Fair Isaac Discusses F1Q2011 Results - Earnings Call Transcript

Jan.26.11 | About: Fair Isaac (FIC)

Fair Isaac Corporation (FIC) F1Q2011 (Qtr End 12/31/2010) Earnings Call January 26, 2010 5:00 PM ET


Steve Weber - Head IR

Mark Greene - CEO

Mike Pung - CFO


Michael Nemeroff - Wedbush Securities

Manav Patnaik - Barclays Capital

Thomas Ernst - Deutsche Bank

Carter Malloy - Stephens Inc.

Nat Otis - KBW


At this time, I would like to welcome everyone to the first quarter 2011 earnings conference call. (Operator Instructions) I would now like to introduce and turn the call over to, Mr. Steve Weber. You may begin your conference.

Steve Weber

Good afternoon, and thank you for joining FICO's first quarter earnings call. I am 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 press 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 the 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 statement 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 Investor's page of our website under the presentations tab. A replay of this webcast will be available through February 26, 2011.

Now, I will turn the call over to Mark Greene.

Mark Greene

Thanks, Steve and good afternoon. We'll proceed today as usual in three parts. First, I'll summarize the quarterly results and assess our business in light of current market conditions. 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 of 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 are 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 three segments of our decision management portfolio. First, the Application segment consists of business software used by clients to make smarter decisions over customer life cycles. 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 Manager 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 revenue up 6% over last quarter and 17% over the last year.

We now routinely bundle our originations product in many of the larger multi-product solutions that we sell. And in the quarter we released our latest offering, Origination Manager 4.0, which is the third in a series of connected decision applications designed to work together on a single platform, to help clients break down internal silos, driving towards profitability and growth.

As lenders emerge from the financial crisis and starting to shift their focus from loss prevention to responsible profitable growth and FICO originations manager helps them insure 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. And we also continue to deliver solid growth in our marketing solutions led by our retail action manager products, with revenue up 3% over the previous quarter or 8% over the prior year.

Finally, within the application segment, we've grown our services revenue by 5% over the prior quarter and 15% over the prior year. As we complete the implementation work associated with prior quarter bookings, we anticipate growth in our ongoing recurring transactional revenue streams.

Turning now to our second segment, which is Scores. Scores consists of predictive analytics that are used to assess risk. Overall scores revenue was $41 million in the quarter, down 2% from the prior quarter. We tracked two sub-segments here. B2B or business-to-business, which are scores sold to financial institutions and B2C or business-to-consumer, which are scores sold to consumers at myfico.com on a direct basis, as well as scores sold through bureau partners to consumers on an indirect basis.

The B2B scores segment was flat in the previous quarter. We've now seen six quarters of stability in B2B scores and three quarters in which early lifecycle indicators appear to be improving. This quarter, we continue 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 acquisition scores are one of the leading indicators of originations, which is also up 8% in the U.S. 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 partner selling scores to consumers. This was 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 card revenues.

Our consumer team also launched a new website, scoreinfo.org, an educational website to provide consumers' comprehensive information about new risk-based pricing roles 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 the financial institution and the credit report information or the 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 the FICO score is used in making lending 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!, street.com, MSN Money, The Associated Press and CNBC.

Our third and final business segment is Tools, which consists of rules management, modeling and optimization products embedded within our own applications and also sort of standalone to clients building their applications. Revenue in this tool 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. 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.

Mike Pung

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 reminder 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 a $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 7-year agreement with a very large North American Bank for both Falcon and TRIAD.

This deal is a significant win for us, locking our long term commitment with a new customer in 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 10 booking deals in excess of $1 million, of which 4 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. And 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 plus 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 net debt to adjusted EBITDA is 2.1 times, below the covenant of 3 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 borrowing under this facility, and we anticipate that we will refinance it at 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 will now turn the call back to Mark.

Mark Greene

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

From an internal operations perspective, we are 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 possibility 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 have introduced in recent months for 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 U.S. Patent and Trademark Office and have another 150 patents pending.

Considering prospects for our Scores business, we have seen a pick up in financial institutions using FICO scores for credit card solicitations. Such ongoing volume improvements in Scores is provocating, 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 and that these offsetting trends is, as we've 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 to the success of our own marketing efforts through myFICO.com.

Now to the guidance for the remainder of fiscal '11. Given our improving internal operations and sustained 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 a $1.68 compared with a $1.42 in fiscal 2010 on the assumption of an average of $39.9 million shares outstanding.

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

Steve Weber

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

Question-and-Answer Session


(Operator Instructions) And your first question comes from Michael Nemeroff from Wedbush Securities.

Michael Nemeroff - Wedbush Securities

Mark, just a question about the scoring. Are more banks opting to go in-house for some of the pre-score solicitations? Are you seeing that trend at all? And I was just kind of curious, is it on the pricing side? Because I think things have been picking up a little bit, but the revenue is somewhat flat year-over-year. Because last quarter, I think it was the same thing and you said there was higher volumes for lower prices. Just want to see if that was still the case this quarter as well.

Mark Greene

There is some of that, but there is another factor that the volume growth that we're seeing is on the front-end of the lifecycle. It's pre-scores where the usual price is lower than the price that occurred later in our lifecycle for account management. So we're getting a bulge in quantities in the low price part of our portfolio, if you will, in scores. If that closed too as it usually does into the higher price part down the road, that will bode well for our business.

Michael Nemeroff - Wedbush Securities

And then on those two deals, I think Mike had said that the weighted average length of the bookings was 42 months up from 27. Could you just give us a little bit color on those two deals? It sounds like they are pretty significant.

Mark Greene

Yes, Michel, it was actually one deal with one large banking they bought, both Falcon and TRIAD. They are fairly significant in size. We are not at liberty to name the price, but it's a very large deal. They're actually over a seven-year period. And so that on average stretches out the weighted average term of 42 months. There is a fairly involved implementation period to move them over to our platform, at which point we will be seeing the transactional revenue associated with those two products.

Michael Nemeroff - Wedbush Securities

The professional services 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 kind of flip in the revenue from professional services over to transactions going forward?

Mark Greene

As it relates to the deals that we are 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 will start to see that begin to waterfall, if you will, into our revenue.

As it relates to this particular large deal, there is 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, which is because of its complexity and length.

Michael Nemeroff - Wedbush Securities

And then just for Mike, 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 just give us maybe some color on what you are expecting for operating and then maybe free cash flow for the year considering the CapEx was pretty minimal relative to previous quarters.

Mike Pung

Yes, let me we start with your first question. Recurring revenue for the first quarter, I said, was 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 of what do I 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 on a free cash flow basis. Though we started the year very strong at $31 million, I still believe that our models and our numbers are in the $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 & equipment line item. And you'll see that normalize out over a four-quarter period.


Your next question comes from the line of Manav Patnaik, Barclays Capital.

Manav Patnaik - Barclays Capital

Congratulations again to Mike on the CFO post. 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 some 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? It is clearly like you said. People are going to focus more on risk management. But what does the internal budget situations look like that related to your businesses?

Mike Pung

It depends on what's the type of customer you're talking to. For a business executive, it's a function of what product line they're in. Cards people are feeling pretty good about the recovery and the cards business as loss ratios are improving. They are worried about the effective regulations hinging on profits. But they're spending money again, and the cards business is reviving.

On the other hand, the mortgage industry remains troubled. And despite some of the headlines you may read, our discussions with customers suggest that there is 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'd highlight again the mortgage and housing industry as the one dark cloud on horizon for the balance of this year, as it affects banks generally.

If you move away from specific business lines to more a technical buyer, a chief information officer, they are generally back in the business of significant long-term projects. I would characterize their demand as fairly sizeable and a good number of aggressive and big projects being discussed. That said, they are not reaching easily for the checkbooks yet.

So the talk is bigger. The ROPs are more impressive. The plans are larger. The budgets are a 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.

Manav Patnaik - Barclays Capital

In terms of the bookings, obviously from the season's perspective, first quarter has been lower than the fourth quarter. But obviously, this time around it was higher on a year-over-year basis. Now is that for this quarter primarily a function of the one large deal that you've referred to, or is it also an indication of the somewhat improved pipeline that you have been talking about?

Mike Pung

It's a little of both. The large deal that I am talking about was fairly significant driver in the overall portfolio for bookings this quarter. Much like last quarter, we announced we had one of our largest deals in record. That drove $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.

Mark Greene

It was a healthy bookings quarter even if you take the one large deal out. We do see, as Mike said, both things that work here. The large deal helped, but business is starting to come back.

Manav Patnaik - Barclays Capital

And just one last question on the scores business on the B2C side. You mentioned that there 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?

Mark Greene

The ones that have been selling FICO scores are continuing to do so, but they are also offering other products. Some of them actually are 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 tapered off.

But that's being substantially offset by some pretty strong growth that we are seeing in our direct channel, which is myFICO. And I've talked about that previously and I suspect will 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 is market opportunity for us to do so.

So it will become on 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.


The next question comes from the line of Thomas Ernst from Deutsche Bank.

Thomas Ernst - Deutsche Bank

There is just one follow-up question at this point to the other ones. The upside in the apps business looks like in terms of the growth was driven by strong services performances. How does this relate to your connected services framework into your strategy? Was this more of the kind of lumpy implementation of our consulting projects.

Mark Greene

The growth in applications was both services and licenses. And I think that what we are trying to say is we have actually now got those parts of the business sort of in sync. Previously the services organization set organizationally pretty 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 are buying both the licenses and the services they come with.

Thomas Ernst - Deutsche Bank

So do you feel like the 5% year-on-year in building momentum is true momentum despite being led by services as we look forward?

Mark Greene

Not all of it is led by services. It's equally paced by the license and the services. And I do think there is true momentum there, yes, especially as we look at the pipeline for major quarters in the year.


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

Carter Malloy - Stephens Inc.

I had a quick gross margin question for you. I saw the revenue tick up sequentially here and cost of goods come down a few million dollars. Can you talk about what went on there in the past couple of quarters, and then maybe we had a gross margin now that's sustainable going forward?

Mike Pung

Our gross margin is very much tied to revenue that we generate on our myFICO website and the costs associated with that as well as cost associated with services. And the lumpiness you have 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 setup workforce that can charge their time and put their effort both in the product development and in the customer implementation. We have people across trying to be able to do some of that. So when we have different people working on different projects, it also creates spikes like you have seen.

I'd say if you look 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.

Carter Malloy - Stephens Inc.

On the scores business, can you remind us of mix there? So 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 return to a low-single digit, mid-single digit type growth, what are the overall trends there that are maybe driving your mix? Hasn't it quite seen that growth recovery yet? What your visibility is there and when that turnaround happens?

Mike Pung

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

Mark Greene

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

Carter Malloy - Stephens Inc.

Yes, and then also maybe touch on having mortgages, having credit cards and kind of how it plays in your trends.

Mike Pung

Cards have been around 60% of business, mortgage around 15%, order around 10%, and the rest miscellaneous. The mortgage part is the most variable one. It has a lot to do with refis. And when we have rates below 4%, we see a spike in refis, and therefore the percentage going to mortgage is higher.

And 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 card seems to be happening and they witness the substantial growth in volumes that we're seeing in an earlier position in marketing scores. And what we're looking for now, is for those to convert into more originations and account management scores, as consumer starts to resign up for credit cards.

And a cautionary note here is, I don't think anybody in the card industry will tell you that we're going back to the old days. We're bouncing off the bottom and we bounce half way back to where we were before, but not to prior levels of business activity and not to prior levels of numbers of cards outstanding.

Carter Malloy - Stephens Inc.

On 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?

Mike Pung

I would model it similar to what we saw in the first quarter that was slightly down from that. We primarily saw the uptick in sales and marketing side of SG&A, where we've added roughly 40 headcount in terms of card carrying salesman and the related cost associated with them since the last quarter.


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

Nat Otis - KBW

Just two very quick questions, one on the taxes this quarter. How much came from R&D being okayed? How much came in that was kind of pent up that you got this quarter from the passage of R&D credit?

Mike Pung

We had extra $1 million dollar credit to our tax expense that related to three quarters worth of R&D that had been pent up in your words. It's about $1 million.

Nat Otis - KBW

And then, when you talked about acquisition, 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?

Mark Greene

I don't want to signal if anything is imminent, but I will reiterate the philosophy that we're using as we scan the market. 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 complements our existing portfolio.

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

Nat Otis - KBW

Just one last bit of color on that. Any thought on how much that is within the U.S. or more international type acquisitions?

Mike Pung

The location of the targets is less important to me than the applicability of their software to global market. So as you know, we have healthy businesses in Asia and Europe. And it would be important if any software we acquire will be able to operate in those markets as well as the U.S. Where the company is actually domiciled is less material.


At this time, there are no further questions in the queue. I'll turn the call back over to the presenter.

Steve Weber

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


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

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