Fair Isaac Corporation

Greetings and welcome to the FICO quarterly earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session. If you have a question, please press the 1 followed by the 4 on your telephone. At any time during the presentation, at that time your line will be accessed from the conference to obtain information. If at any time during the conference you need to return an operator, please press star 0. As a reminder, this conference has been recorded Wednesday, July 29, 2020. And now I'd like to turn the conference over to Steve Weber. Please go ahead.

Thank you. Good afternoon, and thank you for joining FICO's third 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 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 involve many uncertainties, including the impact of COVID-19 on macroeconomic conditions and the company's business, operations, and personnel that could cause actual results to differ materially. Information concerning these uncertainties is contained in the company's filings with the SEC, in particular in the risk factors and forward-looking statements portions of such filings. Copies are available from the SEC, from the FICO 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 to the most comparable GAAP measure. The earnings release and the Regulation G schedule are available on the investor relations page of the company's website at FICO.com or on the SEC's website at SEC.gov. A replay of this webcast will be available through July 29th, 2021. And now I'll turn the call over to Will Lansing.

Thanks, Steve. And thank you everyone for joining us for our third quarter earnings call. I hope you and your families are healthy and staying safe as we go through this pandemic. We continue to work primarily from home. Most of our offices are remaining closed. I'm pleased to say that this model has worked very well for us. Our productivity metrics remain very strong. and we're able to innovate, meet development deadlines, serve our customers, and implement our solutions. We've posted some slides with our results on the investor relations section of our website. I'll be referencing some of those slides during our presentation today. I'll go over the results of our third fiscal quarter and discuss what we're seeing in the markets that we serve. I am pleased to report that we had another very strong quarter, which demonstrates the remarkable resiliency of our business. As shown on slide two, We reported revenues of $314 million, flat with the same period last year, which was our highest revenue quarter ever. We delivered $64 million of GAAP net income and GAAP earnings of $2.15 per share. We delivered $77 million of non-GAAP net income and non-GAAP EPS of $2.58. We also delivered $99 million of free cash flow in the quarter, the highest single quarter in company history. As you can see on slide three, we continue to have ample liquidity We actually reduced our total debt by about $20 million from the end of our second quarter. We generated $106 million in new bookings and have a very strong pipeline of deals as we move into the fourth quarter. Our software revenue was down 8% this quarter due to the difficult comparison to last year when we had large application renewal revenue. This quarter, the application segment was down 15%, primarily due to lower upfront license revenues. Decision management software was up 22% primarily due to increases in recurring transactional revenues. In the scores business, we had another record quarter despite the volatility in the credit markets. Total revenues were up 14% versus the prior year and totaled $132 million. B2C revenues were up 21% this quarter with strong growth in both myFICO and indirect partner channels. On the B2B side, revenues were up 12% over the same period as last year. This is especially encouraging as this is an area that can be highly volatile in uncertain economic times. We saw strength in the mortgage markets throughout the quarter with volumes up due to low interest rates. In auto, volumes were down significantly at the start of the quarter and improved over the balance of the quarter. For cards and other unsecured lending, marketing and origination volumes were down throughout the quarter as financial institutions slowed new card acquisition efforts. Obviously, there's still a great deal of volatility in these markets with record unemployment and furloughs. We also continue to innovate in scores. Last month, we introduced the FICO Resilience Index, an analytic tool that complements the FICO score and helps lenders, borrowers, and investors to identify the financial resiliency of consumers across FICO score bands to make more informed and precise decisions in assessing risk during rapidly changing economic cycles. In general, in a down economy, access to credit goes down as lenders try to mitigate the credit risk. The FICO Resilience Index can be helpful in navigating through changing economic cycles. The desired outcome is a system that is even more precise in assessing and pricing risk and less prone to broad credit restrictions and risk pricing, which can tighten the flow of credit during an economic downturn. As we navigate through the current economic climate, I'm extremely pleased with the performance of our business. Last quarter, we retracted our full year guidance due to widespread economic uncertainty. We now have additional data points, but markets have yet to stabilize. So while we won't give formal guidance, we are offering additional visibility into how various metrics are trending as we finish our fiscal year. If you look at slide four, an updated version of what we showed last quarter, you'll see how we performed in Q3 and where we stand year-to-date versus our original guidance. We're trending well in scores with both B2B and B2C ahead of our original guidance. On the software side, we're slightly behind in transactional and maintenance volumes, as reduced economic activity has slowed volumes. We also have risk in licensed sales and services revenue. Our fourth quarter tends to be the highest sales quarter for us, and we have a strong pipeline of deals. We see clients accelerating their digital transformation plans where we play a central role. But again, with the uncertain economic environment, it's difficult to commit to specific revenue numbers. On the expense side, we're spending well below what was embedded in our guidance. As a result, we will likely have some savings versus what we expected at the beginning of the year. While there are still many moving pieces, we now believe it's likely that we'll be able to hit our previously guided pre-tax income and net income numbers. In many ways, this is the most difficult health and economic environment we've ever faced. At the same time, we have a very resilient business model, and we're actively managing the business to work through the near-term difficulties with an eye toward our long-term strategy. I'll share some summary thoughts later, but now I'd like to turn the call over to Mike for further financial details.