FAIR ISAAC CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Fourth quarter revenues were $454 million, up 16% over last year. Full fiscal year revenue was $1.718 billion, up 13% versus the prior year. GAAP net income in the quarter was $136 million, up 34%, and GAAP earnings per share were $5.44, up 36% from the prior year. Non-GAAP net income in the quarter was $163 million, up 29%, and non-GAAP earnings per share were $6.54, up 30% from the prior year. Free cash flow was $219 million in the fourth quarter and $607 million over the last four quarters, an increase of 31% year-over-year.
• Product Innovation: Announced the upcoming launch of FICO Score mortgage simulator, continued investment in the FICO Platform, and held FICO World event where APIs and FICO Marketplace were previewed. Also, introduced new FICO Platform capabilities and continued initiatives in financial literacy like the Field of Financial Empowerment summer tour.
• Market Position: Recognized as an industry leader by analysts such as IDC, Forrester, etc. Strong customer adoption of FICO Score 10 T for non-GSE mortgages, with clients having over $244 billion in annualized mortgage originations and about $1.33 trillion in eligible mortgage portfolio servicing signed up for FICO Score 10 T.

Segment Performance

• Scores Segment: Fourth quarter revenues were $249 million, up 27% versus the prior year. For the full year, revenues were $920 million, up 19% versus last year. B2B revenues in the Scores segment were up 38% versus the prior year and up 27% for the full year, primarily driven by mortgage originations. B2C revenues were down 1% versus the prior year and down 2% for the full fiscal year, driven by decreased sales on the myfico.com website. Fourth quarter mortgage originations revenues were up 95% versus the prior year, accounting for 47% of B2B revenue and 37% of total Scores revenue.
• Software Segment: Fourth quarter revenues were $205 million, up 5% from last year, driven mainly by growth in SaaS software, partially offset by a decline in professional services. For the full fiscal year, revenues were $798 million, up 8% from last year. Total software ARR was $721 million, an 8% increase over the prior year. Platform ARR was $227 million, representing 31% of total Q4 '24 ARR, up from 26% of total Q4 '23 ARR. Platform ARR grew 31% versus the prior year, while non-platform was flat. Dollar-based net retention rate in the quarter was 106%, with platform NRR at 123% and non-platform at 99%.

Guidance

• Fiscal '25 guidance: Expect double-digit growth in revenue and earnings. Guiding revenues of about $1.98 billion (15% year-over-year increase), GAAP net income of about $624 million (22% increase), GAAP EPS of about $25.05 (23% increase), non-GAAP net income of approximately $712 million (20% increase), and non-GAAP EPS of approximately $28.58 (20% increase). The guidance assumes lower year-over-year expense growth than in the prior year, with focus on efficiencies and prioritizing resources to strategic initiatives.

Risks

• Macroeconomic uncertainty affecting mortgage volumes and related revenue streams.
• Uncertainty around FHFA proposals and potential delays or changes under new administrations, which could impact the rollout of FICO Score 10 T for conforming mortgages sold in GSEs.
• Risks associated with forward-looking statements under the Private Securities Litigation Reform Act of 1995, where actual results could differ materially from projected outcomes.

Question and Answer

Q: Manav Patnaik asks about room for closing the gap on mortgage score pricing.

A: Will Lansing says there's still opportunity as FICO Score delivers tremendous value.

Q: Surinder Thind asks about partnerships and industry solutions.

A: Will Lansing talks about partnerships with TCS and iSON Xperiences, developing solutions in verticals using FICO's IP.

Q: George Tong asks about prices for non-mortgage scores and impact of Trump presidency.

A: Will Lansing mentions reviewing non-mortgage scores annually and that FICO works with both administrations and expects to continue operating as a cornerstone of the credit lending market.

Q: Faiza Alwy asks about macro uncertainty and potential revenue opportunity from secondary market.

A: Will Lansing says they incorporate conservatism in guidance and are cautious about changing pricing to avoid rattling markets.

Q: Owen Lau asks about platform adoption and budget pressures.

A: Will Lansing states platform is a strategic investment with less budget pressure impact due to its cost-effectiveness and unique functionality.

Q: Kyle Peterson asks about onetime revenue in Scores and phasing of mortgage score price rollout.

A: Steve Weber mentions there was some onetime revenue in Q4 and pricing is feathered in with lag due to varying contract lapses.

Q: Jason Haas asks about competitive dynamics in auto and card and capital allocation.

A: Will Lansing says little competitive change in auto and card, and capital allocation focuses on share buybacks as a value use of cash.

Q: Simon Clinch asks about FHFA proposal and software distribution.

A: Will Lansing says FHFA proposal implementation is uncertain, and software distribution expands via partners and open APIs.

Q: Scott Wurtzel asks about ACV bookings trends and expense growth in fiscal '25.

A: Steve Weber mentions possible pull forward of bookings and expense growth in '25 is lower than prior year with margin expansion potential.

Q: Andrew Stein asks about volume trends in scores and FHFA proposal.

A: Steve Weber refers to NBA data for mortgage volume trends and says FHFA proposal implementation is uncertain with potential delays.

Q: Kevin McVeigh asks about 2025 pricing phasing and factors in guidance.

A: Will Lansing explains pricing goes into effect Jan 1 but fiscal runs from Oct 1 to Sep 30, and multiyear deals affect pricing phasing.