10-QPeriod: Q1 FY2005

FAIR ISAAC CORP Quarterly Report for Q1 Ended Dec 31, 2004

Filed February 8, 2005For Securities:FICO

Summary

Fair Isaac Corporation (FICO) reported its fiscal second-quarter results for the period ended December 31, 2004. Total revenues increased by 15% year-over-year to $195.5 million, driven by growth across most segments, including Strategy Machine Solutions, Scoring Solutions, and Professional Services. This revenue growth was significantly influenced by recent acquisitions, notably London Bridge Software Holdings plc and Braun Consulting, Inc. However, net income saw a slight decrease of 3% to $27.9 million, translating to diluted earnings per share of $0.36, consistent with the prior year's quarter. The company's financial position remains solid with a decrease in cash and cash equivalents to $157.2 million from $159.9 million. The balance sheet reflects substantial goodwill and intangible assets resulting from acquisitions. FICO's management emphasizes its continued investment in research and development and selling, general, and administrative expenses, which increased by 28% and 24% respectively, largely due to integration of acquired businesses. The company also announced a new, larger stock repurchase program, signaling confidence in its financial outlook.

Key Highlights

  • 1Total revenues increased 15% to $195.5 million, driven by acquisitions and organic growth in key segments.
  • 2Net income slightly decreased by 3% to $27.9 million, with diluted EPS remaining flat at $0.36.
  • 3Significant increases in operating expenses, particularly R&D and SG&A, largely attributed to the integration of recent acquisitions (London Bridge and Braun).
  • 4The company completed the acquisition of Braun Consulting, Inc. for $37.1 million plus contingent consideration and divested London Bridge Phoenix Software, Inc. for $23.0 million.
  • 5Cash used in financing activities increased significantly due to $109.9 million in common stock repurchases.
  • 6A new stock repurchase program of up to $250 million was approved, replacing the previous $200 million program.
  • 7International revenues continue to grow, representing 25% of total revenues.

Frequently Asked Questions

Revenue growth was primarily driven by the acquisitions of London Bridge Software Holdings plc and Braun Consulting, Inc., which contributed significantly to the increase in revenues for the Strategy Machine Solutions, Scoring Solutions, and Professional Services segments. Organic growth in areas like fraud solutions and consumer solutions also contributed.

While revenues increased, net income saw a slight decrease. This was primarily due to increased operating expenses, including cost of revenues, R&D, SG&A, and amortization of intangible assets, which rose significantly due to the integration costs and amortization related to the acquired companies.

FICO is actively repurchasing its stock, with $109.9 million spent in this quarter and a new $250 million repurchase program authorized. The company believes its current cash balances and anticipated operating cash flows are sufficient to fund operations and future growth initiatives. They also continue to evaluate potential acquisitions and investments.

The company has $400 million in 1.5% Senior Convertible Notes. These notes are included in the diluted EPS calculation, adding approximately 9.1 million shares to the denominator. Interest expense related to these notes is reported, and the company is considering amendments to reduce their dilutive impact on EPS.