The Fair Isaac Corporation (FICO) held their quarterly earnings call on August 2, 2023, with Steve Weber, FICO's CFO, and CEO Will Lansing. During the call, they discussed financial results compared to the prior year and quarter. Certain statements made during the call may be forward-looking and involve uncertainties that could cause actual results to differ from expectations. Non-GAAP financial measures were discussed and a reconciliation of these measures to the most comparable GAAP measure was provided. A replay of the webcast will be available until August 2, 2024.

FICO reported record revenues of $399 million and GAAP net income of $129 million for the quarter, with non-GAAP net income of $143 million. Scores revenue was up 13% year-over-year and B2B revenues were up 24%. The Software business saw 20% overall ARR growth and 53% platform ARR growth, with net retention rates of 117% overall and 142% for the platform.

FICO had a successful quarter with double-digit growth in ACV bookings and a strong pipeline of opportunities. At the FICO World Conference, customers expressed their appreciation for the FICO Platform's ability to design, build, and deliver AI-powered customer journeys. FICO also has a partnership with Chelsea Football Club to provide financial literacy tools and knowledge to help people make informed credit decisions.

FICO is working to tackle the financial education gap in the US, where one in five teenagers lack basic financial literacy skills. To do this, FICO is working with local partners to bring teenagers from underserved communities to financial literacy workshops and Chelsea football games in five cities. Additionally, FICO is hosting Score a Better Future Credit Education events to provide local residents with knowledge and tools to gain better insight into their financial health and understanding of their FICO Scores. The third quarter saw a 14% increase in total revenues to $399 million, with B2B Scores revenues up 24%.

In the third quarter of 2023, mortgage origination revenues increased 135%, auto origination revenues increased 5%, and credit card, personal loan, and other origination revenues increased 2% over the same period last year. B2B Scores revenues decreased 11%. Software segment revenues increased 16% compared to the same period last year. The Americas region accounted for 87% of total revenues, EMEA 8%, and Asia Pacific 5%. Software ARR increased 20%, platform ARR increased 53%, and nonplatform ARR increased 11%. The dollar-based net retention rate was 117%, and the platform DB NRR was 142%. ACV bookings increased 13%.

In the third quarter, ACV bookings included only the annual value of software sales and excluded professional services. Total operating expenses were $222 million, resulting in a non-GAAP operating margin of 53%. GAAP net income was $129 million and GAAP EPS was $5.08, both up from the prior year. The effective tax rate for the quarter was 18%. Free cash flow for the quarter was $122 million and total debt at the end of the quarter was $1.93 billion with a weighted average interest rate of 5.1%. 130,000 shares were bought back at an average price of $753 per share.

Steven Weber and William Lansing discussed raising the full year guidance for FICO's FY 2023. They raised the revenue guidance to $1.5 billion and GAAP net income to $428 million, as well as non-GAAP net income to $500 million and non-GAAP EPS to $19.70. Weber then opened the lines for questions from Manav Patnaik about the extent of the beat and the assumptions for the last quarter.

Steven Weber explains that his company is conservative with their guidance and typically only gives full year guidance, which they updated in the middle of the year. He also explains that there was onetime license revenue this quarter that may not be in the fourth quarter. Regarding the Scores business, he states that there were pricing increases this year in line with CPI, but that mortgage is still down, auto is relatively flat, and card is down a little bit.

Steven Weber and William Lansing discussed the one-time licensing revenue, which was $25 million this quarter, and how it used to be a larger part of their business. They cautioned that they don't want to be in a position where they have to rely on that revenue for specific quarters. They then discussed pricing for next year, saying that they anticipate increases in price where the value they provide demands it, though they don't expect any significant changes to the structure of the market or their pricing.

FICO World is a great source of business for William Lansing's company, both with existing and new customers. Deals can be signed at FICO World, but often the business is added to the pipeline and worked over the course of the year. The pipeline used to be over 400 days, but is now well below that. FICO World allows customers to talk to other customers and get real-world feedback on how the software has worked and what returns they can expect.

FICO World is an important event for the company as it allows customers to talk to one another and do the selling. The timeline for the FHFA's switch to the new mortgage scores is likely to be extended due to additional review and details that need to be worked out. The company was able to raise its guidance due to the passage of time and the banking of 3 quarters' worth of numbers, reducing the risk.

William Lansing states that the growth in the platform is coming from both existing customers and new customers. He notes that customers often find additional uses and increase volume and use cases over time. Although they don't expect 50%+ growth rates forever, they are pleased with the current growth rate and don't see any signs of it abating.

William Lansing explains that customers are generally happy with the Scores product, but do not enjoy the price increases. He also states that the company does not share their assumptions for the next quarter, but they are conservative when making their forecasts to ensure they will exceed them. Lastly, he mentions that the software side saw a 20% growth in ARR this quarter.

William Lansing and Steven Weber discussed the growth of their business, noting that it was fueled by both existing and new customers, and that the nonplatform business had seen good volume. They also mentioned that a license deal was a legacy business deal, and that their legacy software had a long life and could be renewed multiple times.

William Lansing explains that the company's legacy software is still industry-leading and is continuing to receive R&D investments. Steven Weber adds that the license deal renewal was not included in the ARR and was driven by volumes. Jeffrey Meuler then asks what the company learned from the historically high pricing in '23 and whether that could be the new normal going forward. William Lansing responds that it is too early to tell, but that the company expects to see growth in Scores from both higher prices and higher volumes.

Steven Weber explains that the majority of the myFICO business is made up of monthly subscriptions. He also explains that the team at myFICO works to understand the consumers and what they are looking for in order to create different packages at different price points to test the market.

Rajiv Bhatia asked Steven Weber about pricing in the business, to which Weber replied that they usually bundle different products and services with different price points. William Lansing then added that it is relatively easy to get a free FICO score, but people still pay money to manage and monitor it regularly. Lansing concluded that they have been providing free scores for many years, but it has not hurt the myFICO business, which is still strong. The call was then concluded with closing remarks.

This summary was generated with AI and may contain some inaccuracies.