10-QPeriod: Q1 FY2018

FAIR ISAAC CORP Quarterly Report for Q1 Ended Dec 31, 2017

Filed January 25, 2018For Securities:FICO

Summary

Fair Isaac Corporation (FICO) reported its fiscal second-quarter 2018 results, showing a 7% increase in total revenues to $235.3 million, driven primarily by strong performance in the Scores segment, which saw an 18% revenue jump. The company's cloud-first strategy continues to show traction, with cloud revenues growing to $56.6 million. While operating income increased by 14% to $39.9 million, net income experienced a significant 28% decrease to $27.3 million. This decline was largely due to the impact of the Tax Cuts and Jobs Act enacted in December 2017, which resulted in substantial income tax expenses related to deferred tax assets and a deemed repatriation transition tax. FICO demonstrated a continued commitment to shareholder value through its stock repurchase program, buying back $49.6 million worth of shares during the quarter, with $237.0 million remaining authorization. The company also amended its credit agreement, increasing its revolving line of credit to $600 million, providing ample liquidity for operational needs and potential future investments. Despite the net income dip, the underlying operational performance, particularly in the key Scores segment and the growing cloud business, indicates continued strategic execution by FICO.

Financial Highlights

51 data points
Beta

Revenue

$232.36M

68.0% Gross Margin

Net Income

$32.88M

14.1% Net Margin

EPS (Diluted)

$1.04

Total Assets

$1.24B

Cash & Equivalents

$94.21M

Free Cash Flow

$24.73M

Financial Statements
Beta
Revenue$232.36M
Cost of Revenue$74.43M
Gross Profit$157.93M
R&D Expenses$28.97M
SG&A Expenses$90.34M
Operating Expenses$195.54M
Operating Income$36.83M
Interest Expense$6.46M
Net Income$32.88M
EPS (Basic)$1.09
EPS (Diluted)$1.04
Shares Outstanding (Basic)30.08M
Shares Outstanding (Diluted)31.56M

Key Highlights

  • 1Total revenues increased by 7% to $235.3 million, driven by robust growth in the Scores segment (up 18%).
  • 2Cloud revenues reached $56.6 million, representing 24% of total revenues, highlighting progress in FICO's cloud-first strategy.
  • 3Operating income grew by 14% to $39.9 million, indicating strong operational performance.
  • 4Net income decreased by 28% to $27.3 million, primarily due to a significant tax provision related to the Tax Cuts and Jobs Act.
  • 5The company repurchased $49.6 million of its common stock during the quarter, underscoring its commitment to returning capital to shareholders.
  • 6FICO amended its revolving credit facility, increasing borrowing capacity to $600 million, enhancing financial flexibility.

Frequently Asked Questions

The substantial decrease in net income is primarily attributed to the impact of the Tax Cuts and Jobs Act enacted in December 2017. This legislation led to a significant income tax expense, including provisional charges for the remeasurement of deferred tax assets and a deemed repatriation transition tax on foreign earnings. These one-time tax-related charges overshadowed the positive operational performance.

The company's cloud-first strategy is showing positive momentum. Cloud revenues increased to $56.6 million during the quarter, accounting for 24% of total revenues, up from 23% in the prior year's comparable quarter. This indicates increasing adoption of FICO's cloud-based offerings across its segments.

FICO continues to actively repurchase its common stock. In the quarter ended December 31, 2017, the company repurchased approximately 334,918 shares for $49.6 million. As of December 31, 2017, there was $237.0 million remaining under its current stock repurchase program, demonstrating a commitment to returning value to shareholders.

FICO manages foreign exchange risk primarily through the use of foreign currency forward contracts. These contracts are used to protect against fluctuations in foreign exchange rates on foreign-currency-denominated receivable and cash balances before they are converted to their functional currencies. These contracts are short-term, typically with maturities of less than three months, and are marked to market through other income (expense), net.