Fair Isaac Corporation

Good day and thank you for standing by. Welcome to FICO's third quarter 2025 Rendings Conference call. At this time, more participants on a listen-only mode. After this previous presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, David Singleton. Please go ahead.

Good afternoon and thank you for attending FICO's third quarter earnings call. I'm Dave Singleton, Vice President of Investor Relations and I'm joined today by our CEO, Will Lansing and our CFO, Steve Weber. 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 with the prior quarter to facilitate an understanding of the run rate of the business. Certain statements made in this presentation are forward-looking under the Private Securities Litigation Reform Act of 1995. Those statements involve many risks and uncertainties that could cause actual results to differ materially. Information concerning these risks and uncertainties is contained in the company's filings with the SEC, particularly in the risk factors and forward-looking statements portions of such filing. Topics 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 at the company's website, FICO.com or on the SEC's website, SEC.gov. A replay of this webcast will be available through July 30th, 2026. I will now turn the call over to our CEO, Will Lansing.

Thanks, Dave, and thank you everyone for joining us for our third quarter earnings call. In the Investor Relations section of our website, we've posted some financial highlights slides that we'll be referring to during this earnings announcement. We had another strong quarter and are increasing our fiscal year 25 guidance. As shown on page two of the third quarter financial highlights, we reported Q3 revenues of 536 million, up 20% over last year. We reported 182 million in GAAP net income in the quarter of 44% and GAAP earnings of $7.40 per share of 47% from the prior year. We reported 211 million in non-GAAP net income in the quarter of 35% and non-GAAP earnings of $8.57 per share of 37% from the prior year. As shown on page 10, we delivered record-breaking free cash flow of 276 million in our third quarter. We continue to return capital to our shareholders through buybacks by repurchasing 284,000 shares in Q3. We repurchased over half a billion dollars of shares this quarter, the largest single quarter buyback in FICO history. In our score segment, as shown on page six of the presentation, our third quarter revenues were 324 million, up 34% versus the prior year. While B2B scores was the key driver of growth, we also saw encouraging growth in B2C scores. FICO score 10T is the most predictive broad-based credit scoring model in the US industry today. Through our early adopter program, participating clients are already seeing measurable benefits. Even since the recent FHFA announcement, we signed our latest lender deal just last week, and we've now secured adoption from institutions representing over $313 billion in annualized mortgage originations, and approximately $1.52 trillion in eligible mortgage portfolios under servicing, all of which underscore the strong momentum and confidence in FICO score 10T. Lenders in the program have been able to validate the power of FICO score 10T in real-world mortgage underwriting, in loan production, in execution, and in servicing. This quarter, we announced the launch of FICO score 10BNPL and FICO score 10TBNPL. These are the first credit scores from a leading credit scoring provider to incorporate buy now, pay later data. These scores will provide lenders with greater visibility into consumers' repayment behavior, enabling a more comprehensive view of their credit readiness, which ultimately improves the lending experience, and will expand financial inclusion by helping more consumers to gain access to credit. These scores will initially each be offered side by side with existing versions of the FICO score at no additional fee from FICO. This approach allows lenders to evaluate the new BNPL enhanced credit scores while continuing to use FICO's industry-leading models that they use today, ensuring a seamless transition and added value. Lastly, our FICO score mortgage simulator penetration is gaining speed in the US industry. We now have multiple resellers and mortgage technology platform providers, hundreds of active lenders, and thousands of orders placed. In our software segment, we delivered $212 million in Q3 revenue, up 3% from the prior year. The revenue increase was driven mainly by growth in platform SaaS. We continue to drive growth in ARR and NRR through our land and expand strategy, with expand driven by increased customer usage. Pages seven and eight of our investor deck highlight the total ARR increase by 4%, with total NRR at 103%, both driven largely by the FICO platform. ACV bookings for the quarter were $26.7 million, compared to $27.5 million in the prior year. With the help of product innovations announced at FICO World, our pipeline is stronger today than this time last year. Before passing on to Steve, I'll highlight our strong innovation in the software business. The FICO platform revolutionizes how organizations make decisions and apply intelligence across their customer lifecycle. Innovation is at the core of our ability to power an intelligent enterprise. This quarter, we hosted FICO World, bringing together customers and partners from around the world. Participants collaborated on how FICO platform makes real-time decisions at scale and optimizes interactions with consumers. On main stage, we unveiled innovation, spotlighting advancements that will shape the future of decisioning and enterprise AI. We will bring next generation FICO platform, enterprise fraud solutions powered by FICO platform, and FICO marketplace to general availability in the second half of calendar 2025. These innovations will bring new use cases to the market. They will enable smarter, explainable outcomes, they'll improve performance, they'll improve the speed of deployment, and yield better customer ROI. On the AI frontier, we leveraged our AI principles, trustworthy, ethical, explainable, and responsible, and provided a sneak peek of the upcoming FICO Focus Foundation model, the FICO Focus Language Model, and FICO Focus Sequence Model, built for financial services, delivering greater accuracy, explainability, and control in high-stakes domains. This will be released for general availability this calendar year. Our industry analysts are delighted with our innovation. Forrester recently recognized FICO platform as the leader in AI decisioning platforms. This for the fourth time. AI decisioning platforms transform how organizations operationalize both human intelligence and AI at scale, enabling faster, more accurate decisions across complex business processes. AI decisioning is an important enabler for agentic AI, which is natively available in the next generation of FICO platform. Our partners continue to value our innovation. In the quarter, we signed a new strategic collaboration agreement with Amazon Web Services. Under the new agreement, FICO and AWS will amplify their work to bring more organizations worldwide the power of AI-driven automated decision workflows with FICO platform. In addition, FICO will broaden its participation in AWS partner programs to accelerate client adoption of FICO platform. Let me now pass it over to Steve to provide further financial details. Thanks, Will, and good afternoon, everyone. As Will mentioned, we had another good quarter with total revenue of $536 million, an increase of 20% over the prior year. Score segment revenues for the quarter were $324 million, up 34% from the prior year. B2B revenues were up 42%, primarily due to higher unit prices, an increase in volume of mortgage originations, and a multi-year US license renewal on our insurance score product. Our B2C revenues were up 6% versus the prior year, primarily due to increased revenue from our indirect channel partners. Third quarter mortgage originations revenues were up 53% versus the prior year. Mortgage origination revenue accounted for 53% of B2B revenue and 44% of total score of revenue. Auto originations revenues were up 23%, while credit card personal loan and other originations revenues were up 3% versus the prior year. Software segment revenues for the quarter were $212 million, up 3% from the prior year. On premises and fast revenue grew 2% year over year, while professional services grew 7%. This quarter, 87% of total company revenues derived from our Americas region, which is a combination of our North America and Latin American regions. Our EMEA region generated 8% of revenues, and the Asia Pacific region delivered 5%. The updated guidance we're releasing today assumes fourth quarter revenues of $505 million. This is down sequentially due to lower point in time revenues, including insurance scores licenses and software licenses. We also expect scores originations volumes to be slightly lower due to seasonality, as well as the sequential decline in PS revenues. Our total software ARR was $739 million, a 4% increase over the prior year. Platform ARR was $254 million, representing 34% of our total Q325 ARR, up from 30% of total Q324 ARR. Platform ARR grew 18% versus the prior year, while non-platform declined 2% to $485 million this quarter. Our CCS business, which spans both platform and non-platform, saw a slight uptick sequentially, but overall, headwinds we highlighted last quarter continue to be present, putting pressure on -over-year ARR growth. Our platform land and expand strategy continues to be successful. Our dollar-based net retention rate in the quarter was 103%. Platform NRR was 115%, while our non-platform NRR was 97%. Platform NRR was driven by a combination of new use cases and increased usage of existing use cases. Our software ACV bookings for the quarter were $26.7 million, compared to $27.5 million in the prior year. Turning now to expenses for the quarter, shown on page five of the financial highlight presentation, our total operating expenses were $274 million this quarter versus $253 million in the prior quarter, an increase of 8%. Quarterly expense growth was driven primarily by our FICO World event. Two other expense drivers were incremental headcount, as well as the marking to market of our supplemental retirement and savings plan, which is offset in other income and expense, and thus has no net impact to our net income. In our fourth quarter, we expect increased interest expense. We also expect to have increased marketing expenses, as well as some one-time items that could exceed $10 million. These expenses are all embedded in our updated guidance. Our non-GAAP operating margin, as shown in our Reg G schedule, was 57% for the quarter, compared with 52% in the same quarter last year. This means we were able to deliver non-GAAP margin expansion of 470 basis points year over year. Gap net income this quarter was $182 million, up 44% from the prior year's quarter. Our non-GAAP net income was $211 million for the quarter, up 35% from the prior year's quarter. Gap earnings per share this quarter were $7.40, up 47% from the prior year. Our non-GAAP earnings per share were $8.57, up 37% from the prior year. The effective tax rate for the quarter was 23.3%. The operating tax rate was 24.6%. We expect our full year net effective tax rate to be around 20%, and our recurring tax rate to be around 25%. This quarter, we delivered very strong free cash flow of $276 million, a 34% increase from the prior year. Over the last four quarters, we've delivered $748 million of free cash flow, which represents an increase of 36% over the trailing 12-month period ending June 3rd, 2024. At the end of the quarter, we have $240 million in cash and marketable investments. In May, we issued an AK detailing our debt refinancing. Our total debt at quarter end was $2.78 billion, with a weighted average interest rate of 5.25%. As of June 30th, 2025, all our debt was held in senior notes with no term loans and no balance on our evolving line of credit. So at that time, 100% of our total debt was fixed rate. Turning to return of capital, we bought back 284,000 shares in the third quarter and an average price of $1,802 per share. And we continue to view Chevy purchases as an attractive use of cash. With that, I'll turn it back to Will for his closing comments. Thank you, Steve. Elevated interest rates and ongoing affordability challenges continue to weigh in the mortgage market, keeping loan originations below historical norms. While the macro environment remains fluid, our strategy, our innovation, our execution remain disciplined and consistent. I'm pleased to report that today we're raising our full year guidance as we enter the fourth quarter of our fiscal year. Revenue guidance will remain at 1.98 billion. Gap net income guidance is 630 million, with gap earnings per share of $25.60. Non-gap net income guidance is $718 million, with non-gap earnings per share of $29.15. Before we take questions, I'd like to discuss the interim FHFA decision and how we are engaging with the industry. First, I'd like to emphasize that the FICO score is the industry standard measure of consumer credit risk in the US. The FICO score is the backbone of safety and soundness in the mortgage industry. Over the last 30 years, the FICO score has fundamentally transformed the mortgage industry, enhancing stability and liquidity in secondary markets, standardizing credit evaluation for investors, expanding fair and objective access to credit, and empowering cost-effective and sustainable homeownership for Americans. FICO scores are used across the US and internationally for more than just mortgages. In the US, 99% of all FICO scores are freely chosen by market participants outside the mortgage market. In the non-conforming mortgage market, FICO is also widely used. Classic FICO was specified over 20 years ago for use by the GSEs while they were publicly traded companies and before the FHFA even existed. As the mortgage industry standard, thousands of industry participants use models incorporating classic FICO. FICO scores are critically relied on throughout the mortgage credit ecosystem in mortgage insurance, in underwriting, in pricing models, in investor credit risk and prepayment models, in models used by the GSEs, in those used by mortgage insurers, by investors, and prudential regulators for capital requirements, and by credit rating agencies for mortgage-backed securities ratings. Therefore, classic FICO is critical to driving investor pricing of mortgage-backed securities and ultimately the costs consumers pay. Our innovations are best in class, including our latest innovation, FICO 10T, FICO 10T BNPL, and the FICO Score Mortgage Simulator. As you all know, FICO 10T was approved by the FHFA and remains the most predictive general purpose credit scoring model in the US. While previous FICO score versions included rental, telco, and utility data, FICO 10T also now includes trended data. During the process required by the Credit Score Competition Act, the GSEs originally concluded, based on predictiveness and accuracy, that FICO 10T significantly outperforms the Tantid Score 4.0. We join a longstanding industry demand that FHFA released that analysis and the recommendation of each of the GSEs publicly as part of this process in the spirit of transparency and responsible policymaking. We recently posted a white paper that reached the same conclusion, which can be found on our website. As for lender choice, the FHFA has long rejected the practice because it undermines the safety and soundness of the enterprises and their counterparties, damaging liquidity in the $12 trillion mortgage industry. Lender choice encourages mortgage participants to shop for the most lax score, which drives unavoidable gaming and adverse selection for all risk holders. It creates a race to the bottom by incentivizing score providers to weaken their credit decision criteria to score more consumers and one more business with their score, which will lead to increased costs for consumers. Lender choice will result in higher capital requirements from regulators that the holders of mortgage risk will have to bear, and American taxpayers will bear significant additional risk. Any initiative to promote competition and ultimately lower costs should include the best score, which is FICO Score 10T. FICO Score 10T's superior predictiveness will drive significant loss avoidance savings for market participants and billions of dollars of savings for consumers. Lastly, so long as there are tri-merge mandate coupled with the credit bureau's common ownership of Vanish score, lender choice will harm competition rather than foster it, because it further entrenches the credit bureau's market power. In speaking to numerous market participants since the FHFA announcement, it's clear there are many significant outstanding questions by the industry. FICO will continue to remain engaged with market participants, the GSEs, the FHA, FA, and other stakeholders. With that, let me turn this call back to Dave, and we'll open up the Q&A session.