Q4 2019 Earnings Call
Greetings and welcome to the fear Rice, a corporation quarterly earnings call. During the presentation. All participants will be in listen only mode. Afterwards, we will conduct a question answer session at that time. If you have a question. Please press the one followed by the foreign your telephone she's require operator assistance it any.
Time, Please press Star Zero as a reminder, this conference is being recorded today Monday November 4th 2019, I would now like to turn conference over to Steve Weber. Please go ahead.
Thank you Dave.
Good afternoon, everyone and thank you for joining cycles fourth quarter earnings call I'm, Steve Weber, Vice President of Investor Relations and I'm joined today by our CEO will Lansing and our CFO Mike.
Today, we issued a press release that describes financial results compared to the prior year on this call management will also discuss results comparisons to prior quarter in order to facilitate understanding of the run rate of our business.
Certain statements made in this presentation may be characterized as forward looking under the private Securities Litigation Reform Act 1995.
These statements involve many uncertainties that could cause actual results to differ materially.
Formation concerning these uncertainties is contained in the company's filings with the FCC in particular and the risk factors and forward looking statements portions of such filings.
Copies are available from the FCC from the FICA website or from our Investor Relations team.
This call will also include statements regarding certain non-GAAP financial measures.
Please refer to the company's earnings release and regulation G. schedule issue today for a reconciliation of each of these non-GAAP financial measures the most comparable GAAP measure.
The earnings release and regulation G. schedule are available on Investor Relations page of the company's website like what outcome or on the Fccs website at FCC Dot Gov.
A replay of this webcast will be available through November 4th 2020.
Now I'll turn the call over to will Lansing.
Thank you seasons.
I'm pleased to report we delivered another very solid quarter, which kept off remarkable fiscal 2019.
In our fourth quarter, we reported revenues of 305 million an increase of 19% over the same period last year.
For the full fiscal year, we recorded $1.16 billion of revenue up 16% from 2018.
We delivered 55 million of GAAP net income up 67% and GAAP earnings of $1.80 per share up 69%.
On a non-GAAP basis, the $2.01 earnings per share was up 50% from last year, and we delivered free cash flow growth as well up 69% from fiscal 18.
I'm, particularly pleased with the breadth of strength in our business. Our scores business has been growing very well for the past several years.
We're also able to deliver double digit growth in our software business. This year, we'll have some difficult comps and software next year as we project less upfront license and more ratable revenue.
We're steadily building a growing stream of predictable recurring revenue.
And our application segment, we had a particularly strong year with our fraud and compliance solutions with both up double digit over the previous year.
We delivered 8% growth overall in the segment, which had transactional growth of 7%.
And our decision management segment, where validating our strategic vision with financial results, we delivered our largest dms revenue quarter ever up 41% from last year's fourth quarter and the segment was up 34% for the full year.
Since fiscal 2018.
The bookings were also good we signed 61 million and new Dms deals this quarter up 152% from the same quarter last year for the full year, we signed 157 million of new Dms deals up 90% versus last year.
These solutions are best in class more and more convinced than ever that there's a significant demand in the marketplace for analytics driven decisioning software.
Overall, our software business performed very well with total annual revenue up 11%.
We remain committed to delivering more of our products in the cloud with full year, SaaS revenues, increasing 12% and SaaS bookings up 24%.
And our scores business, we had another very successful year.
Yeah.
Scores were up 3% in the quarter versus the prior year and up 25% for the full year on the Btv side strong volumes, coupled with our strategic pricing drove quarterly revenues up 40% over the prior year.
For the full year VW revenues were up 34%.
Our BDC revenues were up 7% versus the Q4 2000 in 2018 and for the full year.
We continue to see a positive macro environment for scores.
Next year's guidance, which I'll discuss later, we expect the scores business to grow high single digit which includes some volume and regular pricing increases, but does not include any strategic pricing increases.
We plan to implement some strategic pricing as we've done in the past, but are not including it in our guidance because it's difficult to estimate the timing and magnitude.
As we look to 2020 were excited about the many opportunities ahead for us and how we can refine our business model to deliver increased operating leverage.
Our transition to a platform based cloud first business has involves several years of heavy investment. We developed a goal is having a robust cloud based decisioning platform that would enable us to dramatically scale, our decisioning software business and we've been able to do that without significant disruption to our income statement as we've shifted from upfront license to ratable cloud revenue.
We remain focused on accelerating revenue growth, while beginning to increased focus on our software margins to accomplish this we're doing two things first.
First we're improving our cost structure.
As we've grown our cloud business. We're now in a position to look for efficiencies that can be gain from the scale. We've reached we're relentlessly focusing on driving costs out where we can so that we can improve our margins and still past savings onto our customers will do this through reducing development costs, increasing standardization and evolving our architecture to make as efficient as possible.
Second as we've done in the past, we continually looking in our business and asking ourselves to fairways to be more efficient and reduce non essential costs. This reengineering effort is an essential part of any well run business and something we do on regular basis.
The cost savings can either be passed through to the bottom line or front important investments and other parts of the company.
As always we strive to be good stewards of these assets and see great opportunities ahead.
Talk more about our outlook for 2020, but first let me turn the call over to Mike for further financial details. Thank.
Thanks, well and good afternoon, everyone as well said, we had a solid finish to another terrific year exceeding both our revenue and net income guidance revenue for the quarter was 305 million an increase of 19% over the prior year. Our full year revenue of 1.16 billion was up 16% over last year.
Breaking out revenue into our reported segments applications revenues were 150 million up 8% versus the same period last year full year revenues for applications were $605 million up 7% from last year.
The increase in full year revenue was driven by higher usage based volumes and increased term license sales, which included two large multiyear license renewals that were recognized as upfront revenue.
And our decision management software or Dms segment, Q4 revenues were 39 million up 40% over the same period last year full year Dms revenues were 134 million up 34% from F 18.
Revenue increase was due to limited due to increased license and services sales as well as increased volumes and our usage base contracts and as well pointed out Dms bookings were 61 million this quarter up 152% from the previous year.
Finally, our score segment revenues were $116 million up 30% from the same period last year BTD was up 40% over the same period last year and B to C revenues were up 7% from the same period last year for the full year scores revenues were $421 million up 25% from last year.
In terms of geographic distribution this quarter, 75% of total revenues were derived from our Americas region, Our EMEA region generated 17% and the remaining 8% was from Asian setting.
Recurring revenues derived from transactional and maintenance sources for the quarter represented 74% of total revenues.
Consulting and implementation revenues were 16% of total revenue and license revenues were 10% of total revenue.
Last revenues were $270 million for the year up 12% from 2018.
The fourth quarter is typically FICO strongest bookings quarter and this year was exceptionally strong we had record bookings in Q4 of 160 million up 20% from the previous year those bookings generated $25 million of current period revenues, a 15% yield.
Full year bookings of $482 million represents a 10% increase from last year.
Fast bookings were 189 million for the year up 24% from 2018.
As we mentioned last quarter, we were previously running behind our expectations for full year bookings, but we managed to catch up this quarter and finished the year as expected.
Backend loading of the bookings will have a timing impact on some revenues as they often take a few quarters for our solutions to go lives.
Bookings that FICO continued to be highly variable from quarter to quarter and they historically have some seasonality.
Expect to see good growth in bookings for the full year 2020, but consistent with typical seasonality. We expect Q1 2020 bookings to be down from Q4 2019.
On the expense side the ledger, our expenses totaled 235 million this quarter up 7 million from the prior quarter due to increased personnel cost datacenter costs and marketing expense, our non-GAAP operating margin as shown in our Reg G schedule was 30% from both the quarter and the full year, we delivered non-GAAP margin expansion of.
400 basis points for the full fiscal year.
Breaking down the income statement to net income and taxes GAAP net income for the quarter was 55 million up 67% from the prior year. Our non-GAAP net income was 61 million for the quarter up 48% from the same quarter last year.
For the full year GAAP net income was 192 million, including 31 million a reduced tax expense from excess tax benefits.
non-GAAP net income was 228 million up 33% from the prior year.
The effective tax rate for full year, 2019 was 11%, including 31 million of reduced tax expense from excess tax benefits recognized upon the settlement or exercise of stock Awards. We expect our 2020 recurring tax rate to be approximately 26% to 27% compared with 26% in that.
19, and Thats before an estimated excess tax benefit of about $25 million. The resulting net effective tax rate is estimated to be about 16% to 17% all in.
Free cash flow for the quarter was 90 million compared to 30 to 53 million in the same period last year for the full year free cash flow was 11 36 million up 23% from last year's 192 million.
As you can see in our prior quarter results Ficos quarterly free cash flow can vary considerably and has some seasonality primarily as a result of timing of receipts as well as payment at year end incentive compensation.
Turning the balance sheet at the end of the quarter. We had 106 million in cash. This is up $28 million from last quarter due to cash generated from operations, partially offset by 50 million of share repurchases. Our total debt now stands at $830 million with a weighted average interest rate of 4.5%.
Turning to return of capital we bought back 146000 shares in the fourth quarter and an average price of $343 per share for fiscal 2019, we repurchased a total of 926000 shares at an average price of $247 per share.
For a total of 229 million dollar spent.
At the end of September we had about $220 million remaining on our current repurchase authorization.
Finally, before I turn the Mike back over to well I would like to remind everyone of Ficos capital allocation and return of capital philosophy and provide guidance for the year.
Our capital allocation principles are simple maintain a lean cash balance carry a prudent amount of debt investment opportunities that we believe will deliver returns well in excess of our cost of capital and return the remaining dollars to shareholders through stock buybacks.
Put simply we strive to run a tight ship and use all the cash that we don't need to buyer on stock.
Looking into F. White 2020, we believe our cash balance is at an acceptable level.
We're comfortable with our current debt balance therefore, barring any spending on M&A you should expect us to use approximately 100% of our free cash flow to buy back stock.
Of course, the actual amount we spend on buybacks in any given quarter may go up or down based upon free cash flow generation opportunities that may arise for M&A and overall market conditions that over the course of the year, we plan to spend essentially all of our free cash flow that we don't use on M&A on buying back our stock importantly, the share count underlying our EPS guidance, which will.
We'll go through in a moment is based upon the assumption that we buyback stock in equal amounts each quarter at an average price equal to today's stock price.
Our actual share count will inevitably vary from what we are assuming today due to movements in the stock price actual stock stock based compensation grants and other factors.
But we wanted to lay out clearly the assumptions behind our EPS calculation.
With that I'll turn it back over to well for his thoughts on that point 20. Thanks, Mike.
We're speaking to you today from FICO World, which is our global Decisioning conference.
Held this week in New York more than a thousand professionals are here with us from 60 countries.
To discuss decision management innovations artificial intelligence machine learning analytic innovation fraud solutions cyber risk and growth strategies is sold out event is an invaluable chance for us to meet with our customers to demonstrate our best in class solutions and help them optimized and automate their most difficult decisions.
As we move into fiscal 2000, I'm pleased with the progress we've made and excited for what lies ahead.
Investments, we've been making on the software side have been leading to growth in bookings and recurring sustainable revenue.
On the square side, the business is stronger than ever and we continue to drive value out of these incredible assets with all of this in mind, we're providing the following guidance for fiscal 20.
Regarding revenues of approximately 1.245 billion.
An increase of about 7% versus fiscal 19.
We are guiding GAAP net income of approximately 204 million up 6% versus 2019.
GAAP earnings per share of approximately $6.75.
non-GAAP net income of 251 million.
And non-GAAP earnings per share of $8 in 30 cents.
I'll now turn the call back over to Steve will take Una.
Thanks will this concludes our prepared remarks, and we're now ready for your questions. Operator, Please open the lines.
Thank you.
I would like to register question. Please press the one followed by the foreign your telephone you will hear three tone problem to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press the will unfold over the three once again to register for question. It is one for on your telephone our first question comes from life.
Of Manav Patnaik with Barclays. Your line is.
Good evening guys.
Just first question, we'll I think in your comments you mentioned that the 2020 guidance is unique high single digit. This core is I was wondering if you could.
Just give us some color on the software piece of it and Mike you talked about the seasonality on the booking side. If you could just to elaborate on that a little bit.
Yes, I'll make a comment and turn it over to Mike.
We we see.
Hi did single digit for spores, that's right and then software only a little below that and thats, mostly because of.
Some revenue recurrent some revenue that was.
So were forced to take upfront license revenue in 20.
In 2019, which is going to result in difficult comps for next year. So if you normalize all that we're headed for.
Software growth on the order, 7%, which is completely consistent with what we actually group.
Yes, and I'd add if you want to think about the breakout between the.
Projected scores growth and software growth overall, 7% software growth is probably about a half a percent less than that that's more precise than it will end up being of course and scores growth is probably a percent higher than the average of the too.
Okay got it.
And then just from.
In the cloud perspective.
Maybe I missed it can you just remind us that percentage of could business.
On the growth rate and just a quick comment on the rollout of Falcon and the cloud as well.
All right could you repeat the question I didn't quite get the percentage the percentage of your revenues that are now on the cloud and what that is growing at.
Well, we have 270 million of SaaS revenue, which is equivalent to which is equivalent to cloud and you can you can do the percentage yourself.
It's it's growing at at in the teens to low twentys percentages quarter to quarter.
And we expect that to continue to grow is strategically we shipped clients to the.
Platform.
That work that we're building and then your question on Falcon acts Falcon X is on track so.
So we actually have falcon available in the cloud now.
But in terms of getting falcon onto the platform, what we call Fedex, that's that's going to take until.
Well into 2020.
I will have launched it earlier, but the full robust Falcon Exelby later on.
Thanks, guys.
Thank you.
Next question comes from the line of Bill Warmington with Wells Fargo. Your line is open.
So good evening everyone.
Hi, Bill.
And.
Congratulations on the strong bookings that had 160 I think the previous high with a couple of years ago at 146 at least so that's what I'm showing so.
I had a.
A question for you on the deal distribution it look like.
Another record point was 25 deals between one and $3 million.
And I wanted to know if you could talk a little bit about well what verticals you're seeing success in.
And.
How are the.
What changes you've made to the salesforce configuration, if any that are driving.
Deals in that isn't that.
Segment of the market, which seems to be emerging as your sweet spot.
So we are.
We first verticals. So it's still predominantly financial services as it has always been but we're getting increasing success in telco and auto.
And so we continue to work deals there.
In terms of the Salesforce configuration.
Sure we are adding domain expertise for some of these non financial services verticals. So we have a telco group now we have an auto group.
And and so that we're going at it that way.
And Bill Isnt, Mike I can give you the specific deal size numbers for this quarter. It happened to be 33 deals over 1 million in nine of which of those were.
Over $3 million and I'll circle back enhancer NASS question about the seasonality the bookings I neglected to do some earlier if you look at quarterly booking trends for the last couple of years, you'll see that typically.
Our high teens to 20% of the bookings.
Occur in the first quarter and that ramps throughout the year to be almost 30% in the fourth quarter again typically bookings are variable for FICO as you know.
So we're not being a specific prediction about what they will be in the fourth quarter, but seasonally we would expect them to to taper off as usual.
Okay.
Then on on the software margins.
The fiscal 2020 guidance would imply another.
Heavy year of investment in the software business. Although this is the first time in a while it could you talk about.
Putting on some.
Cost efficiencies and focusing increasingly on cost on the software margin side.
So is is.
2020, potentially the year that we see the growth in the expenses in the software business start to slow.
And.
Of course that more probably a 2021 event.
I think that we have an effort in that direction, but 2020 ones of safer bet.
The way we.
The way, we think about that one is we have as we do more and more cloud.
Offering that carries with it higher cost.
And so that's a thing the work against but the flip side of that is as we have more scale in cloud our unit costs go down.
And so we're busy trying to identify where there were in our cloud infrastructure Theres theres savings to be had.
The conference scale, and so the to offset each other a little bit.
It is it's another year of investment that's true but.
But at the same time, we're trying to manage expenses as tightly as we can because we'd we'd love to see either additional cash freed up for investment or return to shareholders. So we'll see how this effort goes but we're focused on it without making a commitment to changing the margins.
Okay.
And then I wanted to check in on the Ccs business.
I know.
A few quarters back to have been a couple of client to who had left and then some of the glad to come back and you had referenced some strong unit volumes in the quarter and so I that often tyson ccs, but not necessarily so I just wanted to ask for some color there.
Ccs is business as usual it to where it's it's a healthy business, we did lose some business.
More commodity like business.
Recently, but the business generally strong.
Yes, there is in terms of.
Acting sorry, Bill is in terms of the growth that we're projecting.
As you would expect.
We Dms should continue to grow at much higher rate than projected average and apps will go back down to a more normalized rate of low single digit growth as we move clients on the platform for.
For strategic reasons within that there is.
There is nothing that really stands out at least to me in terms of.
Puts and takes around the product family.
We expect to be any different than the past.
Got it well last one from me if you could just ask for an update on the auto FICO score how thats doing thanks.
Yes.
Ultra FICO is it's in test it's in pilot with customers and we'll see where it goes our plan is to get to kind of a more fullscale launch later in the year, it's still on track.
So far early returns are happy with the results and we're seeing.
We're seeing.
Improvements in our ability to predict.
Thank you very much.
Thank you Bill.
Next question comes from Brett Huff with Stephens. Your line is open.
Good afternoon, guys. Thanks for taking the questions.
Yep.
Can you talk a little bit about in the guidance you noted that there I think correct me if im wrong that you're assuming volume increases and then sort of the normal.
Price increases that you that you roll through most years, but not including any the strategic or special price increases two parts. One can you tell us how the auto price increases are going I know you meant used the word feather in the kind of talk about those did that they feather in more this quarter is that what we saw the acceleration and b to b.
Where are we in that penetration or whatever you want to call. It and then as we look into next year look into fiscal 2000.
Is there a specific vertical within the scoring business that youre going to focus on I think theres, maybe talked about card and things like that.
So with auto it's it's gone very smoothly and not surprisingly because we spent a lot time thinking about where and how to strategically reprice.
I would say that the impact is not fully felt by any means we're just starting to see it come in so again, we're still not certain on the timing.
But it is not reflected in the current numbers.
With respect to other strategic.
Areas.
If you look at our scores business, we have mortgage we have auto and then almost everything else is in one way or another credit card related we have account management and pre screening and pre qual, it's it's quite a large portfolio.
Of different kinds of things and so it's not as simple as just saying all we raised prices in Acs, It's definitely a case of us being very surgical in our approach and identifying pockets in that portfolio that that can that are basically demand inelastic and can handle a little bit more price.
So it's it's not as easy to describe this time around but the potential is very much there.
Okay. Thanks, and then can you talk a little bit about the the homogenization of the platform. I think one example that you gave is that the FICO or the Falcon acts in the cloud I think our native yes, but maybe not fully on your common platform yet does that.
Are we in sort of moving everything to that common platform I think using come the underlying dms infrastructure.
Yes, great question.
As you know we have.
Half a dozen major franchises and.
Three three of them are moved to the platform. So.
Originations is now on the platform and strategy director, which is the successor to try it is now on the platform.
Blaze, our our rules engine is now on the platform. So.
A number of our major solutions are there the harder ones are Falcon.
And debt manager collections and recovery.
And and to a lesser extent Ccs.
So were Falcon is.
Is definitely the highest priority and we have very strong team large team working on moving Falcon from just being in the cloud to our cloud ready Falcon X.
Platform based product.
Ccs is not as far long, but the interconnections with the platform are there and so so thats less visible.
And debt manager is a very complex.
Code base and so it may remain a separate platform, we may find a way, bringing together, we will make it interoperable one way or another.
But thats still under review so I can't promise it will have 100% of our major solutions on the platform in 12 months.
We're almost there.
That was going to be kind of my follow up question on that went on on a timing.
Question was asked before according quick safer bet to think about fiscal 21 is margin improvement is that tied to the comment you just made when a promise 12 months, but maybe a little bit beyond that are those putting the dots together their correctly.
Yes, I mean, there's no question that when we have more of our business on the platform. The economics are going to improve that's the whole idea here and frankly, it should go along with being able to pass some savings through to customers I mean, what we have.
The platform and this will form.
The economics should be good for us and and good for our customers.
Great that's what I appreciate the time.
And also a brief reminder to register a question. It is one for on your telephone next question comes from London, Jeff Miller with Baird. Your line is open.
Yes. Thank you in terms of what's assumed in the scores revenue guidance is it basically the typical mid single digit volume growth said to assume and then you have the.
Auto pricing effect, especially in Q1 until its anniversaried. We're just any other call outs and I guess dealer piece I'd be wondering honors if there's a mortgage market assumption.
Yes. It is it is the kind of standard price increases.
And no. It does not include auto.
And the auto was we did auto last year.
Right I guess, what I'm wondering as did you assume kind of the mid single digit volume growth plus you have the benefit from auto that you haven't yet anniversary, so you'll get outsize growth higher in Q1.
Or are you assuming high single digit because of something related to the mortgage end market assumption just given that mortgage has been stronger recently.
Yes, yes, I can think that we have seen some strength and mortgage origination scores consistent with what you can see and external data from the end and otherwise.
But thats not directly reflected in the guidance in the score segments. It really is as you described.
Low single digit volume increases across the board.
Cost of living type price increases across the portfolio.
And really nothing specifically in there for any kind of lingering effects of past price increases.
Okay, and then I get that it's not baked into the guidance, but it sounds like you're planning some additional special pricing adjustments just order of magnitude do they have the potential. This next round to have a similar impact on your revenue as the the auto pricing or the mortgage pricing just any rough sizing.
It will as you know, we will commit to a rough sizing, but they do have the potential I would say the potential certainly there.
Okay. Thank you have your comfort.
Thank you.
And all that does conclude the culinary section of the coal for today, gentlemen, I'll turn it back to your cells. Please continue thanks.
Thank you. Thank you everyone for joining and that concludes today's call. We look forward to talking with you again. Thank you.
And that does conclude the call for today, we thank you very much for your participation FC Please discuss.