10-QPeriod: Q3 FY2021

FAIR ISAAC CORP Quarterly Report for Q3 Ended Jun 30, 2021

Filed August 3, 2021For Securities:FICO

Summary

Fair Isaac Corporation (FICO) reported strong revenue growth in its third quarter of fiscal year 2021, driven primarily by its high-margin Scores segment. Total revenues increased by 8% year-over-year to $338.2 million. The Scores segment saw a significant 31% increase in revenue, reaching $172.2 million, fueled by both business-to-business and business-to-consumer offerings. This robust performance in the Scores segment, coupled with a notable gain from the divestiture of its Collections and Recovery (C&R) business, led to a substantial increase in profitability. Net income surged by 136% to $151.2 million for the quarter. The company also continued its commitment to returning capital to shareholders, repurchasing $246.0 million of common stock during the nine months ended June 30, 2021, including a $200.0 million accelerated share repurchase agreement. FICO's balance sheet remains solid, with substantial cash and cash equivalents, though the company is strategically shifting its focus towards its FICO Decision Management Platform products, which impacts revenue recognition timing for certain software sales but is expected to drive future growth.

Financial Highlights

50 data points
Beta

Revenue

$338.18M

75.7% Gross Margin

Net Income

$151.20M

44.7% Net Margin

EPS (Diluted)

$5.18

Total Assets

$1.59B

Cash & Equivalents

$237.61M

Free Cash Flow

$99.02M

Financial Statements
Beta
Revenue$338.18M
Cost of Revenue$82.24M
Gross Profit$255.94M
R&D Expenses$45.83M
SG&A Expenses$107.73M
Operating Expenses$143.80M
Operating Income$194.38M
Interest Expense$10.02M
Net Income$151.20M
EPS (Basic)$5.27
EPS (Diluted)$5.18
Shares Outstanding (Basic)28.69M
Shares Outstanding (Diluted)29.20M

Key Highlights

  • 1Total revenues increased 8% to $338.2 million for the quarter ended June 30, 2021, compared to $313.7 million in the prior year quarter.
  • 2The Scores segment revenue grew by a significant 31% to $172.2 million, driven by both B2B and B2C score offerings.
  • 3Net income more than doubled, increasing by 136% to $151.2 million for the quarter.
  • 4FICO recognized a $92.8 million gain from the divestiture of its Collections and Recovery (C&R) business in June 2021.
  • 5The company actively repurchased shares, with $246.0 million spent on common stock repurchases during the nine months ended June 30, 2021.
  • 6Operating income saw a substantial increase of 135% to $194.4 million, significantly boosted by the C&R divestiture gain.
  • 7Despite an overall revenue increase, revenue from Applications and Decision Management Software segments decreased, partly due to a strategic shift towards software and changes in revenue recognition for term license subscriptions.

Frequently Asked Questions

The substantial increase in net income was primarily driven by a combination of factors: a strong performance in the Scores segment, a significant operating gain of $92.8 million from the divestiture of the Collections and Recovery (C&R) business, and overall revenue growth. These factors collectively led to a 136% increase in net income to $151.2 million.

FICO is divesting non-platform-based products and focusing on its FICO Decision Management Platform. This strategic shift has led to changes in how term software licenses are sold, moving from separate license and maintenance components to bundled software subscription contracts. This change shifts revenue recognition over the subscription term, resulting in less revenue recognized upfront for these specific sales. While this impacts the timing of revenue recognition for term software licenses, the company states it does not affect the total revenue recognized over the contract's life or cash flows.

FICO continued to return capital to shareholders through its stock repurchase program. During the nine months ended June 30, 2021, the company repurchased approximately 1,031,000 shares for $501.2 million. This included an accelerated share repurchase (ASR) agreement entered into in June 2021 for $200.0 million. As of June 30, 2021, there was $225.3 million remaining under the current stock repurchase authorization.

The divestiture of the C&R business, completed on June 7, 2021, resulted in an operating gain of $92.8 million, which was recognized in the quarter ended June 30, 2021. This gain significantly boosted the company's operating income and net income for the period. The C&R business was part of the Applications segment and its divestiture aligns with FICO's strategy to focus on its core Decision Management Platform products.