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. Should you require operator assistance at any time, please press star 0. As a reminder, this call is being recorded today, Tuesday, August 3, 2021. 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 today's FICO 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 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 August 3, 2022. With that, I'll turn the call over to Will Lansing.

Thanks, Steve, and thank you, everyone, for joining us for our third quarter earnings call. Before I discuss our results, I'd like to thank our FICO colleagues for their dedication, adaptability, and innovation during this past year. As we begin to open our offices back up, we're moving to a hybrid system where more of our team is working from home. But we've proven in the past year that we can make the most of technology to collaborate and continue to serve our customers and optimize our business both remotely and in person. On the investor relations section of our website, we've posted some slides that offer financial highlights of our third quarter. In our third quarter, we delivered revenues of $338 million, an increase of 8% over the same period last year. As previously disclosed, we completed the divestiture of our debt collections and recovery products during the quarter. Adjusting for that, revenue grew about 9% year over year. We delivered $151 million of GAAP net income and GAAP earnings of $5.18 per share, including the gain on sale of the CNR products. On a non-GAAP basis, which excludes the sale, net income was $99 million, up 29%, and earnings per share of $3.38 was up 31% from last year. We continue to deliver very strong free cash flow growth as well. Free cash flow was $99 million in the quarter and $462 million for the last four quarters, and we're dedicated to using that cash flow to return value to our shareholders through our repurchase program. This is a very strong quarter for us, and we are well positioned for a strong finish to our fiscal year. As we continue our strategy of migrating our business model toward a subscription-based model, we see some disruption in our near-term numbers. We're not recognizing as much revenue up front and not selling and delivering as much lower-margin services revenue. But these efforts are positioning the company for long-term predictable and profitable growth. Beginning next quarter, we will be providing additional metrics that will give additional transparency to our business. Metrics like ARR will complement our revenue reporting. and provide a better indicator of our growth trajectory. We'll also be talking about the different delivery vehicles for our software, specifically whether the products are delivered on platform or off platform. The decision management platform is the linchpin to our software strategic vision, and bringing new customers onto that platform will enable us to scale the business and realize its full potential. As I've stated, we believe we can become the preeminent player in decisioning analytics. That is our singular goal in our software business. On the score side, we remain committed to innovation while maintaining the predictability that has always been the cornerstone of the FICO score, and I'm pleased to report that we continue to drive outstanding growth in our scores business. Scores posted another record quarter, up 31% versus the prior year. On the B2B side, revenues were up 23%. Mortgage originations, as predicted in the marketplace, appear to have peaked and were flat with last year's numbers. It is now a year since the refi boom began, and we expect those numbers to trend down as the market returns to more normal levels. Auto originations continue to be strong, with those revenues up more than 30% year over year. The most dramatic growth came from credit cards and other unsecured lending products. We had a record revenue quarter in card originations, with revenues up more than 50% from last year. We saw acceleration in card origination activity throughout the quarter and expect that activity to continue to be strong. Prescreen volumes were up more than 150% versus last year. This is typically a leading indicator for new card origination activity and shows the financial institutions have a strong appetite to market and originate new accounts in the unsecured markets. We believe banks are in a very strong financial position to pivot to other lending products as mortgage demand wanes, as expected by the industry. On the consumer side, we continue to drive impressive growth. Our B2C revenues were up 50% versus the same quarter last year. Ag growth at MyFICO.com, while still strong, is slowing, which we expected as the mortgage market cools off. Growth among our partners has picked up as Experian and others find new ways to serve an increasingly sophisticated consumer. Finally, this quarter we closed the divestiture of our collections and recovery product line. Mike will review the financial impacts and talk about how we are using the proceeds for share repurchases. As we said last quarter, the divestiture further focuses our resources on refining and distributing the best-in-class decisioning platform that we believe is an incredible opportunity for FICO. I'll have some final comments in a few minutes, but first I'll turn the call over to Mike for further financial details.