Fair Isaac Corporation

Greetings, and welcome to the Fair Isaac Corporation quarterly earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded. It's Tuesday, November 10, 2020. I would now like to turn the conference over to Steve Weber. Please go ahead.

Thank you, Eric. Good afternoon, and thank you for joining FICO's fourth 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 an 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 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 FCC.gov. A replay of this webcast will be available through November 10th, 2021. And with that, I'll turn the call over to Will Lansing. Thanks, Steve.

And thank you everyone for joining us for our fourth quarter earnings call. I hope you and your families are healthy and staying safe as we deal with the effects of the pandemic. At FICO, we continue to make the health and safety of our employees a priority and are primarily working from home with most of our offices remaining closed. I'd like to take this opportunity to thank our entire team for their perseverance and their adaptability and their commitment to our customers. On the investor relations section of our website, we posted some slides that I will reference during our presentation today. 2020 has been a remarkable year for all of us. At FICO, we've been focused on navigating an extremely volatile and unpredictable environment. I'm happy to report that our Q4 results again demonstrate not only the quality of our management team, but also the resilience of our business model. In our fourth quarter, we posted exceptional results that capped off a very successful fiscal year. We reported record revenues of $374 million, an increase of 23% over the same period last year. For the full fiscal year, we reported $1.29 billion of revenue, up 12% from fiscal 2019. We delivered $59 million of gap net income and gap earnings of $1.98 per share, even after taking a large charge in restructuring and impairment losses. On a non-GAAP basis, the $3.25 earning per share was up 62% from last year. And we're delivering strong free cash flow growth as well. Q4 free cash flow was $135 million, up 51% from last year. Total fiscal year 20 free cash flow was $343 million, up 45% from fiscal 19. We had another solid year throughout our business. In our application segment, we had a great quarter of 12% versus last year, in large part due to some Falcon license renewals. For the year, the segment was essentially flat, a good result considering we entered the year with difficult comps as a result of large license sales in fiscal 19. Applications bookings in the quarter were 117 million, up 42% over the same period last year, and 282 million for the full year, up 6% versus fiscal 19. In our decision management segment, we continue to prove that we're gaining traction with our new technology. We again delivered our largest DMS revenue quarter ever, up 36% from last year's fourth quarter. And the segment was up 22% for the full year versus fiscal 29. Our bookings were even more impressive. We signed 99 million in new DMS deals this quarter, up 62% from the same quarter last year. For the full year, we signed 199 million of new DMS deals, up 27% versus last year. Let me take a few moments to highlight the DMS success this quarter. First, we signed the biggest single platform and centralized decision solution in company history with a large Latin American bank. The bank is looking to implement 19 different instances on our platform to derive the decision to support use cases related to auto, credit line management for the different retail products, and collections and others on the corporate platform. We're signing more deals and bigger deals as we find operators eager to use our advanced analytic tools to automate their most difficult decisions. We continue to focus our strategy of investing for platform success. We've been making coordinated changes across the business to grow revenue from our on-platform solutions, favor software over services, optimize pricing, and manage operating expenses. In our fourth quarter, we made some changes, including reducing headcount and some of our facilities footprint. Those were announced in September when we disclosed the charge we would be taking. Subsequent to the end of our fiscal year, we also made the decision to exit our FICO cyber risk score business, which we sold to institutional shareholder services last month. You know, we don't make these decisions lightly. We're committed to becoming the preeminent platform player in decisioning analytics, and we need to be focused on that mission. That may mean exiting non-strategic products or not signing or renewing low margin project work. We are constantly looking at our business to identify areas for growth and improvement and implement actions to deliver our strategic initiatives. We'll continue to keep you updated on the progress we're making in our software business, and we'll be providing more information in the coming quarters to explain the transformation we're making there. In our scores business, we had another very successful year. Scores were up 32% in the quarter versus the prior year. and up 25% for the full year. On the B2B side, revenues were up 27% as we saw continued strong mortgage originations volumes. We saw small rebound in auto originations in the quarter, while cards and other personal loan volumes continued to be down. The quarter also included a one-time true-up of royalty revenues. For the full year, B2B revenues were up 26% compared to 2019. Our B2C revenues were up 45% versus the same quarter last year, and 23% for the full year compared to last year. We continue to see incredible growth at MyFICO.com, which was up 62% this quarter versus last year, and are also getting good growth through our partners. As we look to our fiscal 2021, we see customers looking to accelerate their digital transformation and looking to our technology to facilitate the process. But we're also faced with a number of uncertainties. Obviously, we're all still dealing with the ongoing pandemic, and all of the resulting health and economic impacts. We may see a new stimulus package from the federal government, but with the just completed election, it's difficult to predict any timing or impacts. It's also difficult to predict what we'll see in debt markets in the coming year. Obviously, the mortgage markets have been growing at phenomenal levels, but we can't predict when or to what degree those markets will cool off. In auto and personal loans, there's still a great deal of volatility, and we cannot confidently predict how the next 12 months will play out. As in past years, we've instituted some pricing increases in various areas within scores, but it's also difficult to determine their potential impact because of volume uncertainty. We're coming off a quarter with record revenues and record bookings. But again, with an ongoing pandemic, it's difficult to predict with certainty how quickly our solutions from the new sales will be implemented. In addition, our subscription-based go-to-market strategy will have an impact on the timing of revenue recognition in fiscal 21, causing less revenue to be claimed up front and more to be taken relatively, which Mike will describe in his remarks. We're proud of how our business performed in fiscal 20 and are excited as we embark on a new year. But we're also realistic in understanding that we are in unprecedented times with many uncertainties. Because of this, we remain committed to providing as much transparency as possible, but are not providing guidance for fiscal 21 at this time. I have some final comments in a few minutes, but first let me turn the call over to Mike for more financial details.