Fair Isaac Corp (FICO)

• Significant Growth Potential in Software Platform Adoption: FICO's software platform has penetrated less than half of the top 30 global financial institutions globally, indicating substantial room for expansion. The company is in the early innings of platform adoption, presenting considerable growth opportunities. - , -
• Continued Investment Enhancing Profitability: FICO is investing in its platform by adding new features and functionality demanded by customers. Despite maintaining high R&D spending, the company expects margins to improve over time due to scalability and increased profitability. - , -
• Strategic Pricing Initiatives to Boost Revenue: FICO is implementing a new per-score royalty pricing of $4.95 for mortgage originations in 2025, which is less than a 50% increase, positioning the company to enhance revenue. Additionally, it reviews pricing across its portfolio annually and may apply increases to non-mortgage products. - , -

• The non-platform software revenue declined slightly, deviating from previous trends, and is based on customer usage volumes that can fluctuate unpredictably. -
• The company expects continued significant investment in their platform, which may impact margins in the near term. -
• The strong Scores revenue this quarter included one-time revenues that are not expected to recur, potentially affecting future revenue growth. -

1. Mortgage Score Price Increase
   Q: Will you raise mortgage score prices by 50% in 2025?
   A: We're increasing the mortgage score price to $4.95, which is less than a 50% increase. We review our entire portfolio annually and have applied some increases to non-mortgage scores as well. -

2. Capital Allocation Priorities
   Q: What are your capital allocation priorities for 2025?
   A: Our strategy remains unchanged—we aim to return capital to shareholders through stock buybacks. We manage our leverage between 2 and 3x and believe our stock is a compelling value. -

3. Macro Uncertainty and Mortgage Volumes
   Q: Do you expect mortgage volumes to recover in 2025?
   A: We anticipate mortgage volumes will increase in the future, but the timing is uncertain. We've incorporated appropriate conservatism into our guidance given the macroeconomic uncertainty. -

4. Competitive Dynamics in Auto and Card
   Q: Are there any changes in auto and card competition?
   A: The auto and card businesses are unchanged from prior years, with very little competitive threat and continued customer reliance on our products. -

5. Software Investments and Margins
   Q: How are you investing in software, and when will margins improve?
   A: We're in early innings with our software platform, continuing to invest in features our customers want. Despite ongoing investment, we expect margins to improve over time due to increased scale. -

6. Software Guidance and Platform Details
   Q: Can you disaggregate guidance for software and platform?
   A: We don't guide at the segment level or split out platform versus non-platform revenue, as it's difficult to distinguish between them in early-stage deals. -

7. Partnerships and Industry Solutions
   Q: Can you provide color on partnerships and industry solutions?
   A: We're partnering with firms like TCS to build solutions using our decisioning IP in verticals like logistics, leveraging their reach and expertise to expand beyond our traditional markets. -

8. Value Capture from Secondary Markets
   Q: Is there revenue opportunity from secondary market usage?
   A: Many use the FICO Score without paying, as we charge for first use. While we've considered changing our pricing model, we're cautious about making changes that could disrupt markets. -

9. FHFA Proposal Impact
   Q: How might the FHFA proposal change under a new administration?
   A: The industry's been slow on the expected implementation, and it's uncertain how a new administration might affect it. Changes could be delayed or take longer than expected. -

10. Impact of Trump Presidency
    Q: How will the Trump presidency impact FICO?
    A: We work effectively with both Republican and Democratic administrations. Given our integral role in the system, we expect to continue operating as the cornerstone of the U.S. lending market. -

Annual guidance for FY 2025:

• Revenue: $1.98 billion - (raised from $1.70 billion - )
• GAAP Net Income: $624 million - (raised from $500 million - )
• GAAP Earnings Per Share (EPS): $25.05 - (raised from $19.90 - )
• Non-GAAP Net Income: $712 million - (raised from $582 million - )
• Non-GAAP Earnings Per Share (EPS): $28.58 - (raised from $23.16 - )