FICO(FICO) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Full year non-GAAP net income was $500 million, up 10% YoY, with non-GAAP earnings per share of$ 19.71, up 14% YoY [5] - Q4 free cash flow reached a record $163 million, with full-year free cash flow of$ 465 million [5] - Q4 revenue was $390 million, up 12% YoY, while full-year revenue was$ 1.514 billion, up 10% YoY [9][13] - GAAP net income for Q4 was $101 million, up 12% YoY, and full-year GAAP net income was$ 429 million, up 15% YoY [13][35] - Non-GAAP operating margin was 51% for both Q4 and the full year, with a 300 basis points expansion for the fiscal year [34] Business Line Data and Key Metrics - Scores segment Q4 revenue was $196 million, up 12% YoY, with full-year revenue of$ 774 million, up 10% YoY [87][88] - Software segment Q4 revenue was $194 million, up 11% YoY, with full-year revenue of$ 740 million, up 10% YoY [15][29] - B2B revenues in Q4 were up 21% YoY, driven by mortgage originations, while B2C revenues were down 6% YoY [87][88] - Total software ARR grew 22% YoY to $669 million, with platform ARR growing 53% and non-platform ARR growing 14% [95] Market Data and Key Metrics - Americas region contributed 85% of total revenues, EMEA 9%, and Asia Pacific 6% [30] - Mortgage origination revenues in Q4 were up 147% YoY, accounting for 24% of scores revenues and 12% of total company revenues [14] - Auto origination revenues were up 2% YoY, while credit card and personal loan origination revenues were down 2% YoY [14] Company Strategy and Industry Competition - FICO Score 10 T is gaining traction, with Movement Mortgage adopting it for nonconforming loans, enhancing risk evaluation and cash flow projection [6][27] - The company continues to invest in its FICO Platform, with strong demand and recognition as a leader in AI decisioning platforms [28] - The land-and-expand strategy is driving growth in ARR and NRR, with platform NRR at 145% and non-platform NRR at 111% [7][31] Management Commentary on Operating Environment and Future Outlook - Management expects double-digit growth in both revenue and earnings for fiscal 2024, with revenue guidance of$ 1.675 billion, up 11% YoY [41] - The company plans to invest in cybersecurity and accelerate the development and distribution of the FICO Platform [89] - Pricing initiatives in fiscal 2024 are expected to have an additional impact beyond guided numbers, though timing and magnitude remain uncertain [40] Other Important Information - The company repurchased 615,000 shares in fiscal 2023 at an average price of $659 per share, totaling$ 406 million [5][37] - Total debt at quarter-end was $1.86 billion, with a weighted average interest rate of 5.1%, and 70% of the debt is fixed rate [36] - The effective tax rate for fiscal 2023 was 22%, with expectations for fiscal 2024 to remain around 22% [96] Q&A Session Summary Question: 2024 Revenue and EPS Guidance - Management expects lower origination volumes in 2024 compared to 2023, with flat volumes from current levels [21] - Pricing initiatives, including incremental pricing on mortgages, are expected to contribute to growth [20] Question: Expense Growth in 2024 - Expense growth is expected to be moderate, with investments in software, platform development, and cybersecurity [45] Question: Mortgage Pricing Tiers - Management did not provide specific details on mortgage pricing tiers but confirmed that pricing increases are fair and appropriate for the market [100] Question: Software ARR Growth - Software ARR growth accelerated to 22% in Q4, driven by enterprise platform customers and increased usage [64] Question: Sales Cycle Shortening - The sales cycle has shortened significantly, from over a year to two-thirds of that, due to increased demand and operational efficiency [51][68] Question: Software Expense Increase - Q4 software expenses were slightly higher due to one-time incentives and investments, but the run rate is not expected to increase significantly [69] Question: Pricing Assumptions in Guidance - Guidance includes CPI-like pricing increases but excludes specialty pricing due to uncertainty in timing and magnitude [70] Question: Leadership Changes in Software Business - Stephanie Covert, who led the software business, has departed, and CEO Will Lansing will temporarily oversee the division [97][81] Question: Software Growth Components - Software growth is driven by strong demand, a robust pipeline, and increased customer usage, with platform growth expected to continue [58] Question: Debt Management - The company plans to maintain its current debt levels, with flexibility to reduce floating rate debt balances using free cash flow [60]