Q3 2025 Fair Isaac Corp Earnings Call
Operator: Good day, and thank you for standing by. Welcome to FICO's third quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, David Singleton. Please go ahead.
Good day, and thank you for standing by.
Just like US third quarter 2025 earnings conference call.
At this time all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
I'll, then hand automated message advising yohan histories.
Please note that today's conference maybe recorded.
The conference over to your Speaker host David Singleton. Please go ahead.
Dave Singleton: Good afternoon, and thank you for attending FICO's third quarter earnings call. I'm Dave Singleton, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing, and our CFO, Steve Weber. 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 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. Those statements involve many risks and uncertainties that could cause actual results to differ materially. Information concerning these risks and uncertainties is contained in the company's filings with the SEC, particularly in the risk factors and forward-looking statements portions of such filings. Copies are available from the SEC, from the FICO website, or from our investor relations team.
Good afternoon, and thank you for attending FICO third quarter earnings call I'm, Dave Singleton, Vice President of Investor Relations and I'm joined today by our CEO will Lansing and our CFO Steve Weber.
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 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 995.
The statements involve many risks and uncertainties that could cause actual results to differ materially.
Information concerning these risks and uncertainties.
And in the company's filings with the SEC, particularly in the risk factors and forward looking statements portions of such filings.
Copies are available from the SEC from the FICO website or from our from our Investor Relations team.
Dave Singleton: 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 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 at the company's website, fico.com, or on the SEC's website, scc.gov. A replay of this webcast will be available through July 30, 2026. I will now turn the call over to our CEO, Will Lansing.
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 at the company's web site <unk> dot com or on the Sec's website at SEC Gov.
A replay of this webcast will be available through July 32026, 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 third quarter earnings call. In the investor relations section of our website, we've posted some financial highlight slides that we'll be referring to during this earnings announcement. We had another strong quarter in our increasing our fiscal year 25 guidance. As shown on page two of the third quarter financial highlights, we reported Q3 revenues of $536 million, up 20% over last year. We reported $182 million in GAAP net income in the quarter, up 44%, and GAAP earnings of $7.40 per share, up 47% from the prior year. We reported $211 million in non-GAAP net income in the quarter, up 35%, and non-GAAP earnings of $8.57 per share, up 37% from the prior year. As shown on page 10, we delivered record-breaking free cash flow of $276 million in our third quarter.
Thanks, Steve and thank you everyone for joining us for our third quarter earnings call.
In the Investor Relations section of our website, we've posted some financial highlight slides that we'll be referring to during this earnings announcement.
We had another strong quarter and are increasing our fiscal year 'twenty five guidance as.
As shown on page two of the third quarter financial highlights, we reported Q3 revenues of $536 million up 20% over last year.
We reported $182 million in GAAP net income in the quarter up 44% and.
And GAAP earnings of $7 40 per share up 47% from the prior year.
We reported $211 million and non-GAAP net income in the quarter up 35% and non-GAAP earnings of $8 57 per share up 37% from the prior year.
As shown on page 10.
We delivered record breaking free cash flow of $276 million in our third quarter.
Will Lansing: We continue to return capital to our shareholders through buybacks by repurchasing 284,000 shares in Q3. We repurchased over half a billion dollars of shares this quarter, the largest single-quarter buyback in FICO history. In our score segment, as shown on page six of the presentation, our third quarter revenues were $324 million, up 34% versus the prior year. While B2B scores were the key driver of growth, we also saw encouraging growth in B2C scores. FICO score 10T is the most predictive broad-based credit scoring model in the US industry today. Through our early adopter program, participating clients are already seeing measurable benefits.
We continue to return capital to our shareholders through buybacks by repurchasing 284000 shares in Q3.
We repurchased over half a billion dollars of shares this quarter, the largest single quarter buyback in FICO history.
In our scores segment as shown on page six of the presentation.
Our third quarter revenues were $324 million up 34% versus the prior year.
<unk> was the key driver of growth. We also saw encouraging growth in B to C scores.
FICO score 10 T is the most predictive broad based credit scoring model in the U S industry today.
Through our early adopter program participating clients are already seeing measurable benefits.
Will Lansing: Even since the recent FHFA announcement, we signed our latest lender deal just last week, and we've now secured adoption from institutions representing over $313 billion in annualized mortgage originations and approximately $1.52 trillion in eligible mortgage portfolios under servicing, all of which underscore the strong momentum and confidence in FICO score 10T. Lenders in the program have been able to validate the power of FICO score 10T in real-world mortgage underwriting, in loan production, in execution, and in servicing. This quarter, we announced the launch of FICO score 10 BNPL and FICO score 10T BNPL. These are the first credit scores from a leading credit scoring provider to incorporate buy now, pay later data.
Even since the recent FHFA announcement, we signed our latest lender deal just last week and we've now secured adoption from institutions representing over $313 billion in annualized.
Mortgage originations and approximately $1 five two trillion ineligible mortgage portfolios under servicing.
All of which underscore the strong momentum and confidence in FICO score 10 T.
Lenders in the program have been able to validate the power of FICO score 10 T in real world mortgage underwriting and loan production and execution and in servicing.
This quarter, we announced the launch of FICO score 10 be NPL and FICO score 10 TB NPL.
As of the first credit scores from a leading credit scoring provider to incorporate buy now pay later data.
Will Lansing: These scores will provide lenders with greater visibility into consumers' repayment behavior, enabling a more comprehensive view of their credit readiness, which ultimately improves the lending experience and will expand financial inclusion by helping more consumers to gain access to credit. These scores will initially each be offered side by side with existing versions of the FICO score at no additional fee from FICO. This approach allows lenders to evaluate the new BNPL-enhanced credit scores while continuing to use FICO's industry-leading models that they use today, ensuring a seamless transition and added value. Lastly, our FICO score mortgage simulator penetration is gaining speed in the US industry. We now have multiple resellers and mortgage technology platform providers, hundreds of active lenders, and thousands of orders placed. In our software segment, we delivered $212 million in Q3 revenue, up 3% from the prior year.
These scores will provide lenders with greater visibility into consumer's repayment behavior, enabling a more comprehensive view of their credit readiness, which ultimately improves the lending experience.
Andrew will expand financial inclusion by helping more consumers to gain access to credit.
These scores will initially each be offered side by side with existing versions of the FICO score at no additional fee from FICO.
This approach allows lenders to evaluate the <unk> NPL enhanced credit scores, while continuing to use FICO is industry, leading models that they use today, ensuring a seamless transition and added value.
Lastly, our FICO score and mortgage stimulator penetration is gaining speed in the U S industry.
We now have multiple resellers and mortgage technology platform providers hundreds of active lenders and thousands of orders placed.
And our software segment.
We delivered $212 million in Q3 revenue up 3% from the prior year.
Will Lansing: The revenue increase was driven mainly by growth in platform SaaS. We continue to drive growth in ARR and NRR through our land and expand strategy, with expand driven by increased customer usage. Pages seven and eight of our investor deck highlight the total ARR increase by 4%, with total NRR at 103%, both driven largely by the FICO platform. ACV bookings for the quarter were $26.7 million compared to $27.5 million in the prior year. With the help of product innovations announced at FICO World, our pipeline is stronger today than this time last year. Before passing on to Steve, I'll highlight our strong innovation in the software business. The FICO platform revolutionizes how organizations make decisions and apply intelligence across their customer lifecycle. Innovation is at the core of our ability to power an intelligent enterprise.
The revenue increase was driven mainly by growth in platform SaaS.
We continue to drive growth in IRR, and NR through our land and expand strategy with expand driven by increased customer usage pages, seven and eight of our investor deck highlight that total <unk> increased by 4% with total and are at 103%, both driven largely by the FICO platform.
ACB bookings for the quarter were $26 7 million compared.
Compared to $27 5 million in the prior year.
With the help of product innovations announced at FICO World. Our pipeline is stronger today than this time last year.
Before passing on to Steve I'll highlight our strong innovation in the software business. The FICO platform revolutionize how organizations make decisions and apply intelligence across their customer lifecycle innovation is at the core of our ability to power an intelligent enterprise. This quarter, we hosted FICO world, bringing together customers and partners from <unk>.
Will Lansing: This quarter, we hosted FICO World, bringing together customers and partners from around the world. Participants collaborated on how FICO platform makes real-time decisions at scale and optimizes interactions with consumers. On main stage, we unveiled innovation, spotlighting advancements that will shape the future of decisioning and enterprise AI. We will bring next-generation FICO platform, enterprise broad solutions powered by FICO platform, and FICO Marketplace to general availability in the second half of calendar 2025. These innovations will bring new use cases to the market. They will enable smarter, explainable outcomes. They'll improve performance. They'll improve the speed of deployment and yield better customer ROI.
Around the world.
Participants collaborated on how FICO platform makes real time decisions at scale and optimize interactions with consumers.
On main stage, we unveiled the innovation spotlighting advancements that will shape, the future of Decisioning and enterprise AI, We will bring next generation FICO platform.
Enterprise fraud solutions powered by FICO platform, and FICO marketplace to general availability in the second half of calendar 2025.
These innovations will bring new use cases to the market.
Will enable smarter explainable outcomes improved performance will improve the speed of deployment and yield better customer ROI.
Will Lansing: On the AI frontier, we leveraged our AI principles, trustworthy, ethical, explainable, and responsible, and provided a sneak peek of the upcoming FICO Focus Foundation model, the FICO Focus Language Model, and FICO Focus Sequence Model, built for financial services, delivering greater accuracy, explainability, and control in high-stakes domains. This will be released for general availability this calendar year. Our industry analysts are delighted with our innovation. Forrester recently recognized FICO platform as the leader in AI decisioning platforms, this for the fourth time. AI decisioning platforms transform how organizations operationalize both human intelligence and AI at scale, enabling faster, more accurate decisions across complex business processes. AI decisioning is an important enabler for agentic AI, which is natively available in the next generation of FICO platform. Our partners continue to value our innovation. In the quarter, we signed a new strategic collaboration agreement with Amazon Web Services.
On the AI frontier, we leveraged our AI principles.
Just worthy ethical explainable and responsible and provided a sneak peek of the upcoming FICO focused foundation model.
The FICO focus language model and FICO focused sequence model built for financial services, delivering greater accuracy explain ability and control and high Stakes domains.
This will be released for general availability this calendar year.
Our industry analysts are delighted with our innovation.
Forrester recently recognized FICO platform as the leader in AI Decisioning platforms. This for the fourth time AIG.
AI decisioning platforms transform how organizations operationalized, both human intelligence and AI at scale.
Enabling faster more accurate decisions across complex business processes.
AI Decisioning is an important enabler for Egencia AI, which is natively available in the next generation of FICO platform.
Our partners continue to value our innovation in the quarter, we signed a new strategic collaboration agreement with Amazon Web services under.
Will Lansing: Under the new agreement, FICO and AWS will amplify their work to bring more organizations worldwide the power of AI-driven automated decision workflows with FICO platform. In addition, FICO will broaden its participation in AWS partner programs to accelerate client adoption of FICO platform. Let me now pass it over to Steve to provide further financial details. Thanks, Will, and good afternoon, everyone. As Will mentioned, we had another good quarter with total revenue of $536 million, an increase of 20% over the prior year. Score segment revenues for the quarter were $324 million, up 34% from the prior year. B2B revenues were up 42%, primarily due to higher unit prices, an increase in volume of mortgage originations, and a multi-year US license renewal on our insurance score product. Our B2C revenues were up 6% versus the prior year, primarily due to increased revenue from our indirect channel partners.
Under the new agreement FIFO, and AWS will amplify their work to bring more organizations worldwide. The power of AI, driven automated decision workflows with FICO platform.
In addition, Michael will broaden its participation in AWS partner programs to accelerate client adoption of FICO platform.
Let me now pass it over to Steve to provide further financial details.
Thanks will and good afternoon, everyone.
As will mentioned, we had another good quarter with total revenue of $536 million, an increase of 20% over the prior year.
Scores segment revenues for the quarter were $324 million up 34% from the prior year.
<unk> revenues were up 42%, primarily due to higher unit prices and increase in volume of mortgage originations and a multiyear U S license renewal on our insurance score product.
Our <unk> revenues were up 6% versus the prior year, primarily due to increased revenue from our indirect channel partners.
Will Lansing: Third quarter mortgage revenues or originations revenues were up 53% versus the prior year. Mortgage origination revenue accounted for 53% of B2B revenue and 44% of total score revenue. Auto originations revenues were up 23%, while credit card, personal loan, and other originations revenues were up 3% versus the prior year. Software segment revenues for the quarter were $212 million, up 3% from the prior year. On-premises and SaaS revenue grew 2% year over year, while professional services grew 7%. This quarter, 87% of total company revenues derived from our Americas region, which is the combination of our North America and Latin American regions. Our EMEA region generated 8% of revenues, and the Asia-Pacific region delivered 5%. The updated guidance we're releasing today assumes fourth quarter revenues of $505 million. This is down sequentially due to lower point-in-time revenues, including insurance scores, licenses, and software licenses.
Third quarter mortgage revenues or originations revenues were up 53% versus the prior year mortgage origination revenue accounted for 53% of <unk> revenue and 44% of total scores revenue.
Auto originations revenues were up 23%, while credit card personal loan and other originations revenues were up 3% versus the prior year.
Software segment revenues for the quarter were $212 million up 3% from the prior year.
On premises and SaaS revenue grew 2% year over year, while professional services grew 7%.
This quarter, 87% of total company revenues derived from our Americas region, which is the combination of our North America and Latin American regions.
Our EMEA region generated 8% of revenues and the Asia Pacific region delivered 5%.
The updated guidance, we are releasing today assumes fourth quarter revenues of $505 million.
This is down sequentially due to lower point in time revenues, including insurance scores licenses and software licenses we.
Will Lansing: We also expect scores originations volumes to be slightly lower due to seasonality, as well as a sequential decline in PS revenues. Our total software ARR was $739 million, a 4% increase over the prior year. Platform ARR was $254 million, representing 34% of our total Q3 25 ARR, up from 30% of total Q3 24 ARR. Platform ARR grew 18% versus the prior year, while non-platform declined 2% to $485 million this quarter. Our CCS business, which spans both platform and non-platform, saw a slight uptick sequentially, but overall headwinds we highlighted last quarter continue to be present, putting pressure on year-over-year ARR growth. Our platform land and expand strategy continues to be successful. Our dollar-based net retention rate in the quarter was 103%. Platform NRR was 115%, while our non-platform NRR was 97%.
Also expect scores originations volumes to be slightly lower due to seasonality as well as the sequential decline in <unk> revenues.
Our total software <unk> was $739 million, a 4% increase over the prior year.
Platform AAR was $254 million, representing 34% of our total Q3, 25% IRR up from 30% of total Q3 'twenty four IRR.
Platform AOR grew 18% versus the prior year, while non platform declined 2% to $485 million this quarter.
Our Ccs business, which spans both platform and non platform saw a slight uptick sequentially, but overall headwinds we highlighted last quarter continue to be present, putting pressure on year over year IRR growth.
Our platform land and expand strategy continues to be successful our dollar based net retention rate in the quarter was 103% platform MLR was 115%, while our non platform MLR was 97%.
Will Lansing: Platform NRR was driven by a combination of new use cases and increased usage of existing use cases. Our software ACV bookings for the quarter were $26.7 million compared to $27.5 million in the prior year. Turning now to expenses for the quarter, as shown on page five of the financial highlight presentation, our total operating expenses were $274 million this quarter versus $253 million in the prior quarter, an increase of 8%. Quarterly expense growth was driven primarily by our FICO World event. Two other expense drivers were incremental headcount, as well as the marketing to market of our supplemental retirement and savings plan, which is offset in other income and expense and thus has no net impact to our net income. In our fourth quarter, we expect increased interest expense.
Platform NR was driven by a combination of new use cases and increased usage of existing use cases.
Our software ACB bookings for the quarter were $26 7 million compared to $27 5 million in the prior year.
Turning now to expenses for the quarter as shown on page five of the financial highlights presentation. Our total operating expenses were $274 million this quarter versus $253 million in the prior quarter, an increase of 8%.
Quarterly expense growth was driven primarily by our FICO world event.
Two other expense drivers, where incremental head count as well as the marking to market of our supplemental retirement and savings plan, which is offset in other income and expense and thus has no net impact to our net income.
And our fourth quarter, we expect increased interest expense.
Will Lansing: We also expect to have increased marketing expenses, as well as some one-time items that could exceed $10 million. These expenses are all embedded in our updated guidance. Our non-GAAP operating margin, as shown in our REGG schedule, was 57% for the quarter, compared with 52% in the same quarter last year. This means we were able to deliver non-GAAP margin expansion of 470 basis points year over year. GAAP net income this quarter was $182 million, up 44% from the prior year's quarter. Our non-GAAP net income was $211 million for the quarter, up 35% from the prior year's quarter. GAAP earnings per share this quarter were $7.40, up 47% from the prior year. Our non-GAAP earnings per share were $8.57, up 37% from the prior year. The effective tax rate for the quarter was 23.3%. The operating tax rate was 24.6%.
We also expect to have increased marketing expenses as well as some one time items that could exceed $10 million.
These expenses are all embedded in our updated guidance.
Our non-GAAP operating margin as shown in our Reg G schedule was 57% for the quarter compared with 52% in the same quarter last year.
This means we were able to deliver non-GAAP margin expansion of 470 basis points year over year.
GAAP net income this quarter was $182 million up 44% from the prior year's quarter. Our non-GAAP net income was $211 million for the quarter up 35% from the prior year's quarter.
GAAP earnings per share this quarter was $7 40.
Up 47% from the prior year, our non-GAAP earnings per share were $8 57 up 37% from the prior year.
The effective tax rate for the quarter was 23, 3% the operating tax rate was 24, 6% we.
Will Lansing: We expect our full year net effective tax rate to be around 20% and our recurring tax rate to be around 25%. This quarter, we delivered very strong free cash flow of $276 million, a 34% increase from the prior year. Over the last four quarters, we've delivered $748 million of free cash flow, which represents an increase of 36% over the trailing 12-month period ending June 30, 2024. At the end of the quarter, we have $240 million in cash and marketable investments. In May, we issued an AK detailing our debt refinancing. Our total debt at quarter end was $2.78 billion, with a weighted average interest rate of 5.25%. As of June 30, 2025, all our debt was held in senior notes with no term loans and no balance on a revolving line of credit. So at that time, 100% of our total debt was fixed rate.
We expect our full year net effective tax rate to be around 20% and our recurring tax rate to be around 25%.
This quarter, we delivered very strong free cash flow of $276 million or 34% increase from the prior year.
Over the last four quarters, we've delivered $748 million of free cash flow, which represents an increase of 36% over the trailing 12 month period ending June 32024.
At the end of the quarter, we had $240 million in cash and marketable investments.
In May we issued an 8-K detailing our debt refinancing our total debt at quarter end was $2 $78 billion.
With a weighted average interest rate of five 5%.
As of June 32025, all of our debt was Hilton senior notes with no term loans and no balance on our revolving line of credit.
So at that time, 100% of our total debt was fixed rate.
Will Lansing: Turning to return of capital, we bought back 284,000 shares in the third quarter at an average price of $1,802 per share, and we continue to view share repurchases as an attractive use of cash. With that, I'll turn it back to Will for his closing comments. Thank you, Steve. Elevated interest rates and ongoing affordability challenges continue to weigh on the mortgage market, keeping loan originations below historical norms. While the macro environment remains fluid, our strategy, our innovation, and our execution remain disciplined and consistent. I'm pleased to report that today we're raising our full year guidance as we enter the fourth quarter of our fiscal year. Revenue guidance will remain at $1.98 billion. GAAP net income guidance is $630 million, with GAAP earnings per share of $25.60. Non-GAAP net income guidance is $718 million, with non-GAAP earnings per share of $29.15.
Turning to return of capital we bought back 284000 shares in the third quarter and an average price of $1802 per share.
We continue to view share repurchases as is.
Tractive use of cash.
With that I'll turn it back to will for his closing comments.
Thank you Steve.
The elevated interest rates and the ongoing affordability challenges continue to weigh on the mortgage market keeping loan originations below historical norms.
While the macro environment remains fluid our strategy, our innovation, our execution remained disciplined and consistent.
I'm pleased to report that today, we are raising our full year guidance as we enter the fourth quarter of our fiscal year.
Revenue guidance will remain at $1 98 billion.
GAAP net income guidance is 630 million with GAAP earnings per share of $25 60.
non-GAAP net income guidance is $718 million with non-GAAP earnings per share of $29 15.
Will Lansing: Before we take questions, I'd like to discuss the interim FHFA decision and how we are engaging with the industry. First, I'd like to emphasize that the FICO score is the industry standard measure of consumer credit risk in the US. The FICO score is the backbone of safety and soundness in the mortgage industry. Over the last 30 years, the FICO score has fundamentally transformed the mortgage industry, enhancing stability and liquidity in secondary markets, standardizing credit evaluation for investors, expanding fair and objective access to credit, and empowering cost-effective and sustainable homeownership for Americans. FICO scores are used across the US and internationally for more than just mortgages. In the US, 99% of all FICO scores are freely chosen by market participants outside the mortgage market. In the non-conforming mortgage market, FICO is also widely used.
Before we take questions I'd like to discuss the interim FHFA decision and how we are engaging with the industry.
First I'd like to emphasize that the FICO score is the industry standard measure of consumer credit risk in the U S.
The FICO score is the backbone of safety and soundness in the mortgage industry.
Over the last 30 years.
FICO score has fundamentally transformed the mortgage industry.
Enhancing stability and liquidity in secondary markets.
Standardizing credit evaluation for investors, expanding fair and objective access to credit and empowering cost effective and sustainable homeownership for Americans.
FICO scores are used across the U S and internationally for more than just mortgages.
In the U S, 99% of all FICO scores are freely chosen by market participants outside the mortgage market.
In the nonconforming mortgage market FICO is also widely used.
Will Lansing: Classic FICO was specified over 20 years ago for use by the GSEs while they were publicly traded companies and before the FHFA even existed. As the mortgage industry standard, thousands of industry participants use models incorporating classic FICO. FICO scores are critically relied on throughout the mortgage credit ecosystem, in mortgage insurance, in underwriting, in pricing models, in investor credit risk and prepayment models, in models used by the GSEs, in those used by mortgage insurers, by investors, and prudential regulators for capital requirements, and by credit rating agencies for mortgage-backed securities ratings. Therefore, classic FICO is critical to driving investor pricing of mortgage-backed securities and ultimately the cost consumers pay. Our innovations are best in class, including our latest innovation, FICO 10T, FICO 10T BNPL, and the FICO score mortgage simulator.
Classic FICO with specified over 20 years ago for use by the Gse's, while they are publicly traded companies and before the FHFA even existed as the mortgage industry standard thousands of industry participants use models incorporating classic FICO.
FICO scores are critically relied on throughout the mortgage credit ecosystem.
In mortgage insurance and.
In underwriting and pricing models.
Investor credit risk and prepayment models and models used by the Gse's.
And those used by mortgage insurers by investors and Prudential regulators for capital requirements and by credit rating agencies for mortgage backed securities ratings. Therefore classic FICO is critical to driving investor pricing of mortgage backed securities and ultimately the cost consumers pay.
Our innovations are best in class, including our latest innovation FICO 10, T by <unk> and the FICO score mortgage simulator.
Will Lansing: As you all know, FICO 10T was approved by the FHFA and remains the most predictive general-purpose credit scoring model in the US. While previous FICO score versions included rental, telco, and utility data, FICO 10T also now includes trended data. During the process required by the Credit Score Competition Act, the GSEs originally concluded, based on predictiveness and accuracy, that FICO 10T significantly outperforms Vantage Score 4.0. We join a longstanding industry demand that FHFA release that analysis and the recommendation of each of the GSEs publicly as part of this process in the spirit of transparency and responsible policy making. We recently posted a white paper that reached the same conclusion, which can be found on our website.
As you all know FICO 10 T was approved by the FHFA and remains the most predictive general purpose credit scoring model in the U S. What previous FICO score versions included rental telco and utility data FICO 10 T. Also now includes trended data.
During the process required by the credit score competition Act. The Gse's. Originally concluded based on predictive nissin accuracy that FICO 10, T significantly outperforms vantage score of four point out.
We join a longstanding industry demand that FHFA released that analysis and the recommendation of each of the Gse's publicly as part of this process and the spirit of transparency and responsible policymaking.
We recently posted a white paper that reached the same conclusion, which can be found on our website.
Will Lansing: As for lender choice, the FHFA has long rejected the practice because it undermines the safety and soundness of the enterprises and their counterparties, damaging liquidity in the $12 trillion mortgage industry. Lender choice encourages mortgage participants to shop for the most lax score, which drives unavoidable gaming and adverse selection for all risk holders. It creates a race to the bottom by incentivizing score providers to weaken their credit decision criteria to score more consumers and win more business with their score, which will lead to increased costs for consumers. Lender choice will result in higher capital requirements from regulators that the holders of mortgage risk will have to bear, and American taxpayers will bear significant additional risk. Any initiative to promote competition and ultimately lower costs should include the best score, which is FICO score 10T.
As for lender choice.
FHFA has long rejected the practice because it undermines the safety and soundness of the enterprises and their counterparties damaging liquidity in the 12 trillion mortgage industry.
Lender choice encourages mortgage participants to shop for the most lack score which drives unavoidable gaming and adverse selection for all risk holders.
Creates a race to the bottom by incentivizing score providers to weaken their credit decision criteria to score more consumers and win more business with their score.
<unk> will lead to increased costs for consumers lender.
Lender choice will result in higher capital requirements from regulators that the holders of mortgage risk will have to bear.
And American taxpayers will bear significant additional risk.
Any initiative to promote competition and ultimately lower costs should include the best score, which is FICO score 10 T.
Will Lansing: FICO score 10T's superior predictiveness will drive significant loss avoidance savings for market participants and billions of dollars of savings for consumers. Lastly, so long as there are tri-merge mandates coupled with the credit bureau's common ownership of Vantage Score, lender choice will harm competition rather than foster it because it further entrenches the credit bureau's market power. In speaking to numerous market participants since the FHFA announcement, it's clear there are many significant outstanding questions by the industry. FICO will continue to remain engaged with market participants, the GSEs, the FHA, FA, and other stakeholders. With that, let me turn this call back to Dave, and we'll open up the Q&A session.
FICO score 10 T superior predictive newness will drive significant loss avoidance savings for market participants and billions of dollars of savings for consumers.
Lastly, so long as their tri merge mandate, coupled with the credit bureaus common ownership of vantage score lender choice will harm competition, rather than foster it because it further entrenches the credit bureaus market power.
And speaking to numerous market participants since the FHFA announcement, it's clear there are many significant outstanding questions by the industry FICO will continue to remain engaged with market participants the gse's the FHA FA.
<unk> and other stakeholders.
With that let me turn this call back to Dave who will open up the Q&A session.
Dave Singleton: Thanks, Will. This concludes our prepared remarks. We're now ready to take questions. Operator, please open the lines.
Thanks, well. This concludes our prepared remarks, we're now ready to take questions. Operator, Please open the lines.
Operator: Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. And our first question coming from the line of Anna Patnik with Barclays. The line is now open.
Thank you, ladies and gentlemen to ask a question at this time, you will need to press star one on your telephone and wait planning to be announced.
Joe Your question simply press Star one again.
And our first question coming from the line of Manav.
With Barclays. Your line is now open.
Manav Patnaik: Thank you. Will, I just wanted to touch on FICO 10T again. I think you said you had customers already using it, adding to about $313 billion, I think is what you said. I was just wondering how many customers are using it? You know, what is the pipeline for that? And is it, do they have to, I guess what I'm getting at is, do they have to upgrade the systems in order to use FICO 10T? Is it another side-by-side workflow at the moment? Just hoping for some color on the speed of adoption if FICO 10T were to be pushed in the market again.
Thank you.
Well I just wanted to touch on cycle turnkey again, I think you said you had.
<unk> already using it to adding so about $315 billion I think so as you said I was just wondering how many customers are using it.
One is the pipeline for that and is it do they have to I guess, what I'm getting at is do they have to upgrade the systems in order to use like the turnkey.
And on the side by side workflow at the moment, just hoping for some color on the speed of adoption of <unk>.
In order to be a push in the market again.
Will Lansing: All good questions, Manav. I'd have to get back to you with the exact number of customers, but I would tell you that the pipeline is strong. There's customers testing it now. There's customers who are using it now. There's a certain amount of retooling required, but it is modest.
All good questions Manav I have to get back to you with the exact number of customers, but I would tell you that the pipeline is strong there is customers testing. It now there's customers who are using it now.
There's a certain amount of retooling required but it is modest.
Manav Patnaik: OK. And then maybe just as a follow-up, you know, for the insurance core product that had a renewal this quarter, can you just remind us what that is and if there's a bunch of these that could occur over time, or is this one-off? Just any kind of.
Okay, and then maybe just as a follow up.
The insurance core products.
The renewals this quarter can you just remind us what that is and if there is a bunch of deals that could occur over time or is this one off.
Will Lansing: Yeah, Manav, this is Steve. I'd say it's a one-off. We have some insurers that use FICO scores in their underwriting processes, and this was just a license deal over multi-year that we claim in the quarter that we signed it. So this is kind of a one-off.
No I would say that.
<unk>.
Yes, Manav. This is Steve I would say that it's a one off we have some insurers that use.
Heiko scores and their underwriting processes and this was just a license deal over multiyear that we claim in the quarter that we would that we signed it. So this is kind of a one off.
Manav Patnaik: OK. Thank you, guys.
Okay. Thank you guys.
Operator: Thank you. Our next question coming from the line of Jason Haas with Wells Fargo. Your line is now open.
Thank you our next.
Question coming from the line of Jason Haas with Wells Fargo. Your line is now open.
Manav Patnaik: Hey, good afternoon, and thanks for taking my questions. I'm curious, following the FHFA announcement, if you've seen any lenders start to move over to Vantage Score. I'm curious if you could describe maybe some of the technological challenges that they may face along the way if that's something you've heard of. Thank you.
Thank you good afternoon, and thanks for taking my question I'm curious following the FHFA announcement, if you've seen any lenders start to move over to vantage score curious if you could describe maybe some of the technological challenges that they may face.
Along the way because <unk> heard of thank you.
Will Lansing: We are not aware of anyone moving to Vantage Score since the announcement. There are significant challenges kind of at every step of the way. You know, with the FICO score, which has been in place now for over 20 years, virtually every participant in the industry has built models and infrastructure around that score. It's the only score that has actually been in use, and therefore for which we have data going through a full economic cycle, including 2008, the downturn. And so anytime you make any kind of a move away from that, you have to think through what are the implications for remodeling. And I'm talking about everything, you know, everything from consumers to mortgage originators to lenders to the government-sponsored entities to Fannie and Freddie and on downstream to the securitization market, the mortgage-backed securities players and the mortgage insurers, CPI, and ultimately the prudential regulators.
We are not aware of anyone moving to vantage score since the announcement.
There are significant challenges.
At every step of the way.
With the FICO score, which has been in place now for over 20 years.
Virtually every participant in the industry has built models and infrastructure around that score and it's the only score that is actually.
<unk> been in use and therefore for which we have data.
Going through a full economic cycle, including 2008 downturn.
And so anytime anytime you make any kind of a move away from that you have to think through what are the implications for remodeling and.
And I'm talking about everything everything from consumers to mortgage originators to lenders to the government sponsored entities to Fannie and Freddie.
And on downstream to the securitization market the mortgage backed securities.
Players in the mortgage insurers.
<unk>.
Ultimately the Prudential regulators all of these participants are nearly all of them have models that are built.
Will Lansing: All of these participants, or nearly all of them, have models that are built and have the risk assessment understood around FICO, the FICO score. And so it's not a simple thing to just swap three digits out and swap new three digits in. It really isn't that simple. So I would say there are significant obstacles, and I think that's why the industry has a lot of concerns and is thinking through, you know, under what circumstances how it could work.
And have the risk assessment understood around FICO.
FICO score and so it's not a simple thing to just swap three digits out and swap new three digits in it really isn't that simple.
So I would say there is significant obstacles and I think thats why the industry is is has a lot of concerns and is thinking through under under what circumstances, how it could work.
Manav Patnaik: Thank you. That's a very helpful explanation. In light of that, is there any change in terms of how you're thinking about where you can take mortgage score prices over time, given it's been years where the pricing of what you charge for the mortgage scores is beneath the value that's provided to the ecosystem? So is there any change in the thought about how you can normalize that going forward?
Thank you that's very helpful explanation in light of that is there any change in terms of how you're thinking about where you can take the mortgage floor practices overtime, given it's been years, where pricing what you're charging the mortgage scores.
The need and the value that it provides to the ecosystem. So is there any change in the thought about how you can normalize that going forward.
Will Lansing: You know, I think probably everyone on this call is curious about, you know, what's FICO's pricing strategy going forward in light of some of the pronouncements from the FHFA. Here's what I would say to you. First of all, no decisions have been made. You know, we make our decisions about pricing towards the end of our fiscal year, and they go effective Jan 1 of the subsequent year. So it's early days still. What I would say is that we continue to believe that there's a pretty big value gap between what we charge and, you know, the value that we provide. And so we're always looking at how we're going to close that gap, and we don't want to do it in a reckless way. We don't want to do it in a rapid way.
I think probably everyone. On this call is curious about whats FICO is pricing strategy going forward in light of some of the pronouncements from the FHFA, Here's what I would say to you first of all no decisions have been made we make our decisions about pricing.
Towards the end of our fiscal year and they go effective Jan one of the subsequent year. So it's early days still.
What I would say is that we continue to believe that there is a pretty big value gap between what we charge.
And.
<unk>.
The value that we provide and so we're always looking at how are we going to close that gap and we don't want to do it in a reckless way, we don't want to do it in a rapid way we want to do it in a very understandable predictable way so that the.
Will Lansing: We want to do it in a very understandable, predictable way so that, you know, the people affected can budget for it and see where it's going. And so, you know, we continue to be committed to that philosophy on price change. You know, I would just say I'm not sure how much different the world is today after these pronouncements because we have been competing with Vantage Score virtually everywhere for the last 15 years, and we remain the industry standard for all kinds of good reasons. So, you know, obviously, mortgage is an important business for us, and a lot of people focus on mortgage pricing, but, you know, we welcome competition, and, you know, at some level, you know, the way we go about running our business is unchanged.
The people affected can budget for it and.
We are buying and so we continue to be.
Committed to that philosophy on price change.
I would just say I am not sure how much different the world is today. After these pronouncements because we have been competing with vantage score virtually everywhere for the last 15 years.
And we remain the industry standard for all kinds of good reasons.
Obviously mortgage is an important business for us.
And a lot of people focus on mortgage pricing, but we welcome competition and.
Or at some level the way we go about running our business is unchanged.
Manav Patnaik: That's very helpful. Thank you.
That's very helpful. Thank you.
Operator: Thank you. Our next question coming from the line of Simon Clinch with Rutgers Health and Company Redburn. Your line is now open.
Thank you.
Our next question coming from the line of Simon with West Chelsea and company Redburn. Your line is now open.
Manav Patnaik: Hi, everyone. Thanks for taking my question. I was wondering maybe if you could expand a little bit more on Jason's last question, actually, but more in terms of your approach to engaging with regulators right now and how you're thinking about what is the best pathway of that engagement for the benefit of FICO shareholders and the industry. And has any of that approach changed at all?
Hi, Thanks for taking my question.
I was wondering maybe if you could expand a little bit more on Jason's last question actually but more in terms of your approach to engaging with regulators right now.
And how youre thinking about what is the best cost way of that engagement.
The benefit of.
<unk> shareholders in the industry.
And has any of that has that approach changed.
Will Lansing: Well, so, you know, we have always been relatively close to, you know, to the people at FHFA and at the GSEs, at Fannie and Freddie, because they rely on our data. They build models around the FICO score. They're interested in the innovations coming along. And frankly, we've just been through a multi-year process in which they were deeply involved in evaluating, you know, the benefits of FICO score 10T. And so, you know, those relationships are in place, and the communication is there. And, you know, I would imagine that would continue.
So we have always been relatively close to.
To the people at FHFA and at the <unk> at Fannie and Freddie because they rely on our data they build models around FICO score. They are interested in the innovations coming along and frankly, we've just been through a multi year process in which they are deeply involved in evaluating.
The.
The benefits of FICO score 10, T and so those relationships are in place and the communication is there.
And I would imagine that would continue with respect to other industry participants.
Will Lansing: With respect to other industry participants, I believe that there's a lot of industry input still to come on the latest recommendations because, you know, we went through this multi-year process with a lot of industry input, with all kinds of evaluation and analysis, and this is a fairly rapid reversal of the conclusions that that process brought us to. And so I think quite a few members of the industry have been, participants in the industry, have been taken a little bit by surprise. But I'm confident that, you know, given the importance of safety and soundness in the industry and the importance of the mortgage market in the United States, that rash things will not occur, but that, you know, careful, thoughtful, measured analysis and evaluation will occur.
I believe that.
There's a lot of industry input still to come on the latest recommendations because.
We went through this multiyear process with a lot of industry input with with all kinds of evaluation and analysis.
And it's a fairly rapid reversal of the conclusions that that process brought us too and so I think quite a few members of the industry have been pursuing in the industry have been.
Take it a little bit by surprise, but I'm confident that given the importance of safety and soundness in the industry and an important to the mortgage market in the United States.
<unk> Rashed things will not occur but.
Careful thoughtful measured analysis and evaluation will occur and so some of the problems that we've been pointing out around gaming and adverse selection and risk to safety and soundness.
Will Lansing: And so some of the problems that we've been pointing out around gaming and adverse selection and risk to safety and soundness, I don't imagine that those issues will be ignored. I imagine that they have to be wrestled with and evaluated. And so, you know, we participate in that, but frankly, it's not just a FICO thing. It's really the whole industry.
I don't imagine that those issues will be ignored.
And that they have to be wrestled with and evaluated.
And so we're we participated in that but frankly, it's not just a FICO thing, it's really the whole industry.
Manav Patnaik: Yeah, I appreciate that. That's very useful. Thank you, Will. Just as a follow-on question then, I mean, just theoretically, how should we think about the value gap potential in your other categories outside of mortgages and the ability for those areas, those segments to take on the heavy lifting, so it were, if pricing in mortgages were to slow down compared to what we've been used to?
Yes, I appreciate that that's very useful thank you.
Just as a follow up question then.
I mean, just theoretically.
Uh huh.
How should we think about the value gap potential in your other categories outside of mortgages.
And the ability for for those areas so segments two to take on the heavy lifting.
If.
If if pricing in mortgages.
To slowdown compared to what we've been used to.
Will Lansing: You know, every year we look at everything. You know, we do billions and billions and billions of scores per year. And each year, as we think through our growth strategy, we think about different parts of the market. And that continues this year as it has in every year over the last decade. So again, no real change in terms of, you know, do we look broadly across the portfolio to see where the growth opportunities are. So I think that's largely the same.
We every year, we look at everything.
We do billions and billions and billions of scores per year and each year as we think through our growth strategy. We think about different parts of the market and that continues this year as it has in every year over the last decade.
Again, no real change in terms of do we look broadly across the portfolio to see where the growth opportunities are so I think thats largely the same.
Manav Patnaik: OK, great. Thank you very much.
Okay, great. Thank you very much.
Operator: Thank you. Our next question coming from the line of Faisal Ali with Deutsche Bank. Your line is now open.
Thank you and our next.
Next question coming from the line of.
<unk> with Deutsche Bank. Your line is now open.
Faiza Alwy: Yes, hi. Thank you. I wanted to ask about the software business. Maybe, you know, how's the feedback been on the next generation launch of the platform? And, you know, how do you expect sort of bookings to trend from here and just what the general demand environment is like?
Yes, hi, Thank you I wanted to ask about the software business, maybe how has the feedback been on the next generation launch of the platform and how do you expect sort of bookings to to trend from here and just what the general demand environment looks like.
Will Lansing: You know, we continue to grow nicely. We continue to have customers very interested in the platform. We're bringing them on. I think that we are, you know, we're not completely immune to, you know, the care that goes into IT spend right now. But, you know, we feel pretty good. We're not growing at the rate we were over the last 40 quarters. We're more like the rate we had in the last several quarters. I continue to hope that that'll tick upward. I mean, I would love to see us growing in the 20s in the platform. And I, you know, our bookings feel pretty good. And so from a visibility standpoint, we think that's potentially achievable. So we'll have to see.
We continue to grow nicely, we continue to have customers very interested in the platform.
We're bringing them on.
I think that we are.
We're not completely immune to.
To the care that goes into it spend right now, but we feel pretty good.
We are not growing at the rate we were over the last 40 quarters were more like the rate we had been the last several quarters I continue to hope that that will tick upward.
I would love to see us growing in the <unk> and the platform.
Our our bookings feel pretty good and so from a visibility standpoint, we think that's potentially achievable.
So we'll have to see.
Faiza Alwy: OK, got it. And then just wanted to ask about the auto B2B origination revenue, which saw a nice acceleration from last quarter. And I'm curious if there was, you know, so if you saw higher volumes, maybe it was customer mix. I know you took some pricing, so maybe talk about some of the feedback that you've gotten on the pricing and what led to that acceleration and growth.
Okay got it and then just wanted to ask about the auto BW origination revenue.
A nice acceleration from last quarter and I'm curious if that was you saw higher volume maybe it was customer mix.
You took some pricing so maybe talk about some of the feedback that you've gotten on the pricing and what led to that acceleration in growth.
Will Lansing: Yeah, I mean, there's most of it's related to pricing. Obviously, we had some pricing there. There was a little bit of growth on the volume side as well, but most of it's related to pricing. I don't think it was a significant shift in mix that we have seen in the past. Sometimes the mix shift between the different tiering levels can have an impact. But there wasn't a lot of that. It was primarily just a combination of price and volume.
Yes, I mean, there is the most of it related to pricing. Obviously, we had some pricing. There are there was a little bit of a growth on the on the volume side as well, but most of it related to pricing I don't think it was a significant shift and it makes sense, we have seen in the past sometimes.
Mix shift between the different hearing levels can have an impact.
But there wasn't a lot of that is primarily just a combination of price and volume.
Faiza Alwy: All right, thank you.
Alright, thank you.
Operator: Thank you. And our next question coming from the line of Jerson with Goldman Sachs. Your line is now open.
Thank you.
Next question coming from the line of George Tong with Goldman Sachs. Your line is now open.
Will Lansing: Hi, thanks. Good afternoon. Given the FHFA's decision to move to a lender's choice for mortgages, how much of a priority is it to drive industry migration to FICO 10T, which could be facilitated by the release of historical benchmarking data, or would you rather see the industry stay with classic FICO to minimize disruption? You know. I think that that's going to be a decision made by the industry. FICO 10T is available. It's been approved by the FHFA. There are lenders using it today, and we imagine that will continue. It really is, far and away, the most predictive score. And so, you know, if you're in the risk business, if you actually retain any kind of risk, you care about these things. And so I think that leads us to a pretty bright and rosy future for 10T.
Hi, Thanks, good afternoon given.
Given the Fhfa's decision to move to a lender's choice for mortgages, how much of a priority is it to draw.
Drive industry migration to FICO, 10, T, which could be facilitated by the release of historical benchmarking data or would you rather see the industry stay with classic FICO to minimize disruption.
I think that that's going to be a decision made by the industry. FICO 10 T is available it's been approved by the FHFA.
There are lenders using it today and we imagine that will continue it it really is far and away the most predictive score.
And so if you are in the risk business have you actually retain any kind of risk.
You care about these things and so.
I think that leads us to a pretty bright and rosy future for <unk>.
Will Lansing: That said, there's a lot of reasons why in parts of the industry we're in FICO, what we call FICO classic, and that's likely to continue for quite a long time. I mean, that is a highly tuned, optimized score developed over 20 years with 20 years of models built around it, with all the historical data that you could possibly need. And so I don't imagine the switch away from FICO classic will be rapid. But, you know, to the extent that you have people who bear the risk, who care about the risk, 10T is a pretty good alternative.
That said there is a lot of reasons why.
Parts of the industry, where we are in <unk>, where in FICO cloud, what we call cycle classic.
And thats likely to continue for quite a long time I mean.
That is a highly tuned to optimize for developed over 20 years with 20 years of models built around it with all the historical data that you could possibly need and so I don't imagine the switch way from Piper classic will be rapid.
But to the extent that you have people, who bear the risk who care about the risk.
<unk> is a pretty good alternative.
Manav Patnaik: Got it. That's helpful. And then switching to the software side, if you look at FICO platform ARR growth, it accelerated a bit to 18% in the quarter. Can you elaborate on some of the trends that you're seeing there with respect to client adoption, new client adoption, and client consumption trends that can drive further growth acceleration?
Got it that's helpful and then switching to the software side. If you look at FICO platform AOR growth it accelerated a bit to 18% in the quarter can you elaborate on some of the trends that you're seeing there with respect to client adoption, new client adoption and client consumption trends that can drive further growth acceleration.
Will Lansing: You know, we have always believed that what would happen with the platform adoption is we would initially penetrate the, you know, a large number of the top 300 global financial institutions, and then the growth would shift, you know, as a percent of the total, the growth would shift more to expand. So we have very much a land and expand strategy. And over the last several years, as you know, we've now penetrated roughly half of the top 300 financial institutions globally. And so it's not surprising to us, it's exactly per our plan, that the shift is now coming more in the direction of a bit more expand business and not quite as much land business. That's not to say that we don't win new customers. We are, but the customers who've been using it for a while, they very much expand their usage.
Yeah.
We have always believed that what would happen with the platform adoption is we would initially penetrate.
A large number of the.
Top 300 global financial institutions, and then the growth would shift.
As a percent of the total the growth would shift more to expand so we are very much a land and expand strategy and over the last several years as you know we've now penetrated roughly half of the top 300 financial institutions globally.
And so it's not surprising to us it's exactly per our plan that the shift is now coming more in the direction of a bit more expand business and not quite as much land business. That's not to say that we don't win new customers, we are but the customers who have been using it for a while they very much expand their usage and so we're seeing more revenue there.
Will Lansing: And so we're seeing more revenue there.
Manav Patnaik: Very helpful. Thank you.
Very helpful. Thank you.
Operator: Thank you. And our next question coming from the line of Surinder Thin with Jeffrey. Your line is now open.
Thank you.
Our next question coming from the line of so Anderson with Jefferies. Your line is now open.
Manav Patnaik: Thank you. Just building upon some of the FICO 10T questions, Will, can you talk about for the clients that have been willing to adopt the score, I assume it's mostly in the non-conforming market, can you talk about the, I guess, the decision in the sense that is all of the data out there that you need to make a decision, given that obviously you're asking for public release of some of the benchmarking data of like, why upgrade to 10T now versus maybe waiting a little bit?
Thank you.
Just building upon some of the FICO 10 T questions well can you talk about for.
With the clients that have.
Been willing to adopt a score I assume it's mostly nonconforming market can you talk about the.
I guess the decision in the sense that is all of the data out there that you would need to make a decision given that.
Obviously, you are asking for public release of some of the benchmarking data was like why upgrade to turnkey now versus maybe waiting a little bit.
Will Lansing: Well, you know, we would like to see the FHFA and the GSEs release the data in the evaluation process that led to 10T being identified as the most predictive score in the market. We've obviously done that analysis independently, and we've put it into a white paper, which you can find on our website, that, you know, there are some pretty significant advantages to 10T. It's more predictive. It has higher KS. What does that translate into? It translates into lower credit defaults than you would get with classic FICO and lower credit defaults than you would get with Vantage Score. So, you know, there's a real benefit that comes with it. And yet it's a new score, and so it takes time to adopt, and, you know, there's all the transition issues that go with that.
Well.
We would like to see the FHFA and the <unk> release, the data in the evaluation process that led to <unk>.
Being identified as the most predictive score in the market.
We've obviously done that analysis independently and we put it into a white paper, which you can find on our website.
There are some pretty significant advantages to <unk>, it's more predictive it has higher chaos.
What does that translate into or translate into translates into lower credit. Defaults. Then then you would get with with classic FICO and lower credit Defaults, then you would get with vantage score.
So there's a there's a real benefit that comes with it and yes, it's a new score and so it takes time to adopt and Theres all the transitions as issues that go with that.
Manav Patnaik: That's helpful. And then just following up in terms of the next generation of the FICO platform going GA, you know, in the second half here, can you talk about the update process? So if you're an existing FICO platform customer, what is the update process, and what is the benefit of moving to the new platform at this point?
That's helpful. And then just following up in terms of the next generation of the cycle platform.
Going Ta.
In the second half here.
Can you talk about the update process, so if you're an existing FICO platform customer.
What is the update process and what is the.
The benefit of moving to the new platform at this point.
Will Lansing: I think that the transition for existing platform customers to the new FICO platform will be very straightforward. You know, seamless is probably an overstatement, but straightforward because we plan for it. And, you know, that will work nicely. I think that the benefits of the platform are, you know, more realized around, you know, the returns to scale that we get. You know, if we have a lower cost structure in serving our customers, that'll translate into lower pricing for them. And I think those are some of the benefits. There's definitely a cost benefit. And then the new platform has a lot of new features and ease of use. And so I think you'll see some of that. I think our customers, existing platform customers and new ones, will be delighted with the new platform.
I think that the.
The transition or existing platform customers to the new FICO platform will be very straightforward.
This is probably an overstatement, but straightforward because we planned for it and.
<unk>.
That will work nicely I think that the benefits of the platform R. R.
More realized around.
The returns to scale that we get.
If we have a lower cost structure in serving our customers that will translate into lower pricing for them and so I think those are some of the benefits is definitely a cost benefit and then the new platform has a lot of new features and ease of use and so I think youll see youll see some of that I think our customers existing platform customers and new ones will be delighted with.
The new platform.
Manav Patnaik: Thank you.
Thank you.
Operator: Thank you. Our next question coming from the line of Aziza Badra with RBC Capital Markets. Your line is now open.
Thank you.
Our next question coming from the line.
Joseph Suntrust with RBC capital markets. Your line is now open.
Manav Patnaik: Thank you for taking my question. I just wanted to drill down on opportunities for using FICO scores at having more use cases of FICO scores or using it in more places within the processes where it may currently not be used, like, for example, securitization market where they may not have access to real-time FICO scores. So is that an opportunity? How should we think about that opportunity presenting itself? Thanks.
Thanks for taking my question I just wanted to.
Drilling down on opportunities of using FICO scores.
Having more use cases for FICO scores are using it in more.
Places within the processes that it may currently not being used like for example, securitization market, where they may not have access to their FICO score. So is that an opportunity how should we think about that opportunity presenting itself. Thanks.
Will Lansing: Well, thank you for that question. You know, we're always looking for ways to, you know, provide more value and benefit to our customers and to potential new customers. And an obvious place for us to do it is to give the securitization market, you know, the downstream investors, the ability to refresh the score. And so today, the pricing and models are typically built around the score that was used when the mortgage loan was originated. But over time, that becomes a stale score. Over time, that's, you know, it's frozen. It's not dynamic. And so, you know, we are very much looking at how we would be able to deliver to the securitization market the ability to refresh those scores.
Well, thank you for that question.
We're always looking for ways to.
To provide more value and benefit to our customers and potential new customers and an obvious place for us to do it is to give the securitization market.
The downstream investors the ability to refresh the score and so today the.
The pricing models are typically built around the score that was used when the mortgage loan was originated.
But over time that becomes a sales score over time.
It's frozen it's that dynamic.
So we are very much looking at how we would be able to deliver to the securitization market.
To refresh those scores.
Manav Patnaik: That's very helpful, Keller. And then just going back to the mortgage score question, the non-conforming market doesn't really, are not bounded by the GSE requirements. However, most of them continue to use FICO or FICO 10T. And so I was just wondering, what are the moats around the business? And then in the event that if there is a lender's choice for the GSE, could that affect the non-GSE market? Thanks.
That's very helpful color and then just.
Going back to the mortgage score question.
The nonconforming market doesn't really are not.
Not bounded by the GSE requirements. However, most of them continue to use cycle of FICO 10 T and so I was just wondering what are the moats around the business and then.
In the event if there.
As a lender of choice for the GSE code data Tech bid non GSE market. Thanks.
Will Lansing: Well, so, you know, it's funny how people talk about moats around the FICO business. I mean, what is the moat really? The moat is that we have the most predictive score. That's, you know, that's the moat. I mean, if you're in the business of measuring risk and you benefit when you reduce the risk and you suffer when the risk comes home to roost, you want the most predictive score. You want to avoid as much credit default as possible. That's what you achieve with FICO 10T. And with respect to FICO classic, I would say it's also very, very good. And it's not just very good for a 20-year-old score. It's very, very good in absolute terms. Not as good as FICO 10T, but still very, very good. And it has the advantage of having been the backbone of the system for all this time.
Well, it's funny, how people talk about moats around the FICO business I mean, what is the moat really the moat is that we have the most predictive score that's that's the mode.
If youre in the business of measuring risk and you benefit when you reduce the risk and you suffer when the when the risk comes home to roost you want the most predictive score you want to avoid as much credit default as possible. That's what you achieved with FICO 10, T and with respect to FICO Classic I would say, it's also very very good and it's not just.
Very good for 20 year old score is very very good in absolute terms are not as good as FICO 10, T, but still very very good and has the advantage of having been the backbone of the system for all this time and so it's extremely well understood all that all the models everything's optimized around it and that's truly the mode.
Will Lansing: And so it's extremely well understood. All the models, everything's optimized around it. And that's truly the moat. It's not some, you know, government-conferred monopoly. That's not what makes us successful.
Not it's not some.
Government conferred monopoly that's not what that's not what makes us successful.
Manav Patnaik: That's great, Keller. Thanks. Thanks for that.
That's great color. Thanks Bill.
Operator: Thank you. Our next question coming from the line of Kyle Peterson with Needham. Your line is now open.
Thank you our next question coming from the line of Kyle Peterson with Needham. Your line is now open.
Manav Patnaik: Great. Good afternoon, guys. Appreciate you taking the question. Wanted to start off with your thoughts on, you know, capital allocation. It does seem like you guys have kind of stepped up the pace of the buyback. It seems like things are dislocated here. Given where the stock is and what your cash flow is like now, do you guys anticipate you being able to kind of continue to buy back at an accelerated pace, or how are you guys looking at, you know, capital allocation, specifically buyback versus debt pay down at these levels?
Great. Good afternoon, guys. Appreciate you taking my question I wanted to start off.
With your thoughts on capital allocation does seem like you guys have kind of stepped up.
The pace of the buyback seems like things are dislocated here.
Given where the stock is and what your cash flows like now do you do you guys anticipate being able to kind of continue to buyback at an accelerated pace.
Or how are you guys looking at.
Capital allocation, specifically buybacks versus debt paydown.
At these levels.
Will Lansing: Well, thanks for that. We've always believed that we should run FICO with kind of an optimal capital structure and not have on hand more cash than we need. And we've historically returned it through share buyback, and I would expect that will continue. You know, we've obviously done a lot in the last quarter, but we've done a lot in the last 13 years, and that'll continue. We say that we're not market timers. We, you know, we target spending our free cash flow on stock buyback each year. But, you know, over a period of time, that results in the leverage dropping to levels that are unacceptably low. And so periodically, we dial up the amount we buy back to maintain kind of a healthy level of leverage, somewhere between two and three times. We also are mindful of corrections in the stock price.
Well thanks for that we have.
We have always believed that we should run.
<unk> with kind of an optimal capital structure and not have an on hand more cash than we need and we have historically returned it through share buyback and I would expect that will continue we've obviously done a lot in last quarter, but we've done a lot in the last 13 years and and that will continue.
We say that we're not market timers, we target spending our free cash flow on stock buyback each year, but.
Over a period of time that results in the leverage dropping to levels that are unacceptably low and so periodically we dial up the amount we buyback to maintain kind of a healthy level of leverage somewhere between two and three times.
Sure.
We also are mindful of corrections in the stock price. So when you see things like whatever whats occurred over the last couple of months.
Will Lansing: So when you see things like what's occurred over the last couple of months, that represents a big opportunity. And so do we lean into that? Of course, we do. And you can see it in the buyback pace that we had over the last quarter. We have a lot of dry powder, a lot of capacity. And, you know, although we're not going to spend it all in one week, you know, we're buyers at this level.
That represents a big opportunity and so do we lean into that of course, we do and you can see it in the buyback pace that we had over the last quarter.
We have a lot of dry powder lot of capacity and although we're not going to spend it all in one week.
We're buyers at this level.
Manav Patnaik: Yeah. And Kyle, I would just add, if you look at what our leverage is today, it's still pretty modest by historical standards. It's even down a little bit from last quarter. So there's a lot of opportunity for us. OK. OK. Yeah, that is really helpful. And then, you know, I guess, you know, just a little bit on, you know, how you guys are kind of thinking about the environment right now. Are you guys still kind of thinking, has anything changed, I guess, like I would say, whether it's in terms of.
And Kyle I would just add if you look at what our leverage is today, it's still pretty modest by historical standards of human down a little bit from last quarter. So there's a lot of opportunity for us.
Okay. Okay.
That is really helpful and then.
I guess.
Just a little bit on how.
You guys are kind of thinking about the environment right now.
Are you guys still kind of thinking.
<unk> changed I guess like I won't say, whether it's.
In terms of.
Will Lansing: Kyle, we lost you.
We lost you.
Manav Patnaik: Yeah, I think we lost Kyle.
Yes, I think we lost Kyle.
Will Lansing: I think we lost Kyle. We lost for the second half of that question.
We lost we lost the second half of that question.
Dave Singleton: I was going to say, operator, we can just go to the next question, and we'll see if Kyle jumps back in the line.
Okay. The operator, and we can just go to the next question and we'll see a car jumps back in line.
Manav Patnaik: Sure.
Operator: Our next question in queue coming from the line of Onla with Oppenheimer. Your line is now open.
Our next question in queue coming from the line of with Oppenheimer. Your line is now open.
Manav Patnaik: Good afternoon, and thank you for taking my question. So follow up on that moat question, Will. Could you please talk about auto markets such as credit card, auto, and personal loan when there's no requirement from anyone? Do you see any traction that Vantage Score is gaining any market shares?
Good afternoon, and thank you for taking my question. So a follow up on that moat question could you. Please talk about auto markets, such as credit card auto and personal loan. When there is no requirement from any one do you see any traction that of any school vantage points, gaining any market share.
Will Lansing: No, no. It's a good question, and we do not see any traction of Vantage Score gaining market share. As I mentioned earlier, we've been competing with Vantage Score for a very long time, you know, well over a decade. And we have not experienced any kind of significant share loss to Vantage. And I would say that's because of the two things that we talked about before. One is that we have the best score, and second, that there's a lot of benefit to working with the industry standard, which is FICO.
No no. It's a good question and we do not see any traction advantaged score gaining market share.
As I mentioned earlier, we've been competing with vantage score for a very long time, well over a decade.
And.
And we don't we have not experienced any kind of significant share loss to vantage.
And I would say that is because of the two things that we've talked about before one is that we have the best score and second that there is a lot of benefit to working with the industry standard which is FICO.
Manav Patnaik: Got it. That's helpful. Just. If lenders were to move to Vantage Score, usually how long does it take for lenders to switch over? Can they do it within one or two years, or it will take longer than that? Thanks.
Got it that's helpful.
If lenders were to move to vantage score usually how long does it take for lenders to switch over can get can they do it with me in one or two years, so it will take longer than that thanks.
Will Lansing: You know, that's a question no one can answer because it hasn't happened.
That's that's a question no one can answer because it hasnt happened.
Manav Patnaik: All right. Good. Thanks a lot.
Alright, good thanks a lot.
Operator: Thank you. Our next question coming from the line of Jeff Miller with Baird. Your line is now open.
Thank you our next question coming from the line of Jeff Mueller with Baird. Your line is now open.
Will Lansing: Yeah, thank you. Hey, Will, what are you being told as kind of the next steps for 10T usage for conforming, or what are you getting asked to do from your end to make that happen? Well, I think it's up to the FHFA to decide to implement. And I think from an industry standpoint, you don't want to, I don't think you want to stagger implementations of multiple scores because it requires much more complicated retooling on the part of the industry. So I would imagine that, you know, we're going to get to a point where 10T is not just approved but implemented, you know, sooner rather than later. So we'll see. You know, we're in a conversation with the FHFA about how to make that happen.
Yes, Thank you will.
What are you being told this kind of the next steps for.
10 key usage for conforming or what are you getting asked to do from your end to make that happen.
Well I think I think it's up to the FHFA to decided to implement and I think.
From an industry standpoint, you don't want to I don't think you want to stagger implementations of multiple scores because it requires much more complicated retooling on the part of the industry. So I would imagine that we're going to get to a point, where <unk> is not just approve but implemented.
<unk>.
It sooner rather than later.
So we'll see.
And our conversation with the FHFA about how to make that happen.
Manav Patnaik: OK, thank you.
Okay. Thank you.
Operator: Thank you. Our next question coming from the line of Ryan Griffith with BMO Capital Markets. Your line is now open.
Thank you.
Our next question coming from the line of Ryan Brinkman with BMO capital markets. Your line is now open.
Manav Patnaik: Hey, thanks a lot. You made a comment on ACV bookings pipeline being stronger than last year. I was just wondering what's driving that and how we should expect that to flow through to bookings. Thank you.
Hey, Thanks, a lot you made a comment on ACB bookings pipeline being stronger than last year. I was just wondering what's driving that and how we should expect that to flow through to bookings. Thank you.
Will Lansing: I think a lot of it's, you know, coming out of FICO World, we saw a lot, you know, we've developed a lot of new functionality, as Will talked about, and there's a lot of excitement at FICO World. So, you know, it's, you know, with that coming online, there's just a strength in our pipeline. We see a lot of people that see the advantage of the current platform, and with the new version coming online, they're excited about that. So we think there's just a lot of, you know, industry understanding it more and having more proof cases. We, you know, at FICO World, we had a lot of companies get up and talk about how they've been successful using the platform. So you end up at a point in time where you get started to gain some momentum, and that's what we're seeing now.
I think I think a lot of it's coming out of <unk>. We saw a lot. We've developed a lot of new functionality as we'll talk about and there was a lot of excitement at FICO world. So.
But with that coming online there is just a strength in our pipeline, we see a lot of people that see the advantage of the current platform and with a new version coming online that are excited about that so we think there's just a lot of.
The industry understanding it more and having more proof cases.
Overall, we had a lot of companies get up and talk about how they've been successful using our platform. So you end up at a point in time when it gets started gaining some momentum and that's what we're seeing now.
Manav Patnaik: Great, thank you. And then just on the Amazon partnership, wondering what the mechanics are for that and how you expect that to impact the distribution model and bookings going forward. Thank you.
Great. Thank you and then just on the Amazon partnership I'm wondering what the mechanics are for that and how you expect that to impact the <unk>.
Distribution model and bookings going forward. Thank you.
Will Lansing: A little early to say. I mean, you know, we're optimistic. Every one of these things helps us, but we'll just have to see how that plays out.
A little early to say I mean, we're optimistic every one of these things helps us, but we'll just have to see how that plays out.
Yeah.
Operator: Thank you. Our next question coming from the line of Alexander Hess with JP Morgan. Your line is now open.
Thank you.
Our next question coming from the line of Alexander <unk> with Jpmorgan. Your line is now open.
Will Lansing: Hey, guys. Just want to piggyback off of, I think it was Jeff and Georgia's questions from earlier. You know, we're about a year removed from Vantage Score providing the loan level data set to the banks. And, you know, my understanding was that was a prerequisite for them getting their score approved. Are you guys, for some reason, hesitant to provide that data to the banks, or, you know, is the FHFA, is there some sort of negotiating with the FHFA on what that looks like? I'm just not quite clear as to why FICO 10T doesn't have a data set like that in the market. We are working with them to get the data out. Got it. That's super helpful.
Hey, guys just wanted to piggyback off of I think it was Jeff and Georges questions from earlier.
We're about a year removed from vantage score, providing the loan level data set to the banks.
And my understanding was that was a prerequisite for them getting their score approved.
Are you guys and for some reason hesitant to provide that data to the banks or the FHFA is there some sort of negotiating with the FHFA on what that looks like I'm, just not quite clear as to why.
<unk> doesn't have a data set like that in the market.
We are we.
We are working with them to get the data out.
Got it that's super helpful.
Will Lansing: And then just maybe as a maintenance question, you know, I think you guys have said in the past that the mortgage scores are less than 1% of scores, and that's presumably, you know, GSE and non-GSE channels. Can you sort of give us a sense of, you know, how many scores are being generated, you know, on an annualized basis now, and, you know, where you've seen particularly strong adoption in volumes and over the last, say, two, three years? You know, are you talking about mortgage or across the board? No, I'm talking across the board. Excuse me. Across the board.
And then just maybe as a maintenance question.
I think you guys have said in the past that the more that mortgage scores are less than 1% of scores and that's presumably GSE and non GSE channels can you sort of give us a sense of.
How many scores are being generated.
Annualized basis now.
Where you have seen particularly strong adoption in volumes and over the last say two or three years.
Are you talking about mortgage or across the board no I'm talking across the board excuse me.
Across the board.
Will Lansing: Mortgage volumes across the board are down, you know, from the peak, you know, not down as much as in mortgage elsewhere, but down some, which, you know, gives us a lot of optimism about volume growth going forward, particularly in a declining rate environment if that ever happens. So I, you know, I think there's upside there. You know, I'm not sure exactly what you're getting at, but.
Mortgage volumes across the board are down from.
From the peak.
<unk> not down as much as in mortgage elsewhere, but down some.
Which gives us a lot of optimism about volume growth going forward.
Particularly in a declining rate environment, if that ever happens.
So I.
I think I think there is upside there im not sure exactly what you're getting at is.
Manav Patnaik: No, his question is about adoption of scores just in general, like credit card, auto, personal loan, all the different places, and what have we seen over the last few years in terms of adoption and how.
His question is about adoption of score just in general like the credit card correct Kristen.
Yeah places and what have you seen over the last few years in terms of our scores are being used more widely than ever we introduced new scores. We have all kinds of new scores based on alternative data, we talked about the <unk> NPL score. We have scores that are built around telco and utility payment data.
Will Lansing: Oh, well, so our scores are being used more widely than ever. You know, we introduce new scores. We have all kinds of new scores based on alternative data. You know, we talked about the BNPL score. We have scores that are built around telco and utility payment data off the Equifax NCTUE Plus database. So we, you know, we're finding adoption of additional scores, and scores are being used, you know, more frequently than they were in the past in things like account management. So it's not just like the scores volume goes up and down with GDP. I think that it's fair to say that, you know, we're finding new uses and expanding market for scores.
The equifax in CTV.
Plus database.
<unk>.
We're finding the adoption of <unk>.
Additional scores.
And scores are being used more frequently than they were in the past in things like account management.
So it's not just like the scores volume goes up and down with GDP I think that it's fair to say that we're finding new uses and expanding market for scores.
Manav Patnaik: Great. That's super helpful. Thank you so much.
Great. That's super helpful. Thank you so much.
Operator: Thank you. Our next question coming from the line of Scott Wurzel with Wolf Research. Your line is now open.
Thank you our next question coming from the line of Scott <unk> with Wolfe.
Research Your line is now open.
Manav Patnaik: Hey, good afternoon, guys. And thank you for taking my question. I just had one on the pricing side in light of this, all the Vantage and FHFA stuff. I mean, is there a world where you would potentially consider having different pricing on conforming versus non-conforming mortgage, given your share in the non-conforming market relative to Vantage right now and, you know, the potential uncertainty on what happens in the conforming market? Thanks.
Hey, good afternoon, guys and thank you for taking my questions I just had one on the on the pricing side in light of this all the vintage and FHFA stuff I mean is there a world where you would potentially consider having different pricing on conforming versus nonconforming mortgage given your share in the nonconforming market relative to vantage right.
Now and the potential uncertainty on what happens in the conforming market.
Will Lansing: Yeah, you know, I think that everything is always under review. I mean, there are many, many other pricing models besides the ones that we've used historically. And so we look at everything. And, you know, there probably are models that we don't use that would be better for everybody, that would be better for the industry. But again, because it's such a big and important industry, you don't make any kind of changes rashly. You know, you study them, and you figure out whether it's going to work. And the last thing we want is unforeseen consequences. And so although we've evaluated many, many other pricing models, and obviously that includes pricing differently in different markets, but it also goes to structure of how we price and how the IP is used and how the IP is monetized.
Yes.
I think that everything is always under review I mean, there are many many other pricing models. Besides the ones that we've used historically and so we look at everything.
They are probably our models that we don't use that would be better for everybody who would be better for the industry, but again, because it's such a.
Big and important industry, you don't make any kind of changes rationally.
You study them and you figure out whether it's going to work and the last thing we want is unforeseen consequences.
So although we evaluated many many other pricing models and obviously that includes pricing differently in different markets, but but it also goes to structure of how we price and how the how the IP is used.
The IP is monetize.
Will Lansing: You know, we look at it all the time, but I think whatever we discover, and we've discovered some pretty interesting things, you know, we think about implementing with quite a big measure of caution.
If we look at it all the time, but I think whenever we discover and we have discovered some pretty interesting things.
We think about implementing with quite a big measure of caution.
Manav Patnaik: Great. Thanks, guys.
Great. Thanks, guys.
Operator: Thank you. Our next question coming from the line of Matthew O'Neill with FT Partners. Your line is now open.
Thank you our next question coming from the line of.
Matthew O'neill with Ft Partners. Your line is now open.
Manav Patnaik: Yeah, hi. Thanks so much. I'll try to avoid a subsequent pricing question here. I was wondering, I don't think I missed it, but would you be willing to give us the numbers around the one-time license renewal just for modeling purposes going forward?
Yeah, hi, thanks, so much.
To avoid the subsequent pricing question here. So I was wondering I don't think I missed it but.
Would you be willing to give us.
The numbers around the onetime license renewal just for modeling purposes going forward.
Will Lansing: No. I mean, we don't separate that out, but I mean, you can kind of take a look at our overall numbers in terms of how much point-in-time revenue we had. It's in the queue, and you can, you know, that's included in that number. So you can kind of, you know, look at it that way. I mean, it's a pretty significant number for this quarter.
Now we do.
Don't separate that out, but I mean, you take a look at our overall numbers in terms of the how much point in time revenue we had it's in the queue.
That's included in that number so you can kind of look at it that way I mean, it's a pretty significant number for this quarter.
Manav Patnaik: Got it. Thanks. And I guess just as a follow-up, more broadly on guidance, what's implied for fourth quarter versus where consensus sits today, there's a little bit of a delta there. Obviously, I know you're not guiding to consensus. Just curious how you think about the opportunities to outperform in the last fiscal quarter and, you know, what could go right or, you know, what degree of macro conservatism is built into the remainder of the FY guide here. Thank you.
Got it thanks, and I guess as a follow up more broadly on guidance.
As implied for fourth quarter versus where consensus sits today, there is a little bit of a delta there.
Obviously, I know youre not guiding to consensus just curious how you're thinking about the opportunities.
<unk> outperformed in the last fiscal quarter.
What could go right or what degree of macro concern to them is built into the remainder of FY guide here. Thank you.
Will Lansing: We only got two months to go, so there's not a whole lot of uncertainty. You know, we guide what we guide. We're pretty confident in that. And, you know, if I was to say something else, then I wouldn't really be guiding to anymore. So that's the number we put out there. And, you know, again, when we guide for the full year, there's a lot of things that can happen. But when you're only guiding with a couple of months left, there's not nearly as much uncertainty.
While we only got two months ago, so theres not a whole lot of uncertainty.
We guided what we guide we're pretty confident in that.
If I were to say something about that and it wouldn't really be guidance anymore. So that's the number we put out there.
Then when we guide for the full year. There is a lot of things that can happen, but when you're only guiding with couple of months left there's not nearly as much uncertainty.
Manav Patnaik: Totally fair. Thanks a lot.
Totally fair Thanks, a lot.
Operator: Thank you. And our next question coming from the line of Greg Huber with Huber Research Partners. Your line is now open.
Thank you.
And our next question coming from the lineup.
Craig Huber with Huber Research partners. Your line is now open.
Manav Patnaik: Great. Thank you. A couple of questions if I could ask. In your score segment here, I just wanted to understand a little bit better about the expense growth here year over year, about 39% up about 23, 24% sequentially. Is there any extra maybe internal investment spending going on there that you can talk about publicly? Just curious why it's up so much. I thought this was largely a pretty fixed cost model here, but any last questions?
Great. Thank you.
Couple of couple questions. If I could ask in your scores segment here I just wanted to understand a little bit better about.
The expense growth here year over year of about 39% up about 23, 24% sequentially.
Is there any extra maybe internal investments spending going on there that you can talk about publicly just curious why it's up so much I thought this was largely a pretty fixed cost model here, but.
Will Lansing: Okay, sorry. Ask that again. You're talking about revenue or the expense?
Okay.
Ask that again.
You talked about revenue the expense the expenses within your scores segment are up as you know roughly 39% year over year at 28, 24% sequentially.
Manav Patnaik: The expenses within your scores segment are up, as you know, roughly 39% year over year, 23, 24% sequentially. Why is that?
Will Lansing: The biggest piece of expense in our scores business is in our B2C business, where we actually have a cost of goods sold, a higher cost of goods sold. You know, we have to pay for credit file and data. And so as that grows, you know, you're going to see a little bit of movement on the expense side. Apart from that, I can tell you that we are, you know, we've hired more people, and we're doing a lot more innovation there than ever before. And so that also drives a bit of expense, but, you know, not enough to move the needle dramatically.
The biggest piece the biggest piece of expense in our scores business is in our <unk> business, where we actually have a cost of goods. So a higher cost of goods sold we have to pay for credit file and data and so as that grows you're going to see a little bit of movement on the expense side.
Apart from that I can tell you that we are we've hired more people and we're doing a lot more innovation there than ever before and so that also drives a bit of expense, but not enough to move the needle radically yes, I think one of the things you will see there that it's a relatively low cost model. So when you have some additional incremental cost that can skew the numbers.
Manav Patnaik: Yeah, and I think one of the things you'll see there is that it's a relatively low-cost model. So when you have some additional incremental cost, it can skew the numbers because, again, because the margins are so high. But it is a fairly fixed cost model, except for the B2C piece, which Will mentioned. But do you guys think in general this new expense level in scores here all else being equal in the environment and so forth, that you might repeat that again in subsequent quarters, or does it dip back down? Sounds like it's going to be at the higher level here.
Because again because of the because the margins are so high.
But it is fairly fixed cost model, except for the BDC piece, which will hedging.
But do you guys think in general this new expense level in scores here all else being equal in the environment and so forth that you might repeat that again in subsequent quarters or was it dipped back down it sounds like it's going to be the higher level here.
Will Lansing: Yeah, we'll probably be at a higher level. Again, it's not, you know, all that significant in the scheme of things, but I mean, you know, it's going to fluctuate a little bit. We're putting some more money into marketing, particularly on the B2C side. So, you know, we see some opportunities there that we're pursuing, and that's what's driving the biggest portion of it. Again, because we think we did some testing, and I think I talked about this in previous quarters. We did some testing on this last year, and we saw there's a pretty big payback on this. So we're willing to invest a little more heavily in this because it drives some pretty, you know, pretty good growth on the B2C side.
Yes, we're probably at a higher level again it is not.
All that significant in the scheme of things, but I mean, it's.
It's kind of fluctuate a little bit we're putting some more money into marketing, particularly on the BDC side. So we see some opportunities there that we're pursuing and that's what's driving the biggest portion of it.
Again, because we think we did some testing I think can talk about this in previous quarters. We did some testing on this last year and we saw a pretty big payback on this so we're willing to invest a little more heavily in that because it drives some pretty pretty good growth on the <unk> side.
Manav Patnaik: And then my unrelated question, please. Can you share with us what you think your market share is for FICO scores in auto, credit card, say, and personal loans, and also non-conforming mortgages? What do you think your market share is?
And then unrelated question. Please can you share with US what you think your market share is for FICO scores and auto credit cards and personal loans and also nonperforming mortgages. What do you think your market share there.
Will Lansing: Yeah, I mean, there's been, you know, external third-party analysis done on this, and it's, you know, it's in the mid-90s probably. If you look at the, if you look at securitizations that take place, it's very high. It's in the high 90% range. So, you know, it's hard to come up with exact numbers on this because it's not really reported anywhere. But from third parties that have done the actual work on this, it's a pretty high number.
Has been.
External third party analysis down on <unk>.
It's in the mid <unk>, probably if you look at the if you look at Securitizations that take place, it's very high it's in the high 90% range. So.
Hard at work with exact numbers on this because it's not really reported anywhere but from third parties that have done the actual work on is it's a pretty high number.
Manav Patnaik: Great. Thank you both.
Great. Thank you both.
Operator: Thank you. Our next question coming from the line of Kevin McVey with UBS. Your line is now open.
Thank you.
Our next question coming from the line of Kevin Mcveigh with UBS. Your line is now open.
Manav Patnaik: Great. Thanks so much. Hey, I just wanted to see if you could help us reconcile at a pretty good beat in the quarter and reaffirm the guidance for the full year. Any puts and takes on kind of what the reaffirm was as opposed to the beat in the quarter?
Great. Thanks, so much I wanted to see if you could help us reconcile that a pretty good beat in the quarter and reaffirm the guidance for the full year.
Any puts and takes.
The firm was as opposed to the.
In the quarter.
Will Lansing: Yeah, that would be increased.
Yes.
Manav Patnaik: I'm sorry.
I'm sorry.
Yeah.
Will Lansing: The amount of the raise on the guidance relative to the beat looks like you beat by more than you raised.
The amount of the raise on the guidance relative to the beat looks like you beat by more than you raised with conservatism or anything to kind of call out just based on where the quarter came versus how much that full year guidance was increased.
Manav Patnaik: Conservatism or anything to kind of call out just based on where the quarter came versus how much the full year guidance was increased?
Will Lansing: Yeah, well, I mean, we did have what we talked about in the script where we've got some one-time expenses that we're going to have in the fourth quarter, and there's some of that that probably wasn't in, you know, earlier in the year. There's some things, you know, as we get to the end of the year, we can take some charges, and, you know, we've done it in the past, and I think we'll probably be doing some of that this year as well. So that's probably the delta.
Yes, well I mean, we did have when we talked about in the script. We've got some one time expenses that we're going to have.
In the fourth quarter and some of that that there probably wasn't in the.
Earlier in the year, we theres some things that get to the end of the year, we can take some charges in.
We've done it in the past and I think we'll probably be doing some of that this year as well so thats, probably the that's probably the delta.
Manav Patnaik: That's super helpful. And then just with all the questions, I know the regulation is so hard to frame, but are there any goalposts in terms of timing or just events that you could kind of point us to where there may just be some clarification, whether it's out of the FHFA or the broader organization, just as we're thinking about expectations over the course of the year? I mean, just given, you know, it feels like there's kind of.
That's super helpful and then just.
With all the <unk>.
<unk> and other regulation, so hard to frame but.
Are there any goalposts in terms of timing or just.
Vince you can.
Kind of point us to where there may be some clarification, whether it's out of the.
Order border organization, just as we're thinking about expectations over the course of this year I mean, just given it feels like there is any.
Will Lansing: No, I think if we take, I think if we take where we are today as, you know, the status quo, which is what it is, I think you're looking at years to figure out, you know, how market share is settled out because it's not easy to switch and because we have a better score. So, you know, PBD, under what circumstances and whether at all, you know, there's share shifts. But we'll see. But it won't happen fast. You know, it will take time.
I think I think if we take I think if we take where we are today as the status quo, which is what it is I think youre looking at years to figure out how market share settled out because it's not easy to switch and because we have a better score.
No.
TBD under what circumstances and weather at all.
There is share shift, but we'll see but it won't happen fast it will take time.
Manav Patnaik: Thank you.
Thank you.
Yes.
Okay.
Operator: Thank you. And I'm showing no further questions at this time. I will now turn the call back to David for any final comments.
Thank you and I'm showing no further questions at this time I will now turn the call back to David for any final comments.
Dave Singleton: Yeah, thanks very much. I just wanted to circle back. Mona, I've asked a question at the beginning around the number of FICO 10T lenders and attraction to the market. So I think it's just important to remind the audience, you know, lenders use, you know, FICO 10T for a lot of use cases, underwriting, loan production, execution, servicing. We have over 30 forage lenders today using FICO 10T. Some of those lenders use it for securitization. They're securitizing with FICO 10T already. And the MCT is a platform where the MBS market flows through, and they also have adopted FICO 10T. So we have a lot of places where FICO 10T exists in the ecosystem, and the traction is very strong. So thanks, everyone, for the call. Appreciate it.
Yes, thanks, very much I just wanted to circle back Manav asked that question at the beginning.
The number of cycles tend to lend there is an attraction in the market. So I think it's just important to remind the audience.
Lenders use FICO 10 T for a lot of use cases underwriting loan production execution servicing we have over 30 borrowers lenders today using FICO 10 T. Some of those lenders use it for securitization securitizing with FICO 10, T already and the MCT as a platform where the MBS market floods or are they.
Also have adopted FICO 10 T. So we have a lot of places where FICO 10 T exist in the ecosystem and the traction is very strong.
So thanks, everyone for the call appreciate it.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
Yeah.
Goodbye.
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