Fair Isaac Corporation (FICO) 2024 Q3 Earnings Call Summary

Optimistic Highlights

• Strong Quarterly Results: FICO reported Q3 revenues of $448 million, up 12% over the last year, with GAAP net income of $126 million.
• Record Free Cash Flow: Delivered record free cash flow of $206 million in Q3 and $551 million over the last four quarters.
• Scores Segment Growth: Scores segment revenues were $241 million, up 20% versus the prior year, with mortgage originations revenues up 80%.
• Software Segment Performance: Software segment delivered $206 million in Q3 revenue, up 5% from last year, driven by growth in SaaS software.
• Increased Full Year Guidance: Raised full year revenue guidance to $1.70 billion, with GAAP net income expected to be $500 million.

Pessimistic Highlights

• GAAP Net Income and Earnings Decline: GAAP net income in the quarter was down 2% and GAAP earnings per share down 1% from the prior year.
• B2C Revenues Down: In the Scores segment, B2C current quarter revenues were down 2% versus the prior year.
• Auto and Personal Loan Originations Down: Auto originations revenues were down 3%, while credit card, personal loan, and other originations revenues were down 7% versus the prior year.

Company Outlook

• Positive Outlook with Increased Guidance: FICO is optimistic about its strategy execution and customer product adoption, leading to an increase in full-year guidance.
• Continued Growth in Software and Scores: Expectations of continued strong growth in ARR and NRR through the land and expand strategy, especially for the FICO platform.

Q & A Highlights

• Q: Can you comment on the selling environment and any updates on the platform? (Faiza Alwy, Deutsche Bank)

  A: The selling environment has not changed much over the last year. FICO World has been a significant pipeline generating event, leading to a very healthy pipeline. The focus is on making FICO software a strategic move for customers. (Will Lansing)

• Q: How should we think about the guidance implying revenues down quarter-over-quarter? (Surinder Thind, Jefferies)

  A: The guidance is conservative, with the fourth quarter typically being lighter seasonally for mortgage volumes. (Steve Weber)

• Q: Can you discuss trends in auto origination and software platform ARR growth sustainability? (Scott Wurtzel, Wolfe Research)

  A: Auto origination volumes were relatively flat with a mix shift to lower-priced peers. The 30% growth rate in platform ARR is seen as sustainable. (Will Lansing, Steve Weber)

• Q: How should we think about software implementation cycles and the impact of potential rate cuts? (Kyle Peterson, Needham)

  A: Implementation cycles are long, with revenue flow-through expected in the subsequent year. Rate cuts are anticipated to increase volumes. (Will Lansing)

• Q: Can you discuss geographic trends within software and the approach to pricing? (George Tong, Goldman Sachs; Simon Clinch, Redburn Atlantic)

  A: No significant changes regionally, with strength across all regions. The pricing strategy focuses on making software accessible and encouraging adoption. (Will Lansing, Steve Weber)

• Q: How do public criticisms around the price of your scores affect your approach? (Manav Patnaik, Barclays)

  A: The approach remains focused on closing the gap over time, emphasizing the small cost of FICO scores in the overall process. (Steve Weber)