Operator:

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Third Quarter 2024 FICO Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Singleton. Please go ahead.

Will Lansing:

Thanks, Dave, and thank you, everyone, for joining us for our third quarter earnings call. In the Investor Relations section of our website, we posted some financial highlights slides that we will be referencing during our presentation. Today, I'll talk about this quarter's results and our increased guidance for the full fiscal year. We continue to deliver strong quarterly results, including impressive growth in our ACV bookings and free cash flow. As shown on Page 2 of the third quarter financial highlights, we reported Q3 revenues of $448 million, up 12% over the last year. We delivered $126 million of GAAP net income in the quarter, down 2% and GAAP earnings of $5.05 per share, down 1% from the prior year. On a non-GAAP basis, Q3 net income was $156 million with earnings of $6.25 per share, up 9% and 10%, respectively. We had a difficult comp in year-over-year net income as Q3 of 2023 included an $8.5 million onetime reimbursement of third-party data implementation costs as well as a $9.5 million reduction in income tax expense associated with the valuation of our R&D credits. We delivered record free cash flow of $206 million in our third quarter and $551 million over the last four quarters. We continue to return capital to our shareholders through buybacks. In Q3, we repurchased 196,000 shares at an average price of $1,293 per share, and we announced a new Board authorization for $1 billion of share repurchase. In our Scores segment on Page 6 of the presentation, our third quarter revenues were $241 million, up 20% versus the prior year. Breaking that down, in B2B, current quarter revenues were up 27% versus the prior year. In B2C, the current quarter revenues were down 2% versus the prior year. Third quarter mortgage originations revenues were up 80% versus the prior year. Mortgage origination revenue accounted for 49% of B2B revenue and 39% of total Scores revenue. Auto originations revenues were down 3%, while credit card, personal loan and other originations revenues were down 7% versus the prior year. We continue to drive strong adoption for FICO Score 10-T for non-GSE mortgages. Based on 2023 firm reported data, clients with over $126 billion in annualized mortgage originations and about $380 billion in eligible mortgage portfolio servicing have signed up for the FICO Score 10-T. Firms are using FICO 10-T to make credit decisions, delivered to investors and for securitization. FICO 10-T for conforming mortgages will be rolled out based on the time line of the FHFA's implementation of enterprise credit score requirements. In our Software segment, we delivered $206 million in Q3 revenue, up 5% and from last year, driven mainly by growth in SaaS software, partially offset by a decline in professional services. We continue to drive strong growth in ARR and NRR through our land and expand strategy with expand driven by increased customer usage. As shown on Page 7, total ARR was up 10%, with platform ARR growing 31% and non-platform ARR growing 3%. Total NRR for the quarter shown on Page 8, was 108%, with platform NRR at 124% and non-platform NRR at 101%. Our total ACV bookings for the quarter were an impressive $27.5 million. We continue to drive more FICO platform SaaS bookings, which aligns with our strategy. We expect this trend to continue as our recent FICO World event has been a catalyst for driving pipeline growth, especially for the FICO platform. I'm very proud of the strength of our software business, both the industry-leading technology as well as our remarkable team. This quarter, we secured another award for our FICO platform, the business intelligence platform in the year from data breakthrough. In July, Nikhil Behl was promoted to EVP for software, leading all technology and go-to-market functions. Nikhil has been instrumental in strengthening our brand value, reputation with customers and regulators, strategic competitive positioning for FICO scores and FICO platform and market-leading business growth. We continue to excel in our Scores business as well. Our team is focused on innovation to provide new ways to add value for our customers. FICO scores a tool that market participants rely on to make many crucial decisions, including prequel [ph] underwriting, pricing, ensuring, securitizing, rating, selling, assessing capital requirements, assessing prepayment risk and determining collection strategies. The FICO Score has long been freely chosen because it's trusted as the most predictive and reliable independent credit score, enabling lenders to fairly expand credit access to more consumers. The FICO Score was widely adopted because it democratized and expanded access to credit while simultaneously underpinning the safety and soundness of the market. It's worth pointing out that over half of mortgage market is not conforming and also overwhelmingly uses FICO scores. The FICO Score is provided and will continue to provide tremendous value to the credit ecosystem. As part of our ongoing commitment to industry-leading credit decision, we've made significant commitments to financial knowledge and financial inclusion. We've once again partnered with Chelsea Football Club, both men's and women's teams and U.S. Soccer Foundation for the field of financial empowerment summer tour. The goal is to build excitement for and access to financial education and resources to help more people, including the next generation of fans make more informed credit decisions. As part of the campaign, FICO host free score a better future fundamentals, financial education workshops for students from traditionally underserved communities. Students improve financial literacy and have the opportunity to attend a Chelsea football game. I'll talk about our outlook for the balance of the year, including our increased guidance after Steve provides further financial details.

Will Lansing:

Thanks, Steve. We are executing on our strategy. Our customers are delighted with our innovative products. Our execution is generating strong financial results, including impressive ACV bookings, record free cash flow and an increase in FICO platform and FICO 10-T adoption. The business is strong. I'm pleased to report that today, we're again raising our full year guidance as we enter the fourth quarter of our fiscal year. We're raising our full year revenue guidance to $1.70 billion. GAAP net income is now expected to be $500 million with GAAP earnings per share of $19.90. Non-GAAP net income is now expected to be $582 million, with non-GAAP earnings per share of $23.16. With that, I'll turn it back to Dave, and we'll open up the Q&A session.

Operator:

Thank you. And our first question is going to come from the line of Faiza Alwy with Deutsche Bank. Your line is open. Please go ahead.

Will Lansing:

FICO World is always and was this year the biggest pipeline generating event that we have. And so we came out of FICO World with a very, very healthy pipeline. I would say that the selling environment has not changed that much over the last year or so. And I would also emphasize that increasingly, customers are buying FICO software as a strategic move. And so it's a very considered purchase. And it's not just like going out and finding a point solution to a small problem, to a specific problem. It's a bigger thing than that. And that hasn't changed. That's kind of the new way of operating.

Will Lansing:

Our mortgage volumes are a lagging indicator relative to other mortgage data that you have. Our mortgage volumes are down versus a year ago, they're pretty much flat versus a quarter - last quarter. And then none of that is particularly surprising.

Operator:

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Surinder Thind with Jefferies. Your line is open. Please go ahead.

Steve Weber:

Yes. So we are pretty conservative with the way we guide. So we want to make sure that a lot of the -- on the Scores, we don't have much control over, right? So we don't really know what's going to happen there. I would say that generally, the fourth quarter is a little lighter seasonally for mortgage. Mortgage volumes aren't as high, typically then as they are in the spring. So there might be some -- a little bit of volume decline there, but a lot of it just spends in the environment which we don't have a lot of visibility to.

Will Lansing:

I wouldn't say that it's cannibalization if that's what your question is getting at. We're pretty pleased with our classic offerings with 101% NRR. We've been trying to manage that business in this relatively flat way, and we're pleased that it's turning out that way. But as you can see, the growth is on the expand side on the platform. It's -- we don't -- we let the market tell us what it wants, but we're not displeased with the way it's shaking out.

Surinder Thind:

Okay. Thank you. I'll get back in the queue for additional questions.

Scott Wurtzel:

Hey, good afternoon, guys, and thank you for taking my questions. I wanted to start on the auto origination side. Revenue is down 3% versus modestly up last quarter. Just wondering, similar to how you did a mortgage, maybe comment on the volumes there and how they trended versus last quarter?

Scott Wurtzel:

Got it. That's helpful. And then on the software side, on the platform ARR, I mean, I think it's pretty good to see the sort of rate of deceleration moderate from 2Q to 3Q at sort of this low 30s level. I mean, do you kind of see this as a sort of sustainable growth rate for platform ARR over the near to medium term here?

Scott Wurtzel:

Great. Thanks, guys.

Kyle Peterson:

Great. Thanks. Good afternoon, guys. I just wanted to start out on software, particularly the bookings looked pretty nice on an ACV basis, come a lot of the prior quarters. So how should we think about some of the implementation cycles and kind of when some of those bookings will start to translate to revenue here?

Steve Weber:

Yes. And it does depend on the customer, how sophisticated they are, how ready they are. But yes, I mean, if you sign deals now in the next 6 to 9 months, you should start seeing a flow-through on that.

Will Lansing:

We're already seeing a little bit of an uptick in refi and it's not exactly a gigantic leap of faith that as rates come down, we'll see volumes go up. We fully anticipate that. Your guess is as good as ours as to the timing of the rate cuts. We would hope to see some rate cuts towards the end of this year and next year and volumes go up with that.

Operator:

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of George Tong with Goldman Sachs. Your line is open. Please go ahead.

Will Lansing:

Yes. I mean the subprime markets obviously seem the biggest pullback, which is not surprising, right? You're late in the credit cycle, you have a lot more uncertainty, and that's kind of where you see that happen first. Bank by bank, it kind of varies depending on what they're looking at and what kind of what kind of campaigns they might -- may or may not be running. But we see banks being relatively conservative with new originations. And I think we're kind of waiting to see what happens and see what the economic environment looks like. So it's really not surprising. We saw probably a little over a year ago, strong growth there when mortgage started to slow down and rates start to go up, we saw strong growth there. But now I think there's just more uncertainty in the market, and they're just kind of being more cautious in their originations.

Will Lansing:

It's almost completely around that reimbursement we had last year. So that was a big number we had, and that was all on the software side. So that's the driver of that.

Will Lansing:

Well, we'll get some margin expansion next quarter because, I mean, again, we had some costs at FICO World this quarter was not going to repeat next quarter. So we'll have some -- our costs will decline next quarter, and that will end up with some margin expansion. We -- these costs are big enough where any one given quarter, something like FICO is going to have an impact on that quarter's margin.

Operator:

Thank you. And one moment as we move on to our next question. And our next question comes from the line of Ashish Sabadra with RBC. Your line is open. Please go ahead.

Will Lansing:

Ashish, we can't hear you. We can't hear you.

Will Lansing:

Yes. I mean a lot of that is the fact that we had the Omega growth the non-platform growth to what we saw last year. So that right there drives most of the -- and obviously, the platform side is growing 50% either. But -- so we think these kind of growth rates going forward, as I said earlier, that's probably more likely, but we're going to see it continue. And as the numbers get bigger, it's harder to drive 50% growth, 3% to 4% growth. So we're pretty happy with the 30% growth on the platform side and on the non-platform we think we can get better than 100%. We're happy with that as well.

Operator:

Thank you. And one moment as we move on to our next question. And our next question comes from the line of Simon Clinch with Redburn Atlantic. Your line open. Please go ahead.

Will Lansing:

Well, I mean, we've got -- I mean, again, we had a really good quarter with new bookings, and we've got a lot of installed base that's rapidly expanding. I mean when we install most of our customers look for new ways to use it, and we see that in the net retention rate. And that's -- that number continues to be do well, and we continue to add more business to it. So we can't guarantee it, but we've got a lot of reasons, both data-driven and anecdotally to think that we're going to continue to see that kind of growth.

Will Lansing:

Our strategy around software pricing is -- we're very focused right now on making our software accessible and encouraging adoption. And so while there's probably room for value pricing in our software business, that's not where our direction is. Our direction is to put the software in the hands of our customers and then watch revenue grow as their usage increases. And the usage increases within the initial applications that they put the platform to use for. And then also, as they discover new uses, the expand part of our land expand strategy is very much wrapped around the customer taking control of what they can do with the platform and coming up with new use cases. And we tend to design in a way that we don't have to renegotiate contracts and go back and do a lot of contractual work for them to do more revenue with us. we tend to design it in a way that they can select how much usage they want and our revenue goes up automatically as their usage goes up.

Operat0:

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Jeff Meuler with Baird. Your line is open. Please go ahead.

Will Lansing:

You know, Jeff, I don't think that we have tremendous changes regionally. I wouldn't try to read too much into the data on a quarterly basis. We have strength of platform across all the regions. I think Asia Pacific was a little behind the other regions in terms of platform adoption, and there were some structural reasons for that. For example, AWS was not available in India before and now it is. But we're seeing adoption across all the regions. Yes, I would think some of what you see might see with the volatility is when we have that point-in-time license revenue, and that could skew things in one given quarter. But we've had a lot of adoption in the last year in North America, and we're starting to see a lot more interest to in EMEA as well.

Will Lansing:

It's a bit of both, but probably more of the upgrade.

Jeff Meuler:

Okay. Thank you.

Manav Patnaik:

Thank you. Good evening. I just wanted to ask, Will, I think you tried to reference some of these in your prepared remarks, but in the face of some public criticism around the price of your scores, how is your approach of high process around the value of your score? Maybe the timing around which you get to that value, has that changed at all?

Manav Patnaik:

Okay. And then somewhat similarly, on the software side, I think you talked about that value proposition being unique and niche, et cetera. But we've heard obviously a lot of other software companies during learning season talk about the weak environment and the slowdown. It doesn't sound like you're seeing any of that, but anything you'd like to call out? Was there may be some -- could it be a lag that you see some of these headwinds or perhaps you're not seeing that at all?

Manav Patnaik:

Okay, fair enough. Thank you, guys.

Operator:

Good day, and thank you for standing by. Welcome to the Fair Isaac second quarter earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded.

Dave Singleton:

Good afternoon, and thank you for attending FICO's second quarter earnings call. I'm Dave Singleton, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing; and our CFO, Steve Weber.

William Lansing:

Thank you, Steve. Our strategy remains consistent despite an uncertain macroeconomic environment. We're experiencing strong growth in our Scores business, even as the current rate environment has driven volumes lower.

Dave Singleton:

Thanks, Will. This concludes our prepared remarks, and we're now ready to take questions. Operator, please open the lines.

Manav Patnaik:

Maybe I'll just start with the Software segment first, Will. Clearly, we were at FICO World and your comments -- both are pretty bullish. But can you just help us appreciate or understand the second quarter in a row of deceleration on the platform side? I think last quarter, you said there were some movement in the bookings or timing, et cetera. So just help us if there's something more of that going on? Is 30% the new level now? Just any help there would be appreciated.

Manav Patnaik:

Okay. Got it. That's helpful. And then maybe just one on the Scores, on the mortgage origination side or the moving pieces there, Steve. Maybe just how did volumes come in this quarter versus your expectations? And then when you think about the guidance raise, like what were the moving pieces there as well, please?

Faiza Alwy:

So I wanted to follow up on mortgage. You've taken obviously a lot of pricing successfully the last couple of years. And I know you have a long-term strategic plan of value creation here. And there's been some noise from regulators, other bodies. I'm curious how you think about that. And what are some of the factors that you're considering as you think about your long-term strategic plan on pricing?

Faiza Alwy:

Great. And then just to follow up on other originations. Maybe you can talk about what you're seeing on the card and auto side in terms of volumes versus pricing. Sort of what's the overall environment like? And maybe if you've adjusted your expectations for volumes just given the macro environment here?

Operator:

Our next question comes from the line of Surinder Thind with Jefferies.

William Lansing:

So I think that it's fair to put some of the explanation on macro environment because what we're not seeing is losses to competition. What we are seeing is projects deferred or taking a little bit longer. And so I think it's very fair to attribute some of that to the macro environment.

William Lansing:

So as you know, the nonplatform business is very mature and we're deeply embedded, and yet our customers often prefer to renew and renew and renew. And so there's a cycle of multiple renewals typically associated with our licensed software and with our legacy and nonplatform software.

Operator:

Our next question comes from the line of Kyle Peterson with Needham.

William Lansing:

We remain as committed to buyback as we have ever been. And it is our intent to continue to spend at least our free cash flow and often in excess of our free cash flow on buyback every year. And I don't expect that would change. Our leverage has slipped a bit as our earnings have gone up. And I guess that's a happy bonus of being more profitable. And in the fullness of time, you'll see that reflected in increased buyback.

William Lansing:

I think it's a reasonable range to anticipate going forward. We love our professional services, and yet we're not a professional services company, first and foremost, we're a software company. And so our goal with professional services is to provide enough PS to manage quality installs and keep our customers happy.

Operator:

Our next question comes from the line of Ashish Sabadra with RBC.

Steven Weber:

Yes. So we had -- we said we had FICO World this quarter. So there's -- that's a pretty significant expense for us. So you'll see an increase in our Q3 spending by a little bit that's associated with that. And then the fourth quarter would probably be relatively flat to that or maybe even down a little bit. But we don't expect any significant uptick in expenses for the rest of the year. Really, it's basically due to the FICO World being held this quarter.

William Lansing:

About the on-prem software?

Steven Weber:

So I mean we're focused -- we're cloud-first, right? So we really are focused in the cloud. But if our customers want to run it on-prem, we'll sell it to them that way there. But I would expect that the on-prem piece is probably not going to grow a lot, but it's probably not going to shrink a lot either because a lot of those are deeply embedded, and it's going to take years to move it to the cloud.

Jeffrey Meuler:

So I want to go back to the card, p loan and other origination revenue down 9%. I think the majority of that is cards. So is pricing a positive contributor to that line? And if so, just based upon the bureaus that have reported thus far, it doesn't seem like card volumes are down that much, but I'd love [ to get your thoughts on ]...

William Lansing:

So depending on how you count it, we're in about 130 of the top 300 financial institutions globally. And of that, I'd say, 40% or so are on their first use case, maybe a little bit more than that.

William Lansing:

I would say most of them have landed in the last year. I mean there's -- the very typical path for the single use case is to eventually move to multiple use cases. And so the ones that are still on one are typically the most recent.

Keen Fai Tong:

In Scores, you're catching up from 30 years of frozen pricing to close the gap with what you charge. You're closing the gap more quickly with mortgage than with cards and autos currently. To what extent can pricing in autos and cards close the gap at the same pace as the mortgages over time? What are some of the considerations?

Keen Fai Tong:

Okay. Got it. That's helpful. And then with respect to the Software business, you saw 32% platform ARR growth in the quarter from both land and expand. Can you break that down? How much of that growth is coming from new business wins versus wallet penetration from existing customers?

Keen Fai Tong:

I guess maybe then qualitatively, would you say you're more in land mode or expand mode?

William Lansing:

And you're on the right question. I think whether it's today or next quarter or the quarter after that, expand will exceed land sooner or later. That's inevitable, that's anticipated, that's coming. I don't think we're quite at the tipping point yet. I think land probably still exceeds expand, but I'm not sure.

Dave Singleton:

Did you want to check just one more time? Simon might be in the queue for a question, and he just popped in, in the last 5 seconds.

Simon Alistair Clinch:

I wanted to ask a couple of questions. So first of all, on the Software side, how should I think about the longer-term sustainable retention rates for both platform and nonplatform?

William Lansing:

The kind of the key expense, I would say growth. I would -- growth is probably the wrong word. I think we're happy with kind of the expense rates that we have. And if anything, they'll go down over time. But the places where we're spending that money from an R&D standpoint are on the product, on the ecosystem and the marketplace and that side of the house.

Operator:

Thank you. And I'm showing no further questions at this time. I'll now turn it back to Dave Singleton for closing.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator:

Greetings, and welcome to the Fair Isaac Corporation quarterly earnings call. [Operator Instructions] And as a reminder, this conference is being recorded, Thursday, January 25, 2024.

Dave Singleton:

Good afternoon, and thank you for joining FICO's first quarter earnings call. I'm Dave Singleton, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing; and our CFO, Steve Weber.

Steven Weber:

Thanks, Will, and good afternoon, everyone. As Will mentioned, we had another very good quarter with total revenue of $382 million, an increase of 11% over the prior year, or 12% when adjusted for last year's divestiture.

Operator:

[Operator Instructions] And our first question is from the line of Faiza Alwy from Deutsche Bank.

William Lansing:

So we're very comfortable with our guidance, and we continue to see volumes roughly where we expected, frankly. I'm not sure I agree with the view that there's more optimism. I mean rates have ticked up in mortgages recently, and so, if anything, I guess, I feel like the rate -- the fall in rates might be slower than a lot of industry pundits had been forecasting.

Operator:

And our next question is from the line of Surinder Thind with Jefferies.

William Lansing:

We have not had any challenges bringing on new clients. I mean as our penetration goes up, we will have captured more and more of our target enterprise customer base, and more and more of the growth will be from the expand part of the business, which is more use cases and more volume with existing customers.

Steven Weber:

Yes. I would just say, Surinder, that when we start with someone that's really new, the lead time is longer on them than an existing customer. So that's why you'll see some of that. But we still signed a lot of new deals with a lot of new customers or at least different use cases with customers that are using some of our legacy products.

William Lansing:

Yes. That's a great question. I think, in general, that's a fair statement. We're pretty comfortable with where the margins are, and our expenses are running in line with what we expect and what we forecast and what we planned for. And so what you said is largely right. Incremental revenue should fall through to the bottom line.

Operator:

And our next question is from the line of Manav Patnaik with Barclays.

Steven Weber:

Yes. So I mean we talked about that a little bit last quarter that we're making some investments. There's a lot of growth here, and we think there's a lot more room for growth. And we're doing some investment on the R&D side to add more functionality. And we're doing some investment on cybersecurity as well. So there is some investment coming in there. There's a lot of different moving parts this quarter because you've got -- we had the end of the year bonuses that happened too, so that rolls in here as well.

Manav Patnaik:

Okay. Fair enough. And then, Will, just in terms of the lending commentary, I mean, I think we all have our views on mortgage, so let's put that aside for a second. But can you just walk us through what's going on in auto and card with both those down 3% and 5%? Just anything to call out there and what the outlook for '24 is really for those 2 categories?

Operator:

And our next question is from the line of Kyle Peterson with Needham.

Steven Weber:

No. I mean so the professional services piece is a little bit unique because most of the PS work is done by internal resources. So in some cases, if they're not working on billable deals, they're working on R&D. In some cases, we've moved people into that function as well. So those costs don't necessarily go away.

Kyle Peterson:

Maybe just to follow up on the guidance methodology, particularly on the Scores side. Things looks like -- it sounds like your overall revenue top line is pretty much unchanged, and the volume assumptions seem the same. So I guess could you just confirm on the pricing assumptions and kind of maybe what actions you guys have taken on that front? And if everything that went into effect on the 1st of the year is in the guidance or if there's still kind of a wait-and-see approach with volumes?

Operator:

And our next question is from the line of George Tong with Goldman Sachs.

William Lansing:

So we have adjusted price -- you identified, you highlighted probably the biggest change in pricing this year, which was collapsing the tiers in mortgage. And that was really in response to a lot of feedback from the industry about a level playing field, and so we accommodated that.

Keen Fai Tong:

Got it. That's helpful. And can you provide a little bit of detail around some of the real-time trends that you're seeing with mortgage inquiries and some of the real-time trends that you're seeing with card volumes and auto volumes?

Keen Fai Tong:

And are any -- what about some of the arrears numbers that you're seeing with cards and autos?

Keen Fai Tong:

Great. And commentary on autos?

Operator:

[Operator Instructions] And our next question is from the line of Seth Weber with Wells Fargo Securities.

William Lansing:

No, not really. I mean the sales cycle is roughly where it's been lately, which is shorter than where it was a year or 2 years ago. I would say that -- and really I mean just there's nothing special there. The -- we -- it's probably worth reiterating that FICO, unlike a lot of other software companies, doesn't do a lot of wheeling and dealing at the end of the quarter to pull in business, and it is cultural with us.

Steven Weber:

Yes. And I would just say, practically, we had some deals that we didn't sign that last week of December just because it was hard to get people, right? I mean you run into this issue every December that you might have people that are out on vacation or traveling. You just can't get the ink on the paper. So some of these deals have actually closed in January.

Seth Weber:

Got it. Okay. That's helpful. And then just can you -- just expanding on that a little bit, can you just update us on any traction that you're seeing, whatever traction you're seeing kind of outside the financial services area for the Platform business and whether you're seeing bigger uptake there from nontraditional customers?

Operator:

And our next question comes from the line of Ashish Sabadra with RBC Capital Markets.

Steven Weber:

No, we just talked about the revenues. We don't pull out the different components in terms of the volumes. But I mean you can get the volumes from other third-party sources pretty easily.

Steven Weber:

There's potentially license -- I mean the renewals are hard to project, frankly, because we don't know when they're going to renew or sometimes, they'll renew early. Sometimes they will renew later if they'll -- taking on additional pieces. So the renewal piece is [ still gummy ].

Jeffrey Meuler:

I didn't understand the answer on the last question. The Lat Am renewal in the year ago, that was in Scores, not Software, correct?

Jeffrey Meuler:

Okay. And then just trying to -- I guess, probably the last question as well, like the 21% growth in B2B Scores last quarter, 12% growth this quarter. How much of that slowdown is just due to the Lat Am comp in the year ago? Or anything else that you can say on like non-origination revenue trends? Because it doesn't look like a lot of [ slowing really ].

Jeffrey Meuler:

Okay. And then can you just help me with like any rough order of magnitude of sizing? If I look at mortgage -- your mortgage origination revenue, roughly how much of it comes from closed loans versus things like rate shopping or applications that don't result in a closed loan or anything else that would like fall in that bucket?

Operator:

And our next question is from the line of Rajiv Bhatia with Morningstar.

Steven Weber:

Yes. We didn't provide that. I don't have the number in front of me, what the percentage was. So I -- we don't -- we didn't -- occasionally, we will do that. We didn't provide that this quarter. So you could probably back into it if you took the numbers we gave you from last year and then the percentage increases.

Steven Weber:

Yes, we had our license deal in Asia in Scores. So we had a much larger one in Latin America last year. And then we -- if you look at it in any given quarter, probably half the time, we have a license deal somewhere. But obviously, the total license deals this year were much smaller this year than they were last year. And that was because of the Latin American deal.

Operator:

Greetings and welcome to the Fair Isaac Corporation Quarterly Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, November 8, 2023. I'd now like to turn the conference over to Dave Singleton, Vice President, Investor Relations. Please go ahead.

William Lansing :

Thanks, Dave. Thank you, everyone, for joining us for our fourth quarter earnings call. In the Investor Relations section of our website, we've posted some slides that we'll be referencing during our presentation today. I am pleased to report we had a strong quarter, which completed another outstanding year with record annual revenues and record earnings, meeting the guidance that we raised last quarter. Page 2 shows financial highlights from our fourth quarter. We reported fourth quarter revenues of $390 million, up 12% over the prior year; and $1.514 billion of revenue for the fiscal year, up 10% versus the prior year. We delivered $101 million of GAAP net income in the quarter and GAAP earnings of $4.01. For the full fiscal year, we delivered $429 million in GAAP net income, which equates to $16.93 of earnings per share. On a non-GAAP basis, Q4 net income was $127 million with earnings of $5.01 per share. Full year non-GAAP net income was $500 million, up 10% over last year with $19.71 of non-GAAP earnings per share, which is up 14% versus the prior year. We continue to deliver strong free cash flow with a record $163 million in our fourth quarter. For the full year, we delivered $465 million of free cash flow. We continue to return capital to our shareholders through buybacks. In fiscal 2023, we repurchased 615,000 shares at an average price of $659 per share. In our scores segment, as you can see from Page 6, our fourth quarter revenues were $196 million, up 12% versus the prior year. For the full year, our revenues were $774 million, up 10% versus last year. On the B2B side, the current quarter revenues were up 21% versus the prior year and up 18% for the full year. This is a strong result, considering the impact of rising interest rates on loan origination volumes. On the B2C side, the current quarter revenues were down 6% versus the prior year and down 8% for the full year due to difficult comps. Fourth quarter mortgage origination revenues were up 147% versus the prior year and accounted for 24% of our scores revenues and 12% of our total company revenues. Auto origination revenues were up 2%, while credit card and personal loan origination revenues were down 2% versus the prior year. We continue to innovate in scores. We're happy to see traction with our latest score, FICO Score 10 T. This quarter, we announced that Movement Mortgage, a top 10 retail mortgage lender, has become an early adopter of FICO Score 10 T. They're using it to analyze their nonconforming loans in conjunction with the classic FICO Scores. As a first-in-market user of FICO Score 10 T, Movement Mortgage will work with FICO to share early-use insights for nonconforming products to help the mortgage industry understand the benefits of the most predictive credit score in the space. Movement Mortgage's use of FICO Score 10 T will provide opportunities to evaluate risk more efficiently in credit positioning. The improvements in the predictive power of FICO Score 10 T can help lenders avoid unexpected credit risk and better control default rates while making more competitive credit offers to more consumers. And this all occurs without sacrificing the trusted FICO Score minimum scoring criteria and user experience. A more predictive score will help project cash flows with more precision, potentially increasing the value of securitized assets on the secondary market. In our software segment, we delivered $194 million in Q4 revenue, up 11% from last year. We delivered $740 million in fiscal year revenue, up 10% from last year. We continue to drive strong growth in ARR and NRR through our land-and-expand strategy with expand driven by increased customer usage. As shown on Page 7, total ARR was up 22% with platform ARR growing 53% and non-platform ARR growing 14%. Total NRR for the quarter shown on Page 8, was 120% with platform NRR at 145% and non-platform NRR at 111%. We continue to see strong demand from new customers. Our total ACV bookings for the year were $94 million, up 10% year-over-year. There continues to be strong demand for our FICO Platform. We've built a strong pipeline of prospects interested in using this advanced decisioning technology to optimize interactions with our consumer customers. And we continue to be recognized for our technology. Chartis ranked FICO #1 for innovation and risk management technology for the seventh consecutive year, and we're in the top 5 as a risk and compliance technology provider for the second year in a row. Forrester identified FICO as a leader in AI decisioning platform, and Juniper Resources awarded FICO Platform the Future Digital Award for Banking Innovation of the Year. I'll highlight the fiscal year 2024 guidance in just a few minutes. But first, let me turn the call back to Steve -- over to Steve for further financial details.

William Lansing :

Thanks, Steve. As we enter fiscal 2024, I remain excited about our future. Both our software and scores businesses are best in class, and our continued investment will accelerate our competitive advantage. We continually look for ways to build our brand and expand our outreach. Last quarter, I talked about our financial literacy efforts. Today, I'd like to discuss the launch of the FICO Educational Analytics Challenge. This program, which we've created for students at historically black colleges and universities, features remote mentoring from FICO data scientists and in-person lectures by FICO's Chief Analytics Officer, Dr. Scott Zoldi. The FICO Educational Analytics Challenge is a program created to help promote diversity in data science, engineering and technology. Today, we announced the departure of Stephanie Covert, who has led our software business. Stephanie was instrumental in driving FICO software growth and platform transformation, and we wish her well in her future endeavors. Before we open for questions, I'll review our fiscal '24 guidance. While we don't break out our segments, we do expect growth in both our scores and software segments. As with prior years, we expect the pricing initiatives in fiscal '24 to have an additional impact beyond our guided numbers. And because of uncertainty in volumes, it's difficult to estimate the timing and magnitude of that impact. Our fiscal 2023 bookings, strong pipeline, recurring revenues and diversified product portfolio give us considerable visibility into fiscal 2024. So today, we're guiding double-digit growth for both revenue and earnings, as shown on Page 13 of the presentation. We're guiding revenues of about $1.675 billion, an 11% increase versus last year. We are guiding GAAP net income of approximately $490 million, an increase of 14%; GAAP EPS of approximately $19.45, an increase of 15%; non-GAAP net income of about $566 million, an increase of 13%; and non-GAAP earnings per share of about $22.45, an increase of 14%. With that, I'll turn the call back to Dave, and we'll take some questions.

Operator:

[Operator Instructions] And your first question comes from the line of Faiza Alwy with Deutsche Bank.

William Lansing :

So what our forecast reflects is lower volumes than last year, so a decline versus last year, and roughly flat volumes from the level we're at today. That's how we think about the volume side. And as you know, we take price action for CPI, and sometimes in excess of CPI, every year. And so this year is no different. We will be doing that again.

Steven Weber :

Yes. I mean it is pretty modest. I mean you can -- when you build out your model, you'll see there's some additional expense in there but not a lot. But a lot of it's reprioritization, right? We're looking to invest on the software side. We're putting a lot of money into the platform as we've done, and we're putting money into security to make sure that we're secure as possible. So it's relatively modest. But we definitely are adding some additional investment there from what we've seen in the past few years.

George Tong :

You typically set your rate card in your scores business in the beginning of September. After your scores prices were set, did you notice a negative inflection in credit volumes in September and October, particularly among sub-prime consumers? And if you did, do you believe your scores pricing increases next year are as high as they need to be to sustain your growth momentum?

George Tong :

Great. That's good to hear. And then secondly, software ARR growth accelerated to 22% in the quarter from 20% in the prior quarter. Can you elaborate on your overall software platform strategy and the traction that you're seeing with clients?

Operator:

And your next question comes from the line of Ashish Sabadra with RBC Capital Margins.

William Lansing :

I would say that most of that is from transaction volume growth. We do invest in features and functionality in our historical products and our legacy products. And so it is all about keeping them up-to-date and useful to our customers. Again, as we've discussed in the past, the -- many of these solutions go into a customer of lending institution. And they might go in for a 3-year term initially, but they're typically renewed again at the 3-year mark and again at the next 3-year mark. And we can have these solutions operating for 12 years or more. And so it's incumbent on us to maintain the features and functionality, make sure the security is good and the functionalities that our customers want. We do all that. So we're pretty proud of our classic products. But I would say that the increase that you're seeing is largely just volume-related.

William Lansing :

Yes. We really don't go into the detail around the pricing within the segment. We have studied it, and I think that the price increases that we put into the segment are what are fair and appropriate for the market. We're pretty comfortable we've done the right thing, but we don't go to a lot of detail on that.

Seth Weber :

For the last several quarters, you've talked about some shortening of the sales cycle. I'm wondering if that -- if you're continuing to see that dynamic and if you could maybe just give us some color on U.S. versus international.

Seth Weber :

Okay. And then maybe just going back to the expenses again for a second. The fourth quarter software expenses were a little higher than what we were expecting. Did that -- does that already include some of these new investments that you're talking to? Or will these investments be incremental to sort of this fourth quarter run rate?

Operator:

Your next question comes from the line of Jeff Meuler with Baird.

William Lansing :

Yes. Jeff, I know you'd love for us to put a number on it. And you know us, we never do. And so it's not going to happen today either. The way we think about it is we look at the volumes, we make our forecast built around the volumes. We put on a CPI increase, and then we put what some people call special pricing, but we have some additional increases beyond CPI. And then because the timing of those is uncertain, we leave some of that out of the guidance. And so call our guidance conservative. It's designed to reflect the fact that we just don't know how quickly the full-price effect will be ramped into our numbers. And so I hesitate to put any kind of a number on it for you. Is it safe to think about it the way we have in years past? Yes. So think about it the way we do it every year. We haven't changed our methodology.

Jeff Meuler :

That's right. Okay. And then I guess I was surprised to see the departure of Stephany just given how well software has been doing for a while now. Can you just comment on just any, I guess, reasoning why there's a change now, when you expect to have a new leader announced, if they're likely to come as an internal promotion, external? Just any perspective on that would be helpful.

Operator:

[Operator Instructions] The next question comes from the line of Manav Patnaik with Barclays.

William Lansing :

Software business is growing double digit just like the scores business. I mean it's very strong. And where -- it continues to be strong. Where we haven't decelerated in any way in terms of our platform growth rates, which, as you know, were very high. And we -- trees don't grow to the sky, but we expect that to continue for quite some time. I mean there's a lot of demand. The pipeline this year is stronger even than a year ago. And so yes, we're very optimistic.

Manav Patnaik :

Got it. And then, Steve, in looking at the EPS guidance, can you just talk about the assumptions there on -- just help us out with share count. I don't think you include additional buybacks, interest expense and maybe any other items that could change year-over-year.

Operator:

And there are no further questions. I'll turn the call back to Dave Singleton for closing remarks. Thank you very much.

Operator:

And all, that does conclude the conference call for today. We thank you very much for your participation. You may now disconnect.

Operator:

Greetings, and welcome to the Fair Isaac Corporation Quarterly Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded, Wednesday, August 2, 2023. I'd now like to turn the conference over to Steve Weber. Please go ahead.

William Lansing:

Thanks, Steve, and thank you, everyone, for joining us for our third quarter earnings call. On the Investor Relations section of our website, we posted slides that offer financial highlights for our third quarter. I am pleased to report we delivered another exceptional quarter with record revenue and profitability and strength throughout our business. Today, I'll talk about this quarter's results and our increased guidance for the full fiscal year. As you can see on Page 2 of the presentation, we reported record revenues of $399 million, an increase of 14% over the same period last year. We delivered $129 million of GAAP net income and GAAP earnings of $5.08 per share, growing 38% and 41%, respectively, over the prior year. On a non-GAAP basis, net income was $143 million, with earnings per share of $5.66, representing year-over-year growth of 24% and 27%. We continue to deliver strong results throughout the business. Scores revenue was a record $202 million, up 13% in the quarter versus the prior year. As you can see on Page 6 of the presentation, B2B revenues were up 24%, driven primarily by increased originations revenues. Mortgage originations revenues were up 135% versus last year. Auto origination revenues were up 5%. Credit card, personal loan and other origination revenues were up 2%. On B2C, revenues were flat with last quarter and down 11% versus the same period last year. That was due to difficult comps. In our Software business, we continue to drive growth with FICO Platform, which provides the power of analytics and AI to enable smarter business decisions at scale. You can see on Page 7, we delivered overall ARR growth of 20%, a significant milestone for us, and platform ARR growth of 53%. This represents our 15th straight quarter of platform ARR growth in excess of 40%. We continue to drive strong net retention rates as our customers continue to increase volumes and find new use cases. Overall NRR increased to 117%, as shown on Page 8. Legacy off-platform NRR was 109% as volumes grew in many of our customers. Platform NRR was 142% due to expanded use cases driven by the success of our land-and-expand strategy. And we continue to see strong demand for our software. As you can see on Page 9, we had another quarter of double-digit growth, with ACV bookings up 13% over the same period last year. We continue to see a strong pipeline of opportunities and are seeing strong demand for FICO Platform. We had first-hand confirmation of the critical nature of FICO Platform at our recent FICO World Conference. This is a 3-day event, and it attracted customers for more than 60 countries where they shared best practices, learned about the latest in AI and advanced analytic innovations and learned new approaches for digital transformation. We talked about how FICO Platform can design, build and deliver AI-powered hyper-personalized customer journeys across every touch point and with every interaction. Personally, I enjoyed the opportunity to meet our customers and hear from them how we're working together to optimize their most difficult decisions. One customer said, "I knew the FICO Platform had potential to help transform our business from a decision-making perspective, but I'm now blown away by the scope of the platform and communications capabilities." Another customer told us, "FICO doesn't sell software, you sell intelligence. That's way more valuable." And yet another customer simply said, "We either do this now or we fail forever." I'm proud of our technological excellence and the team that supports our customers to transform their business. Finally, I'd like to say a few words about our partnership with Chelsea Football Club, where we're working together to empower students, adults and communities across the U.S. with financial literacy tools and knowledge to make informed credit decisions that last a lifetime. We are hosting fundamental workshops in partnership with the U.S. Soccer Foundation to empower the younger generation with the essential credit knowledge to jump-start their credit journeys. Financial literacy correlates with better outcomes in education, but we know that the playing field is not always equal. One in 5 U.S. teenagers lack basic financial literacy skills. Around 74% of teams aren't confident in their financial knowledge. We're working on tackling this financial education gap to get more young people in the game. In each of the 5 cities that Chelsea is playing this summer, we're working with local partners to bring teenagers from traditionally underserved communities to these fundamentals, workshops that are held on or near game day. The students will have an opportunity to attend the Chelsea football game taking place in their city. For the wider community in these cities, FICO is also hosting Score a Better Future Credit Education events, which are free to the public and will provide local residents with knowledge and tools to gain better insight into their financial health and understanding of their FICO Scores. We know that FICO Scores have allowed much more equitable access to credit, and we're committed to helping educate consumers about processes to foster broader institution. I'll have some final comments, including an increase in our guidance, in a few minutes. But first, let me turn the call back to Steve for further details.

William Lansing:

Thanks, Steve. As we finish our fiscal 2023 year, I am extremely pleased with the progress we've made in advancing our strategic initiatives. And I'm bullish on both of the segments of our business. Our Scores business continues to deliver strong growth, and we're dedicated to innovation to face industry challenges in the years to come. And our Software business, through FICO Platform, is enabling customers to use the latest analytics and AI technology to optimize their consumer interactions. Finally, today, we're again raising our full year guidance as we enter the final quarter of our fiscal year. We are raising our full year revenue guidance to $1.5 billion. We are also increasing our GAAP and non-GAAP net income guidance. GAAP net income is now expected to be $428 million. GAAP earnings per share is now expected to be $16.90. Non-GAAP net income is now expected to be $500 million. Non-GAAP EPS is expected to be $19.70. And I'll now turn the call back to Steve, and we'll take some Q&A.

Operator:

[Operator Instructions]. Your first question comes from the line of Manav Patnaik with Barclays.

Steven Weber:

Yes. You know how we -- Manav, of how we're pretty conservative with the way we guide. And we don't want to be in a situation where we feel like we have to close deals in the last week of the quarter to hit a number. So if we can get a better deal pushing into next year, we're obviously willing to do that. So we're pretty conservative, and we don't go out and limit any of this. We typically don't guide quarter-to-quarter. As you know, we typically guide full year, and we will update in the middle of the year. So it's a big deal for us to raise guidance with 1 quarter to go, but we thought we pretty much had to. So you can take it how you want. But I mean, we are pretty conservative with where we guide.

Steven Weber:

And I will say just one more thing, Manav.

Steven Weber:

Manav, I will say that we did have some -- a fair amount of onetime license revenue this quarter that we probably may or may not have in the fourth quarter. So we don't want to count on that.

Steven Weber:

So I mean, they all had some pricing increases this year, probably more in line with CPI. In terms of volumes, mortgage is still down. We're seeing the same decreases that the bureaus are reporting. Auto was relatively flat year-over-year. And card's actually down a little bit. The originations this quarter are actually down a little bit. So we don't go into a lot more detail now, but you can kind of back into what -- we see the same things that the bureaus see in terms of volumes.

Faiza Alwy:

So I wanted to follow up first on the Software side of the business. You mentioned onetime licensing revenue. And maybe I missed that, but talk to us more about like what drove that? And I know you said you're not counting on that for 4Q. But what were some of the drivers around that?

Faiza Alwy:

Okay. Okay. And so my next question is generally around the Scores business. So with only 1 quarter left, we're looking ahead to next year, and I know you're sort of getting to the time where you start talking about pricing for next year. So curious how you're thinking about that. There's obviously a lot of changes that are supposed to happen in the mortgage space, in particular. So talk to us about any initial thoughts you might have around pricing.

Steven Weber:

Yes. I mean, I think a lot of those time lines have kind of been pushed already. So we make the decisions based on the information we have at hand, but it's -- other than that, it's difficult to know what's going to happen when.

Operator:

Your next question comes from the line of Surinder Thind with Jefferies.

William Lansing:

So great question. Thanks, Surinder. It's a tremendous source of business for us with existing customers and with new customers. And the speed with which it translates into business is it's actually quite a large continuum. We have deals that get signed at FICO World. I mean, we obviously try to close business on the spot, where appropriate. But then there's other things that just go into the pipeline and then we work the pipeline over the subsequent year. Our pipeline has been getting shorter. Our pipeline used to be over 400 days. We're down well below that today and continuing to trend downward, which is a good sign. The thing with FICO World is it's really an opportunity for our customers to talk to other customers who have shared problems, shared experience and to really get kind of a real-world feedback from customers who've implemented our software, on how it's worked and what it's done for them and what kind of returns they can expect and the time lines for implementation and so on. And because of the platform, in particular, is so successful, it's working so well, there's a lot of good stories to be told. And it's obviously way more credible when our customers are telling the story and acting as reference customers than we're out just selling our wares. And so FICO World is a very important event for us to be able to put customers in touch with one another. And frankly, they do the selling. We're there to facilitate.

William Lansing:

I think that it's likely that the time lines will be extended. There's additional review going on. And there's obviously a lot of detail that needs to be worked out that wasn't completely worked out at the time of the announcement. And so I think all signs point to a more thoughtful and more drawn out time line.

Kyle Peterson:

Just wanted to touch a little bit on the guidance raise and kind of where you guys have been kind of seeing upside, at least, kind of year-to-date here, particularly on the Scores side of the business, I guess. Where have things maybe been trending a little better than expected. I mean it seems like mortgage has been notably strong since a lot of that is price. But I guess is there anywhere in the guide, at least, so far, where you guys have been kind of tracking above and is kind of part of what allowed you guys to raise today?

Kyle Peterson:

Great. That's helpful. And then just a follow-up, really, on the platform ARR, another quarter of kind of 50-plus percent year-on-year growth. I'm really impressed to see. Are you guys seeing -- is your customer net kind of widening? It seems like you guys got a lot of traction with some international banks early, but it seems like that might be expanding a little bit or in other kind of related verticals. But I guess, how should we think about the pipeline and your ability to maintain some of these really robust growth rates, specifically as the law of large numbers kind of kicks in and makes the comps a little harder?

Operator:

Your next question comes from the line of George Tong with Goldman Sachs.

William Lansing:

Customer reaction, let me take that one first. I think that our customers find lots of value in the Scores and what they do and recognize that they're a tremendous value. At the same time, no customer likes prices going up. And so as you can imagine, when we raised prices, we hear about it, and discussions go on. And I think that the numbers speak for themselves. Our customers are very happy with the offering, with the product and with what it does for them. That's kind of how it goes. That's how it's gone for many years, and I don't expect that to change. We don't -- we won't share our assumptions for next quarter. I think -- and honestly, George, I think I've talked about this before. The way we do this is we roll up all of our numbers and do a forecast and then haircut that with what we're willing to guide. So it's as a percentage of the total number we come up with. So -- and there's a lot of things that go into that. So it's like running a mining [indiscernible] simulation, right? So we don't have 1 set of expectations for the next quarter. But again, we're conservative with the way we guide to make sure that we'll exceed.

William Lansing:

We had some big deals with existing customers, and then we also added new customers. It's really both.

Operator:

Your next question comes from the line of Jeff Meuler with Baird.

Steven Weber:

Yes. I mean, that's hard to say. I mean, we -- I think we had some pent-up volumes coming out of the pandemic, where there's some more activity here. I don't think the off-platform long term is probably going to be a significant growth driver for us. But it's nice to see those numbers perform fairly well.

Steven Weber:

The license -- so the license deal was -- that was a legacy business deal. That was not on the platform. That was a renewal of a legacy deal.

Steven Weber:

And just one more thing to add to that. So the license deal was a renewal of a term deal. So that's not included in the ARR. So the ARR was driven by volumes, essentially, on CCS and other -- Falcon Fraud, maintenance and volume. So the license deals that -- our term license deals are outside of that.

William Lansing:

Well, I think we'll have -- it's a little bit early to say, and we'll have to see how things unfold. But I think that you can expect continued growth in Scores in both from -- contribution from price and contribution from higher volumes that we anticipate next year.

Steven Weber:

Yes. It really is not. What it really comes down to, for the most part, is Scores. And we accrue the new revenue, and it takes a while for the payments to come in, right? So you're going to get a little bit of a lag. When it jumps up that quickly, you have -- your AR goes up. So I think we were asked about that even last quarter about the free cash flow. And we're starting to see more of the free cash flow, flow through now because the AR from last quarter is flowing through today. So it does take a while for that to -- because there's such a significant uptick that it takes a while for it to flush through.

Rajiv Bhatia:

Just on the myFICO business, which you've talked about being a $100 million annual business. I guess, first of all, how much of that business is kind of consumer monthly subscriptions versus consumer onetime reports? And then secondly, how do you think about pricing and pricing elasticities for the myFICO business?

Rajiv Bhatia:

And historically, how much pricing have you taken in that business?

William Lansing:

I think what's interesting about the business is that almost any consumer who wants to get a free FICO score today can get one. I mean, from their bank -- I mean, it's relatively easy to get your FICO score. And in spite of that, we have a lot of consumers are interested in managing it and monitoring it on a regular basis. And they come and they pay money monthly to subscribe and keep an eye on it. And obviously, these are the people who are most focused on their financial health, and it's a good service for them. And this has been the case now for years. We've been providing free scores for many, many years now with Open Access, and it hasn't hurt the myFICO business. myFICO business is very strong.

Steven Weber:

Great. Thank you very much, everyone, for joining today. This does conclude our call, and we look forward to speaking with you again soon. Thanks.

Operator:

Greetings and welcome to the Fair Isaac Corporation Quarterly Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, April 27, 2023. I'd now like to turn the conference over to Steve Weber. Please go ahead.

William Lansing:

Thanks, Steve, and thank you, everyone, for joining us for our second quarter earnings call. On the Investor Relations section of our website, we posted some slides that offer financial highlights of our second quarter. I am pleased to report that we continue to deliver strong results with record revenue and growth throughout our business. Today, I'll talk about this quarter's results and our expectations for the rest of the year. As you can see on Page 2 of the presentation, we reported revenues of $380 million, an increase of 6% over the same period last year. We delivered $102 million of GAAP net income and GAAP earnings of $4 per share. On a non-GAAP basis, net income was $121 million with earnings per share of $4.78. On the Scores side of the business, we continue to perform well. Scores delivered a record quarter with $198 million of revenue, up 8% in the quarter versus the prior year, as you can see on Page 6. On the B2B side, revenues were up 16% driven primarily by increased originations revenues. Mortgage originations revenues were up 90% versus last year. Auto originations revenues were up 13%. Credit card, personal loan and other originations revenues were up 12%. Our B2C revenues continue to face difficult comps, and while up slightly versus last quarter, were down 8% versus the same period last year. In our Software business, our FICO platform provides the power of analytics and AI to enable smarter business decisions at scale. We're focused on helping clients maximize the customer experience by predicting, analyzing and optimizing customer interactions in real time to make better customer decisions across the enterprise. These better decisions build trust and loyalty by delivering hyper-personalized experiences through holistic customer management. And the strong results we're delivering demonstrated in the industry hungry for these solutions. As you can see on Page 7, we delivered overall ARR growth of 17% and platform ARR growth of 60%. This represents our 14th straight quarter of platform ARR growth in excess of 40%. Again, our customers continue to increase volumes and find new use cases, as you can see from our net retention rates shown on Page 8. Overall, net retention rate was 114%. Legacy platform NRR was 105% as volumes grew in many of our customers. Platform net retention rate was 146% due to expanded use cases driven by the success of our land and expand strategy. And we continue to see strong demand for our Software. As you can see on Page 9, our ACV bookings were up 16% over the same period last year. We continue to see a strong pipeline of opportunities as we help our customers to look at strategic mission-critical decisioning as they pursue their digital transformation. Finally, I'd like to talk a little bit about our FICO World customer event next month. FICO World attendees will be able to discover how to design, build and deliver a hyper-personalized customer experience across every touch point and within every interaction. Attendees will have access to schedule meetings with FICO's leading thought leaders and experts to discuss best practices and innovative solution designs to solve business challenges. General session presenters at FICO World include leading financial services providers from North America, Latin America, Europe and Asia Pacific. The conference will reveal new products, FICO score alternative data innovations, software capabilities on the FICO platform as well as the company's flagship solutions for AI-powered decisions. We will also announce a new partnership and other new FICO solutions. We'll talk more next quarter about the event and give more details about how leading financial services providers are using the FICO platform to design innovative solutions to solve business challenges. I'll have some final comments, including a revision of our guidance in a few minutes. But first, let me talk -- turn the call over to Steve for further financial details.

William Lansing:

Thank you, Steve. As I said in my opening remarks, we continue to deliver strong results, and I have confidence in our team as we move forward. Our Scores business continues to deliver strong growth even in a volatile macro environment. As I've said in the past, our diversification through different credit verticals means we're less dependent on specific types of lending, which is very important in a rising rate environment. On the Software side, we continue to prove that market demand for FICO platform is strong and growing. We're delivering valuable technology to customers looking to use the latest analytic and AI technology to optimize their consumer interactions and revolutionize their businesses through digital transformation and, importantly, to do it at scale and with low latency. As always, we're focused on execution and remain committed to delivering value to our shareholders and visibility into our progress. Finally, today, we're raising our full year guidance as we enter the back half of our fiscal year. There's still a great deal of uncertainty in the markets we serve, but we have line of sight to much of our revenue and are confident that we can raise our guidance accordingly. We are raising our full year revenue guidance to $1.48 billion. We're also increasing our GAAP and non-GAAP net income guidance. GAAP net income is now expected to be $406 million. GAAP earnings per share is now expected to be $16.15. Non-GAAP net income is now expected to be $489 million. Non-GAAP EPS is $19.45. And with that, let's turn the call back to Steve for Q&A.

Operator:

[Operator Instructions] And your first question comes from the line of Faiza Alwy with Deutsche Bank.

William Lansing:

Well, I think that it's not so much that things have changed as -- with the benefit of half a year behind us, we have more confidence in what we expected. And so we're able -- as you know, we're typically conservative in our guidance. And so we're really just stating officially that we're comfortable with the direction that things are headed. There's not really any surprises there, and there's not any dramatic changes.

Steven Weber:

Yes. So we had a number of things that -- a lot of that may take place throughout the year. A lot of it has kind of happened this quarter. We included a little bit more for incentives, which we typically probably don't do to the third quarter. So we did that now. We had the success our sales events. We had a few other kind of true-up things that typically happen throughout the year, but we got more in this quarter. So the rest of the year, I mean, we have FICO World coming in our third quarter. So that's -- there's an expense associated with that. But we expect that, if anything, the expenses in the back half of the year will probably be similar to our second quarter or potentially even drift down in the fourth quarter because there aren't any onetime events there. A lot of that stems on the revenue we did, too. So -- but we don't -- it looks like there's a step function here, but it's not as much as it probably as it looks like on the surface because it's an aggregation of a lot of onetime happening in 1 quarter.

Manav Patnaik:

Will, just a broad macro comment, especially since you're raising your guidance. Just a lot of your peers don't seem to be too worried about the incremental pressure from the bank failures and so forth, but I just wanted to see if you had any unique insight from what you're seeing and how you assess the risks here.

Manav Patnaik:

Got it. Okay. That's helpful. And then just on the originations revenues, I think we all have a good sense from the bureaus on the mortgage volumes. But I was just hoping you could give us some color on what auto, card and personal loan debt from a volume perspective this quarter.

Operator:

Your next question comes from the line of Kyle Peterson with Needham.

William Lansing:

Yes. It's a good question, Kyle. And certainly, the backdrop for IT spending and software is a little softer. There's -- but not for us. So the good news is that our offerings, particularly our platform offering, but our software offerings are so critical. And so March, a part of kind of the strategic future for our big customers that they're not getting the same kind of cancellation and squeeze that some other software products are. We're -- in fact, we've seen our sales cycle shortening a little bit. We see continued expansion of existing sales of platform. And we're actually running into less competition out there than one might expect. Most of the competition comes from homegrown. There's not really competitors out there who have offerings that are on a par with ours. Our platform offering is so much more powerful and fully featured and what the customer needs that it tends to be a less competitive kind of situation and much more of a strategic buy. And so that's really what we're seeing. And so no, we have not slowed down in spite of the software spending environment.

William Lansing:

I'd say that we have never had any trouble attracting talent to FICO, not years ago, not last year, not this year, not even when times are tight, when employment is very tight. Yes, there are some salary and cost pressure. And I'd say that's more a year ago than today, but we have had no issues whatsoever with attracting talent or retaining talent for that matter. I think that we offer our engineers and our people super challenging roles. They're working on industries mediating critical stuff, and they like it, and we've been able to track great talent that way. I wouldn't -- with the exception of what Steve mentioned from a salary and stock comp expense standpoint, bonus standpoint, I wouldn't say that there's disproportionate pressure on conferencing or anything like that.

Surinder Thind:

I'd like to start with a question on the Scores B2C side of the business. It looked like revenues were sequentially flat quarter-over-quarter versus the declines that you've seen in the last couple of quarters. Any color there in terms of the dynamic? Does it look like things have stabilized at this point and then maybe in terms of the new additions versus the number of people that are rolling off? Any color there?

Surinder Thind:

Fair enough. And then in terms of just the dollar-based NRR, obviously, there was a material acceleration in the figure from 130% last quarter to 146% this quarter. That reverses the slowing trend that we had been seeing. Can you provide some additional color there? How much of that is sensitivity to FX? And then how much of that is just like the international business there?

Surinder Thind:

And then one follow-on in terms of -- when I think about the new clients that you've been adding to the platform or the new use cases, that's consistently been growing at about a mid-teens pace. That was true last year. That was true this year. It was true through most of 2022. So it doesn't seem like there's really any impact from macro. You've kind of quantified it as there's maybe not a lot of sensitivity there given the importance of the platform. But can you discuss the conversations you're having with the new clients in terms of how you're quoting them? And what does that pipeline look like at this point? Like the conversions that you're seeing or that we're seeing now, is that conversations from last year? Or how -- when I say last year, meaning a year ago. Or how should we think about that in the current pipeline?

Operator:

Your next question comes from the line of George Tong with Goldman Sachs.

William Lansing:

If you're asking is there any special pricing on top of the guidance that we've provided, if that's what you're asking, I would say yes, there is, but we don't quantify it. I mean we really -- there's enough uncertainty out there that we'll know what the special pricing is at the end of the year when the numbers are counted. So I would -- the short version is there is some special pricing above the guidance that we've provided today, but I wouldn't want to quantify it today.

George Tong:

And then aside from guidance, just in terms of what's the receptivity and what's the traction of your special pricing increases?

George Tong:

Perfect. Very helpful. And then secondly, you mentioned auto and card volumes are up modestly. Can you describe what you're seeing with origination volumes from a trend perspective? How are they trending? I mean things getting better? Are they stable?

Operator:

Your next question comes from line of Ashish Sabadra with RBC Capital Markets.

Steven Weber:

No. On a run rate basis, we'll probably be pretty flat to that $10 million or maybe that's probably the high end of what it would be, again, but a lot of kind of how much [indiscernible] get revenue over beyond our guidance. There's some products associated with that. But you can kind of back in on your model, if you take our guidance and see what's the implied expenses in the back half of the year. But personnel was up 6%. I think the personnel were not all that obviously is payroll increase and headcount expansion, so we had some true-ups of some incentives both in the U.S. and other parts of the world. So there's a little bit of -- and we have a number of different kind of onetime things that kind of gets that to $10 million number. So there's a lot of noise in the number. I don't want people to think that our expenses are ramping up that dramatically.

William Lansing:

Your guess is as good as ours. It has always seemed like a somewhat aggressive timetable to us, but time will tell whether it happens at that time or later. But -- and one could imagine that it could happen on the time frame that's been announced.

Jeff Meuler:

So Software looks great. Look forward to seeing you at FICO World, I guess, next month. I do have another question on the guidance methodology. I just want to make sure I'm understanding it correctly. I think you said, Will, that like you took a similar approach to prior years. There was another question, and it didn't sound like the environment is all that different than what you were expecting. But the magnitude of the increase this year was obviously quite a bit less, at least at the EPS line than some prior years, what you did during Q2. So I'm not understanding if, like, you're holding back more of the pricing benefit this year given uncertainty or if there's offsets in volumes, you mentioned card getting worse or just anything like that? Or is this a pretty full view of the calendar '23 special pricing impact similar to what you've incorporated in prior years with a little bit of conservatism?

Jeff Meuler:

Got it. And then just can you comment on free cash flow? I get that it could be lumpy quarter-to-quarter. I think we have a couple quarters in a row now where it's a bit lower. So just what's going on there? Or any sense of like when you'd expect that to normalize?

Operator:

And there are no further questions. I'll turn the call back to your presenters for closing remarks. Thank you.

Operator:

And that does conclude the conference call for today. We thank you very much for your participation. You may now disconnect your lines.

Operator:

Greetings, and thank you for standing by. Welcome to the Fair Isaac Corporation Quarterly Earnings Call. During the presentation, all participants will be in a listen-only mode. [Operator Instructions] This conference is being recorded Thursday, January 26, 2023. And now I'd like to turn the conference over to Steve Weber. Please go ahead.

William Lansing:

Thanks, Steve, and thank you, everyone, for joining us for our first quarter earnings call. In the Investor Relations section of our website, we've posted some slides that we will be referencing through our presentation today. I'm pleased with the results we delivered in our first fiscal quarter. Even in these uncertain economic times, the resilience of our assets and the execution of our team allow us to deliver steady growth in both revenues and earnings and value to our shareholders. Page 2 shows financial highlights from our first quarter. We reported revenues of $345 million in Q1, up 7% from the prior year. Our GAAP net income of $98 million was up 15% over the prior year and GAAP EPS of $3.84, up 24%. On a non-GAAP basis, Q1 net income was $108 million, up 6% from the prior year, and earnings per share of $4.26 were up 15% from the prior year quarter. Overall, we are off to a very good start in our fiscal 2023. In Scores, revenues were up 5% over the same period last year, as you can see on Page 6 of the presentation. B2B revenues were up 11% in the quarter versus the prior year, driven by unit price increases, increased volumes in card and personal loan originations, and also by a license renewal in Latin America. In the U.S., auto originations revenues were up 24% and card and personal loan originations revenues were up 19%. We continue to see reduced mortgage origination volumes for the U.S. market, where revenues were down about 40% year-over-year. The fiscal 2023 price increases we talked about last quarter take effect primarily in January. So we expect to see much of the impact in our second fiscal quarter. As always, it's difficult to estimate the timing and magnitude of the impact. Our B2C revenues were down 6% versus the prior year quarter as we continue to see difficult comps in our myFICO business due to the economic climate and especially because of the higher interest rates and lower number of consumers preparing for mortgages. In our software business, we continue our focus on the decisioning platform that enables businesses to optimize consumer interactions across their enterprise. Overall software numbers look strong, and platform numbers continue to be exceptional. As you can see on Page 7, we delivered overall ARR growth of 11% and platform ARR growth of 46%. Our ARR, our DBNRR and our ACV numbers are adjusted for the Siron divestiture. And again, our customers continue to find new use cases, as you can see from our net retention rates shown on Page 8. Overall, net retention rate was 110%, and platform net retention is 130%, continuing to demonstrate the success of our land-and-expand strategy, and we continue to see strong demand for our software. As you can see on Page 9, our ACV bookings were up 31% over the same period last year, and we continue to see a strong pipeline of opportunities as customers look to FICO to deliver strategic mission-critical decisioning. Earlier this week, I had the opportunity to attend our annual sales meeting, where I met with colleagues from around the world to discuss best practices, current trends and especially how our customers view our offerings. I heard firsthand how customers were looking at FICO to help solve their most difficult decisions and how those customers were increasingly finding new ways to use the FICO platform throughout their businesses. I don't think there's ever been a time at FICO where the team has been so excited about the opportunities ahead of us. And I share that excitement. I came away with a renewed appreciation for our unique technological capabilities and the incredible team that we have taking it to the market. Finally, as I've often said, we are committed to becoming the preeminent platform player in decisioning analytics. The strategic focus has allowed us to exit some non-strategic products and services over the last few years. In November, we announced we had reached an agreement to transition our Siron compliance business to our partner, IMTF. We closed that transaction in December. While we are proud of the work and the innovation at the FICO team put into Siron to make it an industry-leading solution, we believe we are better positioned if we dedicate our focus and our resources to expanding the capabilities and market penetration of FICO platform. I'll have some final comments in a few minutes, but first, let me turn the call back to Steve for more financial detail. Thanks.

William Lansing:

Thanks, Steve. I'm really pleased with our Q1 results. I'm pleased with the progress we're making on strategic initiatives, and I'm pleased with our positioning for the balance of fiscal 2023. Our Scores business continues to deliver growth even in a turbulent market. As I said in the past, our diversification across different credit verticals means that we are not dependent on one specific type of lending. On the software side, our platform strategy continued to drive strong results. The strategic mission-critical nature of our decisioning FICO platform means that customers are not delaying purchases and implementations. This is evident in the 13 straight quarters of 40-plus percent of platform ARR growth and the continued strong net retention rate of current customers. We are confident we have the best-in-class capabilities in an emerging marketplace that's poised for sustained growth. I'm confident we have the correct strategy and a strong team in place to deliver on the remarkable opportunities ahead. As always, we remain focused on execution, and we are committed to delivering outstanding value for our shareholders. As a reminder, when we announced our CFO transition, we also reiterated our guidance with an adjustment for the transition of the Siron Compliance Solution to our partner. So we are guiding revenues of $1.463 billion, GAAP net income of $401 million, GAAP EPS of $16, non-GAAP net income of $487 million, and non-GAAP EPS of $19.42. I'll turn the call back to Steve, and we'll be taking questions.

Operator:

[Operator Instructions] And we have a question from the line of George Tong with Goldman Sachs. Please go ahead. Your line is open.

William Lansing:

I think the assumption still holds. The future remains uncertain, but right now, the assumption holds. We think we're right on track.

William Lansing:

So as I mentioned, I think that because the platform software is so mission-critical, it's a little bit less subject to our customers pulling in their budgets and pulling in their spend. So there's no question that there is budget pressure out there. I mean everyone is under budget pressure. But the kinds of solutions we provide with the platform are such a perfect fit for the strategic needs of some of these customers that it's something that just can't wait. And so when the customers adopt a platform, it's a transformation of their business really, and it's not the kind of thing that's easy to put off. The other thing I would say is we're demonstrating incredibly rapid return on investment. And we have testimonials from customers with amazing returns, within year returns. And that word is getting around. Our customers are finding out that this stuff pays for itself within a year. And as a result, we have not seen any slowdown in the spend on our platform business.

Operator:

Our next question is from Surinder Thind with Jefferies. Please go ahead. Your line is open.

William Lansing:

I would say that the license deal that we referenced is kind of par for the course. We get these deals from time to time, renewal deals, sometimes they're bigger renewal deals. They happen every year. We can't really predict what quarter they happen in, and so we get a little bit of lumpiness there, and that's what we've got here.

Steve Weber:

Yes. Surinder, this is Steve. It's relatively modest that we see right now. I mean, a piece of that business is, as you know, there is a partner side and then the myFICO side. The myFICO side has been challenged by the economic environment, right. In fact that people and I getting pay mortgages, if mortgages increase in the spring and breaking them down and that increase that our business will probably pick back up again. But it looks right now, we're projecting it to be a little bit less than it is today, but we're not expecting to be [indiscernible].

Steve Weber:

Yes, it's mostly on the myFICO side because the myFICO side is more – the partners have a lot of different business models they can cycle off to, right? There's a premium [indiscernible] MyFICO side, we don't set what market it is. It's a lot more tied to each market.

William Lansing:

We're still in love with our stock, and the plan is to continue to return capital to shareholders through stock repurchase. That said, we'll keep an eye on rates. And we're at a weighted 4.9% on the interest expense right now. And I just – when I look at FICO stock, when you look at FICO stock, I think you believe that's a better – that's a good balance. So for now, still on stock buyback.

Operator:

Our next question is from Kyle Peterson with Needham & Company. Please go ahead your line is open.

Steve Weber:

Yes. Okay, Kyle, that’s a good question. So one of the things we're really working on hard, frankly, is we're bringing back as much cash as we can from around the world. Even if there's a slight expense to that when the rates are higher, it just makes more sense to do that as much as possible. So that we're bringing as much cash into the U.S. as we can. And then we look at the trade-offs between the rates and to put what kind of stock we can buy back. So as Will said, we're concentrating on buybacks, but that can change as the markets change. So we look at that, we model it out. And we're still comfortable that buying as many shares back as we can conceivably. We're not going to do like we did last year where we went all in, and we ratcheted up our debt when we said we had the opportunity. But I think you'll see us spending the free cash flow this year on buybacks.

William Lansing:

Look, I think Steve said it well. I mean, we try to return free cash flow every year. And then periodically, we do more than that. So for the last two years, we've done considerably more than that. And it's because the stock price was depressed, like really, in our minds, quite depressed relative to its value, and also it was a lower interest rate environment. Now we have higher interest rate environment. The stock is a little bit price here. I still think it's a bargain, but it's more expensive than it was. And so we're back to thinking about stock repurchase in terms of our free cash flow, our annual free cash flow. So I would say that things have changed. I mean we were really piling up the debt to buy in the shares over the last two years, and we will not be quite as aggressive in the future, at least right now under these circumstances.

Kyle Peterson:

Yes. Makes ton of sense. Thanks guys. Nice quarter.

Manav Patnaik:

Thank you. On the Auto and Card side, you gave us – you showed some healthy revenue increases. But I was hoping you could just help us parse down what volumes are doing in those two categories? And the flat volume assumption for overall volumes in Scores, I guess what are you assuming for Auto and Card to get to that flat number?

Manav Patnaik:

Got it. Helpful. And then, Will, just on the Software side, the platform business always had a five handle. Next is, in terms of growth, I know it's probably just nitpicking. This time, it's 46%, but even in your prepared remarks, you said 40% plus type growth. Is it just the law of large numbers? Is there something timing-wise? Just talk to us a little bit around that, please?

Manav Patnaik:

Got it. Okay. Thank you, guys.

Ashish Sabadra:

Thanks for taking my question. Just a question on the special pricing. Our understanding is that tends to be in the $40 million to $60 million range usually. Is that the expectation this time as well based on initial feedback as you have ruled out these special pricing increases?

Steve Weber:

It's easier to do in hindsight. There's a lot of volatility, right, in the marketplace. So if you can tell us what the interest rates are going to be in six months, we can probably give you a better number.

William Lansing:

I would say yes and no. So yes, our platform growth rate is substantially higher than the Siron business that we divested. And so divesting it does contribute to a higher growth rate for FICO. And are there other opportunities in our portfolio? Not really. I mean never say never. We're always looking to be as streamlined and efficient as we possibly can be. But we're pretty happy with the set of assets and the set of solutions that we have today. Even our older application solutions are still quite popular with our customers. We continue to invest in them and make sure that they have the features and functionality that the market needs. And as you know, the renewals on these typically have a cycle of kind of three years, and they get renewed multiple times. It could be a nine-year or 12-year kind of arrangement. And so I think we'll be probably hanging on to the vast majority of our portfolio. There are no obvious candidates for divestiture at this time.

William Lansing:

Well, I can share you that our talented management team is doing everything they can on the marketing side and the customer acquisition side to keep the business growing as much as possible. But you do have a macro environment that just results in the kind of performance that you're seeing right now. That business is completely data-driven science-based kind of a business where we spend on customer acquisition up to where it ceased to be economically smart to do so. And so there's – that is always optimized. That business is optimized at whatever levels we have in the marketplace. And so the short answer to your question is we're doing just the right amount. I really think it's optimized. I don't know that more would make things better. You might be able to get the growth rate up, but it wouldn't be better from an economic standpoint.

Operator:

We have a question from Faiza Alwy with Deutsche Bank. Please go ahead. Your line is open.

Steve Weber:

Yes. I mean it was modest, but it was on the software side. I mean, the Scores number is pretty much dead on plan, and software came in a little bit ahead of plan. So it's encouraging to see that, that happen.

William Lansing:

I think someday we will have declines, but I think for the time being, flat is the right way to think about it. Now obviously, we can manage that number. We choose to end of life some products, and that contributes to shrinkage. And it's a balancing. And it's really a balancing act that we are in. I think that we're in a good place right now at flat. That's just about the right balance where we can close down, end of life the products that would result in us having a lot of technical debt where we did continue them without really shrinking that business. The day will come, no doubt, when we will shrink that business somewhat. But that day is still a ways away.

Steve Weber:

It's not – it's not a lot of money. But I mean, we put – we have salary increases that take place in December. So we'll have three full quarters of that. There'll probably be some additions to headcount, but we expect to have more revenues, too. So I mean, we can delay the headcount hires if the revenues don't come in. So we do have control over it to some degree, but it's not a step function in expenses.

Operator:

Our next question is from Jeff Meuler with Baird. Please go ahead. Your line is open.

Steve Weber:

Yes. Prescreen is down slightly from last quarter. Some of that is seasonal. But we still see pretty strong pre-stream numbers, but they're not what they were in the fall. So we'll see what happens after the first of the year. Typically, that's a lower marketing quarter, but we monitor that, and we'll see. It's still strong, but it's not as strong as it was in the fall.

Steve Weber:

In terms of the account management scores, the account review scores, those were actually stronger. So for – there's a lot of different factors looked on that, but it's a little bit stronger than it was in the prior quarters.

Steve Weber:

There's some usage. I mean, it's a combination. Most of the platform, especially, it's all based off the usage. So it can either be increased usage of the same functionality or additional use cases that are brought on board.

Steve Weber:

Yes.

Operator:

And that concludes our Q&A session for today. It also concludes the call. We thank you for your participation and ask that you please disconnect your line.

Operator:

Greetings, and thank you for standing by. Welcome to the Fair Isaac Corporation Quarterly Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question and answer session. [Operator Instructions] This conference is being recorded Wednesday, November 9, 2022. And now I'd like to turn the conference over to Steve Weber, Vice President, Investor Relations. Please go ahead.

Will Lansing:

Thanks, Steve. And thank you everyone for joining us for our fourth quarter earnings call. In the Investor Relations section of our website, we've posted some slides that we'll be referencing during our presentation today. I'm pleased to report that we had a very good quarter which completed an outstanding year with record revenues, record earnings, and record cash flows. We easily exceeded our guidance in all areas even after a mid-year raise. Pages 2 and 3 show some financial highlights from our fourth quarter. We reported revenues of $349 million in fourth quarter and $1.38 billion of revenue for the fiscal year. We delivered $91 million of GAAP net income in the quarter and GAAP earnings of $3.55 per share. For the full fiscal year, we delivered $374 million of GAAP net income and $14.18 of earnings per share. On a non-GAAP basis, Q4 net income was $112 million and earnings per share were $4.40. Full year non-GAAP net income was $454 million, up 19% over last year, and non-GAAP EPS of $17.22 was up 32% over the previous year. We continue to deliver strong free cash flow growth as well. Q4 free cash flow was $144 million, bringing the fiscal year total to $503 million up 21% from the previous year. Our strong cash flow allowed us to be especially aggressive in returning capital to shareholders through our share buybacks. In fiscal 2022, we repurchased nearly 2.7 million shares at an average price of $409 per share. In our Software segment, we delivered $175 million of revenue, up 5% from last year. We continue to drive growth in this segment, particularly on our platform. As shown on Page 7, total ARR was up 9% and the platform ARR grew 52%. We continued to deliver strong NRR as well, demonstrating our land and expand strategy as customers increase their total usage. Total NRR for the quarter shown on Page 8 was 107%. Platform NRR was 128% and we continue to see strong demand for our technology from new customers. Our ACV bookings as shown on Page 9, were up 14% over last year. We continue to focus on our state-of-the-art FICO platform, it truly is NextGen decisioning technology. It allows customers to use advanced analytics to optimize interactions with their consumers. In our Scores segment, we're seeing a continuation of the trend for the last several quarters. Mortgage originations have continued to decline and in Q4 accounted for just 11% of our Scores revenue and 5% of total company revenues. Auto originations revenues remained relatively stable with originations flat with last quarter and up 20% versus last year, primarily due to pricing. Card and personal loan originations continue to perform well with originations revenues up 37% over last year. Total Scores revenues were up 3% in the quarter versus the prior year and up 8% for the full year as you can see on Page 6. On the B2B side, revenues were up 6% in both the quarter and for the full year. This is a strong result considering the rapid and dramatic rise of interest rates and their impact on the mortgage market. On the B2C side, revenues were down 3% in the quarter due to a slowdown in new customer subscriptions on our myFICO platform and up 11% for the full year. I will discuss next year's guidance in greater detail later where we expect the Scores business to grow about 7%. We also expect the special pricing initiatives for 2023 to have an additional impact beyond our guided numbers consistent with those over the last several years. Although it's difficult to estimate the timing and magnitude of the impact. Finally, as you are aware, the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac have completed their validation and approval of new credit score models. I'm pleased the process has concluded and that the FICO Scores has again been approved for using conforming mortgages by the enterprises. This decision means that FICO Score 10T will be required to be used when available, as classic FICO is today for each conforming mortgage delivered to the enterprises. The latest release of our flagship FICO score, FICO Score 10T delivers increased predictive power while preserving the trusted and proven FICO score minimum scoring criteria. These improvements in predictive power can help mortgage lenders safely avoid unexpected credit risk and better control default rates. The decision from the FHFA is the culmination of a multiyear process set out by both congressional and administrative regulation. We look forward to additional guidance from the FHFA and the enterprises on the timeline and the implementation process. I'm also pleased to report that in our fourth quarter we signed a multi-year extension with the large bureau partner in the consumer Scores space. I have some final comments and provide our fiscal '23 guidance in a few minutes. But first, let me turn the call over to Mike for further financial details.

Will Lansing:

Thanks, Mike. As we enter our fiscal 2023, I'm excited about our prospects and opportunities that lie ahead. We have an incredible set of assets and a business model that can produce predictable solid results even in a turbulent macro environment. Our FICO platform continues to experience phenomenal growth as we find a receptive audience for best-in-class decisioning that our panelists deliver. Our Scores business continues to deliver industry-standard risk management products that are especially critical in uncertain economic times. And the recent FHFA decision ensures that we'll be a critical component in the mortgage process for many years to come. The successful deal signings we had in fiscal '22, as well as prudent planning and management, give us confidence, we will have another successful year in fiscal '23. We are providing full year guidance as shown on the presentation. Regarding revenues of approximately $1.475 billion, an increase of 7% versus fiscal 22. We are guiding GAAP net income of approximately $401 million, an increase of 7.5%. GAAP earnings per share of approximately $16, an increase of 13%. Non-GAAP net income of $487 million and non-GAAP earnings per share of $19.42, increases of 7.5% and 13% respectively. With that, I'll turn it back over to Steve and we'll take questions.

Operator:

[Operator Instructions] We do have a question from the line of Kyle Peterson with Needham & Company. Please go ahead. Your line is open.

Will Lansing:

We are not seeing deals pushed out nor are we seeing deals downsized. It's probably worth noting that we have a fairly long sales cycle, it's approximately a year long. And so it's long enough in our view. But we have not seen softness. No, I think that the current solutions and offerings particularly around the platform are really strategic. And the - and our customers see them that way and it's a higher-level decision. And so whatever financial pressure our customers may be under, our deals with them seem not to be affected.

Mike McLaughlin:

Hi, Sam, it's Mike. As in past quarters, we don't disclose volumes precisely. But also as in past quarters, I can tell you that the volumes we saw are pretty consistent with what you have seen if you've been watching the third-party data out there from either the NBA or J.D. Power or credit card issuers themselves. Mortgage has declined for us in volume in a quantity consistent with what you can see from some of those data points. Auto was more or less flat both on a quarter-over-quarter and year-over-year basis, again consistent with external reporting. And on the credit card side, growth continued to be strong on a year-over-year basis. It was more or less flat on a quarter-over-quarter basis but consistent with the market. In terms of how we feel going forward, we don't make predictions about volumes in those sectors, we don't have economists that don't necessarily consider ourselves experts in forecasting that kind of consumer behavior. But I think you can have some confidence that our volumes will pretty much track the overall market as it has in past quarters.

John Mazzoni:

This is John filling in for Ashish. Maybe just a follow-up on the ACV bookings, 14% was very strong. Is there anything that's driving that strength or is this more of seasonal element? Thanks.

John Mazzoni:

Great. Thank you. And then maybe just quickly, could you give us some more color on the slow-down in marketing, and as well as the shift to freemium and how it's weighed on B2C? And perhaps how we could think about B2C revenue growth going forward? Thanks.

John Mazzoni:

So just based on some of our math, it looks like we might have a slowdown in marketing and account management, but we might be a bit off there. Is that the case?

John Mazzoni:

Yes. That would be great.

Operator:

Our next question is from Manav Patnaik with Barclays. Please go ahead. Your line is open.

Will Lansing:

Yes, good question. So just starting with the special pricing. The special pricing is in addition to our guidance, it's not in that 7% exactly. It's really - think of it as being consistent with past years and outside of our guidance because we can't really predict the timing and so on. With respect to within the guidance, the 7%, we have a fairly significant CPI increase there which in years past has been there as well but it was always a much smaller number. This year we're talking about a reasonably significant number which is driving a fair bit of that. And also, I would say that mortgages it's a smaller piece of our business. And so we feel pretty good about the overall mix.

Will Lansing:

It's a bit of both. I mean so, we're clearly holding the line on expenses, but it's also a smaller share count, they're both contributors.

Brendan Popson:

Okay. And there is no - are there any repurchases assumed in '23 in that number?

Operator:

Our next question is from Surinder Thind with Jefferies. Please go ahead. Your line is open.

Will Lansing:

Yes. We absolutely are. So we think of our target market as the top 200 financial institutions globally. And our penetration there is around 15%, little over 30 customers signed through the platform. And so our conversation takes two forms. One is, let's talk to the other 85% of our target market that has not yet signed up for the platform, as well as expansion opportunities with the ones who already have. And both of those kind of conversations are going on, and very successfully.

Will Lansing:

So consumer B2C does have - does move in sympathy with mortgage volumes because as you know consumers tend to sign-up for that kind of subscription, with contemplating mortgages when they are wondering what their FICO score is going to be for them when they go out and get financing. So as mortgage volumes go down so to - with a little bit of a lag with so to do our B2C myFICO volumes. Our volumes are - they're good, they're down a little bit, they're good. And same with our partners, our partners are - they're doing okay.

Will Lansing:

I think a fair way to think about it is a bit of a continuation of what we're currently seeing. So flattish, modest, very modest kind of growth and the balance is made-up with price.

Will Lansing:

And the fact that we have a price lever makes a huge difference, it's part of why we have the confidence that we have.

Will Lansing:

Yes. Although, it hasn't taken effect. Yes.

Will Lansing:

For most, but not all customers. Yes.

George Tong:

Hi. Thanks. Good afternoon. In your guidance for next year, can you outline what you're assuming for B2C growth in the Scores business?

George Tong:

Great. And then with respect to margins, how much of the margin expansion that you're forecasting for next year is going to come from Scores versus software? Are you expecting more contribution from one part of the business over the other or is it relatively equal benefit from both?

George Tong:

Just trying to get a sense for how much of the margin expansion next year will be driven by software versus by Scores?

Operator:

Our next question is from Jeff Meuler with Baird. Please go ahead. Your line is open.

Will Lansing:

No, that is the B2C partnership which as I think we shared in the past had a couple of more years to run. And what we've done is extended another few years beyond that. And so we now have a lot of certainty around when that B2C partnership looks like for many years to come.

Will Lansing:

It's more the latter. Because as you know the CPI numbers are constantly moving and we could pick a number that's a point in time number that would be exactly the CPI. We could pick a rolling number, we could do a historical number, we could do a projection. And so we never get it exactly right. So we think our best guess and put down a number, but it's our interpretation.

Will Lansing:

It's it is mostly U.S. dollars, and it's not a new thing for our customers to prefer to operate in their own currency and it's not a new thing for us to prefer to operate in U.S. dollars. So we kind of are where we are. And so yes, you can imagine that for them based on the strength of the dollar it's a little bit tougher. But we haven't changed our policies.

Jeff Meuler:

Got it. And then just last we have the K and we get the client comp disclosure. Just any comment on the number of large financial institutions. So I guess in the U.S. went down from 96 to 92, are those software or Scores clients or is there an impact from - I don't remember the exact timing of the collection and recovery divestiture. And then it looks like a good news story internationally. I don't know how much this is rounding, but going from two-thirds to three quarters. Just any comment on those our client count metric?

Operator:

I believe that's all the questions we have. I'll turn the call back over to Steve.

Operator:

That concludes the call for today. We thank you for your participation and ask that you please disconnect your line.

Operator:

Greetings, and welcome to the Fair Isaac Corporation Quarterly Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, August 3, 2022. I would now like to turn the call over to Steve Weber. Please go ahead, sir.

Will Lansing:

Thanks, Steve, and thank you, everyone, for joining us for our third quarter earnings call. We posted some slides with our results on the Investor Relations section of our website. I’ll be referencing some of those slides during our presentation today. I’ll go over the results of our third fiscal quarter and discuss what we’re seeing in the markets we serve. We again delivered very strong results in a noncertain marketplace, which demonstrates the resiliency of our business model and the value proposition we deliver. As you can see on Page 2 of the presentation, we reported revenues of $349 million, an increase of 3% over the same period last year or 7% when adjusted for last year’s sale of our collections and recovery products. We delivered $93 million of GAAP net income and GAAP earnings of $3.61 per share, up 21% and 36%, respectively, when adjusted for last year’s gain on sale. On a non-GAAP basis, net income was $116 million, up 17%, and earnings per share of $4.47 was up 32% from last year. Our Scores business continues to perform well despite headwinds in the mortgage market. Scores were up 4% in the quarter versus the prior year, as you can see on Page 6 of the presentation. On the B2B side, revenues were up 3%. Mortgage continues to be the headwind as originations have declined as interest rates rise. Mortgage originations revenues were down 25% versus last year. Mortgage origination revenues now account for about 12% of our Scores revenues and 6% of our total company revenues. Excluding mortgage, total B2B revenues were up about 12% versus last year. Auto origination revenues were up 12%, and credit card and personal loan originations revenues were up 37%. We also had double-digit year-over-year increases in our prescreen scores. On the B2C side, revenues were up 7% from the previous year. The slowdown in growth came primarily in our direct myFICO.com channel, where we are seeing fewer new customers coming online. Our partner channel, which includes paid and freemium components, continues to drive double-digit growth. In our Software segment, we delivered $170 million of revenue, up 2% from last year and 11% after adjusting for the divestiture. As you know, over several quarters, we’ve talked about the demand for our platform and how we see substantial growth opportunities. As shown on Page 7, total ARR was up 9%, and the Platform ARR again grew at a remarkable 60%. Our net retention rate is also very strong as our existing customers continued to expand their usage. Total NRR for the quarter, shown on Page 8, was 108%. Platform NRR was 135%. We also had a very good quarter with new sales. Our ACV bookings, as shown on Page 9, was up 64% over last year. We’re extremely excited about the continued growth potential for our FICO platform, and that excitement was shared by our customers at our recent FICO World Conference. The 3-day event hosted in May was an opportunity to finally connect face-to-face with our clients, partners, industry experts and colleagues to reinforce FICO’s vision and commitment to client success. We hosted 750 FICO clients from leading banks, financial services firms, auto finance companies, insurance providers and telcos. The event in Orlando included 90 breakout sessions as well as hundreds of individual strategic consulting engagements, all designed to help our customers identify how FICO can enable them to accelerate and achieve their goals with the FICO platform. It was also a great opportunity here from FICO customers, with nearly 70 clients presenting during breakout sessions, sharing the success stories and lessons learned. FICO World ‘22 was an essential moment where we had the opportunity to explain and demonstrate our platform strategy directly to our most strategic clients. Clients rated this FICO World the best FICO World of all past events, and we’ve already seen a surge in registrations for the next FICO World, to be held May 13 through 16 in Hollywood, Florida. I’ll have some final comments in a few minutes. But first, let me turn the call back over to Mike for financial details.

Will Lansing:

Thanks, Mike. As I said in my opening remarks, I’m pleased with our ability to continue to deliver strong results and how we can meet our customer needs while working in the best interest of our shareholders. We continue to deliver mission-critical software and analytics to customers. As the financial services industry continues to navigate the impacts of economic volatility, the need for precision through advanced analytics has never been more important. Lenders are seeking more ways to assess risk and opportunity in real-time to inform decision-making. And we have the technology and expertise to deliver best-in-class solutions. Our Scores business continues to provide lenders with time-tested analytics that help manage risk throughout the consumer lending market. And the use of those scores throughout the many different lending markets means we’re not highly leveraged to specific types of lending more customers. On the Software side, we continue to drive remarkable Platform ARR and NRR growth, demonstrating a strong market appreciation and appetite for our latest decisioning technology. Finally, as you know, it’s our practice to provide only annual guidance, so it’s not our policy to raise guidance in our fourth quarter. I’m pleased to say we are reiterating the full year guidance that we raised last quarter. We remain confident that we are well positioned to meet or beat the numbers we have presented and look forward to discussing our fiscal ‘23 expectations when we release our results next quarter. I’ll turn the call back to Steve for Q&A.

Operator:

[Operator Instructions] The first question will come from Manav Patnaik with Barclays.

Will Lansing:

Well, those -- I mean, pricing is really a discussion for next year. I mean the pricing is baked in for this year. And those really are the puts and takes. I mean we’ve got mortgage headwind, and everything else is pretty strong.

Kyle Peterson:

I just wanted to have a question on Software. Results are really strong, especially on the ARR side this quarter for Platform. Have you guys seen any change, whether it’s in longer sales cycles or clients looking at potentially down-gauging deals with some recessionary fears kind of perking up here?

Kyle Peterson:

Understood. That’s really helpful. And then, I guess, just following up on the expense run rate. You showed some really good margin leverage this quarter despite having your conference. Then you guys said expenses up modestly next quarter. What are the biggest drivers of higher expenses here? Is it just higher personnel and wage costs, just given the tight labor market? Or are there any other investments that you guys are making, that you guys want to call out right now?

Operator:

Our next question comes from the line of Surinder Thind with Jefferies.

Mike McLaughlin:

So ACV bookings, as you know, is a new metric reported externally. We’ve been tracking it internally longer than that, of course. And we set high goals for ourselves for this year in terms of new sales, and we’re on track to hit those. There isn’t a material amount of pull-forward or any that I can put my finger on that’s happened this quarter or quarters before. ACV bookings is a pretty good metric because it doesn’t have the revenue acceleration dynamics or distortions that you see with other metrics. And we do expect Q4 to be good in terms of ACV bookings as it usually is.

Mike McLaughlin:

Yes. I think it was my prediction, as you correctly point out, last quarter that we may have reached the bottom. I think that’s demonstrated early, so we have 1 quarter’s data point that, that is the case. When we shifted our strategic focus away from lower-margin professional services to focus more of our go-to-market energies on annual recurring software, we saw significant decline in the bookings of new professional services once we made that decision. It takes a while for those bookings to work their way through revenues because we, in any given quarter, have 3 or 4 quarters of backlog of professional services that we continue to work our way through. So we -- you can’t see it from the outside, but we saw our professional services new bookings go down pretty rapidly when we made the policy change. That decline in bookings stabilized about 4 -- 3 to 4 quarters ago, so the bookings are no longer declining. And it took a few quarters for the PS revenues to catch up and hit this, as you say, the new normal. So this kind of $25 million a quarter is probably a pretty good expectation in the near term.

Will Lansing:

No, it’s really the net new additions. I mean it has to do with the fact that we see spike in that business when people are out mortgage shopping. And so as mortgage volumes fall off, consumers subscribe to that in smaller numbers.

George Tong:

You provided revenue performance across mortgage, autos and card and personal loans. Can you describe how price and volume trends contributed to performance in those categories?

George Tong:

Got it. And then with respect to your Software business, the percentage of ARR that’s moving on Platform continues to tick higher. Can you lay out what internal goals you have for where you would like to see the mix of ARR on-Platform versus off-Platform over the next -- over the near to medium term?

Operator:

Our next question comes from the line of Jeff Meuler with Baird.

Mike McLaughlin:

Yes, Jeff, there really isn’t a timing difference with one caveat. The last month of the quarter, the data that we get from the bureaus, by the time we need to finalize it for closing the books, is tentative and subject to revision, I guess, I would say. And so we have to make some estimates and accruals based on judgment and lots of past experience as to what that will be. So occasionally, there will be a little bit of a true-up when we get the final data in there, but it’s not material and it’s not an explanation to the dynamic that you see in the data you just cited there. It’s real-time for June and with, as I say, with that asterisk.

Mike McLaughlin:

It’s more or less flat on a quarter-to-quarter basis, which means it’s still growing on a year-over-year basis. But if you look at the last couple of quarters, as Will mentioned, we’re seeing a lot less net new, probably because less people are shopping for mortgages. And that leads us to be cautious about the next couple of quarters at myFICO.

Will Lansing:

Yes, that’s exactly right. So FICO World is several days of our showcasing our wares. But really, the heavy relationship building occurs in these consultation sessions where we sit down with clients individually and really were true, what we can do for them. And the pipeline that comes out of FICO World is phenomenal.

John Mazzoni:

This is John filling in for Ashish. Can you just talk about the slowing total Software ARR growth in the quarter?

Operator:

And all that does conclude the Q&A session for today. Mr. Weber, I’ll turn the call back to you. Please continue with your presentation or closing remarks.

Operator:

And all that will conclude the call for today. We thank you very much for your participation. You may now disconnect.

Operator:

00:07 Greetings, thank you for standing by. Welcome to the Fair Isaac Corporation Quarterly Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterward, we'll conduct a question-and-answer session. [Operator Instructions] This conference is being recorded, Wednesday, April 27, 2022. 00:29 And now, I'd like to turn the conference over to Steve Weber. Please go ahead.

William Lansing:

02:08 Thanks, Steve and thanks to all of you who are joining us for our second quarter earnings call. On the Investor Relations section of our website, we posted some slides that offer financial highlights of our second quarter. I'm pleased to report that we continue to deliver strong results as we pursue our strategic initiatives in both Scores and Software. Today, I'll talk about this quarter's results and how we view our business at the midpoint of our fiscal year. 02:36 As you can see on page two of the presentation, we reported revenues of $357 million, which is an increase of 8% over the same period last year. We delivered $104 million of GAAP net income and GAAP earnings of $3.95 per share, up 52% and 70%, respectively. On a non-GAAP basis, net income was $124 million, up 37% and earnings per share of $4.68 were up 53% from last year. 03:08 On the Scores side, the business continues to perform well. Scores were up 9% in the quarter versus the prior year as you can see on page six. On the B2B side, revenues were up 5%. As others have reported, we continue to see a slowdown in mortgage activity as interest rates rise. Mortgage origination revenues were down 23% versus last year. Mortgage revenues account for about 14% of our Scores revenues and 7% of our total company revenues. 03:43 Auto origination revenues were up 9%. Personal loan origination revenues were up 27%. While the mortgage declines have been significant, we do remain confident in our revenues given other areas of strength and pricing increases. Our B2C revenues continue to be strong, up 18% versus the prior-year quarter. We saw strong growth through both our own myFICO business and also through our channel partners. 04:13 In our Software segment, we delivered $173 million of revenue, up 7% from last year. We continue to drive growth in this segment, particularly on our platform. As you can see on page seven, total ARR was up 11% and the platform ARR grew 60%. We continue to deliver strong NRR as well demonstrating our existing customers eagerness to find new ways to expand their usage. 04:40 Total NRR for the quarter, which you can see on page eight, was 110%. Platform NRR was 141%, and we continue to sign more deals and bigger deals. Our ACV bookings, as seen on page nine, were up 55% over last year. I'll have some final comments including a revision of our guidance in a few minutes, but first, I'll turn the call over to Mike for further financial details.

William Lansing:

10:17 Thank you, Mike. As I said in my opening remarks, we continue to deliver strong results, and I have confidence in our team as we move forward. Our Scores business continues to deliver strong growth, even in a volatile macro environment. As I've said in the past, our diversification through different credit verticals means that we're less dependent on specific types of lending, which is important in a rising rate environment. 10:41 On the software side, we continue to see more evidence that we're on the right strategic path. We've now delivered 10 straight quarters of platform ARR growth in excess of 40%. And we're excited to demonstrate to new and existing customers the best-in-class capabilities that can revolutionize the way they interact with consumers. As always, we remain focused on execution and are committed to delivering value to our shareholders and visibility to the progress we're making. 11:08 Finally, today, we're raising our full-year guidance as we enter the back half of our fiscal year. We are raising our full year revenue guidance to $1.355 billion. As we've noted, we're facing difficult comps in mortgage, but we're seeing strong growth in the unsecured lending markets and in most of our software markets. Some of these trends were anticipated, but there is clearly uncertainty as we move through the next half year. 11:35 We're also increasing our GAAP and non-GAAP net income as well as EPS. Our GAAP net income is now expected to be $350 million. GAAP earnings per share are now expected to be $13.11. Non-GAAP net income is now expected to be $429 million and non-GAAP EPS are now $16.08. 12:02 I'll now turn the call back to Steve and we will take the questions. Steve?

Operator:

12:14 Thank you. [Operator Instructions] And our first question is from Kyle Peterson with Needham. Please go ahead, your line is open.

William Lansing:

13:11 Well, our expenses will be a bit higher in the second half than they were in the first half, but we're doing a pretty good job of managing expenses. Some things like travel and real estate are the kinds of things we expect coming out of COVID. They're still under control and less than they were in the old days. So there is that kind of cost control. 13:33 But I would say that we're also doing a pretty good job on the software side of bringing down our COGS and we're starting to see some benefits from our increasing focus on engineering our products and solutions for cost and efficiency and scaling. And so, all that's coming together and improving our margins.

William Lansing:

14:38 It varies by the segment of Scores you're talking about, but there is definitely price benefit in there. Some volumes are down, some volumes are up, but prices offsetting the declines.

William Lansing:

14:59 Thank you.

Manav Patnaik:

15:06 Thank you. Good evening. Will, I just wanted to -- I was hoping you could expand on the comments you made on -- you have diversified lending categories. I know you said mortgage was 14% this quarter, I guess. Could you just help us with what auto, personal loans, et cetera is and perhaps what you're assuming in your guidance for those?

Manav Patnaik:

15:56 Okay. And when you say same size, you mean 14%, which was mortgage would be the same as -- would be the same for cars and auto?

Manav Patnaik:

16:12 Yeah. Okay, got it. And then perhaps -- obviously, there's a lot of uncertainties in the market et cetera. I was just hoping you could help us understand how your pricing strategy changes? Should we do -- enter a period of a slowdown?

Manav Patnaik:

17:36 Fair enough, thank you.

George Tong:

17:46 Hi, thanks. Good afternoon. So just wanted to dive further into the special pricing increases, can you share what the customer receptivity has been so far this year, two price increases, and then as you look across the verticals, which vertical has seen more price increases than others? In the last year when mortgage volumes were very strong, price increases were not as high in the mortgage vertical. So are we seeing a reversal there? Just any additional commentary would be great there.

George Tong:

19:12 And then the part on where you're seeing more or less price increases by vertical mortgage versus card versus autos?

George Tong:

20:09 Got it. That's helpful. And then [Multiple Speakers]

George Tong:

20:19 I just wanted to get sort of your experience in working with the FHFA so far, whether you are in regular conversations with them? And where in the process you believe they are in terms of ultimately reaching a decision on mortgage source?

George Tong:

21:08 Okay, got it. Thank you.

Ashish Sabadra:

21:18 Thanks for taking my question. I was wondering if you could provide some more details around the large software license deal, whether that was a platform or enterprise deal? Any color will be helpful. Thanks.

Ashish Sabadra:

21:46 That's great. And I just wanted to follow up on an earlier question. Obviously, the mortgage has worsened compared to your prior guidance. The expectations there have come down, but I was just wondering how have expectations for cars and autos changed since the last guidance? Those seem to be holding up really well and the market there is pretty strong. I was just wondering how do those flow into the updated revenue guidance? Any color will be helpful. Thanks.

Ashish Sabadra:

23:17 That's very helpful color. Thanks.

Jeffery Meuler:

23:27 Yeah, thanks. So we've had a couple of the bureau partners guide to the calendar year mortgage inquiries being down 30% to low 30%. Does your guidance assume something similar?

Jeffery Meuler:

23:54 Okay. I know you answered the question on expense management, but can you give us a similar take on the question but in the context of guidance just stands out, how much the adjusted net income guidance has increased relative to the magnitude of the revenue guidance increase? So if you could help us bridge that, that'd be helpful.

Jeffery Meuler:

26:02 Got it. And then just maybe another comment on platform ARR and pipeline. I get that you had a monster sequential growth last quarter, so there is probably some pull forward into Q1, but just maybe if you could comment on the sequential growth or the pipeline, because I think that you said the mega win benefited platform and I would think that benefits platform ARR and it was fairly small sequential growth this quarter, if you could just talk through that. Thanks.

Jeffery Meuler:

27:47 Okay, thank you.

William Lansing:

27:59 Thank you. Thank you everyone for joining today. That concludes our call and we look forward to talking with you again soon. Thank you for joining.

Operator:

Greetings, thank you for standing by. Welcome to the Fair Isaac Corporation Quarterly Earnings Call. [Operator Instructions] This conference is being recorded Thursday, January 27, 2022. And I’d now like to turn the conference over to Steve Weber. Please go ahead.

William Lansing:

Thanks, Steve, and thank you, everyone, for joining us for our first quarter earnings call. In the Investor Relations section of our website, we posted some slides that we’ll be referencing during our presentation today. We delivered a strong start to our fiscal year with double digit growth in software ARR and Scores revenue and we continue to deliver strong earnings and free cash flow. Page 2 shows financial highlights from our first quarter. We reported revenues of $322 million in Q1 and $85 million of GAAP net income in the quarter. On a non-GAAP basis, Q1 net income was $102 million up 25% and earnings per share of $3.70 up 35% from the first prior year quarter. We continue to deliver strong free cash flow growth as well. Q1 free cash flow was $124 million, up 66% from the previous year. For the trailing 12-months free cash flow was $465 million. We’re off to a good start in our fiscal 2022 and we continue to be very focused on our strategy. In our software business, we continue to focus on the decisioning platform that enables businesses to optimize consumer interactions across their enterprise. When I started at FICO, we had a software business consisting of separate tools and endpoint applications. We evolved that business into a vision of an open and extensible platform uniting advanced analytics, decision modeling and AI. Historically, our software business has been separated by function, allowing us to deepen our expertise in various disciplines, optimize role based resourcing and drive process consistency. This month, we made an important change that better aligns our software organizational structure by integrating our entire software business under Stephanie Covert. Stephanie has led our sales, marketing and services organization where her strong leadership has effectively embraced strategic change, resulting in early wins and a growing pipeline of enterprise platform deals, prioritization of software IP, increased deal level of profitability and clear segmentation of direct and partner channels. I’m confident by placing all elements of our software business under Stephanie’s leadership, as we did years ago with this course business under Jim Wyman will see better alignment, faster and more effective decision making, improved resource allocation against top priorities and stronger end-to-end operational rigor and discipline. Last quarter, we made several important improvements to our external reporting to provide more visibility into the progress we’re making. Today, I’m happy to report that we continue to drive impressive growth in our software ARR as you can see, on pages 7 and 8 of the presentation. Total ARR was up 10% in Q1 and the platform ARR grid rate of 67%. Our net retention rate was also impressive. Total NRR was 109% and platform NRR was 143% and we continue to increase the value of the new deals that we’re signing. As you can see, on page 9 our ACV bookings were up 37% over the same period last year. We are excited about the depth of interest in our platform offering. This quarter we signed a deal with a major U.S. financial institution to use the platform. The multiyear deal is our biggest platform sale-to-date, and it enables the automation of much of the day-to-day customer decisioning using cloud based FICO analytics. In Scores, we’re continuing to innovate and to align our pricing with the value they provide. We had a very good quarter and our Scores segment with strong growth in both B2B and B2C. Scores were up 17% in the quarter versus the prior year as you can see on page 6. On the B2B side revenues were up 13% in the quarter versus the prior year. We continue to see a slowed down and mortgage origination volumes for the U.S. market were revenues were down about 17% year over year. But that’s more than offset by other areas in the U.S. where revenues growing rapidly. Auto origination revenues were up 27%, card and personal loan originations revenues were up 39%. The fiscal 2022 price increases we talked about last quarter take effect primarily in January and are not yet in our numbers. Our B2C revenues continue to be strong, up 27% versus the prior year quarter. We saw a strong growth through both our own myFICO.com platform and also through our partner channels. As always, we continue to be focused on shareholder value. Last quarter, I said we would continue to aggressively buyback our shares. I’m pleased to say we repurchased more than 1.2 million shares in our first quarter and more shares in January. Our buybacks reduced the outstanding shares by 9% versus Q1 of last year and this morning, we announced the new $500 million Board repurchase authorization. I’ll add some final comments in a few minutes. But first, let me turn the call over to Mike for more of financial detail.

William Lansing:

Thanks, Mike. As I said in my opening remarks, I’m extremely pleased with our Q1 results and the momentum we take into 2022. Our Scores business continues to deliver strong growth and our diversification through different credit verticals means we’re not dependent on specific types of lending. On the software side, we remain laser focused on our platform strategy and continue to drive strong results. We’ve delivered nine straight quarters of platform ARR growth in excess of 40%. We’re confident that we have the best-in-class capabilities in an emerging marketplace that’s poised for explosive growth. We remain focused on execution. We’re committed to delivering value to our shareholders and visibility to the progress we’re making. We will now turn it back to Steve for Q&A.

Operator:

Thank you. [Operator Instructions] We do have a question from Manav Patnaik with Barclays. Please go ahead, your line is open.

William Lansing:

We’re not changing our guidance, Manav. I mean, we obviously hope that things improve over the year and we’re in a position to do better. But at this time, our guidance is our guidance.

William Lansing:

In origination specifically or just generally I think first quarter is usually our hardest quarter. This quarter we exceeded our internal plan for first quarter. So that’s good news for us. It gives us a lot of optimism about the way the year is going to turn out. But I’m not ready to go out on a limb on volume forecasts.

William Lansing:

As we discussed earlier, we have strategic pricing a kind of mixed across the board. It’s not in one particular spot. We did some tier based pricing. Some areas weren’t touched. Other areas were touched a little bit harder and as you know, it’s kind of a once a year event. So we did it and now we watch as it plays out. There’s not any revision to it going on.

Kyle Peterson:

Good evening guys. Thanks for taking the questions. Just want to touch on the platform ARR growth that looked really impressive this quarter. Was that a couple large deals that just kind of happened that kind of fallen into place for you guys or was it more broad based, just any color on the acceleration, it would be great?

Kyle Peterson:

Great, that’s helpful, and then wondered if you could just touch a little bit on the professional services line. I know, it’s kind of expected to take a leg down sequentially this quarter and are we kind of at the point now where things are leveling off a little bit, and maybe to services kind of trends with kind of the non-platform side of the software business or are there any more near term kind of run offs that we should keep in mind relative to the 1Q run rate of like 26.5 million?

Operator:

Our next question is from Surinder Thind with Jefferies. Please go ahead, your line is open.

Mike McLaughlin:

It’s a bit of both and depends on the customer. So it’s not a typical for a customer to put the platform in with some fairly specific idea about the use, but is typically not as narrow as our legacy solutions. Typically, the customer will think through a half a dozen or a dozen uses for the platform at the get go and phase the introduction of those different solutions. And then, it’s not uncommon for the customer to figure out within 12 months, within 6 to 12 months that there’s a whole bunch more things they can do with the platform and so they immediately start planning the next phase. And so, what we’re seeing is that the idea of embedding the platform, providing the tools, really is the right strategy for getting incremental business from these customers and for them, it’s a great value proposition because they make the big initial investment. And then, incremental utility comes at very low cost having done so much of the data plumbing and so on. So that’s typical. Sometimes it’s to replace existing functionality. I would say that’s a lot of the time that in the initial that the land piece, but the incremental functionality comes very quickly.

William Lansing:

No, typically those licenses are in the fourth quarter. You can take that to the bank in any given year, but that’s what we’ve seen in the last couple of years. And so, Q1 for the last few years has not had a onetime event like that. So it’s a pretty clean quarter over or year-over-year comparison.

William Lansing:

Surinder, when you say volumes are down, are you referring to some external?

William Lansing:

So the data we track, we think there’s pretty good data out there about new card sales. Actual volumes for used card sales is pretty squishy as far as we’re concerned. So really don’t know whether they were up or down. But more or less, let’s call it a push in terms of volumes. Our volumes in terms of Scores and auto, we’re up a little bit. Remember our Scores revenue doesn’t require the card to sell it just require somebody to look for credit. So it’s possible that we could have more volume increase than the actual number cards sold. But if you think about the total revenue increase that was not volume. A little bit of volume contribution as I said, but it was the pricing actions that we’ve taken and how we feathered out through the tiers of the users of that Scores.

William Lansing:

I mean, the vast majority, but we can’t control the timing because some of these things phase in later in the year, but I would say, yes, the majority is upfront.

William Lansing:

75% is probably a little too strong, but more than, a majority, more than half and less than 75%.

George Tong:

Hi, thanks. Good afternoon. I wanted to dive deeper into the Scores special pricing increase. As you did your tier based pricing for this year, how does that increase compare with the prior special pricing increases? Is it consistent? Did you step it up? Step it down? Especially in light of inflationary trends did you keep it consistent or did you step it up? And then how has customer receptivity been so far to these pricing increases?

George Tong:

Got it, that’s helpful. And if you have to quantify on a blended basis, how much that step up is? Where would you place that number that’s consistent with prior years?

George Tong:

Great. And then with respect to the software business, can you discuss a little bit more about what’s changing with the appointment of Stephanie to the head of the group? How you plan to execute that and what the optimal outcome is of that restructuring in terms of leadership?

Operator:

Our next question is from Jeff Meuler with Baird. Please go ahead. Your line is open.

William Lansing:

Yes. Look I wouldn’t read too much into what you hear in any one particular quarter. But I would say that we do have a very strong pipeline, software pipeline per platform with major financial institutions all around the globe, not just LATAM, not just North America. This quarter was strong for North America, obviously. But that’s where our direct sales force is putting its energy right now, it’s into our enterprise customers and into getting the platform put in place. And that’s what’s happening. We’re happy with it. But it doesn’t signal a shift. It’s just this quarter, it was North America and the quarters before LATAM was very strong and I expect to see that shifting around as we go forward. I mean, the pipeline is full of opportunities all over the world.

William Lansing:

Typically around three years, but as you know, you put in the platform and we fully anticipate that the platform will be in for many, many more years, 10 years and beyond, but the typical contract would be three years.

William Lansing:

Well look, we’re as in love with our own stock as we’ve ever been. Can we continue to buy at the pace we’ve been buying? Probably not. We’re quite comfortable with our leverage where it is today, kind of mid twos. We could go higher. Our intent is to spend all of our free cash flow. We have been spending in excess of that. But our intent is always to spend at least our free cash flow. So there is certainly more dry powder, but I don’t think you could count on us buying at the same rate into the indefinite future.

Ashish Sabadra:

Thanks for taking my question. Just wanted to follow up on Manav’s question on guidance, which is focused on the EPS guidance. The prior guidance didn’t include buyback and you’ve done significant buyback just year-to-date. I was wondering how should we think about increasing the guidance for those? Is it fair for us to assume that you’ll increase guidance on the second quarter along with special pricing increases?

Ashish Sabadra:

That’s helpful color. And just given, just wondering if you had any color on the FHFA timeline, and any updated thoughts on that front ? Any color will be helpful. Thanks.

Operator:

And there are no further questions at this time.

Operator:

That concludes the call. We thank you for your participation and please disconnect your line.

Operator:

Greetings, and welcome to the Fair Isaac Corporation quarterly earnings call. [Operator Instructions]. As a reminder, this conference is being recorded today, Wednesday, November 10, 2021. I'd now like to turn the conference over to Steve Weber. Please go ahead.

William Lansing:

Thanks, Steve, and thank you, everyone, for joining us for our fourth quarter earnings call. In the Investor Relations section of our website, we posted some slides that we'll be referencing during our presentation today. I'm pleased to report that our Q4 capped another terrific year, a year in which we posted record revenues, earnings and cash flows. And we were able to do this despite headwinds in fiscal '21 due to a shift in the timing of revenue recognition for term license subscription sales and the sale of 2 product lines in our software business and the managed and deliberate decline in our software and professional services revenues. Pages 2 and 3 show some financial highlights from our fourth quarter. We reported revenues of $335 million in Q4 and $1.32 billion of revenue for the fiscal year. We were able to grow our full year revenue despite these negative revenue factors. We delivered $86 million of GAAP net income in the quarter and GAAP earnings of $3 per share. For the full fiscal year, we delivered $392 million of GAAP net income and $13.40 of earnings per share, which includes the gain of $100 million on product line asset sales and business divestiture. On a non-GAAP basis, Q4 net income was $112 million, up 15%. And earnings per share of $3.92 was up 21% from the prior quarter -- prior year quarter. Full year non-GAAP net income was $383 million, up 31% over last year. And non-GAAP EPS of $13.07 was up 34% over the previous year. We continue to deliver strong free cash flow growth as well. Q4 free cash flow was $90 million, bringing the fiscal year total to $416 million, up 21% from the previous year. In fiscal 2021, we continued our commitment to shareholder return, buying back $882 million of stock during the year. We increased our leverage by about $425 million compared to year-end fiscal '20, but our adjusted leverage ratio remains a modest 2.07x. We view FICO shares as the best use of our excess cash at this time and expect to continue to aggressively buy back shares in the coming year. We had another solid year and making steady progress on our strategic initiatives. In our Scores segment, our diversification of verticals has enabled us to continue to drive growth even as various sectors slow down. Scores were up 10% in the quarter versus the prior year and up 24% for the full year, as you can see on Page 7 of the presentation. On the B2B side, revenues were up 2% in the quarter versus the prior year, which had a onetime royalty true-up. Adjusting for that, revenues were up about 15% for the quarter and 21% for the full year. As expected, we saw a slowdown in mortgage origination volumes, and revenues were down about 18% year-over-year. Auto origination revenues were up 19%, and card and personal loan origination revenues were up 45%. We are seeing particular strength in the card and personal loan space from our customers, including fintechs. The year-over-year pricing increases we implemented in fiscal '21 also had a positive impact on overall B2B revenues. Our B2C revenues were up 32% versus the prior year quarter and 42% for the full year compared to 2020. We saw strong growth through both our own myFICO.com products as well as through our partner channels. In next year's guidance, which I'll discuss in greater detail later, we expect the Scores business to grow about 6%. There's been no change in our strategy or approach to special pricing. Accordingly, special pricing increases consistent with the past several years are not included in this guidance. While we expect these price increases to have an impact consistent with those over the last several years, because it's difficult to estimate the timing and the magnitude of the impact, we remain conservative in how we issue our guidance relative to such increases. Turning to our Software business. As we have mentioned in recent quarters, we have been developing new financial metrics that provide more visibility into the recurring revenue generated by our subscription-based SaaS and on-prem software and the retention and growth of our existing software customers. Beginning this quarter, we are pleased to unveil our revised software reporting structure and these new metrics. Mike McLaughlin will go into much more detail in his remarks, but let me give you just a few highlights. First, we reevaluated our operating segments to better align with how we assess performance and allocate resources. We merged our legacy Applications and Decision Management Software segments into a single Software segment. We continue to report the Scores segment, which is unchanged from past reporting. We also changed the classification of revenue from transactional and maintenance, professional services and license to on-premises and SaaS software, professional services and Scores to better align with our business strategy and peer reporting practices. You'll also find in our 10-K this year our first reporting of annual recurring revenue, or ARR, which provides visibility into the growth trajectory of our Software business without the variability that comes with the upfront revenue recognition required by ASC 606 for on-prem subscription sales. We are also disclosing dollar-based net retention rate and annual contract value of software bookings. Another big change we'll be talking about is the split of our Software revenue between our on-platform and off-platform products. We'll give those splits for revenue, for ARR and for dollar-based net retention revenue. We believe it's important to focus on the progress of our on-platform offerings as it's the central strategy of our Software business. As in prior years, we will continue to focus on investing in our software platform. In fiscal '21, we divested assets that could not be easily migrated to the platform and reallocated resources to accelerate platform development and our go-to-market efforts. By allocating the resources strategically and efficiently, we expect to spur growth and achieve scale while effectively managing our operating expenses. I'm happy with the progress we made in 2021, and I'm optimistic about what lies ahead in 2022 and beyond. We'll continue to allocate our resources to areas of high strategic importance, and we'll continue to focus on long-term shareholder value. I'll have some final comments in a moment, provide our fiscal '22 guidance then. But first, let me just turn the call over to Mike for further financial details.