Fair Isaac Corporation
2006 Annual Investor Day
The material in this presentation is the property
of Fair Isaac Corporation. This material has
been provided for the recipient only, and shall
not be used, reproduced, copied, disclosed,
transmitted, in whole or in part, without the
express consent of Fair Isaac Corporation.
© 2006 Fair Isaac Corporation. Confidential.
November 14, 2006
Forward Looking Statements
 Some of the statements to be 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 1995.
 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 10K for the year ended September 30, 2005 and its quarterly report
on form 10-Q for the quarter ended June 30, 2006.
© 2006 Fair Isaac Corporation. Confidential.
2
Welcome to Fair Isaac’s
2006 Annual Investor Day
Skip Battle
© 2006 Fair Isaac Corporation. Confidential.
3
Introduction / Overview
Chuck Osborne
© 2006 Fair Isaac Corporation. Confidential.
4
Agenda
I.
Welcome Remarks:
Skip Battle
II.
III.
Introduction/Overview:
Who is Fair Isaac Corporation:
Software
Scoring / Data
Services
Chuck Osborne
IV.
V.
Fair Isaac in the eyes of Clients
Financial Overview
Michael Campbell
Mike Pung/John Emerick
VI.
Questions & Answers
All
© 2006 Fair Isaac Corporation. Confidential.
John Nash
Ron Totaro/Craig Dillon
Greg Weitz
5
Participants
Skip Battle, Chairman of the Board of Directors
Chuck Osborne, Interim CEO and CFO
John Nash, Vice President – Strategic Planning
Greg Weitz, Consulting Business Unit and Emerging Industries
Michael Campbell, Vice President – Financial Services
Ron Totaro, Vice President – Scoring
Craig Dillon, Vice President – EDM Technologies
Mike Pung, Vice President - Finance
John Emerick, Vice President & Treasurer
© 2006 Fair Isaac Corporation. Confidential.
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Other Fair Isaac Attendees
Andrea Fike, Vice President & General Counsel
Marcy Winson, Corporate Finance
Tina Warren, Executive Assistant
Mary Garrity, Executive Assistant
© 2006 Fair Isaac Corporation. Confidential.
7
We Make Decisions Smarter
Fair Isaac helps business make
better decisions
that deliver stronger results
Since 1956, we have helped companies apply
analytics and automation to accelerate growth,
reduce losses, prevent fraud and
manage regulatory compliance
We are ranked as the leader in
business rules management and analytic
applications
© 2006 Fair Isaac Corporation. Confidential.
8
You Touch Fair Isaac Technology When You…
Use a credit /
debit card
Take out auto
insurance
© 2006 Fair Isaac Corporation. Confidential.
Buy or
use a cell phone
Make online
purchases
9
Submit a
medical claim
Buy or
refinance a home
Our Business Strategy
Bring the Most Advanced Decision Technology to Market
IMPROVE AND
EXPAND OUR
IMPROVE
INDUSTRY-LEADING
SOLUTIONS
INNOVATE
INNOVATE
ACCELERATE
ACCELERATE
CLIENT SUCCESS
CREATE THE
STANDARDS FOR
CREATE
DECISION
TECHNOLOGY
© 2006 Fair Isaac Corporation. Confidential.
10
50 Years Ago, Bill Fair and Earl Isaac
Pioneered a New Way to Make Decisions
Predictive Analytics
1
The future can be measured
1
© 2006 Fair Isaac Corporation. Confidential.
2
11
3
4
5
They Then Gave Businesses A Smarter Way to
Design, Test and Control Decision Logic
Adaptive Control
2
Business should run like a machine
1
Predictive
Analytics
© 2006 Fair Isaac Corporation. Confidential.
2
12
3
4
5
In the 1980s, A Breakthrough
in Analytics Changed the Game for Fraud
Neural Networks
3
Detecting fraud takes analytics
that think like you do
1
Predictive
Analytics
© 2006 Fair Isaac Corporation. Confidential.
2
Adaptive
Control
13
3
4
5
In the 1990s, the Focus Turned to Flexibility
with a New Science of Strategy Control
Business Rules Management
4
Changing rules is as important
as following them
1
Predictive
Analytics
© 2006 Fair Isaac Corporation. Confidential.
2
Adaptive
Control
14
3
Neural
Networks
4
5
These Innovations Led to a Holistic Approach
to Decisions – For Any Business, Anywhere
Enterprise Decision
Management
5
Every decision counts
1
Predictive
Analytics
© 2006 Fair Isaac Corporation. Confidential.
2
Adaptive
Control
15
3
Neural
Networks
Business
Rules
Management
4
5
What is Enterprise Decision Management?
 Precision

Make more profitable and targeted
decisions
 Consistency

In the same way across channels,
business units
and geographies
 Agility

While being able to adapt “on-thefly”
 Speed

Executing decisions and processes
faster
 Cost

© 2006 Fair Isaac Corporation. Confidential.
16
And reducing staff review time and
other expenses needed to make
decisions
Enterprise Decision Management in Action:
Managing Risk in Financial Services
 Doubled customer base while
reducing losses
 Delinquencies and collections volume
down by 47%
 Reduced provisioning by 60%
 Faster decisions for applicants
and customers
DECISION
AREAS
Marketing
© 2006 Fair Isaac Corporation. Confidential.
Account
Origination
Customer
Risk
Management
17
Fraud
Collections
& Recovery
Mortgage
Banking
Industry Focus
Financial Services
“
Working with Fair Isaac,
we’re building a credit
infrastructure that
allows us to stay
competitive and grow
our business.
”
TD Canada Trust
700 million
© 2006 Fair Isaac Corporation. Confidential.
card accounts worldwide are
managed using Fair Isaac solutions
18
2/3
of the world’s top 100 banks
work with Fair Isaac
Enterprise Decision Management in Action:
Marketing Sharper in Retail
 Take a more customercentric approach to drive
traffic, basket size and
category closure rates
 Personalize shopper
recommendations
 Increased response rate
from 1% to 17%
 Persuaded customers to
purchase from new
categories
DECISION
AREAS
© 2006 Fair Isaac Corporation. Confidential.
Marketing
Customer
Retention /
Cross-Sell
19
Credit
Management
Fraud
Industry Focus
Retail / Consumer Branded Goods
“
From the dot.com space to
the call center, there’s
broad potential for applying
Fair Isaac’s analytic insight
throughout the organization.
Leveraging our strong
partnership with Fair Isaac,
we’re in the process of
turning this potential into
real-world results.
”
200+
retailers use Fair Isaac technology
© 2006 Fair Isaac Corporation. Confidential.
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50%
Best Buy
of the top US retailers and general merchandisers
work with Fair Isaac
Enterprise Decision Management in Action:
Streamlining Operations in Insurance
 Automated more than 3,000
underwriting rules
 Update strategies,
policies and rules easily,
without programming
 Processing 99%
of new policy
applications automatically
 Held expenses down as
applications grew by 35%
and agents accessing the
system tripled
DECISION
AREAS
Underwriting
© 2006 Fair Isaac Corporation. Confidential.
Claims
Management
Bill Review /
Repricing
21
Fraud
Marketing
Industry Focus
Insurance
“
Speed to market was
one reason we chose
Fair Isaac. We got the
Unitrin Kemper decision
support system up and
running quickly, and
were pleased with the
positive effects.
”
Unitrin Kemper Auto
and Home
400+
insurers and healthcare payers worldwide
use Fair Isaac technology
© 2006 Fair Isaac Corporation. Confidential.
The Top 10
22
US P&C insurers
use Fair Isaac technology
Enterprise Decision Management in Action
Fighting Fraud in Telecommunications
 Protect the network
from revenue
leakage
 Fair Isaac solution
processes 1.5 billion
transactions a day
 Reduced annual
losses by more than
£3 million
 ROI in 8 months
DECISION
AREAS
Customer
Acquisition
© 2006 Fair Isaac Corporation. Confidential.
Network /
Revenue
Leakage
Customer
Management
23
Fraud & Risk
Management
Collections &
Recovery
Industry Focus
Telecommunications
“
Fair Isaac has been
exemplary from the
beginning. The stability
and performance of the
Fair Isaac fraud system
has met NTL's high
expectations.
”
1.5 billion
transactions are reviewed every day by
one provider using our network analytics
© 2006 Fair Isaac Corporation. Confidential.
24
90%
NTL
of all roaming cellular call records in North
America are processed with our technology
EDM Overview
What is EDM? An approach to
automating & improving decisions
across the enterprise
© 2006 Fair Isaac Corporation. Confidential.
25
John Nash
We Provide Industry-Standard EDM
Applications, Technologies and Consulting
Revenue
ENTERPRISE
Lower Operational Costs
Lower Risk / Losses
Lower Development Costs
Costs
DECISION MANAGEMENT WITHIN
DECISION
AREAS
Decision Areas
Marketing
Origination
Customer
Management
Fraud
Claims /
Service
Collections &
Recovery
EDM
Applications
Precision
Marketing
Capstone®
LiquidCredit®
TRIAD™
Falcon™
SmartAdvisor™
Debt
Manager™
ENTERPRISE
Analytics
DECISION
AREAS
Descriptive Models
Predictive Models
Decision Models
Predictive Science
Predictive Science
FICO® scores / myFICO®
Strategy Science
Model Development
Rules and Decision Mgmt
Strategy Optimization
Model Builder
Blaze Advisor™
Decision Optimizer
Data Access & Mgmt
Analytic Computing
Transaction Execution
Software
Data &
Processing
Platform
DECISION MANAGEMENT ACROSS
ScoreNet®
“Fair Isaac offers the most comprehensive set of products currently available for
building EDM applications.”--Cutter Consortium, Enterprise Decision Management
© 2006 Fair Isaac Corporation. Confidential.
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The Customer Journey –
The EDM Continuum
Coordinate
decisions across
regions, business
areas
Value Proposition
Extensive /
Continual Lift
Control
strategies to
optimize results
Accelerate
deployment of
Control decisions for a analytics
given area using analytics,
rules management and
best practices
Integrated
EDM
Decision Models
Integrated EDM
Technology
More precise decisions -Increase revenues and
reduce losses
EDM Applications
Point /
One-time
Lift
Improve consistency
and speed, reduce
time to change rules
Predictive Models
Rules Management
Manual Decisions /
Legacy Systems
© 2006 Fair Isaac Corporation. Confidential.
CEO-level Control
Degree of Control Over Decisions
27
We Use a Unique 7-Stage Methodology to
Solve Clients’ Problems Using EDM
What are the possibilities
and potential benefits?
Stage 1
Set Strategy &
Identify the
Business
Opportunity /
Problem
Stage 2
How do we
get there?
Stage 3
Identify Critical Design Business
Decisions &
Architecture for
Potential Decision
Decision
Yield
Environment
What capabilities must
be developed to realize the benefits?
Stage 4
Key Target
Sales Identified
Profit Potential
© 2006 Fair Isaac Corporation. Confidential.
Stage 6
Build and Modify
Build Data
Build
the Operational
Environment
Mathematical
Environment to
Required to
Models to Improve
Enable Decision
Inform Decisions
Decisions
Execution
Current Segment Sales
Alignment
with
Current
Products
Stage 5
28
How do we
ensure continual
improvement?
Stage 7
Continually
Improve the
Decisioning
Environment
Alternative Market Map – 2005 North America
Total North America 2005 EDM Market $9.4B - $11.6B
Software
$2.7 - 3.3B
Internal
Application
Development
$0.7 - 0.9B
(8%)
BI $0.6 - 0.7B
(5%)
Data
$2.4 - 3.0B
Data
Preparation &
Integration
$1.6 – 1.9B
(17%)
Services
$4.3 - 5.3B
Key
Scoring &
Other
Decision ASP
Solutions
$0.9 – 1.1B
(9%)
Business
Consulting &
Strategy
$0.6 – 0.8B
(7%)
Source: Fair Isaac research
© 2006 Fair Isaac Corporation. Confidential.
Annual Projected
Growth Rate
2005-2009 = 9-11%
Systems Integration
$3.0 – 3.6B
(32%)
CRM $0.4 – 0.5B
(4%)
Other
Decision
Oriented
Software
$1.0 – 1.2B
(10%)
Total Worldwide 2005
EDM Market $21-23B
29
Custom
Analytic
Development
$0.7 – 0.9B
(8%)
Size of rectangle (%)
represents the relative
contribution of
component within the
overall EDM market.
Market Map – 2005
With Examples of Companies In Major Areas
Total North America 2005 EDM Market $9.4B - $11.6B
Software
$2.7 - 3.3B
•
•
•
•
Internal
Application
Development
$0.7 - 0.9B
(8%)
SAS ($1,680M)
SPSS ($236M)
Cognos ($826M)
Business Objects
($1,077M)
• Epiphany/Infor
BI $0.6 - 0.7B
(5%)
($80M est)
• Chordiant ($84M)
• Sigma Dynamics ($2M)
Data
$2.4 - 3.0B
Data
Preparation &
Integration
$1.6 – 1.9B
(17%)
Services
$4.3 - 5.3B
Systems Integration
$3.0 – 3.6B
(32%)
CRM $0.4 – 0.5B
(4%)
• Pegasystems ($102M)
• iLog ($125M)
• SAP ($10,082M)
• Experian ($3,000M)
• Lightbridge ($108M)
• eLoyalty ($79M)
© 2006 Fair Isaac Corporation. Confidential.
Other
Decision
Oriented
Software
$1.0 – 1.2B
(10%)
•
•
•
•
Experian ($3,000M)
Nielsen ($2,403M est)
InfoUSA ($383M)
Polk ($227M)
• Accenture ($17,094M)
• IBM Global Svcs
($47,357M)
E&Y ($16,902M)
•
• EDS ($19,757M)
• Acxiom ($1,332M)
• HarteHanks($1,135M)
• Equifax ($1,443M)
Scoring &
Other
Decision ASP
Solutions
$0.9 – 1.1B
(9%)
Business
Consulting &
Strategy
$0.6 – 0.8B
(7%)
Custom
Analytic
Development
$0.7 – 0.9B
(8%)
• McKinsey ($3,000Mest)
• Bain ($3,477M)
• IBM Consulting Svcs
($14,200M)
Source: Fair Isaac research
Note: Revenues are approximate 2005 Revenues from various sources as well as Fair Isaac estimates
30
• Deloitte Consulting
($7,200M)
Who is Fair Isaac?
Software
Software
$2.7 – 3.3B
Data
$2.4 – 3.0B
Services
$4.3 – 5.3B
Internal
Development
Data
Preparation
&
Integration
Systems Integration
BI
John Nash
CRM
Other
Decision
Software
© 2006 Fair Isaac Corporation. Confidential.
Scoring &
ASP
Solutions
31
Business
Consulting &
Strategy
Custom
Analytic
Development
Areas of Focus and Opportunity
 EDM Technology

Blaze Advisor ™

Model Builder
 EDM Applications

TRIAD ™

Falcon ™

Debt Manager ™

Capstone

Precision Marketing
© 2006 Fair Isaac Corporation. Confidential.
32
The Ever-Changing Enterprise Application
The App
© 2006 Fair Isaac Corporation. Confidential.
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The Ever-Changing Enterprise Application
User Interface
Process
Logic
Data
© 2006 Fair Isaac Corporation. Confidential.
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The Ever-Changing Enterprise Application
Browser
User Interface
BPM
Process
Logic
Data
Enterprise
Database
© 2006 Fair Isaac Corporation. Confidential.
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How Can We
Evolve the Logic of Applications?
A self-contained, callable
service with a view of all
the conditions and actions
that need to be considered
to make an operational
business decision
Logic
Decision Services
A service that answers a
business question for other
services
What is a decision service?
What does it look like when an organization
excels with decision services?
© 2006 Fair Isaac Corporation. Confidential.
36
From a Systems Perspective, EDM Technology
Separates Decision Logic from Business Systems
Development
Environment
Call Center
Business User Tools
Web
Rules
Management
Rule &
Model
Repository
Universal
Decisioning
Service
Request
for
Decision
Decision
ERP
Email
CRM
Telemarketing
OPERATIONAL
SYSTEMS
CHANNELS
Billing
Direct Mail
SCM
Store / Branch
Model
Development
Kiosk / ATM
Analyst Tools
Field
Decision
Analysis
Customer Behavior and Strategy Performance
Data
© 2006 Fair Isaac Corporation. Confidential.
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User Roles
Development
Environment
Rules Authoring
Deployment Control
Call Center
Business User Tools
Web
Rules
Management
Rule &
Model
Repository
Model
Development
Universal
Decisioning
Service
Analytic Modeling
Request
for
Decision
Decision
ERP
Email
CRM
Telemarketing
OPERATIONAL
SYSTEMS
CHANNELS
Billing
Direct Mail
SCM
Store / Branch
Portfolio Optimization
Kiosk / ATM
Field
Analyst Tools
Decision
Analysis
Customer Behavior and Strategy Performance
Data
© 2006 Fair Isaac Corporation. Confidential.
38
Enterprise Decision Management
 Precision

Make more profitable and
targeted decisions
 Consistency

In the same way across channels,
business units and geographies
 Agility

While being able to adapt
“on-the-fly”
 Speed

Executing decisions and
processes faster
 Cost

© 2006 Fair Isaac Corporation. Confidential.
39
And reducing staff review time
and other expenses needed to make
decisions
Implementing an Effective Decision
EDM Applications
Data
Access
Rules &
Strategies
Analytics
Monitoring & Feedback
© 2006 Fair Isaac Corporation. Confidential.
40
Execution
Representative Competitors
Revenue
ENTERPRISE
Decision Areas
EDM
Applications
Lower Operational Costs
Lower Risk / Losses
Lower Development Costs
Costs
DECISION MANAGEMENT WITHIN
DECISION
AREAS
Marketing
Origination
Customer
Management
Fraud
Claims /
Service
Collections &
Recovery
Acxiom
AMS/CGI
Experian
AMS/CGI
Experian
Search Space
Subex
ACI
CorVel
Chordiant
AMS/CGI
ENTERPRISE
DECISION MANAGEMENT ACROSS
DECISION
AREAS
Analytics
Descriptive Models
Predictive Models
Decision Models
Software
Model Development
Rules and Decision Mgmt
Strategy Optimization
SAS, SPSS
iLog, Pegasys, Computer
Associates
Experian, iLog
Data Access & Mgmt
Analytic Computing
Transaction Execution
Data &
Processing
Platform
“Fair Isaac offers the most comprehensive set of products currently available for
building EDM applications.”--Cutter Consortium, Enterprise Decision Management
© 2006 Fair Isaac Corporation. Confidential.
41
Market Map – 2005
With Examples of Companies In Major Areas
• None – represents
spending on internal
IT staff
Total North America 2005 EDM Market $9.4B - $11.6B
Software
$2.7 - 3.3B
•
•
•
•
Internal
Application
Development
$0.7 - 0.9B
(8%)
SAS ($1,680M)
SPSS ($236M)
Cognos ($826M)
Business Objects
($1,077M)
BI $0.6 - 0.7B
(5%)
• Epiphany/Infor
($80M est)
• Chordiant ($84M)
• Sigma Dynamics ($2M)
Data
$2.4 - 3.0B
Services
$4.3 - 5.3B
Data
Preparation &
Integration
$1.6 – 1.9B
(17%)
Systems Integration
$3.0 – 3.6B
(32%)
CRM $0.4 – 0.5B
(4%)
• Pegasystems ($102M)
• iLog ($125M)
• SAP ($10,082M)
Other
Decision
Oriented
Software
$1.0 – 1.2B
(10%)
Scoring &
Other
Decision ASP
Solutions
$0.9 – 1.1B
(9%)
Business
Consulting &
Strategy
$0.6 – 0.8B
(7%)
Custom
Analytic
Development
$0.7 – 0.9B
(8%)
Source: Fair Isaac research
Note: Revenues are approximate 2005 Revenues from various sources as well as Fair Isaac estimates
© 2006 Fair Isaac Corporation. Confidential.
42
Growth Drivers – Software
 IT pressure to increase leverage from investments




Common platforms for decision execution
Flexibility to adjust as strategies adjust
Control in the hands of the business users
Increased return from investments in data infrastructure
 Business pressure to improve decision making






Accelerating volumes coupled with increased cost control
Increased risks
Increased regulatory & compliance issues
Increased speed and consistency demanded by consumers (i.e. focus on
customer centricity)
Increased emphasis on common operations across boundaries
New sources of productivity gains
© 2006 Fair Isaac Corporation. Confidential.
43
Who is Fair Isaac?
Data / Decision Execution
Software
$2.7 – 3.3B
Data
$2.4 – 3.0B
Services
$4.3 – 5.3B
Internal
Development
Data
Preparation
&
Integration
Systems Integration
Craig Dillon
BI
CRM
Other
Decision
Software
© 2006 Fair Isaac Corporation. Confidential.
Scoring &
ASP
Solutions
44
Business
Consulting &
Strategy
Custom
Analytic
Development
Fair Isaac Technology
Research
Market Validation
Data (Client &
Third Party)
End User Installation
Product Development
Research Data
Feedback
Business Rules
Common Operational
Components
Software as a Service
© 2006 Fair Isaac Corporation. Confidential.
45
Analytics
Falcon ID
MyFICO
Diamond
Blaze
Qualify
Expansion
Applications
ScoreNet®: A Scoring “Application Factory”
 Make the decision to…
Distributed Process Mgmt
 What is the probability of..
Scores, Optimization, Decisioning
 If X, then Y…
ScoreNet®
Content Based Rules
 Convert to…
Data Normalization
 Research and simulate...
Analytical Research & Development
 Get data from…
Authentication, Transport & Switching
Data
Source A
© 2006 Fair Isaac Corporation. Confidential.
Data
Source B
Data
Source C
Data
Source D
46
Data
Source E
Data usage trends
Data on
demand
Consumer Credit
Additional credit data
Marketing
Lifestyle/stage data
Mobile/CRM - multi-channel behavioral
Optimized decisions
Value
Transaction analytics
Web relational data
Account management system
Catalog/Cooperative databases
Credit bureau risk scores
Behavior scores
Customer databases - behavioral and attitudinal
Credit scoring for credit cards
Direct mail
Commercial credit scoring systems
1960
© 2006 Fair Isaac Corporation. Confidential.
1970
1980
1990
47
2000
2010
ScoreNet Provides Access to a Comprehensive
Selection of Data, Partners and Technology
 Data is a key element of making informed business decisions
 Large and growing network of organizations:




90+ commercial databases and data aggregators across 55 companies
2000+ third-party vendors and service providers
200+ Fair Isaac clients
30+ service offerings across account management and collection and
recovery markets and mortgage banking industry
 Launching new scores and new decision solutions off this asset:


Fair Isaac® Qualify Score™ score, FICO® Expansion™ score, Blaze Advisor™
business rules management system, EDM tool kit
Falcon™ ID solution, LiquidCredit® service, Event-based Trigger service
 More data, enabling more powerful analytics
© 2006 Fair Isaac Corporation. Confidential.
48
Types of Data
Automotive
Email ECOA and Hygiene
Location and Distances
Business
Employment and Income
National Consumer Reporting
Agencies
Collaboration Marketing
Database
Ethnicity
Phone / Address Append
Collections
Fraud
Postal Processing
Consumer Contact / Locate
Genealogy
Public Records
Consumer Credit
Geocoding
Real Estate
Debit
Healthcare
Suppression Processing
Demographic / Lifestyle
IP Address / Geolocation
US Treasury OFAC
90+ commercial databases and data aggregators across 55 companies and growing
© 2006 Fair Isaac Corporation. Confidential.
49
Market Map – 2005
With Examples of Companies In Major Areas
Total North America 2005 EDM Market $9.4B - $11.6B
Software
$2.7 - 3.3B
Internal
Application
Development
$0.7 - 0.9B
(8%)
BI $0.6 - 0.7B
(5%)
Data
$2.4 - 3.0B
Data
Preparation &
Integration
$1.6 – 1.9B
(17%)
Services
$4.3 - 5.3B
Systems Integration
$3.0 – 3.6B
(32%)
CRM $0.4 – 0.5B
(4%)
•
•
•
•
Experian ($3,000M)
Lightbridge ($108M)
eLoyalty ($79M)
Lexis Nexis ($300M Est.)
Other
Decision
Oriented
Software
$1.0 – 1.2B
(10%)
Scoring &
Other
Decision ASP
Solutions
$0.9 – 1.1B
(9%)
Business
Consulting &
Strategy
$0.6 – 0.8B
(7%)
Custom
Analytic
Development
$0.7 – 0.9B
(8%)
Source: Fair Isaac research
Note: Revenues are approximate 2005 Revenues from various sources as well as Fair Isaac estimates
© 2006 Fair Isaac Corporation. Confidential.
50
•
•
•
•
•
Experian ($3,000M)
Nielsen ($2,403M est)
InfoUSA ($383M)
Polk ($227M)
Acxiom (1.200M)
Who is Fair Isaac?
Scoring
Software
$2.7 – 3.3B
Data
$2.4 – 3.0B
Services
$4.3 – 5.3B
Internal
Development
Data
Preparation
&
Integration
Systems Integration
Ron Totaro
BI
CRM
Other
Decision
Software
© 2006 Fair Isaac Corporation. Confidential.
Scoring &
ASP
Solutions
51
Business
Consulting &
Strategy
Custom
Analytic
Development
Areas of Focus and Opportunity
 FICO® Risk Scores
 FICO® Expansion Scores
 Global FICO® Scores
 myFICO®
© 2006 Fair Isaac Corporation. Confidential.
52
Credit Scoring Evolution
1989
1992
$5MM revenue
750MM scores
1994
1996
1997
1999
$34MM revenue
1.9B scores
General FICO®
Risk Scores
Revenue
Score
Industry
Options
FICO® Scores
In Canada
© 2006 Fair Isaac Corporation. Confidential.
2001
2003
$115MM revenue
6.8B scores
Bankruptcy
Score
FICO®
Expansion
Score
NextGen®
Models
Risk Scores
In South
Africa
53
Risk Scores
In United
Kingdom
2005
$180MM revenue
13.3B scores
Application
Fraud
Score
Attrition
Score
2004
Global
FICO®
Scores
Drivers for Future Scoring Solutions
 Alternative Data Sources
 Flexible Distribution Points
 Technology Innovation
 Real Time and Batch Decision Processes
 Scalability
© 2006 Fair Isaac Corporation. Confidential.
54
FICO® Expansion Score – Market Opportunity
 Approximately 50 million
US adults
US ADULT POPULATION
Credit Bureau Record

Thin
Credit
Bureau
Record
15%
Full
Credit
Bureau
Record
75%
© 2006 Fair Isaac Corporation. Confidential.

No Credit
Bureau
Record
10%
55
10% of US credit applications
(130 million) cannot be scored
due to data deficiencies
Underwriting just 3% of this
market creates over $2.5B in
lifetime revenues to lenders
Expansion Score Value Proposition
DELIVERS
THE FICO®
ANALYTIC TO THE
TRADITIONALLY
UNDERSERVED
MARKET
FULFILLS
REGULATORY
COMPLIANCE
PROVIDES A
COMPLETE
SOLUTION –
BOTH A SCORE
AND A SERVICE
LEVERAGES
TRADITIONAL AND
NON-TRADITIONAL
DATA SOURCES
© 2006 Fair Isaac Corporation. Confidential.
56
FICO® Expansion Score – Execution
 3rd party non-traditional
credit data


“Negative” information
“Positive” information
 Traditional CB thin file data
 Public record data
 Lender and 3rd partyverified data
© 2006 Fair Isaac Corporation. Confidential.
57
Client Results
 “Scorability”

On what percent of the lender’s target population can a robust risk
assessment be established?
 Score Distribution


Can FICO® Expansion score differentiate the population into varying risk
tiers?
Can FICO® Expansion Score identify good quality consumers that lenders
can profitably book?
 Score Rank-Order

Does FICO® Expansion score provide powerful and accurate risk
assessment?
 Score Alignment

What is the odds-to-score relationship and how does it compare to FICO®?
© 2006 Fair Isaac Corporation. Confidential.
58
International Opportunity
 Market Drivers

Growing international demand for
consumer finance

Evolution of credit bureaus and
their ability to capture credit data
Multinational lenders seek
comparable risk assessments
across countries
Pressure from local governments
to assure proper risk management
tools are in place
Credit scores not available nor
widely adopted in many countries




Global FICO® Score
FICO Score brand
© 2006 Fair Isaac Corporation. Confidential.
59
Global FICO® Score Solution
SCORING
SCORING
MODELS
MODELS
IMPLEMENTATION
IMPLEMENTATION
SOFTWARE
SOFTWARE
DOCUMENTATION
DOCUMENTATION
CONSULTING
SERVICES
© 2006 Fair Isaac Corporation. Confidential.
60
Go-To-Market Approach
“Plant the Flag”
Drive Adoption
 7 International Credit Bureaus
 1990’s

 7 multi-national/global lenders
Presence in 3 International
markets
 9 regional/in-country banks
 2004 – 2006 (Global FICO®
Score Launch)

Expand footprint to 12 additional
markets (EMEA, APAC, LAC)
 2008 (Next 12-18 months)

Expand footprint to an
incremental 8-10 markets
© 2006 Fair Isaac Corporation. Confidential.
61
Growth Drivers and Adoption Feedback
 Increasing volumes - Facilitates quick and effective decisions in a
volume driven environment
 Increasing risks - Significant improvement in risk assessment, driving
increases in portfolio profitability
 Pressure to reduce operational costs - Saves time and operating
costs by reducing the need for manual assessment of applications
 Pressure on reliability - Trust in Fair Isaac domain expertise to deliver a
reliable tool when entering new markets
 Increasing speed of change in developing risk environments - Rapid
implementation fueled by co-operative efforts between lenders and Fair
Isaac
© 2006 Fair Isaac Corporation. Confidential.
62
myFICO® Summary
 Traffic trends:




Generally, consumer traffic patterns have softened (industry wide)
Traffic trends peaked from FactAct and we believe they have
returned to more normal levels
Subscription revenue represents approximately 35% of total
consumer revenue
Shopping cart size has increased greater than 15%
 New Product Introductions



New version of Suze Orman FICO® kit
Expansion FICO® score on the road map
Partnership opportunities for www.myfico.com website

e.g. Lead generation link creates high margin revenue stream
© 2006 Fair Isaac Corporation. Confidential.
63
Who is Fair Isaac?
Services
Software
$2.7 – 3.3B
Data
$2.4 – 3.0B
Services
$4.3 – 5.3B
Internal
Development
Data
Preparation
&
Integration
Systems Integration
Greg Weitz
BI
CRM
Other
Decision
Software
© 2006 Fair Isaac Corporation. Confidential.
Scoring &
ASP
Solutions
64
Business
Consulting &
Strategy
Custom
Analytic
Development
Professional Services Revenues - 2006
Internal
Application
Development $0.7
- 0.9B (8%)
Data Preparation
& Integration $1.6
– 1.9B (17%)
Systems Integration
$3.0 – 3.6B
(32%)
BI $0.6 - 0.7B (5%)
CRM $0.4 – 0.5B (4%)
Other Decision
Oriented Software
$1.0 – 1.2B (10%)
Software $100MM
© 2006 Fair Isaac Corporation. Confidential.
Scoring & Other
Decision ASP
Solutions $0.9 –
1.1B (9%)
Business
Consulting &
Strategy
$0.6 – 0.8B (7%)
Custom Analytic
Development $0.7
– 0.9B (8%)
Services $40MM
Data $5MM
65
Significant Organic Growth Potential
Market Distribution
© 2006 Fair Isaac Corporation. Confidential.
66
Areas of Focus and Opportunity
 Drive Scoring Opportunities
 Large Project Extensions
 Industry Specific Solutions
 BI – Analytic Dashboards

FICO Expansion Score

Fraud Scores

Behavior Scores
 Horizon 3 to Horizon 2
 ETL – Telecom Fraud

Consumer Policy Origination

Best Next Offer

Revenue Assurance
 Reporting and Analytic Model
Effectiveness
 Visualization
 Load and Compare Switch Records
and Billing Records
© 2006 Fair Isaac Corporation. Confidential.
67

Very High Volumes (1.5 Billion / day)

Near Real Time

Fraud Pattern Detection
Market Map – 2005
With Examples of Companies In Major Areas
Total North America 2005 EDM Market $9.4B - $11.6B
Software
$2.7 - 3.3B
Internal
Application
Development
$0.7 - 0.9B
(8%)
BI $0.6 - 0.7B
(5%)
Data
$2.4 - 3.0B
Data
Preparation &
Integration
$1.6 – 1.9B
(17%)
Services
$4.3 - 5.3B
Systems Integration
$3.0 – 3.6B
(32%)
CRM $0.4 – 0.5B
(4%)
•
• IBM Consulting Svcs
($14,200M)
• Deloitte Consulting
($7,200M)
Other
Decision
Oriented
Software
$1.0 – 1.2B
(10%)
Scoring &
Other
Decision ASP
Solutions
$0.9 – 1.1B
(9%)
Business
Consulting &
Strategy
$0.6 – 0.8B
(7%)
Custom
Analytic
Development
$0.7 – 0.9B
(8%)
Source: Fair Isaac research
Note: Revenues are approximate 2005 Revenues from various sources as well as Fair Isaac estimates
© 2006 Fair Isaac Corporation. Confidential.
($47,357M)
E&Y ($16,902M)
•
• EDS ($19,757M)
• Acxiom ($1,332M)
• HarteHanks($1,135M)
• Equifax ($1,443M)
• McKinsey
($3,000Mest)
Bain ($3,477M)
• Accenture ($17,094M)
• IBM Global Svcs
68
Key Offerings – Professional Services
 FY06




Custom Models
Custom Solutions
Application Implementation
Tool Training and Mentoring
 FY07 Additional Offerings – Targeted Industries



Insurance – New Policy Origination
Retail – Best Next Action
Telco – Revenue Assurance

© 2006 Fair Isaac Corporation. Confidential.
Packaged Solution Offerings Drive Services
69
Growth Drivers – Professional Services
 Industry Growth in North America

Insurance
Retail

Telco

 International Market Expansion


UK
Western Europe
 Analytics
 Strategy Consulting
Leverage Analytics
 Leverage Business Rules
 Leverage Packaged Solutions

© 2006 Fair Isaac Corporation. Confidential.
70
Go-To-Market Strategy
Mike Campbell
© 2006 Fair Isaac Corporation. Confidential.
71
Product-Centric Model
CEO
Go-To-Market
Function
Product Management
Direct Sales
Operations &
Product Delivery
Product Development
International Markets
Marketing
Corporate
Development
Insurance / Bill Review
Prod Mktg & Strategy
Healthcare
Corporate Marketing
Research &
Development
Corporate
Services
CFO
TSI / CIO
Group VP
Consumer
General Counsel
LB-Phoenix
Human Resources
Legal - Contracts
Admin
Precision Marketing
Marketing Services
Group VP
Account Management
LB Collections & Recoveries
Fraud-Telco
Fraud-Falcon
Fraud-Enterprise
Group VP
Scoring
FIC Originations
LB-Mortgage
LB-BridgeLink
EDM Services
Strategy Science
Group VP
Analytic Software Tools
Predictive Science
LB-Tools (Vectus)
© 2006 Fair Isaac Corporation. Confidential.
72
Client-Centric Model
Tools & Analytics Sales
Innovation Mgmt (new decision areas)
Practice Mgmt (Methodology)
EDM Architecture
Product Planning
Product Requirements
Standard Pricing
Build Product Literacy
EDM
Applications
Strategic Planning
Product Implementation
Consulting
Marketing
Engagement Mgmt
Analytic Consulting
Integrated
Client Networks
ICN & Prod Marketing
Proposal Effectiveness
EDM Tech
& Custom
Solutions
ASP
Operations
Customer Programs
Application hosting
Bus Process
Execution
Corp Marketing
Application Building
Product
Development
Corporate
Operations
Feature/Function Updates
Quality Assurance
R&D
Product Support
Ideation
Research
Validation
73
Legal & Contract Admin
Human Resources
Incubation
© 2006 Fair Isaac Corporation. Confidential.
Finance & Accounting
TSI
Industry Coverage

Financial Services

Insurance

Telecom

Retail/CBG

High Tech

Travel, Media & Entertainment

Pharmaceuticals

Healthcare

Government
© 2006 Fair Isaac Corporation. Confidential.
74
Geographic Coverage

Eastern Europe

Western Europe

Asia Pacific

Latin America

China
© 2006 Fair Isaac Corporation. Confidential.
75
Typical ICN “Talent Pyramid”
ICN Lead
(1)
Partners
(2-3)
Associate Partners
(5-7)
Client Support Roles
(10-20)
© 2006 Fair Isaac Corporation. Confidential.
76
Product-Centric vs. Client-Centric
Product-Centric (old model)
 Multiple-product AEs call on each client
 Internal competition over clients
 No central point of contact to understand customers’ business
Client-Centric (new model)
 Client Partner owns customer relationship, consults with client to identify
business needs. Develops solutions that fully utilize FIC applications and
core competencies
 Client Partner drives product management and practice area resources
to fit needs of customer
 Client Partner fosters ongoing relationship to maximize future
opportunities not just quarterly goals
© 2006 Fair Isaac Corporation. Confidential.
77
Is Customer Centric Working?

Multiple-product deals (more than $2M in current-quarter
revenue)



FY05 – 1 deal
First half of FY06 – 1 deal
Q3/Q4 – 4 deals

Higher level audiences

More natural product extensions
© 2006 Fair Isaac Corporation. Confidential.
78
Is the EDM message working?
 Customer centric and EDM go handin-hand
 EDM makes sense as a vision
 The vision can be achieved step-bystep
© 2006 Fair Isaac Corporation. Confidential.
79
Is the EDM message working?
 Financial Services
 New Industries
 New countries
© 2006 Fair Isaac Corporation. Confidential.
80
Financial Overview
Mike Pung / John Emerick
© 2006 Fair Isaac Corporation. Confidential.
81
Superior Financial Results – Revenue
$1,000
Total Revenue
Recurring Revenue
$900
$800
$700
$500
Estimate
(In millions)
$600
$400
$300
$200
$100
$329.1
$392.4
$629.3
$706.2
$798.7
$825.4
$870.0
FY 2002A
FY 2003A
FY 2004A
FY 2005A
FY 2006A
FY2007E
$0
FY 2001A
– 2001 recurring revenue was the majority of total revenue, however, FIC did not report recurring revenue
– 2002 recurring estimated based on mid-year acquisition of HNC
– 2007 recurring estimated based on guidance
© 2006 Fair Isaac Corporation. Confidential.
82
Core Revenue Growth Remains Strong
$900
$800
6 Yr CAGR: 16.1%
$700
2 Yr CAGR: 6.0%
$500
Estimate
(In millions)
$600
$400
$300
$200
$100
$329.1
$392.4
$488.2
$548.2
$716.0
$761.2
$804.7
FY 2002A
FY 2003A
FY 2004A
FY 2005A
FY 2006A
FY2007E
$0
FY 2001A
– Core Revenue excludes Insurance and Marketing Services
© 2006 Fair Isaac Corporation. Confidential.
83
Revenue – Vertical Markets
Retail Insurance
Telecom 6%
8%
5%
Other
15%
Financial
Services
66%
Retail
Telecom 6%
5%
Insurance
7%
Other
14%
Financial
Services
68%
Fiscal 2006
Fourth Quarter
Fiscal 2006
© 2006 Fair Isaac Corporation. Confidential.
84
Revenue – Geographic
International
28%
US
72%
International
29%
Fiscal 2006
US
71%
Fourth Quarter
Fiscal 2006
© 2006 Fair Isaac Corporation. Confidential.
85
Software and Services Will Drive Growth
Software
$900.0
Data
Services
$870.0
$825.4
$800.0
$162.0
$145.3
(In millions)
$700.0
$600.0
$246.6
$242.2
$500.0
$400.0
$300.0
$200.0
$437.9
$461.6
2006A
2007E
$100.0
$0.0
© 2006 Fair Isaac Corporation. Confidential.
86
Strong Profitability Measures
Per Share
Margin
$5.00
GAAP EPS
EBITDA/Share
100.00%
Pro Forma Margin
$4.67
$4.50
$4.00
80.00%
$4.04
$3.50
70.00%
$3.54
$3.12
$3.00
90.00%
60.00%
$2.92
$2.50
50.00%
$2.23
$2.00
$2.10
$1.87
40.00%
$1.86
$1.50
30.00%
$1.59
$1.40
$1.31
$1.00
20.00%
$0.89
$0.50
10.00%
$0.32
$0.00
0.00%
FY 2001A
FY 2002A
FY 2003A
FY 2004A
– Reflects 3 for 2 stock splits effective June 2001, June 2002 and March 2004
– See reconciliation for non-GAAP metrics
© 2006 Fair Isaac Corporation. Confidential.
87
FY 2005A
FY2006A
FY2007E
Significant Cash Flow
$350
EBITDA
Free Cash Flow
$293.1
$300
$263.3
$244.5
$250
$228.0
(In millions)
$221.6
$226.8
$192.4
$200
$77.1
$171.2
$162.5
$152.4
$150
$100
$50
$45.2
$185.7
$125.5
$97.2
$77.1
$45.2
$0
FY2001
FY2002
FY2003
FY2004
– See reconciliation for non-GAAP metrics
© 2006 Fair Isaac Corporation. Confidential.
88
FY2005
FY2006
FY2007E
Pro Forma Operating Margin Analysis
Operating Margins
$ in millions
Actual
2005
Actual
2006
Estimate
2007
Revenue (as reported )
798.7
825.4
870.0
Operating Income (as reported )
193.0
152.7
203.0
25.9
25.9
25.2
19.7
42.1
86.9
23.8
38.4
62.2
218.9
239.7
265.2
Adjustments:
Amortization of Intangible Assets (as reported)
In-process research & development (as reported)
Restructuring & merger related (as reported)
Stock Based Compensation (FASB 123R)
Sub-Total of Adjustments
Pro forma Operating Income
Pro forma Operating Margin
© 2006 Fair Isaac Corporation. Confidential.
27.4%
89
29.0%
30.5%
Strong Capital Position (as of 9/30/06)

Select Balance Sheet accounts:



Cash and Marketable Securities
Debt (Convertible)
Shareholders’ Equity
$227 million
$400 million
$770 million

On November 1, 2006 the Board authorized a new $500 million share
repurchase program to replace the August 2006 program

On October 23rd we announced a new $300 million revolving credit
facility. The structure of the revolver includes a $200 million “Upsize”
option.

Minimal investment in PP&E needed to support growth

Debt to Equity ratio of 52%

Modest need to invest in working capital due to growth initiatives
© 2006 Fair Isaac Corporation. Confidential.
90
Priorities for Driving Shareholder Value
Balance
growth and returns
to deliver shareholder value
Growth Agenda
Return on Capital
Financial Policies
Strong capital structure
Consistent revenue growth

Core Revenue: 5-10%
Focus on capital efficiency

CapEx % of revenues

Working Capital

Operating Leverage

Financial Leverage
Analytics & Decision Mgmt.

EDM positioning
Acquisition strategy

Must be EPS Accretive
5-10% Revenue Growth
© 2006 Fair Isaac Corporation. Confidential.
Create Free Cash Flow
& Improve ROIC
91

$300mm Revolver
Modest dividends
Share Repurchase Program

New $500mm Program

Bought 6.97mm shrs in’06

Repurchased an average
of 11% of shrs outstanding
over last 3 years
Implied “BB/BBB” Rating
Fair Isaac Stock Repurchase Summary
FY 2004 – FY 2006
Fiscal Year
Q2
Q3
Q4
FY 2004 Total
Q1
Q2
Q3
Q4
FY 2005 Total
Q1
Q3
Q4
FY 2006 Total
Grand Total
© 2006 Fair Isaac Corporation. Confidential.
Actual Year-End
Shares
Shares
Date Shares
Purchased
Repurchased Outstanding
as a % of
669,500
830,500
1,175,300
2,675,300
69,579,356
5.7%
3,248,200
507,000
3,019,100
2,450,500
9,224,800
63,835,779
13.3%
283,300
2,953,400
3,734,028
6,970,728
59,369,271
10.9%
18,870,828
11.3%
92
Dollars Spent
40,652,600
28,081,641
32,389,931
101,124,172
109,891,978
17,155,744
104,786,489
96,703,227
328,537,438
12,766,012
111,340,548
132,381,577
256,488,137
686,149,747
Investment Highlights

Strong Board support and governance

Experienced and successful management team

Excellent market position and brand awareness

Strong recurring revenues

High operating leverage

Strong operating, net income and EBITDA margins

Significant free cash flow

Low capital intensity

Strong Balance Sheet

Consistent execution under share repurchase strategy
© 2006 Fair Isaac Corporation. Confidential.
93
“
We sell a radically different way
of making decisions that flies in
the face of tradition.
Ready to” fly?
Bill Fair