The operator welcomes participants to the Third Quarter 2024 FICO Earnings Conference Call and introduces the speakers. The CEO, Will Lansing, and CFO, Steve Weber, will discuss financial results compared to the prior year and quarter. The speakers will also address risks and uncertainties and non-GAAP financial measures. The earnings release and Regulation G schedule are available on the company's website and a replay of the webcast will be available.

The CEO of the company, Will Lansing, begins the earnings call by thanking everyone for joining and introducing the financial highlights slides that will be referenced. He then goes on to discuss the strong quarterly results, including growth in ACV bookings and free cash flow. He also mentions the difficult year-over-year comparison for net income due to one-time reimbursements and a reduction in income tax expense. The company also repurchased shares and announced a new Board authorization for share repurchase. In the Scores segment, third quarter revenues were up 20% from the prior year, with B2B revenues up 27% and mortgage originations revenues up 80%.

In the third quarter, FICO saw a decrease in auto originations revenues and credit card, personal loan, and other originations revenues. However, the company continues to drive strong adoption for FICO Score 10-T for non-GSE mortgages, with many clients signing up for the service. In the software segment, FICO saw a 5% increase in revenue, driven by growth in SaaS software. The company also saw growth in ARR and NRR, with total ACV bookings of $27.5 million. FICO expects this trend to continue, especially for the FICO platform, which recently won an award for business intelligence. Nikhil Behl was promoted to EVP for software, leading all technology and go-to-market functions.

Nikhil has played a key role in enhancing our brand value, reputation, and business growth at FICO. Our focus on innovation has allowed us to provide new ways to add value for our customers, particularly through our FICO scores which are widely used in the credit ecosystem. We have also made commitments to financial knowledge and inclusion through partnerships with organizations like Chelsea Football Club and the U.S. Soccer Foundation. This includes hosting free financial education workshops for students from underserved communities and giving them the opportunity to attend a Chelsea football game.

In this paragraph, Steve Weber discusses the company's performance in the third quarter, including a 12% increase in total revenues and a 20% increase in Score segment revenues. He also mentions the breakdown of revenues by region and the success of their platform land and expand strategy. The company's expenses for the quarter also increased by 16% year-over-year.

The third quarter for the company included expenses for their FICO World event and annual incentive rewards, with a decrease in expenses expected for the fourth quarter. Non-GAAP operating margin was 52%, with a 2% decrease in GAAP net income. The effective tax rate for the quarter was 24.5%, with an expected net effective tax rate of 22% for fiscal year 2024. Free cash flow increased by 69% from the previous year, and the company had $199 million in cash and marketable investments at the end of the quarter. Total debt was $2.13 billion with a weighted average interest rate of 5.3%, and the company secured a $450 million term loan during the quarter. 196,000 shares were bought back during the quarter at an average price of $1,293 per share.

The speaker concludes their prepared remarks by discussing the company's strong financial results and the increase in full year guidance. They mention a new board authorization for share repurchases and state that they view this as an attractive use of cash. The CEO then speaks about the company's strategy and execution, highlighting impressive ACV bookings, record free cash flow, and increased adoption of FICO platform and FICO 10-T. They announce an increase in full year revenue guidance and provide updated GAAP and non-GAAP net income and earnings per share figures. The speaker then opens up for questions and the first question is about the selling environment and any updates on the FICO platform. The CEO responds by stating that FICO World is the biggest pipeline generating event and mentions improvements and decomposition of the platform.

The speaker discusses the healthy pipeline and selling environment at FICO World, emphasizing that customers are making strategic purchases. They also mention strong growth in mortgage revenues, but note that volumes are down compared to last year. The speaker then addresses the guidance raise, stating that they are conservative in their guidance and do not have control over scores.

The fourth quarter is typically a slower season for mortgage volumes, but the company does not have much visibility into the exact environment. The non-platform business had a 101% NRR, which is slower growth compared to the previous 2 years. This is due to the company's focus on managing the business in a flat manner. The growth is coming from the expand side on the platform. Last year's higher numbers were driven by CPI increases and FX advantages, which were not expected to be maintained. Auto origination revenue was down 3% compared to a slight increase in the previous quarter.

The speaker asked about the volumes and trends in the mortgage sector, to which Will Lansing responded that volumes were relatively flat with a mix shift towards lower-priced peers. He also mentioned that the software side saw a moderate deceleration in growth, which they believe is sustainable. They are confident in maintaining current levels and expect new deals to boost ARR in the future. Another question was asked about the implementation cycles for software bookings and when they will translate to revenue.

The speaker, Will Lansing, discusses the long sales cycle of their business, which can take up to 400 days. He also mentions that the flow-through of their deals is usually seen in the subsequent year. Another speaker, Steve Weber, adds that the timing of the flow-through also depends on the customer's readiness. The speaker, Kyle Peterson, asks about the potential impact of rate cuts on their business, to which Will Lansing responds that they are already seeing an uptick in refinance and anticipate an increase in volumes if rates come down. Lastly, a question from George Tong about the decline in card and personal loan revenue is addressed, with Will Lansing mentioning that trends among subprime consumers and overall bank lending conditions may be impacting performance.

In paragraph 12, the speaker discusses the recent pullback in the subprime market, which is expected due to the late stage of the credit cycle and increased uncertainty. Banks are being cautious with new originations, causing a slowdown in growth. On the software side, operating margins contracted due to a large reimbursement in the previous year, but are expected to improve in the next quarter.

Ashish Sabadra asks about the growth of software revenue, specifically on-prem and SaaS. He notes that the growth has moderated from previous levels and asks how the company expects this to continue. Will Lansing responds that the growth rates are likely to remain around 30% for the platform side and over 100% for the non-platform side. Simon Clinch follows up on the 30% growth for platform software ARR and asks for more detail on why the company believes this is a sustainable level of growth.

During a conference call, Will Lansing, CEO of the company, discussed the recent quarter's success in new bookings and expanding their customer base. He mentioned that their net retention rate is strong and they continue to add more business. When asked about pricing strategy, Lansing stated that their focus is on making their software accessible and encouraging adoption, rather than value pricing. Their "land expand" strategy allows for customers to discover new uses for the platform, resulting in increased usage and revenue without needing to renegotiate contracts.

During a question and answer session, Jeff Meuler from Baird congratulates the company on their strong cash flow and asks about the geographic trends within their software. The company's CEO, Will Lansing, explains that they have seen adoption across all regions, with some catching up in Asia Pacific due to structural reasons. He also mentions that the volatility in revenue may be due to point-in-time license revenue. When asked about the adoption of FICO 10-T and its impact on the nonperforming mortgage market, the company's COO, Steve Weber, explains that it is mostly upgrades from previous versions of the FICO score.

The operator introduces the next question from Manav Patnaik with Barclays. Manav asks about the criticism of the price of FICO scores and if their approach has changed. Steve Weber responds that they believe the criticism will decrease over time and that the FICO scores are a small part of the credit evaluation process. Manav also asks about the software side and if they are experiencing any headwinds, but Steve says they have not seen any. The operator then concludes the Q&A session.

The speaker thanks the participants for taking part and instructs them to disconnect. They wish everyone a good day and say goodbye.

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