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Executives

John Emerick - VP of Corporate Development and Treasurer

Mark Greene - CEO

Tom Bradley - CFO

Analysts

Carter Malloy - Stephens

Mike Latimore - Northland Securities

Nat Otis - KBW

Presentation

Fair Isaac Corp. (FIC) F4Q09 (Qtr. End 09/30/09) Earnings Call November 4, 2009 5:00 PM ET

Operator

Good afternoon, my name is Steven and I will be your conference operator today. At this time I would like to welcome everyone to the FICO Fourth Quarter '09 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions). Thank you, Mr. John Emerick you may begin your conference.

John Emerick

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 today 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, our 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 and particularly 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.

Mark Greene

Thank you, John. We'll proceed today in three parts. First, I'll summarize the quarter results and assess our business in light of current market conditions. Tom Bradley will then provide further financial details. And finally, I'll 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 was 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 maintain stringent cost controls to protect earnings. These efforts continue to help our profitability as the reported GAAP earnings per share of $0.35 and non-GAAP operating margins of 27% in a quarter.

Let me discuss the revenue results, according to the segments of our decision management portfolio mainly scores which are the predictive analytics used to asses the risk of various transaction or entities. Applications which use these scores to help businesses make smarter decisions over customer life cycle and primary 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 volumes 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 premature to say that our scores process is stabilized, we do see some promising signs such as increased interest by clients and using FICO scores as they resume marketing activities to acquire new customers.

Three updates for you on our scores business. First, we are making good progress on the rollout of FICO '08 the latest version of the classic FICO credit score. It's now commercially available at all three credit bureaus thus removing our last barrier to access by lenders.

More than 500 lenders are now using or testing FICO '08 which provides up to twice the improvement and predictive power compared to previous FICO revisions. So, top 10 US lenders have already committed to adopting FICO '08 in the coming months.

Second, we announced that the FICO credit capacity index is now available at our partner Equifax. This score which is used in conjunction with FICO '08 improves the precision of lender's risk assessments by measuring the ability of consumers to take on additional debt. We are now validating this credit capacity index with most of the top 10 lenders in the United States. And we began deployments with selective non-US institutions including Korea credit bureaus.

And third, we are likewise gaining attraction with the new FICO score view service which makes FICO scores available online through lender's internet banking sites. This month a leading US financial services firm will begin rolling out this service to millions of its online customers. These consumers who have free access to their individual FICO score information when they bank online and they'll be provided free educational offerings on credit literacy along with the opportunity to purchase, credit products from our My FICO website. We know from experience, that making FICO score information available this way, generates additional revenue to 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, mainly collections and fraud management, as is to be expected during the economic down cycle.

Revenue from our fraud management applications totaled $29 million, up from the prior quarter despite the spin-off of the fraud products for the telecom industry. We signed the $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 award winning Blaze Advisor business rules management system on the Microsoft platform as well as improving decisions in relation capabilities. We believe that this continued investment positions 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 the 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 fraud management applications, but also for 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 sales of Telecom assets. We take hard and 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 planed spin-offs and product rationalization work. These engineering 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.

Tom Bradley

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 timer 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 emphasis revenue generation in markets that enjoy healthier economies than the U.S. notably in Asia. The bookings of $86 million this quarter created $15 million of current period revenue of 17% yield.

As 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 fund, (inaudible) to Falcon an Insurance Fraud Manager. The highest amount of fraud management bookings we have seen in several years. These high margin bookings tend to be longer in 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 multiyear 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 migrates from a legacy fraud product. Although such renewals are not reported in this new bookings number, they are key to building momentum for our new products such as IFM and to 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 '09, 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 while we are intentionally maintaining investment in sales, delivery and R&D. As result of this cost discipline, our non-GAAP operating margin improved from 23% in fiscal '08 to 26% in fiscal '09.

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 a 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 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 a $134 million or 21% of revenue compared to a $132 million or 18% of revenue from the prior year period. This is due to the previously discussed expense reductions and by effective management of our accounts receivable.

Our on going 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 outstanding 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 30 to 48.1 million shares. We have a $130 million remaining under our existing share repurchase authorization. In light of the increasing cash position on our balance sheet and our ongoing ability to generate free cash flow, we will continue to evaluate how to best deploy accumulated 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. Both Mike and I look forward to meeting with many of you in the months ahead.

I'll now turn the call back to Mark.

Mark Greene

In this concluding section, I'll 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 now organized a 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 use these three new segments to discuss our business outlooks starting with scores. In scores, our bureau partners reported early signs of stabilization and transactional volumes, but not yet a recovery. Recent reports have strengthened consumer spending in the US, suggested a recovery may be at hand, but its not clear how much of this is due to one time stimuli 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. Giving concerns that the Card Act may render to credit card sector less profitable, prompting a reduction in the size of the sector. And 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 coincident indicator of the business cycle.

Given the conflicting evidence, provided by recent macroeconomic reports, it is hard to predict exactly where our scores 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 fixture and housing markets, both recover.

But we are not sitting still, waiting for an improving economy to improve our business. Instead we are pursuing several tactics to increase score usage even in today's environment. On the business-to-business side, we are encouraging vendors to adopt a more predictive FICO '08 version of our product and to pull these FICO credit scores more frequently and in more parts of their business as a sound of risk management tactic. We are also expanding the portfolio of scoring products that are sold as add-ons to FICO '08. We will soon be rolling out a new service which allows vendors to model the likely future performance of FICO scores under various economic scenarios, an offering that 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 are very excited about the growing momentum that we have for application products. They have a pipeline of over $220 million worth of opportunities in the fraud management space alone and we expect to make good headwind in converting these into assigned deals in the months ahead. We are conscious that the sales cycle is lengthy and we know that the new deployments takes six to nine months before they generate transactional revenue. So our revenue ramp here will be gradual. FICO's Zone had a point of view about the value of using business applications to connect decisions across an enterprise and across the customer lifecycle.

We made very good progress, realizing this vision during 2009 rolling out new applications for the late stages of the financial lifecycle including Debt Manager in the collections space and Falcon an Insurance Fraud Manager in the fraud management space.

In the months ahead, we will be flushing out applications for the rest of the lifecycle. With early stage applications such as our new originations manager, all based on the same underlying tools.

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

Let me note that our applications were not limited to the banking market that we traditionally serve. It's an important part also of our expansion into retail, healthcare and insurance.

For example, you heard Tom mentioned our win at Best Buy with our new Retail Action Manager Product. While this application, the same application is at the heart of a ground breaking membership benefit program recently launched nationwide by Sam's Club eValues, this program grants personalized savings to Sam's Club plus members. Using the FICO Retail Action Manager to optimize offerings for each member based on a historical purchasing patterns. It's a great example of predictive analytics applied to the retail industry.

Finally, regarding our tools business, we are making focused investments to accomplish two things. First, we want to ensure that all our own applications made deep use of our tools to help fulfill the connected decisions vision. And second, we are 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 at location in tools to continue providing the industries most advanced and valuable decision management solutions.

Now the guidance going forward. We are 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 are not yet providing specific quarterly guidance, we can say that we expect to grow 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 a wrap up, let me comment on how we weathered the past year. And why I'm cautiously optimistic about the year ahead. Four thoughts, first FICO has built a trusted brand upon decades of delivering innovation in value. In fact, we recently changed our corporate identity to recognize that value. Second, FICO has strengthed 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 have demonstrated that we have the management discipline to adhere to our business strategy despite unprecedented volatility and our operating environment. And fourth, our decision management solutions give clients measurable competitive advantage.

This last point is especially important to us, as we look out for the year ahead. What we are hearing from our clients across the globe is that 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. Well that's exactly what we do. FICO products help banks, insurance companies, retailers and health care companies connect decisions across the enterprise and across customer life cycle. 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 question and answers.

John Emerick

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?

Question-and-Answer Session

Operator

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Carter Malloy. Your line is open.

Carter Malloy

First question is on scoring, just looking at it sequentially, wondering what your discrepancy is between your performance in your bureaus, what type of actions and Experian I think we are down quite a bit less than that, low single digits versus you guys and I think 8% sequentially.

Mark Greene

Two answers to that question. First, we report on a slightly different timing than they do. We report with what effectively is a six-week relative to them by the time we get information from them and the recording periods that they use versus us. So, there is a little bit of a pay shift here. They may be seeing improvement, which we think is occurring in the marketplace sooner than it shows up in our numbers. The second answer is, we're more concentrated than they are overall, in a credit card space and that's a space that has not yet seen the kind of recovery that you're seeing for instance in auto and mortgage.

Carter Malloy

Okay that makes sense, but and credit cards in the time since you guys closed the quarter, have you seen an improvement in that environment?

Mark Greene

Well, what we are 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, its not yet showing up in actual results, its showing up in the headlights of our conversations with them that they are talking out about resuming marketing activity of the [inaudible] has largely been absent over the last year.

Carter Malloy

Looking out in next year, can you give us an idea of what you expect the expenses base to be?

John Emerick

I think the fourth quarter run-rate is pretty close and it's consistent with Mark's high level guidance. We've done a lot of infrastructure work in the past year and we don't have that kind of lifts coming again in this year. So, what you see as the fourth quarter run-rate is probably a good path for next year.

Carter Malloy

Okay. I think I have somewhat of that in my model, but I am just curious kind of 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 '09 EPS on a GAAP basis, where you guys were penalized quite heavily this year on GAAP, yet to a tune of probably $0.15 or $0.17 on restructuring charges and what not, but the rent of the model. So, on a normalized GAAP basis this year, it looks your EPS would have been $1 mid forties or even it's a $1.50 and so I am wondering if you want me to use that or if it's off of the affected GAAP so [in terms] it will be down year-over-year.

Tom Bradley

The guidance is relative to their reported GAAP earnings.

Carter Malloy

Okay. Sorry that's a confusing question I know.

Tom Bradley

But, I understand your question, but yeah we're talking about the reported GAAP number.

Carter Malloy

So, like a mid 1.40s number for 2010?

Tom Bradley

134 times low high digits yeah, you are a good man Carter, you got it.

Carter Malloy

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

Tom Bradley

Correct. Particularly relative to loosing the Telecom revenue, three quarters of which is in the '09 numbers.

Carter Malloy

So an improvement of 4Q run rate then?

Tom Bradley

Yes.

Carter Malloy

Quite an improvement. Okay. Thanks.

Operator

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

David

Hi this is David for Mike. 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?

Mark Greene

Well I think we will have to do some homework on that for you. There were some new customers, but I would guess the majority was existing customers signing up for new business recall the point that's on the bookings as we have the only new incremental business, right a renewal, a 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, we probably had a little bit less new customers.

David

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

Tom Bradley

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

David

37 months.

Mark Greene

Right.

David

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?

Mark Greene

Well, we're going to keep going that expenses, but mostly to generate the ability to invest in our business. So, a lot of infrastructure and personnel costs last year, we'll continue to go after facilities and consultants and the other nooks and crannies of cost around the company or our contracts and our other infrastructure costs, but mostly, we'll be looking to invest any of those savings back into the business. So that's why I think that the run rate will get additional lift from an earning standpoint out of the expense line in 2010.

David

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? Do you have empirical evidence or is it just sentiment?

Mark Greene

No, its 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 to customers. So, we don't have (inaudible) 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 an assumption about improving macro conditions which we think we will at least stabilize if not actually boost our scoring transaction volumes standpoint.

Operator

Your next question comes from the line Mike Latimore Northland Securities. Your line is open.

Mike Latimore - Northland Securities

On the scoring business, you had a sequential increase last quarter and then it was down this quarter. How much of the sequential change this quarter would you attribute to just kind of lower mortgage volume?

Mark Greene

A fair amount. Mortgage trust is about 15% of the business, of the scores business and I think we have observed in the past calls, a movement 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 resale activities sort of dried up and we saw that in our numbers.

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

Mike Latimore - Northland Securities

Okay. And then on the professional services, that was relatively stable and then it declined sequentially in a quarter when you started you add more bookings and applications revenue. How should we think about professional services? Should that start to improve as you deployed some of these new bookings?

Tom Bradley

Yes, absolutely right. So, if there is a bit of a lag, you sign the business, you get started on project planning and selling and it's 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 are 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 that we were at looking at a very big opportunity pipeline and we thought we are 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 or five months and we'll need to deploy those people at that time. So, you should expect going forward to stronger performance from our professional services business.

Mike Latimore - Northland Securities

Okay, great. And then in the past you have given some operating margin ranges by segment. Do you have that data for this quarter?

Tom Bradley

I don't think, there is any material change.

Mike Latimore - Northland Securities

Okay. And then last just as you go through renewals in the scoring business. Where do you think from our pricing standpoint or [minimum kind of] standpoint?

Mark Greene

Pricing has hold-up well. We ratified by that in this environment. As we renew there is a different outcomes with respect to quantities that minimum commitments of volumes by customers, good number than we are willing to sign up. One or two of them are looking for a lower volume commitments but the price aspect is generally done well, we always have normal competitive pressures on pricing but we haven't seen any particular severe impact on pricing due to the economic situation.

Mike Latimore - Northland Securities

Okay. And then just last on marketing solutions. Was that up sequentially in the quarter?

Mark Greene

One second, we'll check in for you that. Slightly up yes.

Operator

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

Nat Otis - KBW

Just a couple of clean up questions, first what are the headcount in the quarter?

Tom Bradley

I think its 2085.

Mark Greene

Just write 2100.

Nat Otis - KBW

Okay. Could you also run through your vertical market mix in the quarter?

Tom Bradley

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

Nat Otis - KBW

Okay great. And then the last just more general question, you talked about international it seemed like you were doing well in the quarter could you just give a little bit more color on where you are getting traction up there?

Mark Greene

Particularly Asia so we are seeing nice growth in both Australia and China. We are seeing growth selectively across Europe although I would note not in the two countries where we are almost present, which is the UK and Spain so elsewhere in the continental Europe and although we haven't yet seen it in the numbers that we reported we are feeling good about prospects in Latin America particularly Brazil, where there is lot of activity these days. So, (inaudible) are Brazil, Australia, China and Germany.

Operator

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

Carter Malloy - Stephens

I just had a few follow up house-keeping questions and couple of questions actually but on foreign exchange what was you headwind year-over-year this quarter?

Tom Bradley

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

Carter Malloy - Stephens

On a sequential basis?

Tom Bradley

Let's see, I think it was four or five last quarter? Five last quarter, three this quarter 18 for the full year.

Carter Malloy - Stephens

Okay perfect thank you. And then also I am still trying to figure out on the EPS and then the expense run rate next year. So, if I run out expenses at kind of the current run rate are you (inaudible) a little bit from there and then to get to the employee EPS number I have to get my revenues down to like $600 million $595 range. So can you let me help walk us through that scenario once? I may be confused on the model here but it would imply revenues down in the single digits next year?

Tom Bradley

Assuming you're adjusting for the Telco is the just comes straight off the top in terms of adjusting of the $1.34.

Mark Greene

That was $15 million.

Carter Malloy - Stephens

Okay so if I take out $15 million of Telco I get this year to $6.15 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 I will have to assuming the 31% tax rate.

Tom Bradley

Yeah I don't know how exactly your math there because we wouldn't be projecting a decrease of that adjusted revenue number.

Carter Malloy - Stephens

Okay may be I will walk through it offline, I will find it later, sorry for taking up the call.

Tom Bradley

No that's fine we are happy to discuss.

Operator

(Operator Instructions) Your next question comes from the line of Michael Nemeroff from Wedbush Securities.

David

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.

Tom Bradley

Yeah, good question, we are $130 million this year kind of ran into $30 million to $35 million a quarter range. About $30 million of the cash flows this year related to improvements in the receivables. 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 in cash flow.

David

Q4 run rate is the good run rate for all the quarters next year, is that what you are saying?

Tom Bradley

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

David

Okay, great. And then could you just fall back to why the scoring slipped down again not falling along entirely with that, could you just hit that again please.

Mark Greene

Scoring was down in the fourth quarter a little bit more than you hear from some of the bureaus, that was the earlier question that answered for two reasons, our timing of reported revenues in scoring is a little bit different, it lags by about six weeks, the reports that you are getting from the bureau. So they are seeing something, if there's an upturn in the market they see it a little bit sooner than we are able to see the numbers. We get just based on how royalty accounting works in our relationship with the bureaus, that's the first phenomenon. Second phenomenon is that relative to the bureaus we are over weighted in the credit card sector which remains comparatively sic, and so they are benefiting from some uplift for instance in autos. We are much less weighted in autos and the average bureaus.

Operator

We have no further questions at this time. Do you have any closing remarks?

John Emerick

That's perfect Steve and thanks very much everybody and one of us will talk to you in the near term. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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Source: Fair Isaac Corp. F4Q09 (Qtr. End 09/30/09) Earnings Call Transcript
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