The operator welcomes participants to the Fair Isaac Corporation Quarterly Earnings Call and provides instructions for the call. Dave Singleton, Vice President of Investor Relations, introduces the CEO, Will Lansing, and CFO, Steve Weber. The company has issued a press release with financial results and management will discuss results in comparison with the prior quarter. The call will include forward-looking statements and non-GAAP financial measures, with resources available for more information. The call will be available for replay until January 25, 2025. Will Lansing will now lead the call.

The speaker, Will Lansing, begins by thanking everyone for joining the first-quarter earnings call. He reports that the company had a strong start to the fiscal year with double-digit growth in revenue, net income, and EPS compared to last year. He references financial highlights slides and reports first-quarter revenues of $382 million, a 11% increase from last year. The company also saw growth in GAAP net income, earnings, and non-GAAP net income and earnings. They also returned capital to shareholders through buybacks and announced a new repurchase authorization. In the scores segment, revenues were up 8% from the prior year, with strong results in B2B and a decline in B2C. Mortgage originations saw a significant increase, while other originations were down. The company continues to see success with their latest score, FICO Score 10T.

Last quarter, Movement Mortgage announced their adoption of FICO 10T and this quarter, CrossCountry Mortgage became the first lender to issue loans in a mortgage-backed security based solely on FICO Score 10T. Other clients have also signed up to demonstrate the improved predictive performance of FICO Score 10T. In the Software segment, there was a 14% increase in revenue from last year, driven by strong growth in ARR and NRR. Total ARR was up 18%, with platform ARR growing 43% and non-platform ARR growing 11%. Total NRR for the quarter was 114%, with platform NRR at 136% and non-platform NRR at 125%. There is a strong demand from new customers, with $18 million in total ACV bookings for the quarter. FICO Platform has expanded its reach globally and with different customer types, with early adopters in India and the U.K. looking to use it for multiple use cases.

In the fourth paragraph of the article, the speaker discusses the company's opportunities for growth in North America, particularly in the banking sector. They mention their focus on digital transformation and the value of their FICO Platform for data-driven analytics. The company plans to showcase their innovations at an upcoming event. The speaker then turns the call over to Steve for further financial details. The company had a strong quarter with total revenue of $382 million, an 11% increase over the previous year. They saw growth in their Scores segment revenues, driven by B2B revenues from mortgage origination. However, their B2C revenues declined due to decreases in their myFICO business. The Americas region accounted for the majority of their revenues, with EMEA and Asia-Pacific regions also contributing. The company's total software ARR increased by 18%, with Platform ARR representing 28% of their total ARR and growing by 43% compared to the previous year.

FICO's platform and land and expand strategy has been successful, with a dollar-based net retention rate of 114% and a platform NRR of 136%. Non-platform ARR growth was driven by increased usage and price increases. The company's software ACV bookings for the quarter were $18.3 million. Operating expenses increased by 3% from the previous quarter, and the company maintains its focus on investing in the FICO Platform. The non-GAAP operating margin for the quarter was 48%. GAAP net income increased by 24% from the prior year, and non-GAAP net income increased by 12%. The effective tax rate for the quarter was 7%, but the company expects it to be around 22% for fiscal year 2024.

The company's recurring tax rate increased by 32% compared to the previous year, with a total free cash flow of $121 million. The company also had $197 million in cash and marketable investments, with a total debt of $1.96 billion and a weighted average interest rate of 5.2%. They have a new $500 million repurchase authorization for shares and are focused on driving innovation, particularly in their Scores and software businesses. They have also launched a FICO score to help Ukrainian refugees and added a historically black college to their FICO Educational Analytics Challenge. The company continues to expand their patent portfolio and has added 20 new enhancements to their FICO platform.

FICO will showcase their innovative technology at FICO World 2024, a four-day event in April where industry professionals can connect and learn about FICO's platform. The company will highlight successful clients and demonstrate the power of their technology to enable organizations to make better decisions at scale. During the Q&A session, FICO addressed questions about their software pipeline and the recent step down in ARR. They explained that the decrease in ARR is not due to seasonality but rather deals being pushed to the next quarter, and the pipeline is currently the strongest and most mature it has ever been.

The speaker discusses the current state of the pipeline and expresses confidence in its maturity. They also mention the upcoming FICO World event and the focus on showcasing customer success and sharing best practices. The speaker then addresses any changes in volume expectations for 2024 and states that they are comfortable with their guidance, despite recent fluctuations in interest rates. They also mention FICO's conservative approach to forecasting.

The company expects to benefit greatly from increased volumes and lower rates within the next year, but their outlook remains unchanged for now. They have had no trouble bringing on new clients for their software business, but there has been a shift from landing new customers to expanding with existing ones. The lead time for new customers is longer, but the company is still signing deals with new customers and different use cases with existing customers. The margins for the software business are in line with their expectations for the year.

The speaker explains that incremental revenues will likely drop to the bottom line, but some may be used for additional resources. The questioner asks about the software expense cadence, and the speaker explains that expenses are increasing due to investments in R&D and cybersecurity, as well as end of year bonuses. The company has also hired 100 more people in the past year.

The company is investing in specific areas, causing expenses to trend up throughout the year. The CEO is not surprised by the decline in auto and card lending and cannot predict the future. Professional services revenue does not have a significant impact on expenses as most of the work is done by internal resources.

The company does most of its implementation work on the software side and does not view professional services as a profit center. The PS expenses are expected to remain in the $20-$25 million range. The company's revenue and volume assumptions remain unchanged, but the pricing assumptions are still uncertain due to volatility in the market. The company will provide more information on pricing and volumes in the next quarter. The company has announced the removal of tiered pricing increases for mortgage scores this year.

Will Lansing, speaking about Experian's pricing strategy for autos and credit cards, explains that they have adjusted prices in response to industry feedback. They also make surgical adjustments every year, with some scores having a cost of living adjustment and others getting additional changes. There have not been significant changes in auto and card pricing this year. In terms of real-time trends, there has been some unexpected refi activity in the mortgage market, while Experian's reporting is not as real-time as industry data.

The speaker, George Tong, asks Steve Weber about the arrears numbers for cards and autos. Weber responds that there was a big pickup in card arrears last year, but it has since slowed down. He also mentions that there has been some pullback in the subprime market, but overall the volumes are not significantly different. Autos have remained stable with only a few percentage fluctuations. When asked about deals being pushed to the second quarter, Will Lansing clarifies that there is nothing special going on and the sales cycle remains relatively short.

FICO does not engage in aggressive sales tactics at the end of the quarter and is culturally aligned with its shareholders. While they do make an effort to close deals at the end of the quarter, they do not offer excessive discounts or make radical concessions. Deals may move from quarter to quarter due to the client's budget and approval process. Some deals have closed in January due to difficulty getting signatures in December. FICO is not scrambling to close deals in December and is seeing traction in its business.

FICO's platform business is primarily focused on financial services, but they also have a growing presence in non-financial services through partnerships. They plan to expand into other verticals through open APIs and software development kits, but their strategy is to primarily work with partners. There is not much direct work in non-financial services.

The speaker did not provide specific information on the mortgage volume growth in the first quarter of 2024, but suggested that it could be obtained from third party sources. They also mentioned potential headwinds from license renewals in the Latin American market, but stated that it is difficult to project and could vary depending on when renewals occur and if they result in upfront license revenue or recurring revenue. The previous year's LatAm renewal was in Scores, not software.

Steve Weber, the CEO of Scores, discusses the company's recent growth in B2B Scores and the factors that have contributed to a slowdown in the first quarter. He attributes the slowdown to lower mortgage volumes and a tough comparison to the previous year's results in Latin America. He also mentions that the company is unable to determine the exact breakdown of revenue from closed loans versus other factors such as rate shopping or applications that do not result in closed loans.

The speaker from Morningstar asked about the percentage of Scores revenue that came from mortgage in the quarter, but the company did not provide that information. They also asked about the Asia score revenue, which was higher than the previous year due to a license deal. The company clarified that they have license deals in different regions but the total deals this year were smaller due to a large deal in Latin America the previous year. There were no further questions and the call was concluded.

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