FICO(US:FICO)2024-01-24 16:00PART I – FINANCIAL INFORMATION Item 1. Unaudited Financial Statements For the quarter ended December 31, 2023, Fair Isaac Corporation reported total revenues of $382.1 million, an 11% increase year-over-year, and a net income of $121.1 million, a 24% increase Condensed Consolidated Statements of Income (Q1 FY24 vs Q1 FY23) | Metric | Quarter Ended Dec 31, 2023 (in millions) | Quarter Ended Dec 31, 2022 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $382.1 | $344.9 | 10.8% | | Operating Income | $151.4 | $140.3 | 7.8% | | Net Income | $121.1 | $97.6 | 24.0% | | Diluted EPS | $4.80 | $3.84 | 25.0% | Condensed Consolidated Balance Sheet Highlights | Metric | Dec 31, 2023 (in millions) | Sep 30, 2023 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $160.4 | $136.8 | | Total Assets | $1,593.5 | $1,575.3 | | Total Liabilities | $2,319.3 | $2,263.3 | | Total Stockholders' Deficit | $(725.8) | $(688.0) | Condensed Consolidated Statements of Cash Flows (Q1 FY24 vs Q1 FY23) | Cash Flow Activity | Quarter Ended Dec 31, 2023 (in millions) | Quarter Ended Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $122.1 | $92.4 | | Net cash used in investing activities | $(2.4) | $(10.6) | | Net cash used in financing activities | $(99.9) | $(79.6) | Note 7: Revenue from Contracts with Customers Revenue is disaggregated by geography, segment, and product type, with Americas representing 83% of total revenue and Scores and Software segments each contributing 50% Revenue by Primary Geographical Market (Q1 FY24) | Region | Revenue (in millions) | Percentage | | :--- | :--- | :--- | | Americas | $318.5 | 83% | | Europe, Middle East and Africa | $36.4 | 10% | | Asia Pacific | $27.2 | 7% | Software Revenue by Deployment Method (Q1 FY24 vs Q1 FY23) | Deployment | Q1 2023 (in millions) | Q1 2022 (in millions) | | :--- | :--- | :--- | | On-premises software | $72.5 | $64.9 | | SaaS software | $96.2 | $79.6 | Scores Revenue by Distribution Method (Q1 FY24 vs Q1 FY23) | Distribution | Q1 2023 (in millions) | Q1 2022 (in millions) | | :--- | :--- | :--- | | Business-to-business Scores | $140.4 | $124.9 | | Business-to-consumer Scores | $51.7 | $53.1 | - Revenues from the three major consumer reporting agencies (TransUnion, Equifax, Experian) accounted for 39% of total revenues in Q1 FY24, up from 36% in Q1 FY2391 - As of December 31, 2023, revenue allocated to remaining performance obligations was $470.8 million, with approximately 50% expected to be recognized over the next 16 months97 Note 6: Debt As of December 31, 2023, total debt stood at $1.96 billion, consisting of a revolving line of credit, a term loan, and three series of Senior Notes, with the company in compliance with all financial covenants Debt Composition (as of Dec 31, 2023) | Debt Component | Carrying Value (in millions) | | :--- | :--- | | Revolving line of credit | $403.0 | | Term loan | $270.0 | | The 2018 Senior Notes | $400.0 | | The 2019 & 2021 Senior Notes | $900.0 | | Less: debt issuance costs | $(11.3) | | Total Debt | $1,961.7 | - As of December 31, 2023, the company had $403.0 million outstanding under its revolving line of credit and was in compliance with all financial covenants58 Note 9: Share-Based Employee Benefit Plans The company maintains the 2021 Long-Term Incentive Plan and the 2019 Employee Stock Purchase Plan, granting 91 thousand restricted stock units, 18 thousand performance share units, 64 thousand market share units, and 6 thousand stock options during the quarter Equity Award Activity (Q1 FY24, in thousands of shares) | Award Type | Outstanding at Sep 30, 2023 | Granted | Released/Exercised | Forfeited | Outstanding at Dec 31, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | Restricted Stock Units | 376 | 91 | (132) | (11) | 324 | | Performance Share Units | 115 | 18 | (58) | (8) | 67 | | Market Share Units | 87 | 64 | (84) | (5) | 62 | | Stock Options | 227 | 6 | (31) | 0 | 202 | Note 11: Segment Information The company operates in two segments: Scores and Software, with Scores generating $192.1 million in revenue and $168.7 million in operating income, and Software generating $189.9 million in revenue and $55.1 million in operating income for Q1 FY24 Segment Performance (Q1 FY24, in millions) | Segment | Total Revenues | Segment Operating Income | Operating Margin | | :--- | :--- | :--- | :--- | | Scores | $192.1 | $168.7 | 87.8% | | Software | $189.9 | $55.1 | 29.0% | | Unallocated Corporate | - | $(40.6) | - | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported an 11% year-over-year revenue increase to $382.1 million for Q1 FY24, driven by growth in both Scores (+8%) and Software (+14%) segments Financial Highlights (Q1 FY24 vs Q1 FY23) | Metric | Q1 FY24 | Q1 FY23 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $382.1M | $344.9M | +11% | | Scores Revenue | $192.1M | $178.0M | +8% | | Operating Income | $151.4M | $140.3M | +8% | | Net Income | $121.1M | $97.6M | +24% | | Diluted EPS | $4.80 | $3.84 | +25% | Key Performance Metrics for Software Segment Software segment performance showed strong growth in recurring revenue but a decline in new bookings, with Annual Recurring Revenue (ARR) growing 18% year-over-year to $687.7 million Annual Recurring Revenue (ARR) Trend | Date | Total ARR (in millions) | YoY Change | | :--- | :--- | :--- | | Dec 31, 2022 | $582.9 | 11% | | Mar 31, 2023 | $613.5 | 17% | | Jun 30, 2023 | $645.9 | 20% | | Sep 30, 2023 | $669.4 | 22% | | Dec 31, 2023 | $687.7 | 18% | - Platform ARR grew 43% YoY to $190.3 million, representing 28% of total ARR as of December 31, 2023126 Annual Contract Value (ACV) Bookings | Period | ACV Bookings (in millions) | | :--- | :--- | | Q1 FY24 | $18.3 | | Q1 FY23 | $21.5 | - The Dollar-Based Net Retention Rate (DBNRR) for the software segment was 114% for the quarter ended December 31, 2023, down from 120% in the previous quarter but up from 110% in the prior-year quarter129 Results of Operations Total revenues increased 11% YoY, with Scores revenue up 8% and Software revenue up 14%, while total operating expenses rose 13% to $230.7 million, resulting in an 8% operating income growth to $151.4 million - Scores segment revenue increased by $14.1 million (8%) YoY, primarily due to higher unit prices in B2B scores, slightly offset by a decrease in B2C revenue from myFICO.com133 - Software segment revenue increased by $23.1 million (14%) YoY, driven by a $24.1 million increase in on-premises and SaaS software revenue, mainly from SaaS growth134 - Operating expenses increased by $26.2 million (13%) YoY, primarily due to higher personnel and labor costs across Cost of Revenues (+$3.9M), R&D (+$6.0M), and SG&A (+$7.4M)162188163 - The effective tax rate for the quarter was 7.3%, compared to 17.2% in the prior-year quarter, favorably impacted by excess tax benefits relating to stock awards19480 Capital Resources and Liquidity As of December 31, 2023, the company had $160.4 million in cash and cash equivalents, with net cash from operations increasing to $122.1 million YoY, and a new $500 million stock repurchase program approved in January 2024 - Cash and cash equivalents were $160.4 million at quarter-end, with $114.5 million held by foreign subsidiaries173 - Net cash provided by operating activities increased by $29.7 million YoY, primarily due to a $23.4 million increase in net income202 - The company repurchased $71.7 million of common stock during the quarter, and a new $500.0 million stock repurchase program was authorized and became effective on January 23, 2024203177 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk from changes in interest rates and foreign exchange rates, managing foreign currency risk with short-term forward contracts and not using derivatives for speculative purposes - The company has interest rate risk on its variable-rate debt, which totaled $673.0 million as of December 31, 2023, comprising $403.0 million from the revolving line of credit and $270.0 million from the term loan209 - The fair value of the company's $1.3 billion in fixed-rate Senior Notes is sensitive to interest rate fluctuations, with the fair value estimated at $1.242 billion as of December 31, 2023233 - To manage foreign exchange risk, the company uses forward contracts to sell or buy foreign currencies, primarily the Euro, British pound, and Singapore dollar, with all contracts having maturities of less than three months21043 Item 4. Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that FICO's disclosure controls and procedures were effective as of December 31, 2023137 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls239 PART II – OTHER INFORMATION Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023 - The company states there have been no material changes from the risk factors disclosed in its Annual Report on Form 10-K for the fiscal year ended September 30, 2023216 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended December 31, 2023, the company repurchased 78,365 shares for approximately $71.7 million, with $48.8 million remaining under the then-current program, and a new $500 million program approved in January 2024 Issuer Purchases of Equity Securities (Q1 FY24) | Period | Total Shares Purchased | Average Price Paid per Share ($) | Approx. Value Remaining for Repurchase (in millions) | | :--- | :--- | :--- | :--- | | Oct 2023 | 63,365 | $873.57 | $65.2 | | Nov 2023 | 12,000 | $1,081.35 | $52.2 | | Dec 2023 | 3,000 | $1,133.89 | $48.8 | | Total | 78,365 | $1,045.06 | $48.8 | - In January 2024, the Board of Directors approved a new stock repurchase program authorizing up to $500.0 million in share repurchases, replacing the October 2022 program217 Item 5. Other Information On November 13, 2023, CEO William Lansing entered into a pre-arranged Rule 10b5-1 trading plan for the sale of up to 24,000 shares of common stock, terminating by August 15, 2024 - CEO William Lansing entered into a Rule 10b5-1 trading plan on November 13, 2023, to sell up to 24,000 shares of common stock, with the plan terminating on the earlier of August 15, 2024, or when all shares are sold250 Item 6. Exhibits The report lists several exhibits filed with the SEC, including CEO and CFO certifications (Rule 13a-14(a) and Section 1350) and Inline XBRL documents