10-KPeriod: FY2006

FAIR ISAAC CORP Annual Report, Year Ended Sep 30, 2006

Filed December 8, 2006For Securities:FICO

Summary

Fair Isaac Corporation (FICO) in its 2006 10-K filing, presents a robust business model centered around Enterprise Decision Management (EDM). The company provides analytics and decision management systems that are integral to thousands of companies globally, particularly in financial services, insurance, and telecommunications. Their core offerings include Strategy Machine Solutions, Scoring Solutions (famously FICO scores), Professional Services, and Analytic Software Tools. The company highlights its strong market position, driven by proprietary technologies and deep expertise in predictive analytics. Financially, FICO demonstrated solid revenue growth, with a notable increase in international sales, which represented 28% of total revenues in fiscal year 2006. While reporting increased operating expenses, partly due to adoption of new accounting standards for share-based compensation and restructuring charges, the company maintained profitability. FICO also actively engaged in share repurchases and continued to pay dividends, signaling confidence in its financial stability and commitment to shareholder returns. The company's strategic focus on expanding its EDM capabilities and entering new markets positions it for continued growth, although competitive pressures and the cyclical nature of some client industries present ongoing risks.

Key Highlights

  • 1Fair Isaac Corporation (FICO) is a leader in Enterprise Decision Management (EDM), providing analytics and decision systems for businesses across various sectors, including financial services, insurance, and telecommunications.
  • 2The company's revenue streams are diversified across four segments: Strategy Machine Solutions, Scoring Solutions, Professional Services, and Analytic Software Tools.
  • 3FICO reported strong revenue growth, reaching $825.4 million in fiscal year 2006, with international revenues contributing 28% of the total.
  • 4The company's flagship FICO scores are a standard measure of credit risk, used by most leading banks and credit card issuers.
  • 5FICO experienced increased operating expenses, influenced by the adoption of SFAS No. 123(R) for share-based compensation and restructuring charges, yet maintained profitability with net income of $103.5 million.
  • 6The company actively managed its capital through significant share repurchases totaling $256.5 million in fiscal year 2006 and maintained a consistent dividend payout.
  • 7Significant litigation was ongoing with major credit reporting agencies (Equifax, TransUnion, Experian) concerning competitive scoring products and unfair competition claims.

Frequently Asked Questions

Fair Isaac operates across four key segments: Strategy Machine Solutions (pre-configured applications for specific business problems like fraud and customer management, plus myFICO consumer services), Scoring Solutions (providing FICO scores and other predictive scores), Professional Services (consulting, system integration, and data management), and Analytic Software Tools (software for clients to build their own EDM applications, like Blaze Advisor).

In fiscal year 2006, Fair Isaac reported revenues of $825.4 million, a 3% increase from the prior year. Net income was $103.5 million, or $1.59 per diluted share. The company experienced higher operating expenses, partly due to the adoption of SFAS No. 123(R) and restructuring charges, but still maintained profitability and generated strong operating cash flows.

FICO scores are a widely used measure of credit risk. Fair Isaac generates revenue from its Scoring Solutions segment by licensing its scoring models to credit reporting agencies (like Equifax, TransUnion, and Experian) and other financial institutions. These agencies then often resell the scores to their clients, with a portion of the fees shared back with Fair Isaac. The company also offers direct consumer access to FICO scores through its myFICO services.

Key risks identified include the potential failure of their Enterprise Decision Management (EDM) strategy, reliance on a few key products and a small number of large customers (including credit reporting agencies), the long and variable sales cycles for their products, competition from established players and in-house developers, and regulatory changes impacting the financial services and credit industries.