Q2 2022 Fair Isaac Corp Earnings Call

April 27, 2022

Okay.

Greetings, Thank you for standing by and welcome to the Fair Isaac Corporation quarterly earnings call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.

At any time during the conference you need to reach an operator. Please press Star Zero. This conference is being recorded Wednesday April 27, 2022, and now I'd like to turn the conference over to Steve Weber. Please go ahead.

Thank you.

Afternoon, everyone and thank you for joining <unk> second quarter earnings call.

I'm, Steve Weber, Vice President of Investor Relations, and I'm joined today by CEO and our CFO Mike Mclaughlin.

Today, we issued a press release that describes financial results compared to the prior year on this call management will also discuss results in comparison to the 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 of 1095.

Those statements involve many uncertainties, including the impact of COVID-19 on macroeconomic conditions and the company's business operations and personnel at <unk>.

Cause actual results to differ materially.

Information concerning these uncertainties is contained in the company's filings with the SEC in particular, the risk factors and forward looking statements portions of such filings.

Copies are available from the SEC Myfico 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 issued today for a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure.

The earnings release and regulation G schedule are available on the Investor Relations page of the company's website at FICO dot com or on the SEC's website at SEC Gov.

A replay of this webcast will be available through April 27, 2023, and now I will turn the call over to will Lansing.

Thanks, Steve.

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 am pleased to report that we continued 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 mid point of our fiscal year.

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.

We delivered a $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.

We are up 53% from last year.

On the scores side that the business continues to perform well.

Orders were up 9% in the quarter versus the prior year as you can see on page six.

On the <unk> 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.

Auto origination revenues were up 9%.

Personal loan origination revenues were up 27%.

The mortgage declines have been significant we do remain confident in our revenues given other areas of strength and pricing increases.

Our BDC revenues continued to be strong up 18% versus the prior year quarter.

We stress we saw strong growth through both our own myfico business.

And also through our channel partners.

And 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 <unk> was up 11% and the platform <unk> grew 60%.

We continue to deliver strong NR as well demonstrating our existing customers' eagerness to find new ways to expand their usage total and <unk> for the quarter, which you can see on page eight was 110%.

Platform and <unk> was 141% and we continue to sign more deals and bigger deals.

Our ACD bookings as seen on page nine were up 55% over last year.

I'll have some final comments, including our revision of our guidance in a few minutes, but first I'll turn the call over to Mike for further financial details.

Thanks will and good afternoon, everyone as well said, we continue to drive strong growth throughout the business total revenue for the second quarter was $357 million, an increase of 8% over the prior year or 13% after adjusting for the divestiture of our collections and recovery product line last June .

In our scores segment revenues were a record $184 million up 9% from the same period last year.

<unk> scores revenue was up 5% over the prior year as expected mortgage origination revenues continued to decline down 23% from the same quarter last year, but that was more than offset by growth in other areas credit card and personal loan originations revenues were up 27% and auto originations revenues were up 9%.

<unk> non originations revenues, which include FICO scores used for Prescreening account management and insurance were up 16%.

<unk> revenues were up 18% from the same period last year, both my FICO Dot com and partner of DTC revenues grew significantly.

Software segment revenues in the first quarter were $173 million up 7% versus the same period last year adjusting for the divestiture of our collections and recovery business software revenues were up about 19%.

Our license revenue recognized upfront or at a point in time as it is referred to on our 10-Q was $27 million this quarter compared to $12 million in the same period last year, our lower margin professional services revenues, which were strategically deemphasizing were $24 million down from $37 million in the same period last year.

This quarter, 78% of our total company revenues were derived from our Americas region, Our Asia Pacific region generated 12% and the remaining 10% was from EMEA.

Our software AAR are at the end of the second fiscal quarter of 2022 was $550 million and 11% increase over the prior year quarter. Our platform <unk> was $97 million, representing 18% of our total second quarter, <unk> and a growth rate of 60% versus the prior year or not.

<unk> platform <unk> was $453 million in the first quarter sorry.

Sorry in the second quarter up 4% from the prior year.

A quick reminder, our reported <unk> and related metrics exclude all revenue from divestitures in prior period.

Our dollar based net retention rate in the quarter was 110% overall, we continued to drive very strong expansion from our platform customers as they expand their usage of the.

The dollar based net retention rate for platform software was 141% in the second quarter. Our non platform software usage continues to be mature and relatively stable, which is reflected in the non platform net retention rate of 103% this quarter.

Software sales were strong again this quarter with annual contract value bookings of $20 6 million versus $13 3 million in the prior year, an increase of 55% as a reminder, ACD bookings include only the annually recurring value of software sales.

<unk> professional services.

Turning now to our expenses for the quarter total operating expenses were $205 million. This quarter, a decrease from $230 million in the same quarter last year. This year over year decrease is primarily due to the divestiture of our collections and recovery business as well as various cost reduction initiatives.

Our non-GAAP operating margin as shown on our Reg G schedule was 51% for the quarter, we delivered non-GAAP margin expansion of 200 basis points over the same period last year.

GAAP net income this quarter was $104 million up 52% from the prior year quarter, our GAAP EPS was $3 95.

Up 75% or 70% from the prior year.

Our non-GAAP net income was $124 million for the quarter up 37% from the same quarter last year.

The effective tax rate for the quarter was 21%, we expect our FY 2022 recurring tax rate to be approximately 25% to 26% before any excess tax benefit or other discrete items, the resulting net effective tax rate is estimated to be about 24%.

Free cash flow for the quarter was $120 million versus $152 million in the same period last year at the end of the quarter, we had $207 million in cash and marketable investments. Our total debt at quarter end was 181 billion with a weighted average interest rate of 370%.

Turning to return of capital we bought back 580000 shares in the second quarter at an average price of $455 per share during the quarter. The prior board repurchase authorization was exhausted and as previously communicated a new $500 million authorization was approved at.

At the end of March we had about $400 million remaining on that authorization and continue to view share repurchases as an attractive use of cash with that I will turn it back over to will for his thoughts on the rest of FY 'twenty. Two 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.

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 <unk> 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 finally today, we are raising our full year guidance as we enter the back half of our fiscal year.

We are raising our full year revenue guidance to 135 5 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.

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 eight.

I'll now turn the call back to Steve and we will take questions. Thanks Bill.

This does conclude our prepared remarks, and we will now take your questions.

Greater please open up the line.

Thank you if you'd like to register a question. Please press the one followed by the four and your telephone Youll hear three ton prompt to acknowledge your question answer. Your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three and if you're using a speaker phone. Please lift your handset before entering your request.

Once again, that's one floor to register for a question one bridge loan for the first question.

And our first question is from Kyle Peterson with Needham. Please go ahead. Your line is open.

Hey, good morning, Kurt.

Good afternoon. Thanks for taking the question wanted to touch on margins.

Really impressive this quarter.

The expenses kind of come in and leaner and I expect that know a lot of company that's been talking about.

Inflation dynamics and <unk>.

Cost pressures.

How are you guys sort of managing the costs and was there anything kind of one time in terms of like timing of spending that we need to.

And as we progress throughout the year.

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 that you expect coming out of Covid.

They are still under control and less than they were in the old days.

So there's that kind of cost control.

But I would say that we're also doing a pretty good job on the software side.

<unk>.

Bringing down our Cogs and we're starting to see some benefits from.

From our increasing focus on engineering or product and.

Solutions.

For cost.

For cost and efficiency and scaling and so all that's coming together and improving our margins.

That's helpful. And then I guess, just a follow up on the guidance raise.

On the topline I know, there's quite a few moving pieces.

But just wanted to see if you guys could give any color on the dynamics between the pricing benefit and then also assuming.

Some lower volume assumptions at least on the mortgage side of things so.

Just wondered if you could give some of the puts and takes of.

I was kind of the pricing versus volume and the net impacts of those.

In your updated assumptions.

It varies it varies by.

Segment of scores Youre talking about but there is definitely a price benefit in there.

Some some volumes are down some volumes are up.

But prices offsetting the declines.

Alright, thanks, guys nice quarter.

Thank you.

Our next question comes from Manav Patnaik with Barclays. Please go ahead your line's open.

Thank you and good evening.

I just wanted to I was hoping you could expand on the comments you made.

Diversified lending categories. I know you said mortgage was 14% of scores this quarter I guess can you just help us with.

Two quick little ones et cetera, and perhaps what you're assuming.

In your guidance for those.

Hey, Manav, it's Mike consistent with what we've shared in the.

Past the three segments of the originations part of our <unk> business.

Roughly the same size that varies from quarter to quarter as one grows or shrinks.

But.

In approximate terms thats the way to think about it we don't get into specifics beyond that.

Okay.

When you say it seems sides you mean, 14%.

As mortgage would be the same.

It would be the same as required in the hotel.

In terms of dollars for BBB originations that's correct okay.

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 slowdown.

Well, we take it every year year by year end.

We're committed to consistently increasing our <unk>.

Revenue in net income and EPS and we do what we have to do on price to make sure that that remains true I think you can expect that from us it would take a fairly kilometers.

<unk> in the cycle.

To not be true.

But that's really what goes into figuring out how aggressively we move on price.

And you've also heard us talk about the the pacing and the.

The moderation in the way we go out pricing, we don't want to shock the system.

And so it's that balancing act.

We put a very high value on <unk>.

Consistency of growth and so I think you should expect that even as the cycle, it's been down a little bit.

And we do what we have to do on pricing to make that happen.

Fair enough. Thank you.

Our next question is from George Tong with Goldman Sachs. Please go ahead. Your line is open.

Hi, Thanks, good afternoon.

Just wanted to dive further into the special pricing increases can you share.

What's 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 of that just any additional commentary would be great. There.

George you and I talked about this in the past and.

Nobody loves price increases okay. So when you say, what's the receptivity.

I think customers would prefer not to have price increases than to have them, but I think that they expect.

<unk>, an appropriate price increases from us and Thats, what we deliver.

And they've been well received we haven't had any significant defection, we have no major customers, leaving us we have no threat to the major customers, leaving us and so I would say that we have.

We've been able to strike a pretty good balance between.

The price increases that led us consistently drive revenue and earnings.

Without again without shocking the system.

So in short I think it's a conservative strategy and it's working well in the ecosystem.

And then the part on where youre seeing more or less price increases by vertical mortgage versus card versus autos.

Well so.

As I've said in the past we are increasingly trying to spread the price increases in ways that they are less visible to the customers and less visible to you.

Our goal in a perfect world would be we could even point, our fingers at where the price increase happened.

So theres a theres a fairly elaborate exercise that we do internally to figure out where the pockets of in elasticity, where we can we can.

Do price increases without losing volume and so we do that and we're getting better and better and better at that and that lets us do it in a way that's not nearly as visible and not as easy to describe.

So sorry, I can't really give you a lot more detail there.

Got it that's helpful.

And then.

Okay.

Yes.

What's your next question George.

I just wanted to get.

Sort of your experience in working with the FHFA, so far and whether you're in regular conversations with them and we're in the process you believe.

In terms of ultimately, reaching a decision on mortgage scores.

I can't tell you when they will reach a decision we are waiting for a decision like you all are.

Pretty much what I can tell you is that we continue to believe that we have the most predictive score.

<unk>.

And so we're proud of what we've submitted for evaluation.

It's.

That's about where we are we are waiting to hear the results.

Okay got it thank you.

We have a question from Ashish <unk> with RBC capital markets. Please go ahead. Your line is open.

Thanks for taking my question I was wondering if you could provide some more details around the large software license deal of it does that wasn't platform or enterprise deal any color would be helpful. Thanks.

Hi, Ashish, it's Mike It was mostly platform not 100%.

That's a multi year deal.

And.

With what we think is a great customer.

That's great.

I just wanted to follow up on an earlier question, obviously the mortgage.

<unk> worsened compared with the but compared to your prior guidance the expectations that have come down, but I was just wondering how have expectations for cards and autos change since the last guidance.

Those seem to be holding up really well in the market that is pretty strong I was just wondering how those how do those flow into the updated revenue guidance any color there would be helpful. Thanks.

You can see from the exits Mike again, you can see from the external data that auto sales for the first of our two fiscal quarters are have been lower than what forecast when we set guidance originally supply.

Supply chain.

Being one of the primary reasons for it.

And so relative to the assumption we have for auto credit originations.

Embedded in our guidance last November we have brought that down a bit to be in line with what we.

First we can triangulate from external.

Forecasts.

We continue to be.

Optimistic about.

Credit card and other and personal loan originations not much change frankly from what we thought was going to unfold when we set the guidance at the beginning of the year.

Mortgage continues to be.

It continues to be negative.

That's very helpful color. Thanks.

And we have a question from the line of Jeff Mueller with Baird. Please go ahead your line's open.

Yes. Thanks.

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.

It assumes something similar yes, I mean, theres, a little bit of a lag with us because we lag the bureaus, but were affected by some of the same <unk>.

Headwinds.

Okay.

I know you answered the question on expense management.

Give us a similar take on the question about it 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.

So without getting into too much granular detail I can give you the buckets that you can think about the first one is.

Covid related TNA.

Travel and entertainment as well as big customer events.

We have returned to normal they are slower than we expected we would when we set guidance at the beginning of the year.

We still think that's going to increase in the second half of the year, we know it's going to increase because we have our.

FICO World event coming up next month.

And we also had our internal events, what we call success last month.

Actually it was it was in April so it will hit Q3, so we will see increases there, but relative to what we forecast at the beginning of the year, we saw less in Q1 and Q2 and we think we will continue.

Less than we had thought we would in Q3 Q4.

The second bucket will mentioned it is just reduction in the cost of delivering our SaaS products Cogs for SaaS.

As well as other operational improvements that we've been able to achieve.

Mostly on the software business.

We had line of sight on some of them, but we've frankly done a little better than we hoped and so we feel.

Feel appropriate to reflect that in the guidance and then the third bed is.

Probably not a surprise if you cover other companies in the American economy that hiring is harder. These days just in terms of pace of being able to find people and get them onboard.

And so.

We are hiring rapidly we think we're getting good people, but its just happening at a slower pace than we had assumed in the guidance. So personnel costs are a little bit lower those are the three buckets.

Got it and then just maybe another comment on platform <unk>.

And pipeline.

That you had the monster sequential growth last quarter. So there was probably some pull forward.

For Q1.

But just maybe if you could comment on the sequential growth or the pipeline because I think the.

You said the Mega win.

Benefited platform and I would think that benefits platform <unk>.

Early small sequential growth this quarter, if you could just talk through that.

Yes, it's a fair question.

<unk> for that large deal will not hit our reported <unk> until next quarter. We are certain definitional rules about when a deal qualified through IRR and others. We don't want deals that sign at $11 59 in the last day of quarter to boost <unk> bye.

Millions of dollars it doesn't seem like it's a fair reflection. So we have a cutoff period thats different than comp period for ACD bookings or revenue.

So youll see that hit next quarter.

And also keep in mind that our business.

Whether you think about it in ACB bookings terms or IRR terms is lumpy from quarter to quarter, we do big deals.

Sometimes they.

In a quarter, sometimes they had three or four days after the quarter.

It was a good quarter, but in terms of platform deals.

We just happen to have.

A nice chunky one sign a few days ago for Q3, so don't.

Fret too much about the quarter to quarter because of that and then specifically that big deal that.

<unk> was up and our revenue recognized at a point in time, an ACB bookings disclosure did not hit payroll this quarter.

Okay. Thank you.

Yeah.

And.

There are no further questions at this time.

Yeah.

Thank you. Thank you everyone for joining today that concludes our call and we will look forward to talking with you again soon thank you for joining.

Yes.

That concludes the call. Thank you for your participation and ask that you. Please disconnect your lines.

Okay.

Yes.

Sure.

Okay.

Yes.

Yeah.

Okay.

Yeah.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

Yes.

Okay.

Alright.

Sure.

Yeah.

Okay.

Yes.

Okay.

[music] tournaments.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Hi.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Sure.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Sure.

Yes.

[music].

Okay.

[music].

Yes.

[music].

Yes.

Okay.

Yes.

Okay.

[music].

If at any time during the conference you need to reach an operator. Please press Star Zero. This conference is being recorded Wednesday April 27, 2022, and now I'd like to turn the conference over to Steve Weber. Please go ahead.

Thank you.

Good afternoon, everyone and thank you for joining <unk> second quarter earnings call I'm.

I'm, Steve Weber, Vice President of Investor Relations and I'm joined today by will add CEO and our CFO Mike Mclaughlin.

Certain statements made in this presentation may be characterized as forward looking under the private Securities Litigation Reform Act of 1095.

Those statements involve many uncertainties, including the impact of COVID-19 on macroeconomic conditions and the company's business operations and personnel.

Could cause actual results to differ materially.

Information concerning these uncertainties is contained in the company's filings with the SEC in particular, the risk factors and forward looking statements portions of such filings.

Copies are available from the SEC and the fact, the 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 issued today for a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure.

The earnings release and regulation G schedule are available on the Investor Relations page of the company's web site at FICO Dot com or on the SEC website at SEC Gov.

A replay of this webcast will be available through April 27, 2023, and now I will turn the call over to will Lansing.

Thanks, Steve.

Thanks to all of you who are joining us for our second quarter earnings call.

The Investor Relations section of our website, we've posted some slides that offer financial highlights of our second quarter.

I am pleased to report that we continued 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 mid point of our fiscal year 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.

We're up 53% from last year.

On the scores side that 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 <unk> 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.

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 BDC revenues continued to be strong up 18% versus the prior year quarter.

We stress we saw strong growth through both our own myfico business.

And also through our channel partners.

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 <unk> was up 11% and the platform <unk> grew 60%.

Platform and our <unk> was 141% and we continue to sign more deals and bigger deals.

Our ACD bookings.

On page nine were up 55% over last year.

Have some final comments, including our revision of our guidance in a few minutes, but first I will turn the call over to Mike for further financial details.

Thanks will and good afternoon, everyone as well said, we continued to drive strong growth throughout the business total revenue for the second quarter was $357 million, an increase of 8% over the prior year or 13% after adjusting for the divestiture of our collections and recovery product line last June .

In our scores segment revenues were a record $184 million up 9% from the same period last year.

<unk> non originations revenues, which include FICO scores used for Prescreening account management and insurance were up 16%.

<unk> revenues were up 18% from the same period last year, both my FICO Dot com and partner of <unk> revenues grew significantly.

Software license revenue recognized upfront or at a point in time as it is referred to on our 10-Q was $27 million this quarter compared to $12 million in the same period last year.

Our lower margin professional services revenues, which were strategically deemphasizing were $24 million down from $37 million in the same period last year.

This quarter, 78% of our total company revenues were derived from our Americas region, Our Asia Pacific region generated 12% and the remaining 10% was from EMEA.

Our software.

At the end of the second fiscal quarter of 2022 was $550 million and 11% increase over the prior year quarter. Our platform <unk> was 97 million, representing 18% of our total second quarter, <unk> and a growth rate of 60% versus the prior year, our non platform <unk> was 404.

$53 million in the first quarter.

Sorry in the second quarter up 4% from the prior year.

A quick reminder, our reported <unk> and related metrics exclude all revenue from divestitures in prior period.

Our dollar based net retention rate in the quarter was 110% overall, we continue to drive very strong expansion from our platform customers as they expand their usage of the <unk>.

<unk> net retention rate for platform software was 141% in the second quarter. Our non platform software usage continues to be mature and relatively stable, which is reflected in the non platform net retention rate of 103% this quarter.

Our non-GAAP operating margin as shown on our Reg G schedule was 51% for the quarter, we delivered non-GAAP margin expansion of 200 basis points over the same period last year.

GAAP net income this quarter was $104 million up 52% from the prior year quarter, our GAAP EPS was $3 95 up.

Up 75% or 70% from the prior year.

Our non-GAAP net income was $124 million for the quarter up 37% from the same quarter last year.

At the end of March we had about $400 million remaining on that authorization and continue to view share repurchases as an attractive use of cash with that I'll turn it back over to well for his thoughts on the rest of FY 'twenty. Two thank you Mike as I said in my opening remarks, we continued to deliver strong results and I have confidence in our team as we move forward.

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 <unk> 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.

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's clearly uncertainty as we move through the next half year.

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 eight.

I'll now turn the call back to Steve and we will take questions. Okay. Thanks Bill.

This does conclude our prepared remarks, and we will now take your questions.

Brighter please open up the line.

Thank you if you'd like to register a question. Please press the one followed by the four on your telephone Youll hear a three pronged technology request. After your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three and if you are using a speaker phone. Please lift your handset before entering your request.

Once again Thats one floor to register for a question one bridge loan for the first question.

And our first question is from Kyle Peterson with Needham. Please go ahead. Your line is open.

Hey, good.

Good afternoon. Thanks for taking the question I wanted to touch on margins.

Really impressive this quarter.

The expenses kind of come in and leaner and I expect that know a lot of company thats been talking about.

Inflation dynamics and <unk>.

Cost pressures.

How are you guys kind of managing the costs and was there anything kind of one time in terms of like timing of spending that we need to.

And as we progress throughout the year.

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 that you expect coming out of Covid.

They are still under control and less than they were in the old days.

So there is that kind of cost control.

But I would say that we're also doing a pretty good job on the software side.

<unk>.

Bringing down our Cogs and we're starting to see some benefits from.

From our increasing focus on engineering, our products and solutions for cost for.

For cost efficiency and scaling and so all that's coming together and improving our margins.

That's helpful. And then I guess, just a follow up on the guidance raise.

On the topline I know, there's quite a few moving pieces.

But just wanted to see if you guys could give any color on the dynamics between the pricing benefit and then I'm also assuming.

Some lower volume assumptions at least on the mortgage side of things so.

Just wondering if you could give some of the puts and takes of.

Kind of the pricing versus volume and the net impacts of those.

In your updated assumptions.

It varies it varies by.

Segment of scores Youre talking about but there is definitely a price benefit in there.

Some some volumes are down some volumes are up.

Prices offsetting the declines.

Alright, thanks, guys nice quarter.

Thank you.

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

Thank you and good evening.

I just wanted to do I was hoping you could expand on the comments you made on that.

A diversified lending categories. I know you said mortgage was 14% of scores this quarter I guess can you just help us with.

<unk> gross loans et cetera.

Perhaps what you're assuming.

In your guidance for those.

Hey, Manav, it's Mike consistent with what we've shared in the past the three segments of the originations part of our <unk> business.

Roughly the same size that varies from quarter to quarter as one grows or shrinks.

But.

Sure.

In approximate terms thats the way to think about it we don't get into specifics beyond that.

Okay.

Can you say it seems sides, you mean, 14%, which was mortgage would be the same.

What would be the same as required in wholesale.

In terms of dollars for BBB originations, that's correct yes.

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 slowdown.

Well, we take it every year year by year end.

We're committed to consistently increasing our.

Revenue in net income and EPS and we do what we have to do on price to make sure that that remains true I think you can expect that from us.

Take a fairly kilometers change in the cycle.

That to not be true.

But that's really what goes into figuring out how aggressively we move on price.

And you've also heard us talk about the the pacing and the.

The moderation in the way we go out pricing, we don't want to shock the system.

So it's that balancing act.

We put a very high value on consistency.

Consistency of growth.

So I think you should expect that even as the cycle, it's been down a little bit.

And we do what we have to do on pricing to make that happen.

Fair enough. Thank you.

Our next question is from George Tong with Goldman Sachs. Please go ahead. Your line is open.

Hi, Thanks, good afternoon.

Just wanted to dive further into the special pricing increases can you share.

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.

Pricing increases were not as high in the mortgage vertical so are we seeing a reversal of that just any additional commentary would be great. There.

George you and I talked about this in the past and.

Nobody loves price increases okay. So when you say, what's the receptivity.

Customers would prefer not to have price increases than to have them, but I think that they expect.

Reasonable and appropriate price increases from us and Thats, what we deliver and they've been well received we haven't had any significant defection. We have no major customers, leaving us we have no threats of major customers, leaving us and so I would say that we've been able to strike a pretty good balance between the price increase.

That led us consistently drive revenue and earnings.

Again without shocking the system.

So in short I think it is a conservative strategy and it's working well in the ecosystem.

And then the part on where youre seeing more or less price increases by vertical mortgage versus card versus autos.

Well so.

As I've said in the past we are increasingly trying to spread the price increases in ways that they are less visible to the customers and less visible to you.

Our goal in a perfect world would be.

Could even point, our fingers at where the price increase happened.

So theres a theres a fairly.

Elaborate exercise that we do internally to figure out where the pockets of elasticity, where we can we can do.

<unk> price increases without losing volume and so we do that and we're getting better and better and better at that and that lets us do it in a way that's not nearly as visible and not as easy to describe.

So I can't really give you a lot more detail there.

Got it that's helpful.

And then.

Okay.

Please go ahead.

What's your next question George.

I just wanted to get.

Sort of your experience in working with the FHFA, so far and whether you're in.

Our conversations with them and we're in the process you believe.

In terms of ultimately, reaching a decision on mortgage scores.

I can't tell you when they will reach a decision we're waiting for decision like you all are.

Pretty much what I can tell you is that we continue to believe that we have the most predictive score.

And.

And so we're proud of what we've submitted for evaluation.

It.

That's about where we are we are waiting to hear the results.

Okay got it thank you.

We have a question from Ashish Sabedra with RBC capital markets. Please go ahead. Your line is open.

Thanks for taking my question I was wondering if you could provide some more details around the large software license deal or whether that wasn't platform or enterprise deal any color would be helpful. Thanks.

Yeah.

Hi, Ashish it's Mike.

Mostly platform not 100%.

That's a multiyear deal.

And.

With what we think is a great customer.

That's great.

I just wanted to follow up on an earlier question, obviously the mortgage.

Has worsened compared to the <unk>.

Back to your prior guidance the expectations that have come down, but I was just wondering how have expectations for cards and autos change since the last guidance.

Those seem to be holding up really well in the market data is pretty strong I was just wondering how does how do those flow into the updated revenue guidance any color there would be helpful. Thanks.

You can see from the X. It's Mike again, you can see from the external data that auto sales.

The first of our two fiscal quarters are have been lower than what forecast when we set guidance originally.

Supply chain.

Being one of the primary reasons for it.

And so relative to the assumptions we have for auto credit originations that was embedded in our guidance last November we have brought that down a bit to be in line with what.

Best we can triangulate from external.

Forecasts.

We continue to be.

Optimistic about <unk>.

Credit card and personal loan originations not much change frankly from what we thought was going to unfold when we set the guidance at the beginning of the year.

Mortgage continues to be.

It continues to be negative.

That's very helpful. Thanks.

And we have a question from the line of Jeff Mueller with Baird. Please go ahead. Your line is open.

Yes, thanks, so much.

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.

It assumes something similar yes.

There is a little bit of a lag with us because we lag the bureaus, but were affected by some of the same <unk>.

Headwinds.

Okay.

I know you answered the question on expense management.

Give us a similar take on the question about 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.

So without getting into too much granular detail I can give you the buckets that you can think about the first one is.

Covid related TNA.

Travel and entertainment as well as big customer events.

We have returned to normal they are slower than we expected we would when we set guidance at the beginning of the year.

We still think that's going to increase in the second half of the year, we know it's going to increase because we have our.

FICO World event coming up next month.

And we also had our internal events, what we call success last month.

<unk> less than we had thought we would in Q3 Q4.

The second bucket will mentioned it is just reduction in the cost of delivering our SaaS products Cogs for SaaS.

As well as other operational improvements that we've been able to achieve.

Mostly on the software business.

We had line of sight on some of them, but we've frankly done a little better than we hoped and so we feel.

Sales appropriate to reflect that in the guidance and then the third bed is.

Probably not a surprise if you cover other companies in the American economy that hiring is harder. These days just in terms of pace of being able to find people and get them on board.

So.

We are hiring rapidly we think we're getting good people, but its just happening at a slower pace than we had assumed in that in the guidance. So personnel costs are a little bit lower those are the three buckets.

Got it and then just maybe another comment on platform.

<unk> and <unk>.

And pipeline I get that you had the monster sequential growth last quarter. So there was probably some pull forward into Q1.

But just maybe if you could comment on the sequential growth or the pipeline because I think the.

You said the Mega win.

Benefited platform and I would think that benefits platform <unk> and it was fairly small sequential growth. This quarter. If you could just talk through that.

Yes, it's a fair question.

For that large deal will not hit our reported <unk> until next quarter.

We have certain definitional rules about when a deal qualified through IRR and others. We don't want deals that sign at $11 59 in the last day of quarter to boost <unk> bye.

Millions and millions of dollars it doesn't seem like it's a fair reflection. So we have a cut off here.

Different than comp period for ACB bookings or revenue.

So youll see that hit next quarter.

And also keep in mind that our business, whether you think about it in ACB bookings terms or IRR terms is lumpy from quarter to quarter, we do big deals.

Sometimes they.

Hit in a quarter, sometimes they had three or four days after the quarter.

It was a good quarter, but in terms of platform deals.

We just happen to have.

Nice chunky one sign a few days ago for Q3, so don't.

That too much about the quarter to quarter because of that and then specifically that big deal that.

It shows up in our revenue recognized at a point in time, an ACB bookings disclosure did not hit payroll this quarter.

Okay. Thank you.

And.

There are no further questions at this time.

Yeah.

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.

Yes.

That concludes the call. Thank you for your participation and ask you. Please disconnect your lines.

Q2 2022 Fair Isaac Corp Earnings Call

Request a DemoDemo

FICO

Earnings