Q1 2025 Earnings Summary
- Management confidence in company value and ongoing share repurchases: The company continues to return capital to shareholders through buybacks, purchasing 79,000 shares in Q1 at an average price of $2,015 per share and an additional 47,000 shares in January at an average price of $1,905 per share. Management expresses belief in the stock's value and indicates appetite for more buybacks if the stock remains below highs.
- Investment and growth in the B2C segment, particularly myFICO: The company is investing in the B2C side, specifically the myFICO business, implementing new marketing programs, and sees room for growth, expecting to see more growth throughout the year. This suggests potential for increased revenue from the B2C segment.
- Innovation through integration of Buy Now Pay Later (BNPL) data into FICO Scores: The company is working with Affirm to incorporate Buy Now Pay Later data into FICO scores, which can enhance the predictive power of the scores and provide better decisions for customers. This innovation represents a new growth opportunity and potential competitive advantage.
- Moderating B2B Revenue Growth: Despite improvements in mortgage, auto, and card origination revenues, the overall B2B revenue growth moderated from 38% year-over-year in Q4 to 30% in Q1. This suggests potential softness in other B2B areas such as prescreening or other revenue streams.
- Decline in Card and Personal Loan Revenues: The company's card and personal loan revenues were down 3% year-over-year in the quarter due to a pullback in consumer lending. This decline reflects industry-wide challenges that could continue to impact FICO's business segments reliant on consumer lending activity.
- Compression of Scores Margins Due to Increased Expenses: There was a noticeable step down in Scores segment margins both quarter-over-quarter and year-over-year, attributed to a notable uptick in expenses, particularly increased spending on B2C marketing. This increase in costs could pressure profitability if revenue growth does not sufficiently offset the higher expenses.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2025 | $1.98 billion (15% YoY growth) | Reiterated guidance; no new figures provided | no change |
GAAP Net Income | FY 2025 | $624 million (22% YoY growth) | Reiterated guidance; no new figures provided | no change |
GAAP EPS | FY 2025 | $25.05 (23% YoY growth) | Reiterated guidance; no new figures provided | no change |
Non-GAAP Net Income | FY 2025 | $712 million (20% YoY growth) | Reiterated guidance; no new figures provided | no change |
Non-GAAP EPS | FY 2025 | $28.58 (20% YoY growth) | Reiterated guidance; no new figures provided | no change |
-
Software ARR Growth
Q: Why is Software ARR growth slowing to 20%?
A: Management explained that the slowdown to 20% ARR growth is due to weaker bookings in prior quarters and foreign exchange impacts. They remain confident in returning to 30% growth as strong bookings will flow through to ARR in future quarters. Usage-based components also affected ARR, but there was no customer churn.
-
Interest Rates Impact on Guidance
Q: How are interest rates affecting your guidance?
A: The company built its guidance on the assumption that interest rates would not decline significantly in 2025. Management’s conservative view anticipated less rate cuts than the market expected. If rates decrease in the back half of the year, it would be a tremendous benefit.
-
FICO Scores and GSEs Privatization
Q: Will GSEs privatization impact FICO Scores usage?
A: Management believes that even if GSEs are privatized, they will continue to use FICO Scores, as they are the best way for investors to understand risk. They don't foresee significant changes, emphasizing that FICO Scores have been critical before and during conservatorship. They find it hard to imagine GSEs moving away from FICO Scores.
-
Capital Allocation and Buybacks
Q: Will you continue stock buybacks if the stock price remains low?
A: Management sees FICO stock as a great value at current prices and plans to be in the market regularly with purchases. They have the authorization to ramp up purchases when the stock dips, indicating appetite for more buybacks.
-
Card and Personal Loan Revenue Decline
Q: Why did card and personal loan revenues decline by 3%?
A: The 3% decline is attributed to a pullback in consumer lending seen industry-wide. Some mix shifts also affected the results, with higher unit cost users being more impacted.
-
ACV Bookings and Pipeline
Q: How does the ACV bookings outlook appear?
A: Management reports a strong pipeline, expecting a good year for bookings. They acknowledge some quarterly volatility due to the timing of large deals but remain optimistic based on recent strong bookings.
-
Platform Usage and Potential Rebound
Q: Can platform usage return to normal levels?
A: The lower platform usage was due to seasonal factors and customer-specific usage variations. Management anticipates a double bounce back effect as usage returns to normal and new bookings go live, positively impacting ARR.
-
Expenses and Non-recurring Costs
Q: What is driving the increase in expenses?
A: Expenses are expected to increase slightly due to non-recurring items, such as FICO World, which will add $5 to $6 million in the third quarter. There won't be any material step-function increases throughout the year.
-
B2C Growth and myFICO Trends
Q: How is the B2C segment, especially myFICO, performing?
A: The B2C segment is seeing an inflection in growth. The company is investing in marketing programs for myFICO, believing there's a lot of room for growth in the segment.
-
Buy Now Pay Later Integration
Q: How will Buy Now Pay Later data be integrated into FICO Scores?
A: FICO is working with Affirm to incorporate Buy Now Pay Later data into their scoring models. They aim to extract additional predictive value, enhancing the FICO Score's effectiveness.