Fair Isaac Corp. (NYSE:FICO)

The financial performance, as measured by economic profit, demonstrates a significant improvement over the observed period. Initially, the entity experienced economic losses, but transitioned to substantial economic profits in subsequent years. This analysis details the trends in net operating profit after taxes, cost of capital, invested capital, and ultimately, economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a consistent upward trend throughout the period. Starting at US$238,184 thousand in 2019, it increased to US$589,082 thousand in 2024. The most substantial year-over-year increase occurred between 2020 and 2021, with growth of approximately 46%. Growth continued, though at a more moderate pace, in subsequent years.

Cost of Capital

The cost of capital fluctuated modestly over the period. It began at 19.34% in 2019, peaked at 19.71% in both 2020 and 2023, and then increased to 20.22% in 2024. While there were variations, the cost of capital remained relatively stable, generally ranging between 18.51% and 19.71% for most of the period.

Invested Capital

Invested capital showed a slight initial increase from US$1,401,400 thousand in 2019 to US$1,445,030 thousand in 2020. A decrease was then observed in 2021 to US$1,370,014 thousand, followed by a further decrease in 2022 to US$1,329,445 thousand. Invested capital then increased in 2023 and 2024, reaching US$1,416,757 thousand. Overall, the changes in invested capital were less pronounced than those observed in NOPAT.

Economic Profit

Economic profit transitioned from a loss of US$-32,887 thousand in 2019 to a loss of US$-5,637 thousand in 2020. A significant turning point occurred in 2021, with economic profit reaching US$149,998 thousand. This positive trend continued, with economic profit increasing to US$199,629 thousand in 2022, US$205,987 thousand in 2023, and reaching US$302,639 thousand in 2024. The substantial increase in economic profit is primarily driven by the growth in NOPAT, coupled with a relatively stable cost of capital and moderate fluctuations in invested capital.

In summary, the entity demonstrated a strong improvement in economic profitability over the period. The increasing NOPAT, combined with a manageable cost of capital, resulted in a substantial and growing economic profit. While invested capital experienced some fluctuations, it did not significantly detract from the overall positive trend in economic performance.

Net Income

The net income exhibits a consistent upward trend over the six-year period. Starting at 192,124 thousand USD in September 2019, it increased to 236,411 thousand USD in 2020 and then surged to 392,084 thousand USD in 2021. Although a slight decline occurred in 2022 to 373,541 thousand USD, the net income rebounded in the following years, reaching 429,375 thousand USD in 2023 and further rising to 512,811 thousand USD in 2024. Overall, net income more than doubled from 2019 to 2024, indicating strong profitability growth with only a minor setback in 2022.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a robust increasing pattern throughout the same timeframe. Starting at 238,184 thousand USD in 2019, it steadily rose each year, reaching 279,157 thousand USD in 2020, and notably increasing to 407,349 thousand USD in 2021. The upward trajectory continued in 2022 with 445,701 thousand USD, followed by further growth to 476,369 thousand USD in 2023, and culminating at 589,082 thousand USD in 2024. The consistent annual growth in NOPAT reflects improved operating efficiency and profitability after tax considerations.

Trend Analysis

Both net income and NOPAT demonstrate strong expanding trends, suggesting effective operational management and increasing earnings capacity over the years analyzed. While net income experienced a minor dip in 2022, it recovered promptly in subsequent years, maintaining an upward direction. The continuous growth in NOPAT supports the view of enhanced operational success independent of non-operating influences. The increase in these profitability measures indicates sustained financial strength and improved returns from core business activities.

Provision for Income Taxes

The provision for income taxes exhibits a general upward trend over the analyzed periods. Starting at $23,948 thousand in September 2019, it decreased slightly in 2020 to $20,589 thousand but then rose significantly to $81,058 thousand in 2021. This upward momentum continued with increases to $97,768 thousand in 2022, $124,249 thousand in 2023, and $129,214 thousand in 2024. The data suggests heightened tax liabilities, particularly from 2021 onward, indicating either increased profitability or changes in tax rates or accounting practices.

Cash Operating Taxes

Cash operating taxes show a more volatile pattern compared to the provision for income taxes. Starting at $25,518 thousand in 2019, there is a noticeable increase to $38,863 thousand in 2020. A substantial jump occurred in 2021 to $96,011 thousand, followed by a further increase to $104,928 thousand in 2022. The highest cash operating taxes were recorded in 2023 at $192,079 thousand, nearly doubling the previous year. However, in 2024, a decline to $179,179 thousand is observed. This volatility might reflect timing differences in tax payments, changes in taxable income, or cash flow management strategies related to tax obligations.

Comparative Insights

While both provisions and cash operating taxes generally trend upward, the cash taxes demonstrate more pronounced fluctuations with a peak in 2023 followed by a reduction in 2024. The provision for income taxes increases steadily, which may imply growing profitability or an accounting recognition of tax expenses more consistently aligned with earnings. The disparity between the two measures could indicate temporary differences in tax expense recognition and actual tax payments over the periods analyzed.

Total Reported Debt & Leases

The total reported debt and leases have shown a consistent upward trend over the six-year period. Starting at approximately 928 million USD in 2019, the value increased steadily each year, with a notable acceleration between 2020 and 2022. By 2024, the debt and lease obligations reached roughly 2.25 billion USD, more than doubling the initial amount. This indicates an increasing reliance on debt financing or lease commitments.

Stockholders’ Equity (Deficit)

Stockholders’ equity experienced significant fluctuations over the period. Initially positive, it grew from about 290 million USD in 2019 to 331 million USD in 2020. However, from 2021 onward, equity turned negative and continued to deteriorate, reaching a deficit of nearly 963 million USD in 2024. The negative equity values suggest sustained losses or significant reductions in net assets during these years.

Invested Capital

Invested capital exhibited moderate variability but remained relatively stable compared to the other metrics. Starting at approximately 1.4 billion USD in 2019, it experienced a slight decline in the following years, bottoming out near 1.33 billion USD by 2022. Subsequently, invested capital showed a gradual increase, ending at about 1.42 billion USD in 2024. This relative stability indicates that the underlying capital investment base has not changed dramatically despite fluctuations in debt and equity.

The economic spread ratio demonstrates a significant positive trend over the observed period. Initially negative, the ratio has increased substantially, indicating improving profitability relative to the capital employed. This improvement is directly linked to the evolution of economic profit, which transitioned from negative values to substantial positive figures.

Economic Spread Ratio Trend

In 2019, the economic spread ratio was -2.35%, reflecting a situation where the cost of capital exceeded the returns generated from invested capital. This improved to -0.39% in 2020, suggesting a narrowing gap between returns and the cost of capital. A substantial positive shift occurred in 2021, with the ratio reaching 10.95%, and continued to rise to 15.02% in 2022 and remaining stable at 15.01% in 2023. The most recent year, 2024, shows a further increase to 21.36%, representing the highest value in the observed period.

The progression of the economic spread ratio aligns with the changes in economic profit. The negative economic profit values in 2019 and 2020 correspond with the negative spread ratios. As economic profit turned positive in 2021, the economic spread ratio also became positive and began its upward trajectory. The consistent growth in economic profit from 2021 through 2024 is mirrored by the increasing economic spread ratio.

Relationship to Invested Capital

While the economic spread ratio increased significantly, invested capital experienced fluctuations. It rose from US$1,401,400 thousand in 2019 to US$1,445,030 thousand in 2020, then decreased to US$1,370,014 thousand in 2021 and US$1,329,445 thousand in 2022. A slight increase was observed in 2023 to US$1,372,115 thousand, followed by a further increase to US$1,416,757 thousand in 2024. Despite these variations in invested capital, the economic spread ratio consistently improved, indicating that the increase in economic profit outpaced any changes in the capital base.

The substantial increase in the economic spread ratio over the period suggests improved efficiency in capital allocation and a strengthening ability to generate returns exceeding the cost of capital. The 2024 value of 21.36% represents a considerable improvement compared to the earlier years and indicates a robust financial performance relative to the capital employed.

The economic profit margin demonstrates a significant positive trend over the observed period. Initially negative, the metric has consistently improved, reaching its highest point in the final year presented.

Economic Profit Margin

The economic profit margin began at -2.81% in 2019, indicating that the company’s economic profit was negative relative to its adjusted revenues. This suggests that the company was not generating returns exceeding its cost of capital.

In 2020, the margin improved to -0.43%, signifying a reduction in the economic loss, but still representing a shortfall in generating economic profit.

A substantial increase is observed in 2021, with the economic profit margin rising to 11.49%. This indicates the company began generating a positive economic profit, exceeding its cost of capital.

The margin continued to improve in 2022, reaching 14.33%, and remained strong in 2023 at 13.46%. While a slight decrease was noted between 2022 and 2023, the margin remained firmly positive.

The most recent year, 2024, shows a further increase to 17.45%, representing the highest economic profit margin within the analyzed timeframe. This suggests increasing efficiency in capital allocation and revenue generation.

The progression from negative to positive, and then consistently increasing, economic profit margins suggests improving financial performance and value creation. The company’s ability to generate returns above its cost of capital has strengthened considerably over the period.

Relationship to Adjusted Revenues

Adjusted revenues have generally increased throughout the period, moving from US$1,168,285 thousand in 2019 to US$1,734,500 thousand in 2024. This revenue growth has coincided with the improvement in the economic profit margin, indicating that the company is not only increasing sales but also becoming more efficient in converting those sales into economic profit.

The consistent growth in both economic profit and adjusted revenues, coupled with the increasing economic profit margin, paints a picture of a company improving its financial health and ability to generate value for its investors.