Fair Isaac Corporation

Transcription

1 Fair Isaac Corporation Make Every Decision Count Wedbush Morgan Securities Management Access Conference for Micro-Small-Mid-Cap Companies 12 March 2009 New York City

2 Safe Harbor Some of the statements made by us during this meeting, including statements concerning our expectations about future operations and financial results, are forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including those risks and uncertainties 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, 2008 as well as its most recent quarterly report filed on Form 10-Q for the period ended December 31, Product roadmaps and similar marketing materials should be considered forward looking and subject to future change at Fair Isaac s discretion. Future functionality, features or enhancements as shown are Fair Isaac s current projections of the product direction, but are not specific commitments or obligations. 2

3 Key Takeaways Priority is protecting earnings via financial discipline Drive revenue Manage expenses Position for growth via paced Decision Management investment Exploit operating leverage Despite current challenges, the future is promising Scoring business will recover when economy does Applications business develops traction as new products ship Tools business already growing Proper operating plan is in place Focus on priority market segments & products Drive innovation Tight execution 3

4 Snapshot Profile The leader in Decision Management Overview Decision Management Markets Offices Founded: 1956 NYSE: FIC Revenue: $745M (FY08) from continuing operations Applications Analytics / Scoring Tools Professional Services 5,000 clients 80 countries Banking, Insurance, Retail, Healthcare 20 offices worldwide US Hubs: Minneapolis, San Diego, San Rafael Regional Hubs: London, Sao Paulo, Bangalore, Singapore 4

5 Value Proposition FICO is the leader in Decision Management, transforming business by making every decision count. 5

6 From Insights to Decisions Business Intelligence Decision Management Decision support Deliver data and insights to management Analytics summarize performance Decision execution Automate decisions within transaction streams Analytics predict behavior Move From What You Know to What You Do 6

7 Decision Management Market Drivers Transcend Product and Organizational Silos Span Geographies; Accelerate Market Expansion Improve Business Outcomes Using Analytics Increase Transparency 7

8 Decision Management Technology Drivers Component- Based Computing Connected Systems Business Logic Increase Effectiveness 8

9 Our Approach Simplify & reduce cost of developing, managing & updating complex decision processes Tools Applications Decision Management Operationalize complex, high-volume decisions over customer lifecycles Analytics Improve predictions & determine optimum decisions 9

10 Fair Isaac s Decision Management Platform Manage Strategies and Make Connected Decisions Across Products and Lifecycle Decision Management Application Suite Marketing Originations Customer Management Collections & Recovery Fraud Decision Management Common Components Data Model Rules Management Model and Rules Repository Case Management Reporting Process Server Portal Application Server ESB 10

11 Decision Management Applications Marketing Precision Marketing Manager Accelerate growth by managing marketing decisions, store layouts, promotional targeting, offer selection and market expansion Achieve 30% increase in profit per account Origination Capstone LiquidCredit Control risk exposure by determining which applicants get credit, insurance and other services, and on what terms. Achieve 15% increase in booked customers, without greater risk. Customer Management Collections & Recovery Fraud TRIAD Account Manager Debt Manager Recovery Management System Falcon Fraud Manager Insurance Fraud Manager Grow profits & prevent losses for existing customers through appropriate cross-sell offers, fee & pricing adjustments, credit limit management & spending control - all based on risk + potential reward. Achieve 25% decrease in delinquencies & 25% increase in fee income. #1 credit account management system 65% of world s credit cards Identify and apply treatment to minimize losses and cost of operations. Rehabilitate and retain your most profitable customers. Achieve 30% increase in collector productivity, 25% lower charge-offs Cut losses by stopping card fraud, identity theft, first-party fraud and other criminal activity. Balance bottom-line protection with customer retention. Detect fraud waste and abuse in Healthcare claims, Workers Compensation claims/premiums and Auto Insurance claims. Achieve 50% decrease in fraud losses with minimal false positives #1 credit fraud solution Protect 90% of global credit card transactions 11

12 Decision Management Analytics Analytics Predictive Analytics Optimization and Strategy Design Portfolio Analytics Custom models that sharpen decisions by providing superior forecasts of future customer behavior. Improve results throughout the customer lifecycle by zeroing in on customer risk or potential. Achieve 20-30% increase in approvals and 15-30% reduction in bad debt Mathematically identifies the best decision strategy for meeting objectives such as maximizing profits or minimizing costs given known and anticipated business constraints. Accelerate learning and results by 1-3 years over traditional methods Assesses the impact of macro-economic factors and policy changes on loss forecasts and portfolio performance. Allows strategies to be set that mitigate risk and manage growth. Scoring FICO Scores Industry-standard measure of consumer credit risk. Rank-orders consumers by likelihood of paying their credit obligations as agreed, helping lenders make accurate, reliable and fast credit risk decisions FICO 08 delivers 5% - 15% lift for credit shoppers & nonprime consumers FICO Insurance Risk Scores myfico Give property and casualty underwriters an instant assessment of applicant or policyholder risk, based on credit reporting agency data. Helps over 300 insurers in North America make more targeted decisions based on future loss ratio. Enables US consumers to manage their financial health by understanding, monitoring and managing their FICO score. Named by Kiplingers as the best place to buy your credit score 12

13 Decision Management Tools Business Rules Management Predictive Analytics Optimization Blaze Advisor Model Builder Xpress-MP Suite Decision Optimizer Software for automating decisions, giving control to business owners. Greatly simplifies and reduces the cost of developing, managing and updating even highly complex decisioning processes. Achieve 25% decrease in application development time and 75% reduction in cost and time of maintaining decision logic. #1 ranked Business Rules Management System Covers the entire predictive modeling lifecycle including development, deployment and improvement. Includes components for optimum portfolio segmentation and identification of performance predictors. Used to develop all Fair Isaac predictive models including the industry standard FICO Score. Decision optimization uses analytic models and historical data to help you find the best ways to use existing business resources to maximize profits, minimize costs and make better business decisions throughout the organization Operational research professionals, analysts and consultants find the best strategy for achieving a maximum or minimum outcome (e.g., most profitable or least costly) given certain constraints. It mathematically identifies the most advantageous operating points under any challenge across multiple industries. Add 5-20% profit improvement over test-and-learn methods 13

14 Decision Management Roadmap 14

15 Decision Management in Action Banking Origination Risk Management Marketing Fraud Collections & Recovery Insurance Underwriting Claims Management Fraud 15

16 Decision Management Traction Connected Decisions $2M TRIAD integrated with Fair Isaac Debt Manager for FirstPlus division Combined solution designed to minimize losses in the short term and maximize portfolio value for the long term Connected Decisions $4.3M Added ScoreNet and PlacementsPlus to Fair Isaac Debt Manager collections platform to ensure consistency in collections and recovery across theiinternational division Optimization $1M+ Enterprise License for Xpress Optimization Suite, winning over incumbent ILOG C-Plex American Airlines is recognized as a leader in optimization Business Rules Management $1.5M Intuit Merchant Services processing volumes threatened to overwhelm staffing and systems capabilities Blaze Advisor increases transactional throughput and streamlines identification of risky or fraudulent merchants Fair Fair Isaac Isaac Corporation. Confidential.

17 In the Sweet Spot Fair Isaac is notable among analytic application providers in its extensive experience in delivering high value in industry-specific, decision-centric applications. Henry Morris, SVP Worldwide Software and Services, IDC FIC Ranking # # # # #23 17

18 Analytics / Scoring

19 Scoring Products, Usage & Delivery Models FICO Scores Usage by Acct Lifecycle Phase Delivery Models Credit Bureau Risk Scores FICO 08 Bankruptcy Industry Options Collection Global FICO Score Credit Capacity Index Credit-based Insurance Scores FICO Expansion Score Acquisition Prescreen Origination Online Management Account Portfolio B2B (banks) Via credit bureau B2C (consumer) myfico.com 19

20 Scoring Revenue Mix by Lifecycle & Industry Scoring spans 3 phases of the Account lifecycle: 25% = Acquisition 40% = Originations 35% = Management International 5% Canada 12% Other 4% Mortgage 10% Auto 3% Insurance 5% Retail 1% Telco/Utility 0% 20 Bankcard Online 60%

21 B2B Scoring Volumes (Q) & Price (P) Transaction Volumes (billions) vs FIC Scoring Revenue (millions) FIC Revenue Scoring Volumes Average Price per Transaction $ $ $ $

22 Operations

23 Situational Update: Market Conditions General Economic Conditions New mortgage and mortgage refinancings are minimal Auto loans are at record lows Credit card default rates are increasing Credit card originations have declined Unemployment accelerates these trends Implications for FICO Scoring volumes are down roughly 20% IT spending at FICO customers is decreasing 10% Large platform decisions are being delayed Selling process and cycle are extended Customers do see value in FICO connected solutions for risk management 23

24 Recent Actions Completed Executive Team Deborah Kerr Chief Product & Technology Officer (HP / EDS) Laurent Pacalin Chief Marketing Officer (Siebel / Oracle) Introduced best-in-class business process discipline Sales: Miller-Heiman pipeline management Development: Rational Unified Process (IBM) Services: Premium service model (SAP) Marketing: MBO-driven approach (Oracle) Right-sized the business Narrowed growth focus: industry (Banking, Insurance) & geo (China) Cut Operating Expenses from $612M/yr to $535M/yr Reducing headcount from 2,925 to 2,100 24

25 FY09 Strategy Products Markets Go-to-Market Analytics Scoring Leadership Bureau Partnerships Small Business Score Applications & Tools Product roadmap Suite integration Geographic Footprint Regional structure China expansion Industry Focus Invest: Banking, Insurance Maintain: Retail, Healthcare Exit: Telco Direct Sales Methodology Premium Services Value Pricing Indirect Strategic Alliances Tools Ecosystem Community Digital marketing Web 2.0 Forums 25

26 FY09 Tactics: Address Critical Industry Issues Mortgage foreclosure prevention 4M homeowners delinquent + 7M late and growing Homeowners Affordability & Stability Program Opportunity top 20 mortgage servicers FICO Solutions FICO Score - Mortgage Industry Option FICO Credit Capacity Index Mortgage Remediation Facility Consumer Portal Small Business analytics FICO Commercial Score 26

27 Financials

28 Revenue: Recurring vs. Non-Recurring Despite revenue pressures, FIC continues to enjoy high % of recurring revenue Total Revenue Recurring Revenue $220 $200 $180 $160 $190.1 $ % 76% $ % $ % $163.5 $140 77% ($ in Millions) $120 $100 $80 $60 $40 $20 $0 Q1-08 Q2-08 Q3-08 Q4-08 Q

29 Revenue: By Component $160,000 $140,000 Transactional $120,000 $100,000 $80,000 $60,000 $40,000 Services $20,000 Maintenance $0 Perpetual Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Transactional 131, , , , , , , , ,883 Services 38,405 37,258 35,165 36,601 36,016 39,497 39,132 33,219 27,824 Maintenance 14,086 13,692 14,181 15,740 16,451 16,095 17,634 17,845 17,273 Perpetual 13,942 6,955 13,314 16,298 12,095 17,205 9,267 9,146 10,479 29

30 Bookings and Current-Quarter Yield 1Q09-1 booking deals > $3 million, 11 booking deals > $ 1 million.. $120 Bookings Current Quarter Revenue Bookings Yield 100% 90% $100 $80 $92.7 $ % 70% $ % $60 $ % $ % $40 $ % $ % 24.3% $ % Est. 20.8% $15.6 $14.8 $ % 20% 10% 30 $0 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 0%

31 Operating Leverage $1,000 Total Revenue Oper Exp Oper Inc $900 ($ in Millions) $800 $700 $600 $500 $400 $300 $200 $783.0 $609.1 $173.9 $784.2 $622.9 $161.2 $744.8 $612.4 $132.5 $535.0 TOTAL REVENUE OPERATING EXPENSES OPERATING INCOME $100 $- FY'06 FY'07 FY'08 FY'09 FY'10+ No guidance on FY 09 Revenue and beyond Current market conditions make it unclear when economic rebound will begin Operating Expenses are projected at $535M for FY 09 Systematic reductions in Operating Expenses across the entire company will allow for an increase in Operating Margins when recurring revenue volumes rebound 31

32 Expense Guidance FY 08 FY 09 Personnel $358.4 $ % Materials & Services $ % 73% $142.5 Equipment & Facilities $68.2 $64.2 Depreciation & Amortization $38.1 $39.7 Totals $612.4 $534.5 FTE down by ~ R down by ~ $5M Revenue Mix Vendor costs Facilities Closures Lower network costs Dash Acquisition Increased CapEx 32

33 Significant Cash Flow $60 $50 $51.3 $44.7 $46.8 $45.4 Adj. EBITDA Free Cash Flow FCF Yield 100% 90% 80% (In millions) $40 $30 $39.6 $38.4 $39.2 $35.3 $ % 60% 50% 40% $20 $ % $10 8.4% 12.6% 13.5% 11.8% 15.0% 20% 10% 33 $0 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Note: Free cash flow defined as cash flow from operations less capital expenditures and dividends. Adj. EBITDA excludes stock based compensation. Free Cash Flow Yield equals free cash flow per share over market price per share 0%

34 Business Health (through 1Q09) FICO continues to enjoy excellent financial heath Solidly profitable: $97M in Trailing Twelve Months pre-tax profit Strong cash flow: $123M in Trailing Twelve Months free cash flow Strong balance sheet: $287M cash (~$250M in available credit) Modest debt: $570M / $283M gross / net debt outstanding Stable financing: No significant debts maturing until 2011 Solid business model High recurring revenue (77%) Profitable (23% Non-GAAP Operating Margin) Strong operating leverage Financially conservative No toxic investments No aggressive accounting practices Cautious guidance 34

35 Make Every Decision Count Tools Applications Decision Management Analytics 35

36 Appendix

37 Regulation G Disclosures (Unaudited) Current Non-GAAP Measures 37