Q4 2024 Fair Isaac Corp Earnings Call
Speaker Change: Thank you for standing by and welcome to FICO's fourth quarter, 2024 earnings conference call. At this time, all participants are in a listen only mode.
Speaker Change: After the speaker presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1-1 on your telephone To remove yourself from the QU, you may press star 1-1 again. I would now like to hand the call over to Dave Singleton. Please go ahead.
Speaker Change: [inaudible]
Good afternoon and thank you for attending FICO's fourth quarter earnings call. I'm Dave Singleton, Vice President of a Mr. Relations, and I'm joined today by our CEO, Will Lansing, and our CFOC Weber. Today we just need a press release that describes financial results compared to the prior year. On this call management will also discuss results in comparison with the prior quarter to facilitate an understanding of the run rate of the business.
Certain statements made in this presentation are forward-looking under the private securities litigation reform act of 1995. Bill of statements involved many risk in uncertainties that could cause actual results a different materialie.
Speaker Change: Information concerning these risks and uncertainties that contain in the company's filings with the SEC, particularly in the risk factors in forelooking statements portion of such filings.
copies are available from the SEC, from the FICA website, or from our investor relations team.
Speaker Change: is called will also include statements regarding certain non-gap financial measures.
Speaker Change: Please refer to the company's earnings release and regulate the GEDGEL issue today for a reconciliation of each of these non-gap financial measures, so most appropriate, comparable gap measure.
Speaker Change: This includes an FY25 guidance reconciliation of GAAP to non-GAAP earnings, which are adjusted for items such as stock-based compensation and excess tax benefit.
Speaker Change: This reconciliation is part of the earnings release included in Exhibit 99.1 to our 8K, which we filed with the SEC under Item 2.02, titled Results of Operations and Financials.
The earnings release and Regulation G Schedule are available on the Investor Relations page of the company's website at FICO.com or on the SEC's website at SEC.gov, and a replay of this webcast will be available through November 6, 2025. I will now turn the call over to our CEO, Will Lansing.
Will Lansing: Thanks Dave, 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 financial highlight slides. We'll be referencing those during our presentation. Today, I'll talk about this quarter's results and our guidance for fiscal 25.
We had another fantastic year. We exceeded fiscal 24 guidance on all metrics and delivered strong growth and free cash flow.
Will Lansing: As shown on page 2 of the fourth quarter financial highlights, we reported fourth quarter revenues of $454 million, up 16% over last year. For the full fiscal year, we delivered $1.718 billion in revenue, up 13% versus the prior year.
Speaker Change: We reported $136 million in GAAP net income in the quarter, up 34%, and GAAP earnings of $5.44 per share, up 36% from the prior year.
Speaker Change: For the full fiscal year, we delivered $513 million in gap net income, equating to $20.45 of earnings per share, up 19% and 21% respectively.
Speaker Change: Thank you.
Speaker Change: We reported $163 million in non-GAAP net income in the quarter, up 29%, and non-GAAP earnings of $6.54 per share, up 30% from the prior year.
Speaker Change: For the full fiscal year, we delivered $595 million in non-GAAP net income, which equates to 2,374 earnings per share, up 19% and 20%, respectively.
Speaker Change: As shown on page 10, we delivered record-free cash flow of $219 million in our fourth quarter and $607 million over the last four quarters, an increase of 31% year-over-year.
Speaker Change: We continue to return capital to our shareholders through buybacks. In the fourth quarter, we repurchased 188,000 shares at an average price of $1,721 per share.
Speaker Change: For the fiscal year, we've repurchased 606,000 shares at an average price of $1,366 per share.
Speaker Change: And our score segment on page six of the presentation, our fourth quarter revenues were $249 million, up 27% versus the prior year. For the full year, our revenues were $920 million, up 19% versus last year.
Speaker Change: On the B2B side, fourth quarter revenues were up 38% versus the prior year and up 27% for the full year, primarily driven by mortgage originations.
Speaker Change: On the B2C side, fourth quarter revenues were down 1% versus the prior year and down 2% for the full fiscal year, driven by decreased sales on the MyFICO.com website.
Speaker Change: Thank you for joining us.
Speaker Change: Fourth quarter mortgage originations revenues were up 95% versus the prior year. Mortgage origination revenue accounted for 47% of B2B revenue and 37% of total scores revenue.
Speaker Change: Auto originations revenues were down 2% while credit card, personal loan, and other originations revenues were down 5% versus the prior year.
Speaker Change: Today, we've announced that for calendar 2025, FICO's wholesale royalty will be $4.95 per score for mortgage originations.
Speaker Change: At this new per score royalty, the amount collected by FICO will remain a small percentage, on average about 15%.
Speaker Change: of the Tri-Merge Bundle cost, which typically runs $80 to well over $100. With total average closing costs of $6,000, FICO's share is only about two-tenths of one percent. As such, it will continue to be the lowest of all individual mortgage closing costs.
Speaker Change: The FICO score plays a central role in facilitating about $2 trillion in mortgage originations every year as a critical tool for borrowers, lenders, insurers, investors, and other important stakeholders.
Speaker Change: The royalty collected by FICO is entirely fair and reasonable, and the FICO score continues to deliver incredible value as the most trusted and cost-effective tool used to evaluate consumer credit risk in residential mortgage finance.
Speaker Change: More information on our new royalty pricing can be found on our website at www.fico.com slash blogs. And I would encourage you all to get more detail on the blog.
Speaker Change: We continue to drive strong adoption for FICO Score 10-T for the non-GSE mortgages. This quarter we signed new lenders, including United Wholesale Mortgages, the largest global mortgage lender.
Speaker Change: We now have clients with over $244 billion in annualized mortgage originations and about $1.33 trillion in eligible mortgage portfolio servicing that have signed up for FICO Score 10-T. Firms are already using 10-T to make credit decisions for securitization and for delivery to investors.
Speaker Change: FICO 10-T for conforming mortgages sold to the GSEs will be rolled out based on the timeline of the FHFA's implementation of enterprise credit score requirements.
Speaker Change: Now, we continue to innovate in our sports business.
Speaker Change: Last week, we announced the upcoming launch of FICO Score Mortgage Simulator, which enables mortgage professionals to run credit event scenarios by applying simulated changes in an applicant's credit report data to simulate potential changes to the applicant's FICO score. This benefits both mortgage lenders and consumers by potentially providing more loan options and more favorable interest rates.
Speaker Change: In our software segment, we deliver 205 million in fourth quarter revenue up 5% from last year, driven mainly by growth in SAS software, partially offset by a decline in professional services. We delivered 798 million in fiscal year revenue up 8% from last year.
Speaker Change: We continue to drive growth in ARR and NRR through our land and expand strategy, with expand driven by increased customer usage.
Speaker Change: As shown on page 7, the total ARR was up 8%, with platform ARR growing 31% and non-platform ARR flat year over year.
Speaker Change: Total NRR for the quarter, shown on page 8, was 106%, with platform NRR at 123% and non-platform at 99%.
Speaker Change: ACV bookings for the quarter were 22 million. Our total ACV bookings for the year were 85 million down 10% year-over-year. While we faced some macroeconomic headwinds in the first half of the year, the second half bookings were consistent year-over-year.
Speaker Change: I am excited about the future of our software business. This quarter IDC recognized FICO as a leader in the worldwide decision intelligence platform market.
Speaker Change: This is a testament to our commitment to innovation that enables real-time, transparent decision-making at scale.
Speaker Change: We help organizations design, engineer, and orchestrate decisions by automating steps in the decision-making process. FICO is recognized for its capabilities and strategy in meeting both today's customers' needs and the needs of our customers in the future.
Speaker Change: We announced two FICO platform partnerships this quarter. We have partnered with Tata Consulting Services,
Speaker Change: generally known as TCS, a global services integrator and with ISON Experiences, the largest business process outsourcing solutions company in Africa.
Speaker Change: Both partnerships will leverage FICO platform to create industry-specific solutions for real-time decision-making.
Speaker Change: These partnerships will help us continue to drive strong growth for our platform business. Before I address fiscal 25 guidance, I'll pass it over to Steve to provide some other financial details.
Steve: Thanks, Will, and good afternoon everyone. As Will mentioned, we had another very good quarter with total revenue of $454 million, an increase of 16% over the prior year. Our full year revenue of $1.718 billion was up 13% over last year.
Steve: Score segment revenues for the quarter were $249 million, up 27% from the prior year. B2B revenues in that score space were up 38%, driven primarily by mortgage originations revenues.
Steve: Our B2C revenues were down 1% versus the prior year due to volume declines in our MyFlygo.com business. For the full year, B2B revenues were $712 million, up 27%, and B2C revenues were $208 million, down 2%.
Steve: Total scores revenues were 920 million dollars up 19% despite headwinds in the mortgage originations market.
Steve: Software segment revenues for the quarter were $205 million, up 5% from the prior year. On-premises and fast software revenue grew 8% year over year, while professional services declined 9%.
Steve: Full year software revenues were seven hundred ninety eight million dollars up eight percent from the prior previous year
Steve: This quarter, 85% of total company revenues were derived from our Americas region, which is a combination of our North America and Latin America regions.
Steve: Our EMEA region generated 10% of revenues and the Asia-Pacific region delivered 5%.
Steve: Our total software ARR was $720 million, $721 million, an 8% increase over the prior year.
Steve: Platform ARR was 227 million dollars representing 31% of our total Q4-24 ARR up from 26% of total Q4-23 ARR.
Steve: Platform ARR grew 31% versus the prior year while non-platform was flat at $494 million this quarter.
Steve: This aligns with our strategy to focus on cycle platform growth while continuing to retain our non-platform customers.
Steve: Over time we do expect migration of these customers to platform products.
Steve: Our platform land and expand strategy continues to be successful. Our dollar-based net retention rate in the quarter was 106%, platform NRR was 123%, while our non-platform NRR was 99%.
Steve: Platform NRR was driven by a combination of new use cases and increased usage of existing use cases.
Steve: Our software ACV bookings for the quarter were 22 million dollars. ACV bookings for the full year were 85 million dollars.
Speaker Change: And turning now to expenses for the quarter, shown on page 5 of the Financial Highlights presentation, our total operating expenses were $257 million this quarter versus $224 million in the prior year, an increase of 15% year-over-year and flat versus the prior quarter.
Steve: For the full year, our expenses were $984 million versus $871 million in the prior year, an increase of 13 percent.
Steve: Our FY25 guidance assumes lower year-over-year expense growth than in the prior year. We maintain our focus on efficiencies and are committed to prioritizing resources to our most strategic initiatives.
Steve: We continue to focus investment to accelerate development and distribution of FICO platform while also investing in SCOR's resources in marketing.
Steve: Our non-GAAP operating margin as shown in our Reg G schedule was 52% for the quarter compared with 51% in the same quarter last year. We delivered non-GAAP margin expansion of 90 basis points for the full fiscal year.
Steve: Gap net income this quarter was $136 million, up 34% from the prior year's quarter. Our non-gap net income was $163 million for the quarter, up 29% from the prior year's quarter.
Steve: For the full year, gap net income was $513 million, up 19% versus last year, and non-gap net income was $595 million, up 19% versus last year.
Speaker Change: Thank you.
Speaker Change: GAAP earnings per share this quarter were $5.44, up 36% from the prior year.
Speaker Change: Our non-GAAP earnings per share were $6.54, up 30% from the prior year.
Speaker Change: For the full year, GAAP earnings per share were $20.45, up 21% from last year. And our non-GAAP earnings per share were $23.74, up 20% from last year.
Speaker Change: The effective tax rate for the quarter was 20.8%. The effective tax rate for the full year was 20.1%, which included $30 million of reduced tax expense from excess tax benefits recognized upon the settlement or exercise of employee stock awards.
Speaker Change: We believe that our fiscal year 2025 net effective tax rate is expected to be around 22%, while our recurring tax rate is expected to be around 26%. The recurring tax rate is before any excess tax benefit and other discrete items.
Speaker Change: Free cash flow for the quarter was $219 million, a 35% increase from the previous year.
Speaker Change: A full year of free cash flow was $607 million and was up 31% versus last year.
Speaker Change: At the end of the quarter, we had $196 million in cash and marketable investments.
Speaker Change: Our total debt at quarter end was $2.21 billion, with a weighted average interest rate of 5.2%.
Speaker Change: Currently 59% of our total debt is fixed rate. Our floating rate debt is prepayable at any time and gives us the flexibility to use free cash flow to reduce outstanding floating rate debt balances in future periods.
Speaker Change: Turning to return of capital, we bought back 188,000 shares in the fourth quarter at an average price of $1,721 per share.
Speaker Change: We continue to view share repurchases as an attractive use of cash. In fiscal 2024, we repurchased 606,000 shares at an average price of $1,366 per share for a total of $828 million.
Speaker Change: And with that, I'll turn it back to Will to review our fiscal 2025 guidance. Thanks, Steve. We continue to execute on our strategy. The proof is in our financial results and customer adoption of both our software and Square's products.
Speaker Change: Fiscal 24 was a great year. We had our most successful FICO world as we brought together customers and prospective customers from around the globe.
Speaker Change: We continue to win the trust of our customers with over 100 customers speaking on stage as to how our software helps achieve their goals. We continue to be an industry leader as evidenced by analyst community reports including IDC, Forrester, Gartner, and Chartist.
Speaker Change: We continue to innovate. At FICO World, we introduced APIs to drive partner channel adoption of FICO platform. We previewed the upcoming launch of our new FICO marketplace.
Speaker Change: In year, we delivered new FICO platform capabilities, created new IP using responsible AI methods, and announced the upcoming launch of FICO Score Mortgage Simulator.
Speaker Change: We continued our commitment to financial literacy for both students and adults.
Speaker Change: We completed the Field of Financial Empowerment summer tour with Chelsea Football Club and U.S. Soccer Foundation. We hosted Score a Better Future workshops across the U.S., which is just one of FICO's programs that helped millions of people gain access to credit.
Speaker Change: We're well-positioned for a strong fiscal 25.
Speaker Change: As we announce our guidance, I'll remind everyone that, consistent with prior years, we expect some of the pricing initiatives in 2025 to have an additional impact beyond our guidance numbers, and because of uncertainty in volumes, it's difficult to estimate the timing and magnitude of that impact.
Speaker Change: While macro trends are difficult to predict, our recurring revenues and diversified product portfolio give us considerable visibility into fiscal 2025.
Speaker Change: With that in mind, we are guiding double-digit growth for both revenue and earnings metrics, as shown on page 13 of the presentation.
Speaker Change: We are guiding revenues of about $1.98 billion, a 15% year-over-year increase.
Speaker Change: GAAP's net income of about $624 million, an increase of 22%.
Speaker Change: Gap EPS of about 25.05, an increase of 23%.
Speaker Change: non-GAAP net income of approximately 712 million, an increase of 20%, and non-GAAP EPS of approximately 28.58, an increase of 20%. With that, I'll turn the call back to Dave to open the Q&A session.
Dave Singleton: Thanks Will. This concludes our prepared remarks and we're now ready to take questions. Operator, please open the lines.
Speaker Change: As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question.
Speaker Change: comes from the line of Manav Padnaik of Barclays. Your question please, Manav.
Manav Padnaik: Thank you. Good evening. Well, thank you for the disclosure and pointing us to the blog as well. You know, I think this the whole two-tenth of one percent that you've talked about that's been pretty consistent. I guess just thinking ahead
Speaker Change: do you still see more room for that gap to close? I mean, I guess it's 1%, the mark.
Speaker Change: Well, you know, we continue to believe that our score delivers tremendous value relative to what we charge. And so, yes, I would say that there is still opportunity.
Speaker Change: Okay, good enough. And then, you know, well, I guess, you know, the, the, where there's obviously a lot of work and, and focus on your end is on the software side. And I was just wondering if you could just level set us with, you know, I don't know how you want to think about it, whether what inning you're in and, and what.
Speaker Change: some of the key initiatives you have planned for this year is on that software side, whether it's maybe more spending to keep investing in the platform or just anything that would be helpful.
Speaker Change: I would say that we're still very much in early innings.
Speaker Change: You can see that with our penetration of what we call
Speaker Change: enterprise platform customers, EPCs, where we've penetrated a little under half of the top 300.
Speaker Change: financial institutions globally.
Speaker Change: So there's still a lot of opportunity for landing the platform with major players, with major lending institutions. And that, of course, is before we go down market. That's before we expand to other verticals. So I'd say it's very, very early innings.
Speaker Change: That said, we're so far beyond minimum viable products.
Speaker Change: that, you know, we're not in any one. You know, we are far enough along that we have the preeminent platform in the world for decisioning and it is increasingly recognized by players who need it.
Speaker Change: So, you know, that continues to be, you know, something really strong for us.
Speaker Change: You know, I think in terms of investment and when do margins expand, we will continue to invest in a platform there's certainly a lot more features and functionality that our customers are clamoring for.
Speaker Change: And as we've discussed in the past, we are investing in indirect sales and distribution. We are investing in an ecosystem that with our open APIs should enable all kinds of players that we don't ordinarily do business with to take advantage.
Speaker Change: of our decisioning IP. So there is this pretty big opportunity still ahead of us, and it does demand some level of investment.
Speaker Change: All that said, we are in the process of reengineering our platforms.
Speaker Change: for scalability and for improved margins.
Speaker Change: and there's no doubt that even if we maintain...
Speaker Change: high R&D spend, which we do today and which will likely continue for some time. Our margins ought to improve over time just because we're getting more scale and because we've designed with a view to improving margins through more scale.
Speaker Change: So, you know, I hope that's helpful. Early days, contiguous investments, but we're going to get more profitable anyway.
Speaker Change: Thank you, Will.
Will Lansing: Thank you.
Will Lansing: Our next question.
Speaker Change: comes from the line of surrender, tender of Jeffreys. Please go ahead, surrender.
Speaker Change: Thank you. Will, just on the software piece, can you maybe just disaggregate the overall guide into what your expectations are for the software component?
Speaker Change: and how we should think about maybe platform versus non-platform at this point.
Speaker Change: Yeah, thanks for the question, Senator. We don't guide at that level. We don't guide at the segment level. We just guide at the total corporate level. So we don't talk about the specific, what we expect in scores versus software. And even below that on the software side, we're not, you know, we don't split out.
Speaker Change: platform versus non-platform. Frankly, it's a little difficult sometimes to even know the difference between platform or non-platform, with whom we're early stage with some of these deals that could end up on the platform or could end up, you know, in the legacy product as well. So we don't really split that out.
Speaker Change: understood. And then in terms of just
Speaker Change: When I think about the
Speaker Change: what I would call the partnerships that you're putting into place in the process of them trying to build out industry solutions. Any color there you can provide on what
Speaker Change: specific solutions they may be looking at or what industry they may be looking at at this point and then how does that work in terms of the IP sharing that that is such a relationship?
Speaker Change: Sure. It's a good question. I mean, as all of you know, partnerships work best when there's enough economics in it for both sides and where the relationship is complementary and the partners are not competing for the same thing.
Speaker Change: And so, in our partnership with TCS, for example, which is a very strong partnership,
Speaker Change: We have a number of things going on here. We have tremendous decisioning IP. They have tremendous reach and distribution and professional services and participation in a whole lot of verticals that FICO does not participate in.
Speaker Change: So we're doing two kinds of things with them. One is...
Speaker Change: they're developing a level of expertise and confidence for implementing our solutions so that they can help our direct customers with implementation because they favor professional services in a way that we do not. And so there's a benefit there, but they're also very interested in providing solutions to their customers vertical by vertical and leveraging IP. And I think they recognize that our decisioning IP
Speaker Change: is pretty special and so they're building solutions around our IP for particular verticals where they have a presence and some expertise. So for example in the logistics area, TCS is building a proprietary solution based on our decisioning IP. But you know our intent is to do that and replicate that in other verticals as well.
Speaker Change: That's helpful, thank you. That's it for me.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of George Tong of Goldman Sachs. Your line is open, George.
George Tong: Hi, thanks. Good afternoon. You're planning to raise mortgage prices by approximately 50% in 2025. Can you discuss how you're thinking about prices for non-mortgage scores in 2025?
Speaker Change: Yeah, so first of all, I guess I would point out that at 495 that's not a 50% increase, it's less than a 50% increase, but
Speaker Change: in terms of the other scores, prices.
Speaker Change: As you know, we review the entire portfolio every year and we think about where it's appropriate and fair to raise prices and we don't do the same thing in every pocket of scores demand. It varies. It varies by year. It varies by segment. And we did apply some increases to non-mortgage. Of course, mortgage isn't the entire business by any means.
Speaker Change: Okay, got it. And then broadly, can you talk about how you expect the Trump presidency to impact fight those operations?
Speaker Change: Yeah, you know, that's an obvious kind of a question and as you can imagine we think a lot about it. That said, I would just say that you know, we work with with both Republican and Democratic administrations and we've had good success with both.
George Tong: And the reason is that we're such a core component of the markets in which we operate. We're so integral to the system that it's really unlikely that Republican or Democratic administrations
George Tong: will do things that push FICO out of its position in the system.
George Tong: We anticipate that in a Trump administration, we'll continue to operate as we have as a cornerstone of the credit lending market in the US. And so we look forward to that.
Speaker Change: Got it. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: comes from the line of Faisa Aoui of Deutsche Bank. Please go ahead, Faisa.
Faisa Aoui: Yes, hi, thank you so much.
Faisa Aoui: So, will you allude it to some macro uncertainty?
George Tong: And I'm curious if you can elaborate on that. Are you expecting mortgage volumes to recover in 2025? We are seeing rates a little bit higher. And I'm curious if you can comment on the number of polls that you are seeing per application, because there's some indications that those have been declining more recently.
George Tong: I'm
Speaker Change: Nobody knows what the future holds, not us and not you, and so, you know, we leave it to you to come up with your own estimates on where you think mortgage volumes will be over the coming year. We do anticipate mortgage volumes will increase in the future, but the schedule for that is a little hard to say.
George Tong: And so, you know, we've incorporated in our guidance, as is typical for us, you know, an appropriate level of conservatism.
George Tong: and we'll just have to see how things pan out. In terms of number of quotes, we don't really, we don't have a, you know, a public pronouncement on that.
George Tong: Okay.
Speaker Change: understood. And then I noticed you've been talking about the value that the FICO score
Speaker Change: provides to secondary market participants. And I'm curious if you have been thinking about that as a potential revenue opportunity going forward, if you think there's something there.
Speaker Change: You know, that is a very interesting question. There's no doubt that many people who use the FICO score don't pay for it.
Speaker Change: Many people use and rely on the FICO score.
Speaker Change: You know, our business model today has historically been built around
Speaker Change: We charge for the first use, and then the downstream and subsequent uses, when they are permitted by us by contract.
George Tong: tend to go, tend to be free.
George Tong: Of course, we're in business, and so we think about every kind of variation on a theme, and we've thought about trying to put the pricing where the usage is to make sure that, you know, you could lower prices in one place and raise them somewhere else. Maybe that's more fair, but
George Tong: We also recognize that the system is what it is.
George Tong: dozens and dozens of variations on how we might price our IP.
George Tong: And trust me, we do, we think about those things. But we're also really mindful of the kind of responsibility that we have to the economy, to the community, to our customers, to the participants in the ecosystem.
George Tong: and we are loathe to make changes that could rattle markets. We don't want to do that. So we're very, very cautious and careful about everything we do. And you've seen that. But that's not to say we don't study it. And if appropriate, we might consider something like that in the future.
George Tong: Thank you so much.
George Tong: Thank you.
Speaker Change: Our next question comes from the line of Owen Lau of Oppenheimer. Please go ahead, Owen.
Owen Lau: Hi, good afternoon and thank you for taking my question. And going back to your guidance, could you please maybe add more color on how do you assume how many weight cuts you expect in 2025 and how will that impact the loan volume? Thanks.
George Tong: Thank you very much.
Speaker Change: you know that's one of those areas where everybody has a different opinion and we don't publish our opinion I you know I think you know what our pricing is
George Tong: and so I think you should apply that to your own best estimates.
George Tong: as a guide to making your decisions about what the future holds for us. I don't know that my speculating on how many rate cuts is going to be helpful to anyone. I'm not sure that my opinion is worth more than anyone else's.
Speaker Change: Got it. And then on the platform side, some of the analytic firms were under pressure because of the end market challenges and budget cuts and vendor consolidation and things like that. Could you please give us an update on what you're hearing from your clients, given that we are going to the year-end budgeting period? Thanks.
Speaker Change: Thank you.
Speaker Change: Yes, absolutely. What you point out is something that we used to experience a lot in our applications business.
George Tong: five and ten years ago where we were very much under budget pressure and so when you know when our customers were under a lot of budget pressure you know the the sales cycle stretched out and and decisions were postponed and deals were postponed
George Tong: We see much less of that now. What we see is that the platform is truly a strategic investment by our customers.
George Tong: It tends to be decided at the C-suite level.
George Tong: There is this imperative for our customers to make a transition to digital relationships with their consumer customers.
George Tong: And they want the kind of power that our platform brings. And their choice is really to try to build it themselves, some kind of homegrown solution, or to buy it from FICO, because there's really not any meaningful competition in terms of features and functionality with our platform. And as between building it in-house.
George Tong: and buying the FICO solution.
George Tong: You know, we've invested close to a billion dollars in our software business to get to this point. And there are few customers with the wherewithal to make those kinds of investments. And so any kind of a homegrown solution is just not going to be competitive with what they buy at a fraction of the cost.
George Tong: And so what we see is tremendous adoption of our platform because they do the analysis and it's a very cost-effective solution and they get more functionality than they were planning on. They get it much faster than they could if they did it themselves.
George Tong: And so that's really kind of how that decision is going down. So budgetary pressure, you know, who knows? With less budgetary pressure, maybe we'd be doing even better than we are. We can't really say, but we are not experiencing a lot of slowdown because of budget pressures.
Speaker Change: Got it. Thanks a lot.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Kyle Peterson of Needham & Company. Your question, please, Kyle.
Speaker Change: Great.
Kyle Peterson: Good afternoon, guys. Thanks for taking the questions. I wanted to start off on the scores revenue this quarter. It came in really strong. I just wanted to see, were there any one-timers? I know in the past sometimes you guys have had some licensing deals or
Kyle Peterson: Relative true ups. I just want to see like is that a clean number or was was there anything one time in the fourth four key number?
Speaker Change: Yeah, there were there was a little bit of one time and then there's often as you know most quarters are sound There's probably a little bit more than you certainly than last quarter in this quarter. So there's a you know
George Tong: a few million dollars of additional revenue there. I mean, it's nothing about all that material and overall number, but there definitely was a little bit of one-time revenue that we don't necessarily, you know, we have in our run rate.
Speaker Change: Okay, that's helpful. Thank you.
Speaker Change: I guess just to follow up on the mortgage score price rollout, appreciate the transparency there, you know, should we think of this as being fully phased in, you know, on January 1st or is there, you know, kind of a scheduled phasing or any lag time that we should be mindful of?
Speaker Change: Well, yeah, there's always a lag. It's not scheduled, but there's, you know, we used to always talk about the score being feathered in, right, the price, because some customers are on deals that don't lap on January 1st, they might lap later, but so it's consistent with every other year we've had essentially.
Speaker Change: Okay, thank you. Nice quarter.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Jason Haas of Wells Fargo. Please go ahead, Jason.
Jason Haas: Hey, good afternoon. Thanks for taking my questions.
Jason Haas: I'm curious if you could talk about what sort of analysis you did to arrive at the $4.95 mortgage score price. Why did you decide that that was the right number to go with? And then I'm also curious, I recognize you're not going to go through the details of the pricing for auto and card, but if you could also talk about what sort of analysis you've run to determine what would be the appropriate price for those verticals as well. Thanks.
Speaker Change: You know there are a lot of factors that go into it. There's not a formula. It's not formulaic. But we look at everything. We do look at volumes.
Speaker Change: We look at the market. We think a lot about whether the price is fair. Whether we're asking our customers to pay a price that exceeds the value that we provide. We think a lot about those things.
Speaker Change: And you can probably imagine my view on this, which is that we think it's tremendous value.
Speaker Change: And so, you know, we're
Speaker Change: We're fine with where we are. Every year is different. The percentage increases each year are different. The dollar amount increases are different each year. There's not a formula for it.
Speaker Change: And we sit down in a couple of months before the September 1 rate card gets published to our partners.
Speaker Change: and we think about it. We also have discussions with them. So there's just a lot of factors that go into it.
Speaker Change: Got it. Thank you. That's helpful.
Speaker Change: And then if I could ask a follow-up on the non-platform business decline slightly, which was a little off-trime. I know it's not the focus to grow that, but I was curious if there was anything in particular we should be aware of for the quarter there.
Speaker Change: No, there's nothing there. It's based on volumes. I mean some volumes you get a little bit more, a little bit less. It's just volumes and the amount of usage we had this quarter.
Jason Haas: It's worth pointing out, I mean, how do we think about that business?
Jason Haas: We have this very strong legacy business.
Jason Haas: where we have...
Jason Haas: large market share in a half-dozen...
Speaker Change: you know, very important applications, you know, for our customers. They typically renew on, like, a three-year renewal cycle. That's, you know, it varies, but happens often.
Speaker Change: You know, we're not in a big hurry to push them to the platform. We have our hands full with new business on the platform. And so as long as we have customers who are happy to renew the legacy products,
Speaker Change: We're happy with that, and we continue to invest in those legacy products to make sure that the features and functionality are appropriate for today and for tomorrow and for the future. So, I think our legacy business is going to be healthy for a very long time to come.
Speaker Change: We're not really, you know, pushing to grow it quickly.
Speaker Change: And we're also, you know, we're not in a harvest mode either. You know, we make modest investment to keep it current.
Speaker Change: and the fluctuation, whether it's a little over 100% or a little below 100% in terms of where we stand, that tends to be volume driven. It tends to be usage by our customers that pushes us there.
Speaker Change: Got it, that's very helpful, thank you.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: comes from the line of Ashish Sabadra of RBC Capital Markets. Your question please, Ashish.
Speaker Change: Hi, this is David Page on for Ashish. Thanks for taking our question and congrats on the good results. Two questions, I was wondering if you could talk about the
Speaker Change: If any, competitive dynamics in auto and in card, and then as a follow-up, just a higher level thinking of what your capital allocation priorities are going to be.
Speaker Change: 2025.
Speaker Change: Thank you. Okay, so with respect to auto and card.
Speaker Change: Those two businesses look today like they did a year ago and like they did two years ago, very little change competitively. You know, our customers continue to use our products.
Speaker Change: and just not a lot of change there, not a lot of competitive threat, not a lot of new innovation coming from competitors so you know really kind of no change there.
Speaker Change: With respect to capital allocation, our strategy there remains unchanged.
Speaker Change: As you know, we strive to return capital to our shareholders. We have a very efficient business model. We try to run a pretty efficient balance sheet. We try to manage our leverage to between two and three times and have some level of efficiency there.
Speaker Change: and it is remarkable to say with a P north of 100 that we still think our stock is a screaming value, but we really do believe that. And I've been doing these calls now for 13 years.
Speaker Change: and every single call it seems like our stock is at an all-time high and people wonder why are you still buying back your stock and to date it's been a pretty good call. We expect that to continue. We have every intention of returning free cash flow and then some to our shareholders through stock buyback.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question...
Speaker Change: comes from the line of Simon Clinch of Redburn Atlantic. Your question please, Simon.
Simon Clinch: Hi, hi everyone. Thanks for taking my question. I was wondering, well perhaps you could, you know, this is quite a, quite an important day to be issuing your earnings in the U.S. and I was wondering if you could give some thoughts around
Speaker Change: really around the FHFA's proposals and implementation of this proposal in the fourth quarter. Do you think anything really changes in terms of the probabilities of that being either delayed or cancelled? Any thoughts around that would be very useful. Thank you.
Speaker Change: You know we wonder the same thing and I think no one knows. I don't think it's a secret that the industry has been slow to to move on the expected implementation because there's some things that still have to be sorted out.
Speaker Change: The FHFA has a plan. We're working with them, cooperating with them every way we can to see it happen.
Speaker Change: But there's no telling what a new administration might do. They you know, they it's just really hard to say. Maybe things take a little bit longer than they otherwise might have. That's probably the most likely scenario. But there could be a change in direction. One just doesn't know.
Speaker Change: Okay, that's useful, thanks. And just as a follow-up then, just on the software business...
Speaker Change: Thank you.
Speaker Change: Could you provide a little bit more color just around sort of where you are in terms of exploring the investments behind expanding your distribution beyond just your your financial, large financial customers and just where you are with that, please.
Speaker Change: Yeah, there's a few ways we're going at that. I mean, at the upper end of the ecosystem, we're working with partners. So, you know, I mentioned TCS as one, but we're in conversations with a number and have deals with a number of other partners. So the big systems integrators, they are very natural partners for us to get into other verticals.
Speaker Change: and they have customers, they have distribution, they have skills, they have domain expertise and they can take that, apply it to our IP and provide solutions in these other verticals. And so that's clearly a very efficient way for us to get into kind of more diversified markets.
Speaker Change: The other thing that we're focused on, which I think is going to take longer, is, you know, I wouldn't call it quite a self-service model, but more of a self-service model where we have open APIs.
Speaker Change: ISVs and resellers and borrowers have the opportunity to come and leverage our platform and our IP with very little intervention from us.
Speaker Change: and in the long run we'd really like to see that flourish. We have a marketplace that we've built to facilitate this but I think that's going to take time to build.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: comes from the line of Scott Wurtzel of Wolf Research. Your question please, Scott.
Speaker Change: I'm Steve Meuler. Thank you. Thank you. Thank you. Thank you.
Scott Wurtzel: Good afternoon guys. Just first one on the ACV bookings trends. I know historically we usually see a sequential step up from 3Q to 4Q, and I thought the number was still pretty good, but just wondering was there any pull forward of bookings into the 3rd quarter that is maybe distorting that seasonal trend a little bit?
Speaker Change: Yeah, I mean, there's really no reason for a seasonal trend. Typically, a lot of times it does happen that our fourth quarter is higher, but if you look at this year, our third and fourth quarter was exactly the same number, give or take, as the third and fourth quarter combined last year. So, there probably was some pull forward, some deals from our fourth quarter this year into the third quarter, and there might have been some deals last year that pushed from the third and fourth quarter. So, it's hard to really look at any one specific quarter that way.
Speaker Change: Got it, got it, that's helpful. This is a follow-up, just on your guidance, wondering if you can maybe help us understand how you're thinking about, you know, investments and expense growth in fiscal year 25. Thanks.
Speaker Change: Yeah, well you see it's built into, if you, you know, we gave you all the numbers basically you can kind of see what our expense delivery rate looks like. But as we said, that, you know, the expense growth that's built into the guidance is, is a lower growth rate than what we saw in 24. We had some come, you know, kind of one-time things happening in 24, both.
Speaker Change: Non-repeating some some benefits we got last year and then some one-time these we paid for this year as well But so, you know, there's some growth built into the expenses
Speaker Change: But it's less than we had this year, and then it's less than what our top-line revenue growth is, so we'll get margin expansion off of that. And then if we're able to beat guidance throughout the year, usually that comes along in a pretty decent…
Speaker Change: Margin, so there's a little bit of expense growth that comes with additional revenue, but you know that that would come at a much higher margin profile as well
Speaker Change: Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: comes from the line of Andrew Stein of FT Partners. Please go ahead, Andrew.
Andrew Stein: Hi, thank you. So just have one question tonight. Could you please provide some color on the volume trends within scores when the 30-year mortgage was closer to 6% in the back half of September relative to the rest of the quarter? Thanks.
Speaker Change: Yeah, I mean, the best source for data for that is actually just what the NBA publishes. That's what we look at. That's actual real, more real time than the numbers that we see.
Speaker Change: So we can't really track it on a week-by-week basis like they do.
Speaker Change: So I would point you to that, first of all. But we did see, you know, we saw some upticks.
Speaker Change: When the rate came down, and then we saw it slow down a little bit, and you know, it's hard to really draw much of a trend from any of that. So that's why we're, obviously, we're very conservative with the way we guide going forward.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: comes from the line of Kevin McVeigh of UBS. Please go ahead, Kevin.
Kevin Mcveigh: Great, thank you so much.
Kevin Mcveigh: All right.
Speaker Change: Could you give us a sense of what you said?
Speaker Change: 2025 pricing, how much of that is factored into the guidance already just directionally and is there anything from 24 that it's factored into the 25 guidance? I guess any sense of just how that phases maybe anything that didn't occur in 24 and the 25 and 25 more broadly?
Speaker Change: Yeah, I think that the two things going on there one is
Speaker Change: The new pricing each year goes into effect on Jan 1, but our fiscal runs from October 1 to September 30. So, obviously, there's a one-quarter discrepancy in when the pricing hits.
Speaker Change: So that's one factor that influences it. And then the other, as Steve mentioned earlier, is a lot of our channel partner customers.
Speaker Change: have multi-year deals, and when they do, we honor the prices from prior years. And so, that's another thing that can affect that relationship.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you, ladies and gentlemen. That does conclude the Q&A portion of our call and our conference for today. Thank you for participating. You may now disconnect.
Speaker Change: The singing's over and after the wedding.
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