Fair Isaac Q3 earnings dip

Third Quarter Fiscal 2007 Results

The company reported third quarter revenues of $205.8 million in fiscal 2007 compared to $207.1 million reported in the prior year period. Net income for the third quarter of fiscal 2007 totaled $23.8 million, or $0.42 per diluted share, compared to $26.0 million, or $0.40 per diluted share, reported in the prior year period.

Third quarter fiscal 2006 results included $4.4 million in revenues from the mortgage product line, which was sold in March 2007. Third quarter fiscal 2006 results also included restructuring costs of $3.4 million after-tax, or $0.05 per diluted share.

Third Quarter Fiscal 2007 Revenues Highlights

Revenues for third quarter fiscal 2007 across each of the company's four operating segments were as follows:

• Strategy Machine Solutions revenues were $113.2 million in the third quarter compared to $114.8 million in the prior year quarter, or a decrease of 1.4%, primarily due to the divestiture of the mortgage product line last quarter and a decline associated with customer management and originations products. The declines were offset by an increase in revenues derived from collections and recovery, consumer and fraud products.
• Scoring Solutions revenues increased to $47.2 million in the third quarter compared to $43.7 million in the prior year quarter, or by 8.0%, primarily due to an increase in revenues from risk scoring services at the credit reporting agencies and the FICO Expansion score.
• Professional Services revenues were $35.3 million in the third quarter compared to $36.7 million in the prior year quarter, or a decrease of 4.0%, primarily due to a decline associated with industry consulting, fraud, and collections and recovery implementation services, offset by an increase in revenues derived from customer management and Blaze Advisor implementation and consulting services.
• Analytic Software Tools revenues were $10.1 million in the third quarter compared to $11.9 million in the prior year quarter, or a decrease of 14.8%, due to a decrease in revenues generated from sales of the Blaze Advisor and Model Builder products.

"I am encouraged by our progress over the past several months toward building a solid strategic, organizational and operational foundation for renewed and sustainable growth," said Mark Greene, Chief Executive Officer of Fair Isaac. "Our strategic focus on Enterprise Decision Management, product innovation and international development enable us to advance and expand our relationships with clients and prospects. Further, we continue to strengthen our leadership team with proven executives who are firmly committed to accelerating Fair Isaac's growth and creating more value for our shareholders."

Fiscal 2007 Year-to-date Results

The company reported year-to-date revenues of $615.0 million in fiscal 2007 compared to $618.1 million reported in the prior year period. Net income for year-to-date fiscal 2007 totaled $76.4 million, or $1.31 per diluted share, compared to $81.4 million, or $1.23 per diluted share, reported in the prior year period.

Year-to-date fiscal 2006 results included $15.0 million in revenues from the mortgage product line, as compared to $7.7 million in revenues for the year-to-date fiscal 2007 period. Year-to-date fiscal 2006 results also included restructuring costs of $4.4 million after-tax, or $0.07 per diluted share.

Fiscal 2007 Year-to-date Revenues Highlights

Revenues for fiscal 2007 year-to-date across each of the company's four operating segments were as follows:

• Strategy Machine Solutions revenues were $335.6 million compared to $345.7 million in the prior year period, or a decrease of 2.9%, primarily due to a decline associated with originations and insurance bill review products, and the sale of the mortgage product line, offset by an increase in revenues derived from collections and recovery products.
• Scoring Solutions revenues were $134.5 million compared to $131.7 million in the prior year period, or an increase of 2.1%, primarily due to an increase in revenues derived from risk scoring services at the credit reporting agencies.
• Professional Services revenues increased to $111.2 million compared to $108.2 million in the prior year period, or by 2.7%, primarily due to an increase in revenues derived from customer management, Blaze Advisor implementation services and model development services, offset by a decline associated with collections and recovery implementation services, and industry consulting.
• Analytic Software Tools revenues increased to $33.7 million compared to $32.5 million in the prior year period, or by 3.8%, due to an increase in revenues generated from sales of the Blaze Advisor product.

Bookings Highlights

The bookings for the third quarter were $89.8 million compared to $94.5 million in the same period last year. The company defines "bookings" as estimated future contractual revenues, including agreements with perpetual, multi-year and annual terms. Management regards the volume of bookings achieved as one 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 investments were $270.5 million at June 30, 2007, as compared to $267.8 million at September 30, 2006. Significant changes in cash and cash equivalents from September 30, 2006, include cash provided by operations of $129.2 million, $77.2 million received from the exercise of stock options and stock issued under an employee stock purchase plan, borrowings under the revolving credit facility of $70.0 million, and $13.9 million received on the sale of the mortgage product line. Cash used year-to-date during fiscal 2007 includes $282.4 million to repurchase common stock, $17.3 million related to purchases of property and equipment, and a $10.0 million minority investment in a company that operates in the healthcare market.

Increase in Revolving Credit Facility

The company today announced that it has doubled to $600 million its current revolving credit facility with a syndicate of eleven financial institutions. The company plans to use the proceeds of the revolving credit facility for working capital and general corporate purposes; the proceeds may also be used for refinancing of existing debt, acquisitions and the repurchase of common stock.

Operational Updates

Fair Isaac's executive leadership team is guiding the company's efforts to achieve accelerated and sustainable growth through strengthened client relationships, product innovation and focused global expansion. The company's growth initiatives are designed to advance its leadership in Enterprise Decision Management (EDM), which combines the company's world-class analytics and innovative applications to help clients automate, improve and connect decisions.

Since the second quarter of fiscal 2007, Fair Isaac has made several organizational and operational enhancements to further focus its sales initiatives, including:

• Simplification of the company's sales structure by consolidating nine industry verticals to five;
• Addition of 37 client support and relationship positions to enhance industry coverage and client service;
• Successful launch of the company's first intensive client satisfaction survey, which will influence future client service offerings and product innovation efforts; and
• Introduction of a comprehensive education program designed to increase the skills of the company's sales and service teams.

Fair Isaac continues to invest in innovation and product development. The company recently announced the release of FICO® 08 as the newest update to the industry-standard FICO credit score, which has demonstrated an increase in the predictive power of the score by 5% to 15% in industry tests. In addition, since the end of the first quarter, the company has been conducting extensive analysis of its product portfolio and has divested the mortgage product line. The company will continue to evaluate its product portfolio in further support of its EDM strategy.

Fair Isaac also is focused on growth through international expansion of its products and service offerings. The company continues to capitalize on global market opportunities, as demonstrated by its formal entry into China with the opening of a Beijing office and the appointment of a new managing director for that market. Additionally, for the first time, the company will host its InterACT customer conference in both China and Japan in November 2007.

During the last five months, the company has made significant additions to its executive leadership team:

• Greg Corgan, formerly of IBM and Computer Associates, was named vice president of global sales;
• Holger Mueller, formerly of Oracle and SAP, was named vice president of product development;
• Bob Berini, formerly of IBM, was named vice president of alliances and partnerships;
• Dick Stewart, formerly of SAP, was named vice president of professional services;
• Mark Scadina, formerly of Liberate and InterTrust, was appointed vice president, general counsel and corporate secretary; and
• Larry Rosenberger, head of research, has now assumed the full-time role of analytic science fellow; while Fair Isaac product innovation veteran Andrew Jennings has assumed the research leadership role as vice president of research.

Outlook

The company expects revenues for fourth quarter fiscal 2007 to be approximately $200.0 million and earnings per diluted share to be approximately $0.40. The company expects revenues for fiscal 2007 to be approximately $815.0 million and earnings per diluted share to be approximately $1.71.

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