Fair Isaac Corporation (FICO) — Form 10-Q
Reporting period: Fiscal second quarter and six months ended March 31, 2024. Unaudited results. FICO provides analytics software and credit scoring through its Scores and Software segments.
Financial performance
| Metric | Quarter ended March 31, 2024 | Change year over year | Six months ended March 31, 2024 | Change year over year |
|---|---|---|---|---|
| Revenue | $433.8 million | +14% | $815.9 million | +13% |
| Operating income | $194.8 million | +22% | $346.2 million | +15% |
| Net income | $129.8 million | +28% | $250.9 million | +26% |
| Diluted EPS | $5.16 | +29% | $9.96 | +27% |
| Operating margin | 45% | Up from 42% | 42% | Up from 41% |
Quarterly Scores revenue grew 19% to $236.9 million; Software revenue rose 8% to $196.9 million. In Software, on-premises and SaaS revenue increased 15%, while professional services revenue declined 27%, which management attributed partly to its emphasis on higher-margin software. Quarterly Scores growth reflected higher B2B unit pricing, partly offset by lower mortgage origination volumes and weaker direct-to-consumer sales.
Software annual recurring revenue was $697.0 million at March 31, up 14% year over year; dollar-based net retention was 112%. ACV Bookings were $16.8 million for the quarter versus $23.3 million a year earlier, and $35.1 million for the six months versus $44.8 million.
Cash flow, debt and liquidity
- Six-month operating cash flow was $193.2 million, compared with $182.2 million a year earlier. Investing used $12.0 million and financing used $183.2 million. Cash and cash equivalents were $135.7 million at March 31, versus $136.8 million at September 30, 2023.
- Total debt was $2.044 billion, up from $1.862 billion at September 30, 2023. This included $488.0 million drawn on the $600 million revolver and a $266.3 million term-loan balance. Revolver and term-loan rates were approximately 6.67%. The company reported compliance with debt covenants.
- FICO said cash, available revolver capacity and expected operating cash flows should fund requirements for at least 12 months and thereafter for the foreseeable future, including $15 million of term-loan principal payments over the next 12 months.
- FICO repurchased $251.3 million of shares during the six months and had $366.7 million remaining under its new $500 million repurchase authorization at March 31.
Changes, outlook and risks
Revenue growth and improved operating margins accompanied higher earnings. Software growth was led by SaaS and other recurring software revenue, while professional services and consumer Scores revenue weakened. Interest expense increased as average borrowing levels and rates rose. The six-month effective tax rate fell to 17.3% from 22.0%, favorably affected by excess tax benefits on stock awards.
The filing provides no specific revenue or earnings guidance. Management notes that future results may be affected by economic conditions and other risks described in its fiscal 2023 Form 10-K; it reported no material changes to those risk factors. Three consumer reporting agencies collectively generated 47% of quarterly revenue, up from 43% a year earlier. FICO also disclosed customer payment disputes, former-employee claims and ordinary-course legal matters, but said reasonably possible losses were not material individually or in aggregate. No material control changes were reported.
Investor facts to verify
- Whether lower ACV Bookings translate into slower future Software growth, notwithstanding ARR growth and 112% retention.
- The sustainability of Scores growth given pricing contributions and lower mortgage volumes, and the continued decline in consumer direct sales.
- Customer concentration, especially the three reporting agencies’ 47% share of quarterly revenue.
- Debt, borrowing costs, covenant headroom and the cash available after repurchases and equity-award tax settlements.
- The filing’s forward-looking risk disclosures and legal contingencies; the filing does not quantify potential losses for the described disputes.