FICO(FICO) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Unaudited Financial Statements This section presents Fair Isaac Corporation's unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, for periods ending March 31, 2024 Condensed Consolidated Balance Sheets Summarizes the company's financial position, showing assets, liabilities, and stockholders' deficit as of March 31, 2024, and September 30, 2023 | | March 31, 2024 (In thousands) | September 30, 2023 (In thousands) | | :--- | :--- | :--- | | Total current assets | $641,472 | $556,448 | | Total assets | $1,703,117 | $1,575,281 | | Total current liabilities | $315,120 | $367,688 | | Total liabilities | $2,438,777 | $2,263,271 | | Total stockholders' deficit | $(735,660) | $(687,990) | Condensed Consolidated Statements of Income and Comprehensive Income Presents the company's revenues, operating income, net income, and diluted EPS for the three and six-month periods ended March 31, 2024 and 2023 Financial Performance (Quarter Ended March 31) | Metric | 2024 (In thousands) | 2023 (In thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total revenues | $433,809 | $380,266 | +14.1% | | Operating income | $194,841 | $159,761 | +22.0% | | Net income | $129,799 | $101,550 | +27.8% | | Diluted EPS | $5.16 | $4.00 | +29.0% | Financial Performance (Six Months Ended March 31) | Metric | 2024 (In thousands) | 2023 (In thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total revenues | $815,868 | $725,136 | +12.5% | | Operating income | $346,200 | $300,100 | +15.4% | | Net income | $250,864 | $199,193 | +26.0% | | Diluted EPS | $9.96 | $7.83 | +27.2% | Condensed Consolidated Statements of Cash Flows Details the company's cash flows from operating, investing, and financing activities for the six months ended March 31, 2024 and 2023 Cash Flow Summary (Six Months Ended March 31) | Activity | 2024 (In thousands) | 2023 (In thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $193,155 | $182,244 | | Net cash used in investing activities | $(12,040) | $(11,887) | | Net cash used in financing activities | $(183,222) | $(173,245) | | Increase (decrease) in cash and cash equivalents | $(1,111) | $4,569 | | Cash and cash equivalents, end of period | $135,667 | $137,771 | Notes to Condensed Consolidated Financial Statements These notes provide detailed disclosures on accounting policies, financial statement components, debt structure, segment performance, and revenue recognition Note 6. Debt Details the company's debt composition, totaling approximately $2.04 billion as of March 31, 2024, and compliance with financial covenants Debt Composition (at carrying value) | Debt Component | March 31, 2024 (In thousands) | September 30, 2023 (In thousands) | | :--- | :--- | :--- | | Revolving line of credit | $488,000 | $300,000 | | Term loan | $266,250 | $273,750 | | Senior Notes (2018, 2019, 2021) | $1,300,000 | $1,300,000 | | Total debt (before issuance costs) | $2,054,250 | $1,873,750 | - The company has a $600 million unsecured revolving line of credit and a $300 million unsecured term loan, both maturing in August 2026[43] Note 7. Revenue from Contracts with Customers Disaggregates revenue by geography and customer concentration, highlighting Americas as the primary region and significant revenue from major consumer reporting agencies Revenue by Geography (Quarter Ended March 31, 2024) | Region | Revenue (In thousands) | Percentage | | :--- | :--- | :--- | | Americas | $364,017 | 84% | | Europe, Middle East and Africa | $42,257 | 10% | | Asia Pacific | $27,535 | 6% | | Total | $433,809 | 100% | - Revenues from the three major consumer reporting agencies (TransUnion, Equifax, Experian) accounted for 47% of total revenues in Q2 2024, up from 43% in Q2 2023[53] - Revenue allocated to remaining performance obligations was $481.7 million as of March 31, 2024, with approximately 50% expected to be recognized over the next 16 months[58] Note 10. Segment Information Provides financial performance details for the Scores and Software segments, including revenue and operating income for the quarter ended March 31, 2024 Segment Performance (Quarter Ended March 31, 2024 vs 2023) | Segment | Revenue 2024 (In thousands) | Revenue 2023 (In thousands) | Operating Income 2024 (In thousands) | Operating Income 2023 (In thousands) | | :--- | :--- | :--- | :--- | :--- | | Scores | $236,885 | $198,507 | $212,208 | $175,405 | | Software | $196,924 | $181,759 | $64,162 | $54,867 | - The Scores segment includes B2B and B2C scoring solutions, while the Software segment includes decision management solutions, FICO Platform, and associated professional services[64] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance for the quarter and six months ended March 31, 2024, covering revenue growth, segment results, and liquidity Q2 2024 Financial Highlights (YoY) | Metric | Q2 2024 | Change vs Q2 2023 | | :--- | :--- | :--- | | Total Revenue | $433.8M | +14% | | Scores Revenue | $236.9M | +19% | | Operating Income | $194.8M | +22% | | Net Income | $129.8M | +28% | | Diluted EPS | $5.16 | +29% | Key Performance Metrics for Software Segment Presents key non-GAAP performance metrics for the Software segment, including Annual Recurring Revenue, Dollar-Based Net Retention Rate, and ACV Bookings Software Segment Key Metrics | Metric | As of March 31, 2024 | YoY Change | | :--- | :--- | :--- | | Annual Recurring Revenue (ARR) | $697.0 million | +14% | | Dollar-Based Net Retention Rate (DBNRR) | 112% | -2 p.p. | | ACV Bookings (Q2) | $16.8 million | -27.9% | Results of Operations Analyzes the company's revenue and operating income performance, detailing segment-specific drivers and operating expense trends for the quarter - Scores B2B revenue growth was driven by higher unit prices, which offset a decrease in mortgage origination volume[88] - The decrease in professional services revenue is attributed to a strategic emphasis on higher-margin software products[89] - Operating expenses increased 8% YoY, slower than the 14% revenue growth, leading to operating margin expansion. The main drivers of expense growth were personnel and labor costs, including increased share-based compensation[92][99] Capital Resources and Liquidity Discusses the company's cash position, cash flows from operations, share repurchase activities, and overall liquidity and capital resources Six-Month Cash Flow Summary (Ended March 31) | Flow | 2024 (In millions) | 2023 (In millions) | | :--- | :--- | :--- | | Operating activities | $193.2 | $182.2 | | Investing activities | $(12.0) | $(11.9) | | Financing activities | $(183.2) | $(173.2) | - The company repurchased $179.5 million of its common stock in the quarter ended March 31, 2024, and $251.3 million in the six-month period[128] - The company believes existing cash, available borrowings from its $600 million revolving line of credit, and operating cash flows will be sufficient to fund capital requirements for at least the next 12 months[122] PART II – OTHER INFORMATION Item 1A. Risk Factors States that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes from the risk factors disclosed in the company's Annual Report on Form 10-K[144] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the company's repurchases of its own equity securities during the quarter and the status of its stock repurchase programs Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2024 | 42,512 | $1,182.34 | | February 2024 | 50,154 | $1,277.94 | | March 2024 | 52,830 | $1,266.00 | | Total | 145,496 | $1,245.67 | - As of March 31, 2024, $366.7 million remained available for repurchase under the current open-ended program authorized in January 2024[145][146] Item 4. Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes to internal control over financial reporting - The CEO and CFO concluded that FICO's disclosure controls and procedures were effective as of March 31, 2024[140] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[141]