specific aspects of the business.

Revenue for the quarter was $156 million.

By region, 77% of total revenue was derived from our Americas region versus 73% in the prior quarter.

Our EMEA region generated 17% of our revenue, compared to 20% in the prior quarter.

And the remaining 6% was from our Asia-Pacific region compared to 7%.

By type of revenue, recurring revenue derived from transactional and maintenance sources for the quarter represented 74% of total revenue versus 71% in the prior quarter.

Consulting and implementation revenues were 18%, this quarter and the prior quarter.

And license revenues were 8% this quarter, versus 11% in the prior quarter, when we had several exceptionally-large license sales.

We still expect license revenues as a percent of total revenue to increase during the remainder of fiscal 2011.

Turning to bookings, we generated $17 million of current period revenue on bookings of $84 million, or a 20% yield.

This compares with the $21 million of revenue on bookings of $106 million from last quarter ,which is also a 20% yield.

The weighted average term for our bookings grew to 42 months compared to 27 months in the prior quarter.

During this quarter, we signed a multi-million dollar seven-year agreement with a very large North American bank for both Falcon and Triad.This deal is a significant win for us, locking in a long-term commitment with a new customer and two of our flagship products.

Because the implementation cycle is longer, and the revenue ramp-up becomes more gradual, it impacted our total term and drove it to 42 months, and it will have minimal impact on revenue in fiscal 2011.

Of the $84 million in bookings, 39% relates to Fraud Management products, 22% related to Customer Management, and 12% related to Decision Management tools.

We had ten booking deals in excess of $1 million, of which four exceeded $3 million.

Transactional and maintenance bookings were 60% of total this quarter versus 52% in the prior quarter.

Professional services bookings were 25% this quarter versus 32% in the prior quarter.

And finally, license bookings were 15% this quarter versus 16% in the prior quarter.

In terms of expenses, our operating expenses totaled $126 million, down slightly over $1 million from the prior quarter.

There were several items driving this net change.

Cost of revenue decreased due to changes in our product mix.

This was offset by an increase in research and development expenses, where we continue to invest in new product initiatives.

Finally, we had a $900,000 restructuring charge related to facility lease costs this quarter.

We anticipate similar charges during fiscal 2011 as we exit or sublet certain of our underutilized facilities.

As you can see in our Reg G schedule, non-GAAP operating margin before amortization, stock-based compensation, and restructuring, was 23% for the first quarter, which is the same as the prior quarter.

Again, we will aggressively manage our discretionary spending during the remainder of the year to protect earnings and our cash flow.

Net income for the quarter was $16 million, consistent with last quarter.

Our effective tax rate was about 25% for the quarter, which reflects an adjustment related to the reinstatement of the federal research and development credit.

Going forward, we expect our tax rate to be roughly 30% to 31%.

In terms of free cash flow, we define free cash flow as cash flow from operations, less CapEx and dividends paid.

Free cash flow for the quarter was $31 million, or 20% of revenue, compared to $16 million, or 10% of revenue in the prior quarter.

Driving free cash flow from our operations and tightly managing our balance sheet including our receivables is a key priority across the organization.

Moving on to the balance sheet, we have $248 million in cash and marketable securities.

This increased from last quarter, as we bought fewer shares in the open market and had better operating cash flow.

Our total debt remains at $520 million, with a weighted average interest rate of 6.1%, and our cost of debt remains fairly fixed at about $8 million per quarter.

The ratio of our total debt -- net debt to adjusted EBITDA is 2.1 times below the covenant of three times, and our total fixed charge coverage ratio is at 3.8 times, well above the covenant level of 2.5 times.

During the quarter we also reduced the size of our revolving credit facility from $600 million down to $200 million.

We have no borrowings under this facility, and we anticipate that we will refinance it at a lower level sometime before it matures in October.

We repurchased a nominal number of shares this quarter, and have $174 million remaining under our current board authorization.

We currently evaluate the best way to deploy excess cash to maximize shareholder value and we do consider our share repurchase plan as a very attractive use of our cash flow.

We will also be looking for opportunities to acquire relevant technologies or products that advance our strategy or strengthen our portfolio and competitive position.

I'll now turn the call back to Mark.

In this concluding section I'll discuss the health of our business and our prospects for the remainder of fiscal 2011.

From an internal operations perspective we're seeing growing traction in our sales force, as the organizational and process improvements introduced last year by our head of sales, Charlie Ill, begin to take hold .

To sustain this progress and to improve alignment between our sales and services team, I recently asked Charlie to also assume responsibility for the professional services organization.

Our now integrated sales and service unit is positioned to both better serve clients and drive operational efficiencies to benefit shareholders.

Concerning external market factors, I noted on our last call that much of FICO's business is tied to overall macroeconomic conditions.

While we continue to be concerned about ongoing weakness in the housing market, high unemployment levels, and low consumer confidence, we are beginning to see gradual improvement overall.

Consumer lending is beginning to recover, and banks are demonstrating stronger demand for applications, both at home and abroad.

We see healthy opportunities across most of our portfolio.

Indeed, the three connected decision applications that we've introduced in recent months were originations, collections, and fraud management, all enjoy healthy opportunity pipeline.

These products are prime examples of our Company's continuing ability to deliver important, timely innovations in the marketplace.

And our innovation engine remains in high gear as we've just been awarded our 100th patent by the US Patent and Trademark Office, and have another 150 patents pending.

Concerning prospects for our Scores business, we've seen a pickup in financial institutions using FICO Scores for credit card solicitations.

Such ongoing volume improvement in scores used for marketing historically portends downstream growth in scores used for originations.

We temper this positive trend with the possibility that financial institutions may reduce their use of Scores for account management purposes, as the economy improves and risks abate.

The net of these offsetting trends is, as we stated in the past, that we expect our total B2B Scores revenue to grow over time at roughly the rate of GDP.

For our B2C business revenue growth will be largely tied the success of our own marketing efforts to myFICO.com.

Now to guidance for the remainder of fiscal '11.

Given our improving internal operations and sustained, if wobbly, recovery in market conditions, we are reiterating our previous guidance for FY '11, which remains as follows.

Revenue between $620 million and $625 million, or a 2% to 3% increase from the prior fiscal year.

Net income between $65 million and $67 million compared with $64 million in the prior year.

And earnings per share in the range of $1.63 to $1.68 compared with $1.42 in fiscal 2010 on assumption average 39.9 million shares outstanding.

With that, I'll turn the call back to Steve for question and answers.

Thanks, Mark.

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

Tracy, please open the lines.

(Operator Instructions) Your first question comes from Michael Nemeroff from Wedbush Securities, your line is now open.

Hi, guys, thanks for taking my questions.

Mark, just a question about the scoring.

Are more banks opting to go in house for some of the prescore solicitations, are you seeing that trend at all?

And I was just curious, is it on the pricing side that -- because I think things have been picking up a little bit, but the revenue is just somewhat flat year over year.

Is it -- because last quarter I think it was the same thing and you said there was higher volumes drove lower prices, just wanted to see if that was still the case this quarter, as well?

There's some of that, but there's another factor work, Michael -- and good afternoon, by the way.

The other factors is that the volume growth that we're seeing is on the front end of the lifecycle, it's these prescores, where the usual price is lower than the price that occurs later in the lifecycle for account management.

So we're getting a bulge in quantities in the low-price part of our portfolio, if you will, on scores .

If that flows through, as it usually, does into the higher price part down a road, that will bode well for our

Okay.

And then on those two deals, where I think Mike had said that the average weighted length -- weighted average length of the bookings was 42 months up from 27, could you just give us a little bit of color on those two deals?

Sounds like they're pretty significant.

Yes, Michael, it was actually one deal with one large bank, and they bought both Falcon and Triad.They are fairly significant in size.

We're not at liberty to name the price, but it's a very large deal.

They're actually over a seven-year period, so that on average, stretches out the average weighted average term to the 42 months.

Okay

There's a fairly involved implementation period to move them over to our platform, at which point we'll be seeing the transactional revenue associated with those two products.

So should we expect -- the professional services has had a pretty strong quarter and you said that you should see more of it in the transaction revenue going forward, so should we see that flip in the revenue from professional services over to applica -- transactions going forward?

As it relates to the deals that we're in -- currently in the process of implementing, yes, that is the message.

As the implementations begin to wrap up and we convert over to the application transactional usage model we'll start to see that begin to waterfall, if you will, into our revenue.

As it relates to this particularly large deal, there's a fairly lengthy planning and services period that will go on before we'll actually see transactional revenue, so that one has a bit of a longer delay just because of its complexity and length.

Okay.

And for my -- I think you may have said it but maybe I missed it, did you say what percent of the revenue this quarter was recurring versus what it was in the same period last year?

And then also, Mike, if you could give us some color on what you're expecting for operating and then maybe free cash flow for the year considering the CapEx was pretty minimal relative to pervious quarters.

Yes, let me start with your first question.

So recurring revenue for the first quarter I said was 73% -- I'm sorry, 74%.

If I compare that back to the first quarter of last year we were at roughly 76%.

It's lower this quarter simply because of the mix between licensed software and transactional.

On your second question, what do I see relative to operating cash flow and free cash flow, at the beginning of the year Tom had mentioned that he believed our free cash flow would be somewhere in the range of $80 million to $90 million for the year, that's not cash flow basis.

Though we started to year off very strong at $31 million, I still believe that our models and our numbers are in $80 million to $90 million range.

There is timing of some of the payables that impacted the cash flow for the quarter and frankly, part of that hit on our property, plant and equipment line item and you'll see that normalize out over a four-quarter period.

Okay, thanks very much for taking my questions, guys.

Thank you.

Your next question comes from the line of (inaudible), Barclay Capital, your line is now open.

Hi.

Good evening, gentlemen and congratulations again to Mike on the CFO promotion.

You're welcome, (inaudible).

Yes, thank you.

One big picture question just with respect and [light] to the gradual improvement in the economy that you've been talking about.

I was wondering if you could give us more color based on your discussions with the customers in terms of what their internal budgets look like, and what sort of outlook you see with that improving and maybe then -- because clearly, like you said, people are going to focus more on risk management, but what is the internal budget situation look like that relate to your businesses?

Fair question, and it depends a little bit the type of customer we're talking to.

For a business executive it's a function of what product line area.

Cards people are feeling up pretty good about the recovery in the cards business, as loss ratios are improving.

They are worried about the affect of regulations impinging on profits, but they're spending money again and the cards business is reviving.

On the other hand, the mortgage industry remains troubled.

Despite some of the headlines you may read, our discussions with customers suggest that there's a good number of quarters still of foreclosure trouble ahead of us and we see both hesitation to invest in new systems, but also a willingness to invest in anything that can help them with the ongoing foreclosure crisis, so it's a mixed bag for us.

And I would highlight, again, the mortgage and housing industry as the one dark cloud on the horizon for the balance of this year as it affects banks generally.

If you move away from specific business lines to a more technical buyers, a chief information officer, they are generally back in the business of significant long-term projects.

I would characterize their demand as fairly sizable and a good number of aggressive and big projects being discussed.

That said, they're not reaching easily for the checkbooks yet.

So the talk is bigger, the RFPs are more impressive, the plans are larger, the budgets are little bit slower to actually be unlocked for that and that's perhaps a function of the caution that everybody still has coming out of the downturn.

Got it, that's helpful.

In terms of the bookings, obviously I see that from a seasonal perspective first quarter has been lower than the fourth quarter, but obviously this time around it was higher than on a year-over-year basis.

Now is that -- this quarter primarily a function of the one large deal that you referred to, or is it also an indication of the somewhat improved pipeline that you've been talking about?

It's a little of both.

The large deal that I'm talking about was a fairly significant driver in the overall portfolio for bookings this quarter.

Much like last quarter, we announced we had our largest -- one of our largest deals on record that drove the $106 million, so that was a very large factor.

The other item that really drove the bookings number is we had a number of other smaller but still very significant Triad deals and those come along --

It was a healthy bookings quarter even if you take the one large deal out.

It was -- we do see, as Mike said, both things at work here.

The large deal helped, but business is starting to come back.

Got it, and just one last question.

On the Scores business in the B2C side you mentioned that there was a decline, at least on a sequential basis.

You mentioned that the was a decline, at least on a sequential basis, from the bureau side, which is offset by myFICO.com.

Could you maybe give a little more color on what's happening on the bureau side with that decline?

Yes, the bureaus are all cont -- the ones that have been selling FICO scores are continue to do so but they're also offering other products.

Some of them actually of their own proprietary making, and so that has had an effect on the royalties we receive from those bureaus as their sale of our scores have papered off.

But that's being substantially offset by some pretty strong growth that we're seeing in our direct channel, which is myFICO, and I talked about previously and I suspect we'll talk about it again in the future.

We have a lot of focus on trying to grow that business and reason to believe that there's market opportunity for us to do so, so it'll become a mix change over time.

Lower expectations in terms of growth around the indirect channel to the bureaus, higher expectations of what we can do ourselves at myFICO.

All right, guys.

Thanks a lot, guys.

Thank you.

The next question comes from the line of Thomas Ernst from Deutsche Bank, your line is now open.

Good afternoon, gentlemen, thanks for taking my questions.

How are you Tom

Good.

Today just one follow-up question at this point to the other ones.The upside in the service -- excuse me, the upside in Apps business looks like it was -- in terms of the growth was driven by strong services performance.

How does this relate to your connected services framework and your strategy, or was this more of the lumpy implementation or consulting projects?

The growth in Applications was both services and license, and I think that what we're trying to say is we've actually now got those parts of the business sort of and sync.

Previously the service organization sat organizationally fairly far away from the sales team.

Now under Charlie, I think we've got better alignment between the two, so it's gratifying to see them moving in tandem.

But I wouldn't have you read into the results any change in the mix between those two things.

The net result here is that the Applications business is growing, the products are resonating well with customers, and they're by both the licenses and services that come with it.

Okay, so you feel like 5% year on year and building momentum is true momentum despite being led by services as we look forward?

I don't think it's led by services, it's sort of equally paced by the license and the services and I do think there's true momentum there, yes, especially as we look at the pipeline for later quarters in the year.

All right, thanks again.

Thank you.

Your next question comes from the line of Carter Malloy from Stephens, your line is open.

Hey, guys, this is Will in for Carter, thanks for taking my questions.

Had a quick gross margin question for you.

Saw revenue tick-up sequentially here and cost of goods come down a few million dollars, can you talk about what when on there in the past couple of quarters and then, maybe, are we at a gross margin now that's sustainable going forward?

Yes, good question, Will.

Our gross margin is very much tied to revenue that we generate on our myFICO website and the cost associated with that, as well as costs associated with services.

The lumpiness you've seen over the last two quarters, primarily the fourth quarter and the first quarter, are a function of the mix of the products that are being sold on a quarter-by quarter-basis.

That's the primary reason it's been somewhat lumpy.

The other reason it's been moving is simply because we have a relatively set up workforce that can charge their time and put their effort both into product development and into customer implementation.

We have people cross trained to be able to do some of that, so when we have different people working on different projects it also creates spikes like you've seen.

I'd say if you looked at what we had on an annualized basis in cost of revenue and in R&D last year, that's a pretty good indicator of what it is over a normalized period.

Got it, thanks.

And on the Scores business, can you remind us of the mix there?

Whenever we think about your Scores business and try to compare that to maybe the credit businesses of an Equifax or Experian and then those businesses that have seen some sort of a return to a low-double-digit, mid-single-digit type growth, and then what are the overall trends there that's maybe driving your mix to where it hasn't quite seen that growth recover yet and then what your visibility is there to when that turnaround happens?

Yes, so our business mix is roughly --

Well, it's roughly 25% of our scores business is on the consumer side with the balance of it on the B2B side.

Was that your question or are you wanting to know within the B2B what we're seeing by product type?

Yes, that and then also maybe touch on how big mortgage is, how big credit cards is and how that plays into your trends?

Sure.

Cards have been around 60% of the business, mortgage around 15%, auto around 10% and the rest miscellaneous.

The mortgage part is the most variable one.

It has a lot to do with refi rates, and we when we have rates below 4%, we see a spike in refi's and therefore the percentage going to mortgage is higher.

I would say the recovery in the mortgage area is probably the slowest, given my earlier answer about concerns in the housing industry.

The recovery in cards seems to be happening, and witness the substantial growth in volumes that we're seeing in early acquisition and marketing scores.

What we're looking for now is for those to convert into more originations and account management scores as consumers start to resign up for credit cards.

The cautionary note here as I don't think anybody in the card industry will tell you that we're going back to the oldies.

We're bouncing off the bottom and then bounce halfway back to where we were before but not to prior levels of business activity and not to prior levels of numbers of cards outstanding.

Got it.

And just quickly, so SG&A, Mike, you mentioned it was a little bit higher than planned this quarter, how do you think about that going forward and how should we model that for FY 11?

I would model it similar to what we saw in the first quarter though slightly down from that.

We primarily saw the up-tick in sales and marketing side of as SG&A where we've added roughly 40 headcount in terms of card-carrying salesman and the related costs associated with them since the last quarter.

Great, thanks.

Your next question comes from the line of Matt Otis from KBW, your line is open.

Hey, Matt.

Just two quick -- very quick questions.

One, on the tax rate, on the taxes this quarter, how much came from the R&D being okayed, how much came in that was pent up that you got this quarter from the passage of R&D credit?

We had an extra $1 million credit to our tax expense that related to three quarters worth of R&D that have been pent up in (inaudible), so about $1 million.

And then your -- when you talked about acquisitions, can you give a little color on the pipeline that you might have, if any, and where things stand?

Maybe size of deals, anything that could give us a little bit of color.

I don't want to signal that anything is imminent, but I will reiterate the philosophy that we're using as we [scan up] the markets.

We're not looking to buy new customers or revenue because we think we know how to sell into our market space.

We are looking for functionality that compliments our existing portfolio.

So if you think about this lifecycle approach that we have to applications and you think about the places where we're particularly major, such as fraud, you can identify certain niche or tuck-in acquisition opportunities that might complement what we already have.

So it becomes a build versus buy decision on our part.

We are quite mindful of the need to be good stewards of our shareholders money and so there's unlikely to be any bet-the-farm type large acquisitions, it's more likely that we be in a tuck-in range and we do have a pipeline of a handful of those opportunities that we're looking at.

Just one last bit of color on that.

Any thought on how much that is, say, within the US or more international-type acquisitions?

Most of the -- the location of the targets is less important to me than the applicable ability of their software to global markets.

As you know, we have healthy businesses in Asia and Europe and it would be important that any software we acquire be able to operate in those markets, as well as the US.

Where the company is actually domiciled is less material.

All right, fair enough.

Thank you.

Thank you.

At this time there are no further questions in the queue.

We turn the call back over to the presenter.

Thank you, Tracy.

This concludes today's call, thank you all for joining us.

This concludes today's conference call, you may now disconnect.(End of Transcript)