Yahoo Finance Fair Isaac Corporation (NYSE:FICO) Q2 2024 Earnings Call Transcript
Fair Isaac Corporation (NYSE:FICO) Q2 2024 Earnings Call Transcript April 25, 2024
Fair Isaac Corporation beats earnings expectations. Reported EPS is $6.14, expectations were $5.81. FICO isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Fair Isaac Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Singleton. Please go ahead.
Dave Singleton: Good afternoon and thank you for attending FICO's second-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 portion 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. And a replay of this webcast will be available through April 25, 2025. I will now turn the call over to our CEO, Will Lansing.
Will Lansing: Thanks, Dave, and thanks, everyone, for joining us for our second-quarter earnings call. In the Investor Relations section of our website, we posted some financial highlights slides that we'll be referencing during our presentation today. Today, I'll talk about this quarter's results and our increased guidance for the full fiscal year. We again delivered strong results, demonstrating the resiliency of our business with solid growth, both in scores and in software. As shown on page 2 of the second-quarter financial highlights, we reported Q2 revenues of $434 million, up 14% over the last year. We delivered $130 million of GAAP net income in the quarter, up 28%. We delivered GAAP earnings of $5.16 per share, up 29% from the prior year.
On a non-GAAP basis, Q2 net income was $154 million with earnings of $6.14 per share, up 27% and 29%, respectively. We delivered free cash flow of $62 million in our second quarter and $182 million in the first half of fiscal '24. We continue to return capital to our shareholders through buybacks. In Q2, we repurchased 144,000 shares at an average price of $1,246 per share. We have $367 million remaining on our Board repurchase authorization. Now in our Score segment, on page 6 of the presentation, our second-quarter revenues were $237 million, up 19% versus the prior year. In B2B, the current quarter revenues were up 28% versus the prior year. On the B2C side, the current quarter revenues were down 4% versus the prior year. Second-quarter mortgage originations revenues were up 85% versus the prior year.
Mortgage origination revenue accounted for 46% of B2B revenue and 36% of total scores revenue. Auto originations revenues were down 1%, while credit card, personal loan and other originations revenues were down 9% versus the prior year. We continue to drive strong adoption for FICO Score 10T for non-conforming mortgages. Since 2023, clients with over $100 billion in annualized mortgage originations and about $300 million -- billion in eligible mortgage portfolio servicing have signed up with a FICO Score 10T. FICO 10T for conforming mortgages will be rolled out based on the timeline of the FHFA. In our software business, we delivered $197 million in Q2 revenue, up 8% from last year, driven by growth in on-premises and SaaS software, partially offset by a decline in professional services.
We continued to drive strong growth in ARR and NRR to our land-and-expand strategy with expand driven by increased customer usage. As shown on page 7, total ARR was up 14% with platform ARR growing 32% and non-platform ARR growing 8%. Total NRR for the quarter, shown on page 8, was 112%. Platform NRR was 126% and non-platform NRR was 106%. Our total ACV bookings for the quarter were $17 million. Our pipeline remains strong, especially with platform offerings. Before I turn it over to Steve to talk about financial detail, I'd like to take a few moments to talk about the FICO World Event we hosted last year -- last week. The four-day event included 1,200 attendees representing more than 400 companies from 60 countries. FICO World brought together customers and prospective customers from around the globe to discuss the benefits of making real-time decisions at scale through the power of the FICO platform.
Current customers explain the benefits of improved profits, increased customer acquisition and retention, reduced costs, growth in new product offerings and improved employee efficiency. Through FICO platform demonstrations and our innovation center, customers experienced real examples of the variety of use cases that can be deployed using the FICO platform. At FICO World, we announced several innovations. We responded to market demand with an open API framework, a FICO marketplace open ecosystem and business composability. Together, these innovations foster a more collaborative environment by reducing silos and creating transparency into future outcomes. Some of the content from FICO World will be available in the coming weeks on our YouTube channel.
I'd encourage all of you to view the demonstrations and presentations to better understand our customers' excitement around this innovative technology. I'll talk about our outlook for the balance of the year, including our increased guidance, but first, let me turn it to Steve for further details.
Steve Weber: Thanks, Will, and good afternoon, everyone. As Will mentioned, we had another very good quarter with total revenue of $434 million, an increase of 14% over the prior year. Score segment revenues for the quarter were $237 million, up 19% from Q2 of 2023. B2B revenues were up 28%, driven primarily by mortgage originations revenues. Our B2C revenues were down 4% versus the prior year due to volume declines in our myfico.com business. Software revenues in the second quarter were $197 million, up 8% versus Q2 2023. On-premises and SaaS software revenue grew year-over-year, while professional services revenues declined. This quarter, 84% of total company revenues were derived from our Americas region, which is a combination of our North America and Latin America regions.
Our EMEA region generated 10% of revenues and the Asia-Pacific region delivered 6%. Our total software ARR was $697 million, a 14% increase over the prior year. Platform ARR topped $200 million this year for the first time at $201 million and represented 29% of our total Q2 ARR, up 25 -- up from 25% of the total in Q2 of 2023. Platform ARR grew 32% versus the prior year, while non-platform ARR grew 8% to $496 million this quarter. Our platform land-and-expand strategy continues to be very successful. Our dollar-based net retention rate in the quarter was 112%. Platform NRR was 126%, while our non-platform NRR was 106%. Platform NRR was driven by a combination of new use cases and increased usage. Non-platform was driven by customers' increased usage and by CPI price increases.
Our software ACV bookings for the quarter were $16.8 million. As a reminder, ACV bookings include only the annual value of software sales and exclude professional services. Turning to expenses. Our total operating expenses were $239 million this quarter versus $221 million in the prior year. Our current expenses are a 4% increase over the prior quarter. As we indicated last quarter, we maintained focus on investment to accelerate development of the FICO platform and that incremental investment is relatively modest and built into our guidance. Our non-GAAP operating margin as shown in our Reg G schedule was 53% for the quarter and that represents a 400-basis-point increase from the same quarter last year. GAAP net income this quarter was $130 million, up 28% from the prior year's quarter.
Our non-GAAP net income was $154 million for the quarter, up 27% in the prior year's quarter. The effective tax rate for the quarter was 25%. We believe that our fiscal year 2024 net effective tax rate is expected to be around 22%, while our recurring tax rate is expected to be around 26%. And as a reminder, the recurring tax rate is before any excess tax benefit and other discrete items recognized. Free cash flow for the quarter was $61.6 million, a 30% decrease from the prior year. The trailing 12-month free cash flow was 467% -- $467 million compared to $494 million in the prior quarter. We do expect free cash flow to accelerate from the Q2 level in the next two quarters. At the end of the quarter, we had $177 million in cash and marketable investments.
Our total debt at quarter end was $2.04 billion with a weighted average interest rate of 5.2%. Currently, 63% of our total debt is fixed rate. Our floating-rate debt is prepayable at any time, giving us the flexibility to use free cash flow to reduce outstanding floating-rate debt balances in future periods. In terms of return of capital, we did buy back 144,000 shares in the second quarter at an average price of $1,246 per share. And at the end of the quarter, we still had $367 million remaining on the Board authorization. And with that, I'll turn it back to Will for his thoughts on the rest of the year and to give the information on our increasing and full-year guidance.
Will Lansing: Thank you, Steve. Our strategy remains consistent despite an uncertain macroeconomic environment. We're experiencing strong growth in our Scores business even as the current rate environment has driven volumes lower. Throughout our business, we continue to invest in innovation. This is particularly evident as we see growing customer adoption and expanded use cases of FICO platform. Our customers are delighted to be able to optimize interactions with their end customers through data-driven composable solutions that are executed in real-time. I'm pleased to report that today we're raising our full-year guidance as we enter the second half of our fiscal year. We're raising our full-year revenue guidance to $1.69 billion.
GAAP net income is now expected to be $495 million with GAAP earnings per share of $19.70. Non-GAAP net income is now expected to be $573 million with non-GAAP earnings per share of $22.80. With that, I'll turn the call back to Dave to open the Q&A session.
Dave Singleton: Thanks, Will. This concludes our prepared remarks and we're now ready to take questions. Operator, please open the lines.
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