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 will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. Should you require operator assistance at any time, please press star zero. As a reminder, this conference is being recorded today, Wednesday, November 10th, 2021. I'd now like to turn the conference over to Steve Weber. Please go ahead. Thank you.

Good afternoon, everyone, 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 understanding of the run rate of our business. Certain statements made in this presentation may be characterized as forward-looking under the Private Security and 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 statement 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 November 10, 2022. 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. In the investor relations section of our website, we posted some slides that we'll be referencing during our presentation today. I'm pleased to report that our Q4 capped another terrific year, a year in which we posted record revenues, earnings, and cash flows. And we were able to do this despite headwinds in fiscal 21 due to a shift in the timing of revenue recognition for term license subscription sales and the sale of two product lines in our software business and the managed and deliberate decline in our software professional services revenues. Pages 2 and 3 show some financial highlights from our fourth quarter. We reported revenues of $335 million in Q4 and $1.32 billion of revenue for the fiscal year. We were able to grow our full year revenue despite these negative revenue factors. We delivered 86 million of gap net income in the quarter and gap earnings of $3 per share. For the full fiscal year, we delivered 392 million of gap net income and $13.40 of earnings per share, which includes the gain of 100 million on product line asset sales and business divestiture. On a non-gap basis, Q4 net income was 112 million, up 15%. And earnings per share of $3.92 was up 21% from the prior year quarter. Full year non-GAAP net income was $383 million, up 31% over last year. And non-GAAP EPS of $13.07 was up 34% over the previous year. We continue to deliver strong free cash flow growth as well. Q4 free cash flow was $90 million, bringing the fiscal year total to $416 million, up 21% from the previous year. In fiscal 2021, we continued our commitment to shareholder return, buying back $882 million of stock during the year. We increased our leverage by about $425 million compared to year-end fiscal 2020. but our adjusted leverage ratio remains a modest 2.07 times. We view FICO shares as the best use of our excess cash at this time and expect to continue to aggressively buy back shares in the coming year. We had another solid year and are making steady progress on our strategic initiatives. In our score segment, our diversification of verticals has enabled us to continue to drive growth even as various sectors slow down. Scores were up 10% in the quarter versus the prior year and up 24% for the full year, As you can see on page 7 of the presentation. On the B2B side, revenues were up 2% in the quarter versus the prior year, which had a one-time royalty true-up. Adjusting for that, revenues were up about 15% for the quarter and 21% for the full year. As expected, we saw a slowdown in mortgage originations volumes. Revenues were down about 18% year over year. Auto origination revenues were up 19%, and card and personal loan origination revenues were up 45%. We are seeing particular strength in the card and personal loan space from our customers, including FinTechs. The year-over-year pricing increases we implemented in fiscal 21 also had a positive impact on overall B2B revenues. Our B2C revenues were up 32% versus the prior year quarter and 42% for the full year compared to 2020. We saw strong growth through both our own MyFICO.com products as well as through our partner channels. In next year's guidance, which I'll discuss in greater detail later, we expect the scores business to grow about 6%. There's been no change in our strategy or approach to special pricing. Accordingly, special pricing increases consistent with the past several years are not included in this guidance. While we expect these price increases to have an impact consistent with those of the last several years, Because it's difficult to estimate the timing and the magnitude of the impact, we remain conservative in how we issue our guidance relative to such increases. Turning to our software business, as we have mentioned in recent quarters, we have been developing new financial metrics that provide more visibility into the recurring revenue generated by our subscription-based SaaS and on-prem software and the retention and growth of our existing software customers. Beginning this quarter, we are pleased to unveil our revised software reporting structure and these new metrics. Mike McLaughlin will go into much more detail in his remarks, but let me give you just a few highlights. First, we re-evaluated our operating segments to better align with how we assess performance and allocate resources. We merged our legacy applications and decision management software segments into a single software segment. We continue to report the score segment, which is unchanged from past reporting. We also changed the classification of revenue from transactional and maintenance, professional services, and license to on-premises and SaaS software, professional services, and scores to better align with our business strategy and peer reporting practices. You'll also find in our 10-K this year our first reporting of annual recurring revenue, or ARR, which provides visibility into the growth trajectory of our software business without the variability that comes with the upfront revenue recognition required by ASC 606 for on-prem subscription sales. We are also disclosing dollar-based net retention rate and annual contract value of software bookings. Another big change we'll be talking about is the split of our software revenue between our on-platform and off-platform products. We'll give those splits for revenue, for ARR, and for dollar-based net retention rates. We believe it's important to focus on the progress of our on-platform offerings, as it's the central strategy of our software business. As in prior years, we will continue to focus on investing in our software platform. In fiscal 21, we divested assets that could not be easily migrated to the platform and reallocated resources to accelerate platform development and our go-to-market efforts. By allocating the resources strategically and efficiently, we expect to spur growth and achieve scale while effectively managing our operating expenses. I'm happy with the progress we made in 2021, and I'm optimistic about what lies ahead in 2022 and beyond. We'll continue to allocate our resources to areas of the highest strategic importance, and we'll continue to focus on long-term shareholder value. I'll have some final comments in a moment, provide our fiscal 22 guidance then, but first let me just turn the call over to Mike for further financial details.