10-QPeriod: Q3 FY2011

FAIR ISAAC CORP Quarterly Report for Q3 Ended Jun 30, 2011

Filed August 8, 2011For Securities:FICO

Summary

Fair Isaac Corporation (FICO) reported its third-quarter and nine-month results for the period ended June 30, 2011. Total revenues for the quarter decreased by 3% to $150.7 million compared to the same period in the prior year, while year-to-date revenues saw a modest 2% increase to $459.4 million. The company experienced a decline in its Scores segment revenue, particularly in business-to-business offerings, partly due to a true-up of royalty fees. However, the Applications segment showed growth in fraud solutions and originations solutions, contributing positively to the overall revenue picture. Net income for the quarter rose by 29% to $23.2 million ($0.58 per diluted share) from $17.9 million ($0.40 per diluted share) in the prior year, driven by a significant reduction in operating expenses, including lower research and development and amortization costs, despite an increase in interest expense. Year-to-date net income decreased by 3% to $46.9 million ($1.16 per diluted share) from $48.6 million ($1.04 per diluted share) in the prior year, impacted by restructuring charges and higher interest expenses. The company maintained a strong cash position and positive operating cash flow, ending the period with $263.4 million in cash, cash equivalents, and marketable securities.

Financial Highlights

53 data points
Beta

Revenue

$150.68M

71.2% Gross Margin

Net Income

$23.19M

15.4% Net Margin

EPS (Diluted)

$0.58

Total Assets

$1.14B

Cash & Equivalents

$140.92M

Free Cash Flow

$42.22M

Financial Statements
Beta
Revenue$150.68M
Cost of Revenue$43.40M
Gross Profit$107.28M
R&D Expenses$14.29M
SG&A Expenses$53.64M
Operating Expenses$113.27M
Operating Income$37.41M
Interest Expense$8.02M
Net Income$23.19M
EPS (Basic)$0.59
EPS (Diluted)$0.58
Shares Outstanding (Basic)39.45M
Shares Outstanding (Diluted)40.24M

Key Highlights

  • 1Total revenues for the quarter ended June 30, 2011, were $150.7 million, a 3% decrease from $155.3 million in the prior year quarter.
  • 2Net income for the quarter increased significantly by 29% to $23.2 million, or $0.58 per diluted share, compared to $17.9 million, or $0.40 per diluted share, in the prior year.
  • 3Year-to-date revenues increased by 2% to $459.4 million, while net income decreased by 3% to $46.9 million compared to the same period last year.
  • 4Operating expenses decreased by 9% in the quarter, driven by lower Research & Development and Amortization of Intangible Assets, contributing to the rise in net income.
  • 5The Scores segment revenue experienced a 10% decline in the quarter, mainly due to a decrease in business-to-business scores revenue.
  • 6The Applications segment revenue saw a slight increase of 1% in the quarter and a 5% increase year-to-date, with growth in fraud and originations solutions.
  • 7Cash flows from operating activities were strong, providing $105.1 million in cash for the nine months ended June 30, 2011.
  • 8The company had $263.4 million in cash, cash equivalents and marketable securities as of June 30, 2011, indicating a solid liquidity position.

Frequently Asked Questions

The significant increase in net income for the quarter was primarily driven by a substantial reduction in operating expenses, particularly in research and development and amortization of intangible assets, which more than offset a slight decrease in total revenues and an increase in interest expense.

The company experienced a decline in revenue from its Scores segment, largely due to lower business-to-business scores revenue. However, the Applications segment showed positive growth, driven by increases in fraud solutions and originations solutions, partially offsetting the decline in the Scores segment.

Fair Isaac Corporation maintains a strong financial health and liquidity position. Operating cash flows were robust, and the company ended the period with $263.4 million in cash, cash equivalents, and marketable securities. They believe these resources, along with available credit, are sufficient to meet their obligations over the next twelve months.

The company is involved in ongoing litigation concerning credit scoring products, which could materially affect its relationships with credit reporting agencies and customers. Additionally, FICO faces risks related to its reliance on a few key customers and credit reporting agencies, the long and variable sales cycles of its products, competition, and the need to continuously innovate and adapt to rapidly changing technologies and regulatory environments.