Fair Isaac Corporation

Greetings and welcome to the FICO quarterly earnings call. I'd now like to turn the call over to Steve Weber. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining FICO's second quarter earnings call. I'm Steve Weber, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing, and our CFO, Mike McLaughlin. Today, we issued a press release that describes financial results compared to the prior year. On this call, management will also discuss results in comparison to the prior quarter and in order to facilitate understanding of the run rate of our business. Certain statements made in this presentation may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. Those statements may involve many uncertainties that could cause actual results to differ materially. Information concerning these uncertainties is contained in the company's filings with the SEC, in particular, the risk factors and forward-looking statements portions of such filings. Copies are available from the SEC, from the FICA website, or from our investor relations team. This call will also include statements regarding certain non-GAAP financial measures. Please refer to the company's earnings release and Regulation G schedule issued today for reconciliation of each of these non-GAAP financial measures compared to the most comparable GAAP measure. The earnings release and Regulation G schedule are available on the investor relations page of the company's website at FICA.com or on the SEC's website at sec.gov. A replay of this webcast will be available through April 29, 2021. And now I'll turn the call over to Will Lansing.

Thanks, Steve, and thank you, everyone, for joining us for our second quarter earnings call. First, I hope you and your families are healthy and staying safe as we go through this pandemic. As we all know, these are unprecedented times. No one can predict with any certainty the scale or length of disruption from COVID-19 or how severe the economic and health impacts will be. The many unknowns include the scope and effect of further public health responses, as well as governmental, regulatory, fiscal, and monetary policies. As we usually do, we've posted some slides of our results on the investor relations section of our website. I'll be referencing a few of those today during our presentation. Today, I'll go over the results for our second fiscal quarter and first half of the year. Then I'll talk about how we're viewing our business in light of the current situation. and how we plan to execute on a plan to remain strong while preparing for the opportunities when this crisis ends. As we show on slide two, we've been successful in moving to a work-from-home structure and have not skipped a beat in how we serve the needs of our customers. In fact, nearly all of our 4,000-person global workforce are currently working from home. We responded early, closing our China offices in February, and we followed the lead of local, state, and national authorities in 43 offices in 32 different countries. I'd like to take this opportunity to thank all of our employees who've responded to the quickly unfolding circumstances and have allowed us to adjust to ensure that key internal and client project deliverables remain on track. We were well prepared to move to this model. Over the last year, we've increased our usage of video-based communication. Before the pandemic, it was a valuable tool to drive collaboration and reduce travel. It's now a critical business practice. Our technology team had already built a robust VPN infrastructure that permits remote access to secured networks and servers. That infrastructure and our cloud-based solutions and support has meant that we are able to serve our customers without any significant loss of productivity. And, as always, our cybersecurity team has been focused on protecting customers, environments, and sensitive data. It hasn't been easy. There are uncertain, stressful times for everyone. But I'm proud of the business continuity efforts we've undertaken to prepare for potential issues, whatever they may be, and how those efforts have paid extraordinary dividends as we are able to adapt to the challenges we face. Finally, we've established an internal coronavirus response team. These are all examples of a resilient culture of dedicated professionals who are stepping up to the daily challenges we face. So I'm pleased to report that we had a very strong second fiscal quarter. We reported revenues of $308 million, an increase of 11% over the same period last year. We delivered $58 million of GAAP net income and GAAP earnings of $1.94 per share. We delivered $64 million of non-GAAP net income and non-GAAP EPS of $2.14. This fact that we began to experience COVID-related, in spite of the fact that we've begun to experience the COVID-related disruption in late March, We were able to generate $84 million in new bookings, which is impressive considering that most of our deals are closed at the end of the quarter, right when businesses were closing and everyone was transitioning to work from home. We continue to have a strong pipeline and believe many of our solutions are exactly what our customers are looking for as they focus on risk management. Our software revenue was up a modest 3% this quarter. Applications were down 1% as we had fewer upfront license sales and less services revenue than last year. Decision management software was up 20% with increases in both license sales and transactional revenue from deals we've signed in previous quarters. In the scores business, we had another great quarter due to special pricing that began to take effect. Total revenues were up 24% versus the prior year and totaled $129 million. On the B2B side, revenues were up 27% over the same period as last year. B2C revenues were up 15% this quarter. Scores, particularly B2B, is also an area of risk during volatile economic times, as some of those revenues are tied to things like originations of new loans. The strength of our business and our conservative financial practices have allowed us to build a healthy balance sheet. As you can see on slide four, we have ample liquidity and borrowing capacity. But as we look ahead, it's impossible to fully understand what the possible impacts to our markets will be and to predict when the economy will improve. Because of these uncertainties, we are retracting our full-year guidance. I'd like to direct you to slide five to remind everyone what our original guidance was, where we stand now halfway through the year, and what we would need to do in the back half to achieve those original numbers. In the spirit of transparency, this slide provides more details of our guidance than what we've previously disclosed, including more granularity around revenues. The red highlights areas of potential higher risk in the coming months. With B2B scores, as I said, it's difficult for us to accurately forecast what will happen with volumes in the near term. Because the scores are sold through bureaus that report certain arrears, we don't have visibility to real-time data. In times of disruption, this is especially difficult until we can begin to see the trends in the data. We anecdotally know that mortgage volumes have been strong and auto has been weak, but it's difficult to quantify what's happening today, let alone the next several months. On the software side, we have a great deal of visibility into our transactional and maintenance revenue streams. and believe those revenues to be very resilient. It's more difficult to estimate how many deals we'll be able to close and what potential impacts that would have on license and service revenue. We know that we have a strong pipeline of deals and fully expect to close many of them, but there's clearly more uncertainty than there was a few months ago. We also believe that we'll spend less than originally planned. We will likely see savings in some revenue-based expenses and we'll spend less on travel and marketing and other discretionary areas. We are scrutinizing our expenses more than ever, and we're committed to being as efficient as possible. In short, we don't know the severity or duration of disruptions in credit markets or technology purchases. Declines in scores volume will have a negative impact on our revenues, despite the special pricing that we start to see this quarter. But it's difficult to know, for instance, if declines in auto sales now create a backlog of buyers in the fall or if it is part of a longer downturn. And while sales cycles for our solutions will likely be longer, we don't yet know how much is due to customers reassessing purchases versus the logistical challenges of remote selling. That said, we remain confident in our business model. We've had a great start to the year. We have a large amount of recurring revenue. While we expect our software revenues in the second half of the year to be lower than our guidance due to C-19, we also expect expenses to decline due primarily to reduced sales, marketing expense, and employee travel. These expense reductions will mitigate the impact on our bottom line. And we expect to have other operating expense savings due to general disruption. So even though top-line volatility is difficult to predict, we could still meet our original bottom-line guidance if the number of factors play out. These are exceptionally volatile times, but we remain optimistic and are actively managing the business to bridge the short-term difficulties while building long-term value. I'll share some summary thoughts later, but now I'd like to turn the call over to Mike for further financial details.