FICO(FICO) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q3 revenues of $536 million, up 20% year-over-year [5] - GAAP net income for the quarter was $182 million, an increase of 44%, with GAAP earnings of $7.4 per share, up 47% from the prior year [6][23] - Non-GAAP net income was $211 million, up 35%, with non-GAAP earnings of $8.57 per share, up 37% from the prior year [6][23] - Free cash flow reached a record $276 million, a 34% increase from the prior year [24] Business Line Data and Key Metrics Changes - In the Scores segment, revenues were $324 million, up 34% year-over-year, driven by B2B scores growth [6][17] - B2B revenues increased by 42%, primarily due to higher unit prices and increased mortgage originations [17] - B2C revenues grew by 6%, mainly from indirect channel partners [18] - Software segment revenues were $212 million, up 3% from the prior year, with growth driven by platform SaaS [11][19] Market Data and Key Metrics Changes - The Americas region accounted for 87% of total company revenues, while EMEA generated 8% and Asia Pacific delivered 5% [19] - Mortgage origination revenues were up 53% year-over-year, accounting for 53% of B2B revenue and 44% of total scores revenue [18] - Auto originations revenues increased by 23%, while credit card and personal loan revenues were up 3% [18] Company Strategy and Development Direction - The company is increasing its fiscal year 2025 guidance, reflecting strong performance and confidence in its business model [5][28] - Innovations such as FICO Score 10T and FICO Score 10BNPL are aimed at enhancing credit visibility and expanding financial inclusion [8][9] - The company continues to focus on a land and expand strategy in its software segment, with a strong emphasis on customer usage growth [11][21] Management's Comments on Operating Environment and Future Outlook - Management noted that elevated interest rates and affordability challenges are impacting the mortgage market, keeping loan originations below historical norms [27] - The company remains committed to innovation and disciplined execution despite a fluid macro environment [28] - Management expressed confidence in the adoption of FICO Score 10T, highlighting its predictive capabilities and industry standard status [31][32] Other Important Information - The company repurchased 284,000 shares in Q3, marking the largest single quarter buyback in its history [6][26] - Total debt at quarter end was $2.78 billion, with a weighted average interest rate of 5.25% [25] Q&A Session Summary Question: Adoption of FICO Score 10T and customer pipeline - Management indicated a strong pipeline for FICO Score 10T, with customers currently testing and using it, requiring modest retooling [39] Question: Impact of FHFA announcement on lenders moving to VantageScore - Management stated they are not aware of any lenders moving to VantageScore since the announcement, citing significant challenges in transitioning [44] Question: Pricing strategy for mortgage scores - Management noted that no decisions have been made regarding pricing changes, emphasizing a careful approach to closing the value gap [46] Question: Engagement with regulators - Management confirmed ongoing communication with FHFA and GSEs, emphasizing the importance of safety and soundness in the mortgage market [51] Question: Opportunities for FICO scores in new markets - Management highlighted the potential for expanding FICO scores into the securitization market, providing real-time score updates [81] Question: Capital allocation and buyback strategy - Management expressed a commitment to maintaining an optimal capital structure, indicating a willingness to continue share buybacks at an accelerated pace [90][92]