10-QPeriod: Q1 FY2004

FAIR ISAAC CORP Quarterly Report for Q1 Ended Dec 31, 2003

Filed February 13, 2004For Securities:FICO

Summary

Fair Isaac Corporation (FICO) reported a strong increase in revenue and net income for the quarter ended December 31, 2003, compared to the same period in the prior year. Revenue grew by 15% to $169.3 million, driven by significant growth in the Strategy Machine Solutions segment, which benefited from recent acquisitions and increased customer transaction volumes. Net income also saw a substantial rise of 45% to $28.8 million, or $0.62 per basic share, reflecting improved operating leverage and effective cost management, despite an increase in selling, general, and administrative expenses. The company's balance sheet shows a healthy increase in cash and cash equivalents, along with substantial investments in marketable securities. Operating cash flows remained robust, providing ample liquidity. FICO continues to strategically invest in acquisitions, with the recent addition of Seurat Company, and is managing its debt effectively, including the issuance of Senior Convertible Notes. The company demonstrates a positive outlook with continued international revenue growth and ongoing efforts to enhance shareholder value through dividends and share repurchases.

Key Highlights

  • 1Total revenues increased by 15% year-over-year to $169.3 million, indicating strong market demand for FICO's solutions.
  • 2Net income surged by 45% to $28.8 million, with diluted EPS rising to $0.59 from $0.38, demonstrating improved profitability.
  • 3Strategy Machine Solutions segment revenue grew by 21%, significantly contributing to overall revenue growth, bolstered by acquisitions and increased transaction volumes.
  • 4Operating cash flow increased to $67.7 million from $52.7 million, highlighting the company's strong operational cash generation capabilities.
  • 5The company's cash and cash equivalents and marketable securities position remained strong at $724.4 million, providing substantial financial flexibility.
  • 6FICO completed the acquisition of Seurat Company in October 2003, expanding its offerings in targeted customer acquisition and retention strategies.
  • 7International revenues continue to grow, representing 22% of total revenues, indicating successful global market penetration.

Frequently Asked Questions

The primary driver of revenue growth was the Strategy Machine Solutions segment, which saw a 21% increase due to higher revenues from account management solutions, insurance and healthcare solutions, fraud solutions, and marketing solutions. Recent acquisitions and increased customer transaction volumes in these areas were key contributors.

FICO's profitability significantly improved. Net income increased by 45% year-over-year to $28.8 million, and earnings per diluted share rose to $0.59 from $0.38. This improvement was driven by revenue growth and effective cost management, leading to a 52% increase in operating income.

FICO maintains a strong financial position with $724.4 million in cash, cash equivalents, and marketable securities as of December 31, 2003. Operating cash flows were robust at $67.7 million for the quarter, indicating sufficient liquidity to fund operations and future growth initiatives.

FICO acquired Seurat Company in October 2003 for $5.0 million, which provides solutions for customer targeting and retention. The company also issued $400 million in Senior Convertible Notes in August 2003, strengthening its capital structure. The balance sheet shows significant long-term debt related to these and other convertible notes.