Fair Isaac Corporation

Greetings and welcome to the Fair Isaac Quarterly Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will 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 today, Wednesday, May 5, 2021. I would now like to turn the conference over to Steve Weber, Vice President, Investor Relations, and Treasurer. Please, go ahead.

Thank you. Good afternoon, 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, 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. These 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 a 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 SEC.gov. A replay of this webcast will be available through May 5th, 2022. 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. I'd like to start by saying that I hope you are all safe and healthy. And I want to thank our dedicated FICO employees who've done an exceptional job of meeting the challenges of the last year and never wavering in their commitment to FICO or their colleagues and our customers. We have a tremendous team, a great culture at FICO, and I'm really honored to report that FICO was ranked number one on Forbes annual list of America's best mid-sized employers. On the investor relations section of our website, we've posted some slides that offer financial highlights of our second quarter. Today, I'll talk about this quarter's results and how we do our business at the midpoint of our fiscal year. And I'll discuss how we continue to refine our strategy to optimize our scores assets and sharpen our focus on our world-class decision management platform. We reported revenues of 331 million, an increase of 8% over the same period last year. We delivered 69 million of GAAP net income and GAAP earnings of $2.33 per share up 18% and 20% respectively. On a non-GAAP basis, net income was $90 million, up 40%, and earnings per share of $3.06 was up 42% from last year. We continue to deliver very strong free cash flow growth as well. Second quarter free cash flow was a record $152 million, up 178% from last year. I'm pleased to report that we continue to execute well against our strategic initiatives throughout the company. As we've said for the last several quarters, we're continuing to migrate more of our business toward a subscription-based model, including SaaS software subscriptions and term license subscriptions for on-prem software. This strategic decision will provide a more representative view of the growth trajectory of our business, but it also gives us some difficult comparisons to last year when we had significant upfront license revenues. In our application segment, we delivered $130 million of revenue, down 8% from last year due to a 29% decline in upfront license revenues and a 21% decline in professional services revenues. In our decision management segment, we delivered 33 million of revenue up versus our Q1, but down 14% due to reduced upfront licenses and lower services revenue. Transactional revenues in DMS were up 34%. And as we continue to transition more of our software business to a recurring SAS model, We continue to have a lot of interest in this technology, and our pipeline contains more big deals as we continue to gain traction in this space. We remain committed to becoming the preeminent platform player in decisioning analytics, and we're focusing our resources to make that vision a reality. On the score side, the business continues to perform very well. Scores were up 31% in the quarter versus the prior year. On the B2B side, revenues were up 25%. There was continued strength in mortgage originations, which grew substantially year over year and also sequentially. We'll see more difficult comps in the back half of our year, as it's now been a year since the refi boom began. Auto-array generation volumes were fairly flat, but revenues were up versus the previous year. We're continuing to see positive signs in cards and other unsecured loan activity. Volumes were still down from last year, but were higher than Q1. The price increases we instituted are starting to have an impact, giving us revenue increases in pockets where volumes are weaker. On the consumer side, we continue to drive impressive growth. Our B2C revenues were up 47% versus the same quarter last year. The growth of MyFICO.com is particularly remarkable, up 82% this quarter versus last year. The continued strong demand is a testament to the quality of our offering and an understanding by consumers that FICO is the score that lenders use. Finally, as you know, today we announced the divestiture of our collections and recovery product line. Mike will provide some financial details in a few minutes, but I'd like to explain the strategic rationale behind this move. We're extremely focused on our strategic vision to enhance, expand, and distribute the FICO decision management platform. We believe we have an incredible opportunity to be a best-in-class leader in the next wave of business analytic technology. In order to fulfill our potential, we need to make choices to be able to allocate all the resources we can to the platform strategy. The FICO collections and recovery products help customers make important decisions throughout the life cycle of collections and recovery. These products deliver excellent functionality and serve an important customer need, but the complexity of the underlying architecture makes it impractical to migrate to our platform. Coupled with the need for high touch professional services engagements and customization, it doesn't fit within our strategic framework. So, as we did with our ESS divestiture, and as we did with our China joint venture, We've chosen to sharpen our focus and align our resources on our decision platform. I would like to thank the team that built and delivered an industry-leading set of products and solutions that have helped our clients enhance their collections and recovery efficiency, effectiveness, and compliance. I want to assure the collections and recovery customers that FICO and Jonas Software are committed to serving our clients without disruption during this transition period. We're confident that Jonas Software will continue to invest in these solutions and support our clients and colleagues with the same commitment and partnership they've come to expect. I'll have some final comments in a few minutes, but first I'll turn the call over to Mike for further financial details.