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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 24, 2006
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FAIR ISAAC CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-16439 94-1499887
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
901 Marquette Avenue, Suite 3200
Minneapolis, Minnesota 55402-3232
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 612-758-5200
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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TABLE OF CONTENTS
Item 2.02 Results of Operations and Financial Condition.
Item 2.05 Costs Associated with Exit or Disposal Activities.
Item 9.01 Financial Statements and Exhibits.
Signature
Exhibit Index
Exhibit 99.1
Item 2.02 Results of Operations and Financial Condition.
On July 26, 2006, Fair Isaac Corporation (the "Company") reported its
financial results for the quarter and nine months ended June 30, 2006. See the
Company's press release dated July 26, 2006, which is furnished as Exhibit 99.1
hereto and incorporated by reference in this Item 2.02.
Item 2.05 Costs Associated with Exit or Disposal Activities.
On July 24, 2006, the Company decided to vacate excess real estate located
in San Rafael, California in the fourth quarter of fiscal 2006. As a result of
this action, the Company expects to incur a charge of approximately $8.4 million
in the fourth quarter of fiscal 2006, which represents future cash lease
obligations, net of anticipated sublease income. The company expects that the
future lease obligations will be paid out over the next five years, which
represents the remaining term of the lease.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number Description
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99.1 Press Release dated July 26, 2006
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FAIR ISAAC CORPORATION
By /s/ CHARLES M. OSBORNE
--------------------------------
Charles M. Osborne
Vice President and Chief Financial Officer
Date: July 26, 2006
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
- --------------------------------------------------------------------------------
99.1 Press Release dated July 26, 2006 Filed Electronically
Exhibit 99.1
Fair Isaac Announces Third Quarter Fiscal 2006 Results
MINNEAPOLIS--(BUSINESS WIRE)--July 26, 2006--
Revenue of $207.1 million; EPS of $0.40 after $0.15 from the SFAS
123(R) expense and costs related to the previously announced
restructuring plan
Fair Isaac Corporation (NYSE:FIC), the leading provider of
analytics and decision technology, today announced financial results
for its third quarter ended June 30, 2006. In addition, the company
announced that it expects to incur a fourth quarter charge of
approximately $8.4 million, after-tax, or $0.13 per diluted share,
related to vacating excess real estate.
The company adopted Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment (SFAS 123(R)) for fiscal 2006. As a
result, effective October 1, 2005, the company began recording
compensation expense for stock options and purchases under its
Employee Stock Purchase Plan in the consolidated statement of income.
Results for prior periods have not been restated.
Third Quarter Fiscal 2006 Results
The company reported third quarter revenues of $207.1 million in
fiscal 2006 versus $203.8 million reported in the prior year period.
Net income for the third quarter of fiscal 2006 totaled $26.0 million,
or $0.40 per diluted share versus $36.6 million, or $0.53 per diluted
share reported in the prior year period.
Third quarter fiscal 2006 results included share-based
compensation expense of $6.7 million after-tax, or $0.10 per diluted
share, due to the adoption of SFAS 123(R), and costs associated with
the previously announced restructuring plan of $3.4 million after-tax,
or $0.05 per diluted share.
Third quarter fiscal 2005 results included an increase to net
income due to a reduction to income tax expense of $4.4 million, or
$0.06 per diluted share, related to revisions made to estimates of
prior years' tax liabilities.
Fiscal 2006 Year-to-date Results
The company reported year-to-date revenues of $618.1 million
versus $595.4 million in the prior year period. Net income for
year-to-date fiscal 2006 totaled $81.4 million, or $1.23 per diluted
share versus $98.8 million, or $1.34 per diluted share reported in the
prior year period.
Year-to-date fiscal 2006 results included share-based compensation
expense of $19.3 million after-tax, or $0.29 per diluted share, due to
the adoption of SFAS 123(R), and restructuring and acquisition-related
costs of $4.4 million after-tax, or $0.07 per diluted share.
Year-to-date fiscal 2005 results included a decrease in diluted
earnings per share of $0.08 related to the adoption of EITF Issue No.
04-8, and an increase in diluted earnings per share of $0.14 related
to revisions made to tax liabilities.
Third Quarter Fiscal 2006 Revenues Highlights
Revenues for third quarter fiscal 2006 across each of the
company's four operating segments were as follows:
-- Strategy Machine(R) Solutions revenues were $114.8 million in
the third quarter compared to $115.1 million in the prior year
quarter, or a decrease of 0.2%, primarily due to a decline
associated with marketing services and insurance solutions,
offset by an increase in revenues derived from fraud
solutions.
-- Scoring Solutions revenues increased to $43.7 million in the
third quarter from $40.7 million in the prior year quarter, or
by 7.4%, primarily due to an increase in revenues derived from
risk scoring services at the credit reporting agencies and
PreScore(R) Service.
-- Professional Services revenues increased to $36.7 million in
the third quarter from $33.2 million in the prior year
quarter, or by 10.6%, primarily due to an increase in revenues
from strategic consulting services.
-- Analytic Software Tools revenues were $11.9 million in the
third quarter compared to $14.8 million in the prior year
quarter, or a decrease of 19.8%, due to a decline in revenues
generated from sales of the Blaze Advisor(TM) product.
Fiscal 2006 Year-to-date Revenues Highlights
Year-to-date revenues for fiscal 2006 across each of the company's
four operating segments were as follows:
-- Strategy Machine Solutions revenues increased to $345.7
million from $344.2 million in the prior year period, or by
0.4%, primarily due to growth in consumer scoring products and
fraud products, offset by a decline associated with marketing
services and insurance solutions.
-- Scoring Solutions revenues increased to $131.7 million from
$119.5 million in the prior year period, or by 10.2%,
primarily due to an increase in revenues derived from risk
scoring services at the credit reporting agencies, and
PreScore Service.
-- Professional Services revenues increased to $108.2 million
from $96.3 million in the prior year period, or by 12.4%,
primarily due to increases in revenues from strategic
consulting services and implementation services for EDM
products, offset by a decline in consulting services related
to precision marketing.
-- Analytic Software Tools revenues were $32.5 million compared
to $35.5 million in the prior year period, or a decrease of
8.3%, due to a decline in revenues generated from sales of the
Blaze Advisor product.
Bookings Highlights
The bookings for the third quarter were $94.5 million versus
$143.3 million in the same period last year. The company defines a
"new booking" as estimated future contractual revenues, including
agreements with perpetual, multi-year and annual terms. Management
regards the volume of new bookings achieved, among other factors, as
an important indicator of future revenues, but they are not comparable
to, nor should they be substituted for, an analysis of the company's
revenues.
Balance Sheet and Cash Flow Highlights
Cash and cash equivalents, and marketable security investments
were $353.2 million at June 30, 2006, as compared to $288.1 million at
September 30, 2005. Significant changes in cash and cash equivalents
from September 30, 2005 include cash provided by operations of $153.9
million for fiscal 2006 and $56.2 million received from the exercise
of stock options and stock issued under an employee stock purchase
plan. Cash used during fiscal 2006 includes $24.3 million related to
purchases of property and equipment and $124.1 million to repurchase
company stock under the currently authorized share repurchase plan.
The remaining balance of the existing share repurchase authorization
is $47.3 million.
Restructuring Activities
On June 15, 2006, the company announced the details of a
restructuring plan designed to accelerate growth. As part of the
restructuring, the company incurred severance and related costs of
$3.4 million after-tax, or $0.05 per diluted share, in the third
quarter of fiscal 2006.
Separate from the restructuring, the company has identified excess
real estate that will be vacated in the fourth quarter of fiscal 2006.
Vacating the excess real estate will result in a fourth quarter charge
of approximately $8.4 million, after-tax, or $0.13 per diluted share,
representing future cash obligations under the lease, net of sublease
income. The company expects that the future lease obligations will be
paid out over the next five years, which represents the remaining
lease period. The company also expects to yield an annualized
reduction of rent expense of approximately $2.3 million to $2.8
million, after-tax, through the remaining lease period.
Outlook
Fourth Quarter 2006
The company expects revenues for fourth quarter fiscal 2006 of
approximately $207.0 million, of which Product (Scoring, Strategy
Machines and Analytic Software Tools) revenues will account for
approximately $170.0 million and Professional Services revenues will
account for approximately $37.0 million. The company also expects
earnings per diluted share for the quarter to be approximately $0.33,
which includes an expected after-tax compensation expense of
approximately $7.1 million, or $0.11 per diluted share, related to
SFAS 123(R) and approximately $8.4 million, or $0.13 per diluted share
related to vacating excess real estate as noted above.
"We remain confident that our client-centric approach will
accelerate our growth in new vertical and international markets," said
Thomas Grudnowski, Fair Isaac's chief executive officer. "We also
expect continued steady growth in core areas, including FICO(R)
scores, our Falcon(TM) Fraud franchise and our TRIAD(TM) solutions.
The ongoing demand for our EDM solutions is a testament to our
customers' and prospects' growing appreciation of the unique value we
can deliver."
Company to Host Conference Call
The company will host a conference call today at 5:00 p.m. Eastern
Time (4:00 p.m. Central Time/2:00 p.m. Pacific Time) to discuss its
third quarter fiscal 2006 results, and outlook for the remainder of
fiscal 2006. The call can be accessed live on the Investor Relations
section of the company's Web site at www.fairisaac.com, and a replay
will be available approximately two hours after the completion of the
call through August 23, 2006.
About Fair Isaac Corporation
Fair Isaac Corporation (NYSE:FIC) makes decisions smarter. The
company's solutions and technologies for Enterprise Decision
Management give businesses the power to automate more processes, and
apply more intelligence to every customer interaction. Through
increasing the precision, consistency and agility of their decisions,
Fair Isaac clients worldwide increase sales, build customer value, cut
fraud losses, manage credit risk, reduce operational costs, meet
changing compliance demands and enter new markets more profitably.
Founded in 1956, Fair Isaac powers hundreds of billions of decisions
each year in financial services, insurance, telecommunications,
retail, consumer branded goods, healthcare and the public sector. Fair
Isaac also helps millions of individuals manage their credit health
through the www.myfico.com website. Visit Fair Isaac online at
www.fairisaac.com.
Statement Concerning Forward-Looking Information
Except for historical information contained herein, the statements
contained in this news release that relate to Fair Isaac or its
business are forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially,
including the company's ability to recruit and retain key technical
and managerial personnel, the maintenance of its existing
relationships and ability to create new relationships with customers
and key alliance partners, its ability to continue to develop new and
enhanced products and services, competition, regulatory changes
applicable to the use of consumer credit and other data, the
possibility that the anticipated benefits of acquisitions, including
expected synergies, will not be realized and other risks described
from time to time in Fair Isaac's SEC reports, including its Annual
Report on Form 10-K for the year ended September 30, 2005 and
quarterly report on Form 10-Q for the period ended March 31, 2006. If
any of these risks or uncertainties materialize, Fair Isaac's results
could differ materially from its expectations. Fair Isaac disclaims
any intent or obligation to update these forward-looking statements.
Fair Isaac, FICO, Falcon, Blaze Advisor, TRIAD, Strategy Machine
and PreScore are trademarks or registered trademarks of Fair Isaac
Corporation in the United States and in other countries. Other product
and company names herein may be trademarks of their respective owners.
FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Quarters and Nine Months Ended June 30, 2006 and 2005
(In thousands, except per share data)
(Unaudited)
Quarter Ended Nine Months Ended
June 30, June 30,
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2006 2005 2006 2005
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Revenues $207,129 $203,807 $618,076 $595,374
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Operating expenses:
Cost of revenues 71,497 68,339 211,686 207,757
Research and development 21,370 21,176 65,794 60,297
Selling, general and
administrative 66,338 59,126 193,878 167,779
Amortization of
intangible assets 6,302 6,320 18,825 19,640
Restructuring and
acquisition related 5,290 - 6,800 -
--------- --------- --------- ---------
Total operating
expenses 170,797 154,961 496,983 455,473
--------- --------- --------- ---------
Operating income 36,332 48,846 121,093 139,901
Other income (expense),
net 2,713 161 5,053 1
--------- --------- --------- ---------
Income before income taxes 39,045 49,007 126,146 139,902
Provision for income taxes 13,042 12,395 44,713 41,102
--------- --------- --------- ---------
Net income $26,003 $36,612 $81,433 $98,800
========= ========= ========= =========
Earnings per share:
Basic $0.41 $0.55 $1.27 $1.47
========= ========= ========= =========
Diluted $0.40 $0.53 $1.23 $1.34 (a)
========= ========= ========= =========
Shares used in computing
earnings per share:
Basic 63,664 66,215 64,303 67,247
========= ========= ========= =========
Diluted 64,973 68,531 66,003 75,661 (a)
========= ========= ========= =========
Share-based compensation
expense included in the
above operating expense
captions are as follows
(b):
Cost of revenues $2,722 $79 $8,265 $190
Research and development 1,661 36 5,061 87
Selling, general and
administrative 6,001 347 16,698 815
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Total share-based
compensation expense $10,384 $462 $30,024 $1,092
========= ========= ========= =========
(a) The computation of diluted earnings per share for the nine months
ended June 30, 2005 includes 6.0 million shares of common stock
issuable upon conversion of our senior convertible notes, along
with a corresponding adjustment to net income to add back related
interest expense, net of tax, of approximately $2.5 million. On
March 31, 2005, the company successfully completed an exchange
offer for approximately 99.9% of the principal amount of its
senior convertible notes for new senior convertible notes. The
dilutive effect of the new senior convertible notes has been
calculated using the treasury stock method since the effective
date of the exchange.
(b) Effective October 1, 2005, the company adopted SFAS 123(R),
"Share-Based Payment", which required the company to record
compensation expense for all share-based awards. Results from
prior periods have not been restated.
FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2006 and September 30, 2005
(In thousands)
(Unaudited)
June 30, September 30,
2006 2005
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ASSETS:
Current assets:
Cash and cash equivalents $133,964 $82,880
Marketable securities 182,170 146,088
Receivables, net 161,021 156,375
Prepaid expenses and other current assets 23,599 27,337
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Total current assets 500,754 412,680
Marketable securities and investments 37,017 59,087
Property and equipment, net 55,433 48,436
Goodwill and intangible assets, net 788,800 803,306
Other noncurrent assets 30,222 27,552
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$1,412,226 $1,351,061
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other accrued
liabilities $68,330 $50,947
Accrued compensation and employee benefits 30,932 31,373
Deferred revenue 50,364 55,837
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Total current liabilities 149,626 138,157
Senior convertible notes 400,000 400,000
Other noncurrent liabilities 5,339 7,810
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Total liabilities 554,965 545,967
Stockholders' equity 857,261 805,094
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$1,412,226 $1,351,061
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FAIR ISAAC CORPORATION
REVENUES BY SEGMENT
For the Quarters and Nine Months Ended June 30, 2006 and 2005
(In thousands)
(Unaudited)
Quarter Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Strategy machine solutions $114,820 $115,092 $345,658 $344,156
Scoring solutions 43,745 40,741 131,669 119,512
Professional services 36,714 33,203 108,236 96,253
Analytic software tools 11,850 14,771 32,513 35,453
--------- --------- --------- ---------
Total revenues $207,129 $203,807 $618,076 $595,374
========= ========= ========= =========
FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2006 and 2005
(In thousands)
(Unaudited)
Nine Months Ended
June 30,
-------------------
2006 2005
--------- ---------
Cash flows from operating activities:
Net income $81,433 $98,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 36,529 39,261
Changes in operating assets and liabilities, net
of acquisitions 4,081 (12,304)
Other, net 31,868 24,395
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Net cash provided by operating activities 153,911 150,152
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (24,321) (14,009)
Cash paid for acquisitions, net of cash acquired - (32,567)
Net activity from marketable securities (13,565) 19,800
Other, net 500 22,572
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Net cash provided by (used in) investing
activities (37,386) (4,204)
--------- ---------
Cash flows from financing activities:
Proceeds from issuances of common stock 56,221 49,353
Repurchases of common stock (124,107) (231,834)
Other, net 2,221 (4,041)
--------- ---------
Net cash provided by (used in) financing
activities (65,665) (186,522)
--------- ---------
Effect of exchange rate changes on cash 224 (370)
--------- ---------
Increase in cash and cash equivalents 51,084 (40,944)
Cash and cash equivalents, beginning of period 82,880 134,070
--------- ---------
Cash and cash equivalents, end of period $133,964 $93,126
========= =========
Fair Isaac Corporation
Baseline Revenue Analysis
(In thousands)
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BKG'05 Q1A Q2A Q3A Q4A FY05
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Total Baseline
Prior to '05 $176,161 $164,445 $158,912 $150,950 $650,468
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Q1-2005A $115,363 19,385 12,916 9,120 7,622 49,043
Q2-2005A 136,560 18,660 12,402 8,312 39,374
Q3-2005A 143,318 23,373 16,259 39,632
Q4-2005A 109,728 20,154 20,154
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Total FY05 504,969 19,385 31,576 44,895 52,347 148,203
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Total Baseline
Prior to '06 504,969 195,546 196,021 203,807 203,297 798,671
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Q1-2006E
Q2-2006E
Q3-2006E
Q4-2006E
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Total FY06
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Grand Total $504,969 $195,546 $196,021 $203,807 $203,297 $798,671
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BKG'06 Q1A Q2A Q3A Q4E FY06E
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Total Baseline
Prior to '05 $149,484 $143,730 $141,099 $139,000 $573,313
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Q1-2005A 6,205 4,261 3,765 2,500 16,731
Q2-2005A 6,194 5,975 5,238 4,500 21,907
Q3-2005A 7,404 7,198 5,478 5,000 25,080
Q4-2005A 11,482 10,521 8,339 6,000 36,342
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Total FY05 31,285 27,955 22,820 18,000 100,060
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Total Baseline
Prior to '06 180,769 171,685 163,919 157,000 673,373
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Q1-2006E $127,778 22,021 15,296 8,988 7,000 53,305
Q2-2006E 106,024 21,176 12,674 7,000 40,850
Q3-2006E 94,480 21,547 15,000 36,547
Q4-2006E 121,718 21,000 21,000
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Total FY06 450,000 22,021 36,472 43,209 50,000 151,702
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Grand Total $450,000 $202,790 $208,157 $207,128 $207,000 $825,075
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E = Estimate
A = Actual
CONTACT: Fair Isaac Corporation, Minneapolis
Investors & Analysts:
John D. Emerick, Jr., 800-213-5542
investor@fairisaac.com