10-QPeriod: Q1 FY2015

FAIR ISAAC CORP Quarterly Report for Q1 Ended Dec 31, 2014

Filed January 29, 2015For Securities:FICO

Summary

Fair Isaac Corporation (FICO) reported revenues of $189.55 million for the quarter ended December 31, 2014, a 3% increase from $184.34 million in the same quarter of the previous year. While overall revenue growth was modest, the company saw a significant increase in the Tools segment (+19%), driven by a substantial boost in license revenue due to a one-time settlement. The Applications segment also grew by 3%, whereas the Scores segment experienced a 7% decline in revenue, primarily due to lower business-to-business Scores revenue and a decrease in myFICO.com direct sales and royalties. Profitability faced pressure, with net income decreasing by 15% to $14.4 million from $17.0 million year-over-year. This was largely due to increased operating expenses, particularly in Cost of Revenues (+16%) and Research and Development (+25%), reflecting investments in cloud computing, SaaS, and new product development, as well as higher personnel costs. The company also saw a significant decrease in its effective tax rate from 37.5% to 21.4%, primarily due to the retroactive extension of the U.S. Federal Research and Development Credit.

Financial Highlights

50 data points
Beta

Revenue

$189.55M

65.0% Gross Margin

Net Income

$14.41M

7.6% Net Margin

EPS (Diluted)

$0.43

Total Assets

$1.17B

Cash & Equivalents

$94.65M

Free Cash Flow

-$4.31M

Financial Statements
Beta
Revenue$189.55M
Cost of Revenue$66.30M
Gross Profit$123.25M
R&D Expenses$22.64M
SG&A Expenses$72.80M
Operating Expenses$164.67M
Operating Income$24.88M
Interest Expense$7.21M
Net Income$14.41M
EPS (Basic)$0.45
EPS (Diluted)$0.43
Shares Outstanding (Basic)31.94M
Shares Outstanding (Diluted)33.13M

Key Highlights

  • 1Total revenues increased by 3% year-over-year to $189.55 million for the quarter, driven by growth in the Applications and Tools segments.
  • 2Net income declined by 15% to $14.4 million, impacted by increased operating expenses, especially in Cost of Revenues and R&D.
  • 3The Tools segment showed strong revenue growth of 19%, largely due to a one-time settlement related to a customer's royalty under-reporting.
  • 4The Scores segment revenue decreased by 7%, primarily affected by a decline in business-to-business Scores and myFICO.com services.
  • 5Operating expenses rose by 10% overall, with significant increases in Cost of Revenues (+16%) and Research & Development (+25%).
  • 6The effective tax rate decreased substantially from 37.5% to 21.4% due to the retroactive extension of the R&D tax credit.
  • 7The company repurchased $60.6 million of common stock during the quarter under its new $250 million repurchase program.

Frequently Asked Questions

FICO's main revenue drivers were its Applications and Tools segments. The Applications segment, accounting for 61% of total segment revenues, saw a 3% increase. The Tools segment experienced a significant 19% revenue jump, primarily boosted by a one-time customer settlement related to royalty under-reporting.

Net income decreased by 15% primarily due to a substantial increase in operating expenses. Cost of Revenues rose by 16% and Research & Development expenses increased by 25%, reflecting increased investment in cloud computing, SaaS, new product development, and higher personnel costs. While total revenues grew, the rise in expenses outpaced revenue growth, impacting profitability.

FICO had $94.7 million in cash and cash equivalents at the end of the quarter. The company refinanced its revolving line of credit in December 2014, increasing borrowing capacity to $400 million, which expires in December 2019. They had $160 million in borrowings outstanding under this facility at a weighted average interest rate of 1.295%. FICO also has $447 million in senior notes outstanding. The company believes its cash, available credit, and anticipated operating cash flows are sufficient to meet its working capital needs, including a $71 million principal payment due in May 2015.

The acquisition of TONBELLER, which closed on January 12, 2015 (subsequent to this reporting period), is expected to enhance FICO's offerings in financial crime and compliance solutions. The company stated that the pro forma impact of this acquisition is not expected to be material to its results of operations.