Key Points
- Revenue of $447.8 million grew 12.3% year over year.
- Adjusted EPS rose 10.4% year over year to $6.25.
- Updated full-year guidance reflects a positive outlook for revenue and earnings.
Fair Isaac (FICO -1.23%), a pioneer in credit scoring and analytics, reported third-quarter fiscal 2024 results on Wednesday that indicated robust revenue growth and continued profitability.
Revenue was up 12.3% year over year reaching $447.8 million. Fair Isaac's adjusted EPS of $6.25 improved from $5.66 last year and aligned well with management's updated full-year EPS guidance of $23.16. However, GAAP net income slightly decreased to $126.3 million, attributed to a one-time favorable expense adjustment in the prior year.
Overall, the quarter was strong, showcasing both growth and consistent profitability despite some challenges in specific revenue streams and operational costs.
| Fiscal 2024 Q3 | Fiscal 2023 Q3 | Change (YOY) | |
|---|---|---|---|
| Total revenue | $447.8 million | $398.7 million | 12.3% |
| GAAP net income | $126.3 million | $128.8 million | (1.9%) |
| GAAP EPS (diluted) | $5.05 | $5.08 | (0.6%) |
| Net income (adjusted) | $156.4 million | $143.4 million | 9.1% |
| Adjusted EPS | $6.25 | $5.66 | 10.4% |
| Net cash from operations | $213.3 million | $122.6 million | 74% |
| Free cash flow | $205.7 million | $121.8 million | 69% |
| Scores revenue | $241.4 million | $201.8 million | 20% |
| Software revenue | $206.4 million | $196.9 million | 5% |
Source: Fair Isaac. YOY = Year over year.
Business Overview
Fair Isaac, best known for its FICO Score, is a leader in credit scoring and analytics. It provides predictive scores that help in financial decision-making and is integral to credit markets worldwide. The FICO Score is used by nearly all major financial institutions in the U.S. It also develops customized scores based on trended credit data and alternative data sources.
Recently, the company has focused on expanding its software segment through the FICO Platform, which offers cloud-based solutions for decision management. This strategy helps FICO move towards a subscription-based revenue model.
Third-Quarter Highlights
Fair Isaac's Scores segment reported $241.4 million in revenue, up 20% year over year. The B2B segment within Scores grew by 27%, driven by higher unit prices despite a decline in mortgage origination volumes. In contrast, the B2C segment saw a 2% decrease, primarily due to lower volumes on myFICO.com.
The Software segment's revenue rose 5% to $206.4 million. Annual Recurring Revenue (ARR) grew by 10%, with notable performance in platform-based ARR, which shot up by 31%. The net retention rate for platform software stood at 124%, indicating strong customer retention and potential for future growth.
Operationally, FICO demonstrated solid cash flow management. Net cash from operating activities increased to $213.3 million from $122.6 million in 2023's Q3, while free cash flow reached $205.7 million, up from $121.8 million. These metrics indicate a robust cash generation capability.
The quarter wasn’t without challenges. Operating costs rose, impacting GAAP net income which fell nearly 2% to $126.3 million. Additionally, the professional services revenue within the Software segment continued its declining trend.
Looking Ahead
Management updated full-year guidance and now anticipates revenue of $1.7 billion, compared to the previous $1.69 billion. GAAP net income is forecasted to be $500 million, up from $495 million. Similarly, GAAP EPS is now expected to hit $19.90, revised from $19.70.
Investors should keep an eye on the company's ability to manage operating costs effectively, particularly as it scales its cloud-based offerings. Also, attention should be given to the B2C revenue streams, which have shown some softness.
