10-QPeriod: Q2 FY2023

FAIR ISAAC CORP Quarterly Report for Q2 Ended Mar 31, 2023

Filed April 27, 2023For Securities:FICO

Summary

Fair Isaac Corporation (FICO) reported solid revenue growth in its fiscal second quarter and the first half of 2023, driven by its Scores and Software segments. Total revenues increased by 6% and 7% respectively for the quarter and six-month periods compared to the prior year. The Scores segment saw an 8% revenue increase in the quarter, largely due to higher business-to-business pricing, while the Software segment demonstrated robust growth with a 17% increase in Annual Recurring Revenue (ARR) and a strong Dollar-Based Net Retention Rate (DBNRR) of 114% in the quarter. Profitability remained strong, with operating income up 5% for the quarter and 12% for the six-month period. While net income saw a slight decrease of 3% in the quarter, it increased by 5% for the six-month period, reflecting ongoing investments and a shift in R&D focus. The company maintained a healthy balance sheet, with total debt remaining stable at $1.9 billion, and continued to return capital to shareholders through share repurchases, although at a reduced pace compared to the prior year. FICO's outlook suggests continued sufficiency of its cash flows and credit facilities to fund operations and future growth.

Financial Highlights

50 data points
Beta

Revenue

$380.27M

79.0% Gross Margin

Net Income

$101.55M

26.7% Net Margin

EPS (Diluted)

$4.00

Total Assets

$1.50B

Cash & Equivalents

$137.77M

Free Cash Flow

$88.28M

Financial Statements
Beta
Revenue$380.27M
Cost of Revenue$79.81M
Gross Profit$300.46M
R&D Expenses$40.27M
SG&A Expenses$100.16M
Operating Expenses$220.50M
Operating Income$159.76M
Interest Expense$23.90M
Net Income$101.55M
EPS (Basic)$4.04
EPS (Diluted)$4.00
Shares Outstanding (Basic)25.12M
Shares Outstanding (Diluted)25.42M

Key Highlights

  • 1Total revenues increased by 6% year-over-year to $380.3 million for the quarter ended March 31, 2023, and by 7% to $725.1 million for the first six months of the fiscal year.
  • 2The Scores segment revenue grew 8% year-over-year in the quarter, driven by increased business-to-business pricing, while the Software segment showed strong ARR growth of 17% year-over-year, reaching $613.5 million as of March 31, 2023.
  • 3Software segment's Dollar-Based Net Retention Rate (DBNRR) was a strong 114% for the quarter, indicating effective customer retention and expansion.
  • 4Operating income increased by 5% for the quarter to $159.8 million and by 12% for the six-month period to $300.1 million, demonstrating operational efficiency.
  • 5Diluted Earnings Per Share (EPS) saw a slight increase of 1% to $4.00 for the quarter but a significant 12% increase to $7.83 for the six-month period.
  • 6Cash flow from operations decreased by $65.2 million to $182.2 million for the first six months of the year, primarily due to timing of receipts and payments, and a reduction in non-cash items.
  • 7Total debt remained stable at $1.9 billion, and the company repurchased $116.3 million of stock in the quarter, indicating continued capital allocation, albeit at a slower pace than the prior year.

Frequently Asked Questions

Revenue growth was primarily driven by increases in both the Scores and Software segments. The Scores segment benefited from higher business-to-business pricing, while the Software segment saw growth from an increase in over-time recognition, largely due to SaaS growth, and professional services.

FICO maintained a stable total debt of $1.9 billion. The company has a $600 million revolving line of credit and a $300 million term loan, with significant capacity available. Management believes its current cash and credit facilities are sufficient to fund operations and anticipated capital requirements for at least the next 12 months.

A DBNRR of 114% for the Software segment is a key indicator of customer satisfaction and growth. It means that existing customers, on average, increased their spending with FICO by 14% from the prior year's ARR, excluding revenue from new customers. This highlights the company's ability to upsell, cross-sell, and retain its customer base within the Software segment.

Research and development expenses increased in the quarter and year-to-date periods, primarily due to increased infrastructure costs like third-party cloud computing. While this impacted short-term profitability, it reflects ongoing investment in FICO's technology and platforms, which is crucial for its long-term competitive positioning.