Fair Isaac Corporation (FICO) Q4 2014 Earnings Report, Transcript and Summary

Good afternoon. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fair Isaac Corporation Quarterly Earnings Call. [Operator Instructions] I now turn the call over to Steve Weber. You may begin your conference.

Thank you, Lisa. Good afternoon, and thank you for joining FICO's Fourth Quarter Earnings Call. I'm Steve Weber, Vice President of Investor Relations. And I'm joined today by our CEO, Will Lansing; and our CFO, Mike Pung. 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 to the prior quarter in order to facilitate understanding of the run rate of our business. Certain statements made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Those statements involve many uncertainties that could cause actual results to differ materially. Information concerning these uncertainties is contained in the company's filings with the SEC, in particular in the Risk Factors and Forward-Looking Statements portions 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. A replay of this webcast will be available through November 6, 2015. Now I'll turn the call over to Will Lansing.

Thanks, Steve , and thank you, everyone for joining us for our fourth quarter earnings call. I'll briefly summarize our financial results for the quarter and full fiscal year, and then talk about the progress we made this fiscal year on our strategic initiatives. Finally, I'll discuss our outlook for 2015. In our fourth quarter, we reported revenues of $222 million, an increase of 16% over the same period last year and the largest revenue quarter in company history. We delivered $37 million of GAAP net income and GAAP earnings of $1.10 per share, up 28% and 39%, respectively, from the prior year. We delivered $44 million of non-GAAP net income, up 25% from last year; and non-GAAP EPS of $1.33 per share, an increase of 36% from the same period last year. Obviously, I'm very pleased with these results, as it shows not only the strength of our recurring revenue base, but also the license revenue upside that we can deliver. And it's a great finish to a strong fiscal year with growth throughout our business. Our Applications segment was up 23% over the same period last year and up 6% for the full year. We drove significant growth both this quarter and for the full year in a number of our Applications product lines, most notably Banking Fraud, Customer Communication Solutions and Originations. Our Tools segment was up 14% for the quarter and for the full year versus the prior periods. Optimization led the growth this quarter, but Models and Rules Management were also up nicely for the full year. And our Scores segment was flat this quarter versus last year, but up 3% for the full fiscal year. We've also made significant progress this year on our strategic initiatives. We've steadily rolled out SaaS-enabled versions of our products and have signed a number of recurring revenue deals. Most of our products are now available both on-premise and in the FICO analytic cloud. While today, most of our customers still prefer an on-premise model, we believe the cloud is the future of software and long term, the cloud benefits will make this model more and more attractive. The FICO Decision Management platform, which we launched this year, continues to show promise. Just a few weeks ago, in assessing vendors worldwide in the Decision Management platform space, IDC main named FICO the major player. We were distinguished for our strategy and scored higher than all other competitors in terms of the current offering. This evaluation validates our fundamental belief in the power and value of Decision Management software to change the way business is conducted. In our Marketing Solutions business, we made great strides. We signed a landmark partnership with eBay, bringing our marketing products to the retail and e-commerce industries through a powerful channel partner. The commerce marketing platform we've developed with eBay includes a powerful mix of analytics and planning tools that integrate existing eBay Enterprise demand generation technologies with new solutions. Additional strategic partners will be announced in the coming weeks, targeting clients from the financial services, retail and health care verticals. The Marketing Solutions business also continues to scale internationally with large deals closed in fourth quarter in Asia and Latin America. We're very excited about the momentum we currently have here and about the potential to scale the business. On the Scores side, we had several major development this year. We introduced FICO Score 9 which has been more enthusiastically received by the financial services industry, regulators and consumer advocacy groups than any previous new Score version we've developed. FICO Score 9 features a more nuanced way to assess consumer collection information by passing paid collection agency accounts and offering a sophisticated treatment, differentiating medical from nonmedical collection agency accounts. Through a new modeling approach, FICO Score 9 also achieves greater predictive power across multiple credit lines, credit products and all phases of the credit-granting life cycle. The improvements in the FICO Score 9 open up the possibility of lending responsibly and profitably to a larger population than before. We continue to build momentum with the FICO Score Open Access program. Last month, I attended an event at the CFPB offices in Washington, where President Obama discussed credit fraud and announce that Citi was joining other financial institutions in making free FICO Scores available to consumers. We now estimate more than 60 million Americans will have access to their FICO scores under this program in early 2015. This quarter, we rolled out a suite of powerful comprehensive 3 bureau monitoring products that provide consumers with the ability to monitor their credit, FICO scores and identity. Our new FICO 3-Bureau Monitoring product provides consumers with an industry first. Consumers can now monitor their credit reports and FICO scores from each of the 3 bureaus in 1 simple solution, receive customized alerts and use our FICO Score simulator tool to determine how financial decisions can affect their FICO Score. With FICO Identity Ultimate, consumers can take it one step further and also receive identity theft detection and protection. These products are now available at myfico.com. Finally, we signed an agreement with Experian to make FICO Scores available through Experian's direct-to-consumer services. This compelling solution will help consumers understand and monitor their credit eligibility. We are pleased to partner with Experian because of its leadership in the category and reputable brand, and are confident that providing FICO scores directly to consumers will promote transparency and consumer financial help. Looking to the future, we continue to invest in areas of our business where we see the greatest growth potential. We remain committed to innovation, focusing our R&D investment on the FICO Decision Management platform which we see as a smart way to extend distribution of our existing IT and we are committed to building out our growing network of partners who are helping us bring our existing and new products to the widest and most receptive markets around the world. And as always, we remain on the lookout for the best ways to deploy our strong cash flow. We delivered record cash flow this year, presenting us with tremendous opportunities and also great responsibilities. We're very disciplined in how we deploy cash and continue to consider strategic acquisitions as well as share repurchases. As we look toward the year ahead, I'm more convinced than ever that FICO is well positioned to excel in each segment of our business. We remain focused on execution to deliver superior products to our customers and sustainable value growth to our investors. I'll talk more about our outlook for 2015, but first, I'll turn the call over to Mike for further financial details.

Thanks, Will, and good afternoon, everyone. Today, I'll emphasize 3 points in my prepared comments. First, we delivered solid results this quarter with $222 million of revenue, including a record $46 million of license revenue. We delivered $789 million of revenue for the year which includes $112 million of license revenue. Second, we continue to deliver strong free cash flow of $65 million this quarter and $160 million for the year which we used to repurchase 215 million of our stock, lowering our share count by 8% to around 32 million shares. Finally, we are continuing to invest in our growth initiatives while maintaining financial discipline. I'll begin by breaking the revenue down into our 3 reporting segments. Starting with Applications, revenues were $147 million, up 23% versus the same period last year. For the second consecutive quarter, we've delivered the highest revenue ever recorded in this segment. The biggest gains came in Bank Fraud, up 72% from the same period last year due in part to a large multiyear term license renewal; in Originations, up 18%; and in Customer Communications Solutions, the former Adeptra business, up 10% from the same period last year. For the full year, Applications revenue were $504 million, up 6% from fiscal 2013. In the Tools segment, revenues were $29 million, up 14% versus the prior year. The growth this quarter is driven by sales of our Xpress Optimization product and our Blaze Rules products. We ended the year with $98 million of Tools revenue, up 14% from last year. And finally, in our Scores segment, revenues were $46 million, flat with the same period last year. On the B2B side, we're up 1% versus the same period a year ago. The B2C revenues were down 4% from the same quarter last year. For the full year, Scores revenues were $186 million, up 3% versus 2013. Looking at our revenue by region. This quarter, 68% of total revenue was derived from our Americas region, our EMEA region generated 23% and the remaining 9% was from Asia Pacific. Recurring revenues, derived from our transactional and maintenance sources for the quarter, represented 60% of total revenues; consulting and implementation revenues were 19% of total; and license revenues were 21% of total revenue, which again included the large renewal of a term license. Turning now to bookings. We generated $22 million of current period revenue on bookings of $86 million or a 26% yield. The weighted average term for our bookings was 22 months this quarter. Of the $86 million in bookings, 18% relates to Originations, 16% to Rules, 15% to Fraud Banking and 10% to Optimization Solutions. We had 12 booking deals in excess of $1 million, 3 of which exceeded $3 million. Transactional and maintenance bookings were 28% of total this quarter, professional services bookings were 51% this quarter and finally, license bookings were 21% in the quarter. Our operating expenses totaled $170 million this quarter compared to $161 million in the prior quarter, or up $9 million. The increase is due to increased expense associated with the additional revenue, as well as the accrual of additional incentives associated with our annual performance. As we said last quarter, we have increased our investments to support important strategic initiatives, and we expect R&D and SG&A expenses to stay roughly at these levels for the next several quarters, with our cost of revenues fluctuating with revenue. Those assumptions give us an OpEx run rate of approximately $160 million to $165 million over the next few quarters, including the amortization expense. As you can see in our Reg G schedule, non-GAAP operating margin was 29% for the fourth quarter and 27% for the full fiscal year which is about 100 basis points lower than the prior year. GAAP net income this quarter was $37 million and $95 million for the fiscal year, up 28% and 5%, respectively. Non-GAAP net income was $44 million for the quarter, up 25% from the same quarter last year; and it was $128 million for the year, up 5% from last year. The effective tax rate was about 18% this quarter and was positively impacted by a favorable adjustment related to the settlement of an audit and due to a mix shift in profits to lower tax jurisdictions. We expect the effective tax rate to be about 31% to 32% for the full year in fiscal '15. The free cash flow for the quarter was $65 million or 29% of revenue, compared to $32 million or 17% of revenues in the prior year. For the entire fiscal year, we delivered $160 million of free cash flow compared with $109 million last year, an increase of 46%. Moving on to the balance sheet. We have $105 million in cash on the balance sheet at the end of the quarter. This is up about $12 million from last quarter driven by the cash generated from operations and draws off our revolving line of credit and offset by share repurchases. Our total debt of $546 million with a weighted average interest rate of 5.2%. We now have $99 million balance on our $200 million revolving credit facility. The ratio of our total net debt to adjusted EBITDA is to 2.1x which is below the covenant level of 3x, and our total fixed charge coverage ratio is at 5x, well above the covenant level of 2.5x. During the quarter, we returned $56 million in excess cash to our investors, repurchasing about 900,000 shares at an average price of $63.57. For the full fiscal year, we repurchased 3.7 million shares at an average price of $58.87, effectively reducing our outstanding shares by 8%. We still have the full $250 million remaining on the new board authorization and continue to view share repurchases as an attractive use of cash. We are also actively evaluating opportunities to acquire relevant technologies and products that advance our strategy or strengthen our portfolio and competitive position. With that, I'll turn it back over to Will for his thoughts on fiscal '15.

Thanks, Mike. As I said in my opening remarks, I'm pleased with what we were able to accomplish this year. We continue to build out our product functionality through our own innovation and through strategic acquisitions; we've made great strides enabling our applications for the cloud; and we've been identified as the leader in the Decision Management software platform space. We further solidified our market-leading position in our Scores business, and have positioned ourselves for new opportunities to our Open Access program and with our enhanced relationship with Experian. With that as a backdrop, I'll now turn to guidance. As we look ahead, we see a number of opportunities as we extend our consumer and software offerings into new industries and new markets. At the same time, we see our core financial services customers continuing to operate under difficult regulatory and operating constraints, creating a challenging sales cycle and further lumpiness in our license revenue. With all this in mind, we're providing the following guidance for fiscal '15. We expect revenues to be between $820 million and $825 million, an increase of about 4% to 4.5% versus fiscal '14; we expect GAAP net income between $92 million and $95 million; GAAP earnings per share between $2.78 and $2.88; non-GAAP net income between $131 million and $134 million; and non-GAAP earnings per share of $3.97 to $4.06. The EPS guidance assumes current share counts, although as Mike said, we continue to view new purchases as an attractive use of our cash. I'll now turn the call back to Steve for Q&A.

Thanks, Will. This concludes our prepared remarks and we're ready now to take your questions. Lisa, please open the line.

[Operator Instructions] Your first question comes from the line of Bill Warmington from Wells Fargo.

The -- I wanted to ask about the -- on the tax rate for the quarter, you mentioned there were some onetime adjustments there in terms of the settlement of the audit. What is that EPS? If you have an adjusted EPS with sort of a normalized, if you back that out, what would the EPS have been?

Yes, the EPS -- favorable impact to the EPS for that adjustment, Bill, was $0.06 a share.

$0.06, got it. The -- now on the large buyback that you have potentially in front of you, how much of that is reflected in the 2015 EPS guidance?

None of it is. We've left the EPS guidance on the average shares exiting the year in any buyback we do with the additive to the guidance we've provided.

Got it, okay. And then the on the Open Access program, it sounds like that is going to create a lot of brand awareness for you. My question for you is, how do you go about monetizing that?

So Bill, that's a great question. So we rolled the Open Access program out about a year ago. To date, we've had incredible branding done through the partners that have signed up for the program. Discover, being one of the most notable. The way we see monetizing Open Access going forward is very consistent with what we've described in the past. First, driving traffic to the myFICO website. We've loaded the website up with a brand-new set of products, a suite of products in the month of August that includes credit monitoring and identity theft monitoring and protection, giving us one of the best offerings in the industry. And we believe that branding will naturally drive traffic to that and will convert into ratable revenue in the form of credit monitoring products. So that's number one. Number two, we believe, much like the Experian situation, that others that sell scores into the consumer industry will see the value of bundling a FICO Scoring with their products. And as consumers demand for the FICO Score as part of these offerings grows, we see more opportunities for relationships with others in the industry to resell our products. And finally, the banks historically have had affinity add-on programs that have included a number of financial products including Score monitoring and Scores that they've sold to their consumers on their own white-labeled websites. We see an opportunity for the FICO Score in that regard as well. So we see numerous opportunities over the next several years that the door has been opened through the Open Access program.

I would just add, Bill, that -- this is Will. I would add that our intent with Open Access program was not to make a lot of money from it. That was never the intent. The intent was to make sure that we can get the FICO Score into the hands of consumers so that they could see what their FICO Score looked like. And this is the score the banks use and we want to make sure that consumers get a chance to see it. So it's about transparency. There's obviously a big branding benefit for us, and we love the fact that consumers are increasingly aware of the difference between a FICO Score and so-called education scores that are similar looking to FICO scores, but that actually are not the scores that lenders use. And so that was really the intent of the program and so far, we are very pleased with the way it's rolling out.

You'll have the brand of the FICO inside.

Yes, you got it. You definitely, got it.

The one last question for you then. If you can maybe talk a little bit about some of the assumptions that are in the -- or behind the revenue guidance for the year in terms of how you're going to get to that level?

Yes, I'll take that, Bill. This is Mike. So we obviously have come off of a tremendous fourth quarter where we've had phenomenal license revenue, $46 million, as I mentioned on the call. That $46 million is almost twice what it has historically been over the last couple of years on a quarterly basis. And so as we've said in the past and I think most notable, the timing of when revenue is signed can be very lumpy, when license revenue signs, in some quarters, it slips; in some quarters, it doesn't; and this one, it didn't slip. So as we took our fourth quarter and our year-to-date experience and we portrayed it forward, the timing of these license deals remain tricky. And with the challenges that the banks are still facing in the markets we serve, we weighed the pluses and the minuses. The pluses being momentum we're picking up through Open Access and on the consumer side, other momentum on our recurring revenue base in the products that are starting to go live in that area and we weighed that against the minuses, the headwinds in the industries we serve and the lumpiness to the license revenue. And that became the basis for the 4% to 4.5% revenue growth we laid out. Certainly, at that level, 4% to 4.5%, the license revenue is probably a bit lighter than it was this year with some probably increased strength on the recurring revenue side.

Your next question comes from the line of Matthew Galinko from Sidoti. Matthew Galinko - Sidoti & Company, Inc.: I guess the first one is around -- I know we talked last quarter about wanting to ramp your sales capacity. I guess, I'm wondering at the close of this quarter, how are you feeling in terms of addressing that need?

Well, we have been in a build mode all year and we've added some salespeople, we've added some sales coverage and we had built into our budget for next year incremental sales coverage. So we're feeling pretty good. That said, we could always do more. I mean, the fact is and I've said this before, our product portfolio and our IP vastly outstrips our ability in sales and distribution. We just don't have the coverage that we wish we had given the quality of our products and the appetite for our products. So we'll continue to be strong in financial services where we have a good sales force, and we will continue to invest, I would say, on a conservative basis, in new verticals, where we continue to do that. And I think channels will continue to be an important area for us because that kind of amplifies and gives us additional leverage. Matthew Galinko - Sidoti & Company, Inc.: Got it. And then in terms of the new myfico.com services, I'm curious if you could talk a little bit more about your marketing strategy to drive traffic and users to the site, and sort of how you look to build awareness of those features?

I'd say it's a two-pronged approach. So on the one hand, we do what other e-commerce and Internet-based players do in terms of SEO and SEM, and we have very smart and capable people doing the math on customer acquisition cost versus lifetime value, and we're kind of an open-ended budget for spending as much on customer acquisition as the lifetime value will support. So on that basis, as our product continues to get stronger, which it does, we now have the industry-leading product. As it continues to get stronger, our lifetime value increases and our ability to spend more in customer acquisition will go up, until we see kind of the direct customer acquisition efforts as being strong from that standpoint. The other is side of it is all the things that we wrap around the myFICO offering that are a little less traditional. So our myFICO site has a tremendous amount of educational content, hundreds and hundreds of pages of educational content which is, I would say, is industry-leading, best-in-class, and there is fairly significant SEO component to what we do there. And then finally, the Open Access program, as we mentioned earlier, is raising awareness and we get some spillover effect from that. Matthew Galinko - Sidoti & Company, Inc.: Got it. Then one last one for me. I know you talked a little bit about preference for traditional license type deals that you're seeing from your customers and which I think we clearly saw this quarter versus a cloud or SaaS deal. I'm curious sort of how that decision process is going for the customers? Why are they preferring the traditional license model? And do you think that should sort of shift as we move into '15, and can that influence the potential for repeat growth kind of year in license?

Yes. Let me see if I can clarify. I would say that to the extent there's a preference, it's not so much a preference for a license model as it is a preference for on-premise. So what we have is the banking industry, the financial institutions are far more in the on-premise camp than in the cloud camp. And so that's how they typically buy. And with that, comes a certain amount of license revenue and license structuring to the deals. But even within that, we do a tremendous amount of volume-based and transaction-based revenue. As you know, our recurring revenue is the majority of our revenue. The thing that we see happening is, as our SaaS offerings become more accepted by the marketplace, those typically are sold on a more ratable basis. The revenue gets recognized on a more ratable basis. And so we'll see that continue. And so over time -- and I can't tell you exactly what the time frame is, but over time, I think you will see that our recurring revenue as a percent of total will continue to creep upward. But in any given quarter, who knows? Because all it takes is one big license deal to push the number down. So I think that all we were saying is that today, banks and the financial institutions favor on-premise solutions, which go hand-in-hand often with license revenue recognition. But longer-term, I think we see that changing.

Your next question comes from the line of Brett Huff from Stephens Inc.

A couple of questions, just along the SaaS lines that I was trying to get my arms around. When you all think about how this year, the SaaS deals that you closed, did it make a measurable dent or headwind into your revenue growth? And when you gave guidance for next year, I mean, was there like 20 basis points or 80 basis points, or some sort of taking license out of this period and spreading it out forward? Any thoughts on that?

Yes, Brett, this is Mike. So we have between our Adeptra business, our Marketing Solutions business and other pockets, we actually have about $160 million a year of hosted or SaaS business and have for the last couple of years. This year's growth year-over-year was slightly below $5 million compared to the prior year. It relates -- that additional growth relates to some of the deals we signed this year and then have gone live, as well as just growth in volumes there being pushed through by the existing line of business. And so to answer your question directly, the amount of growth into fiscal '14 was quite small. It was less than $5 million. As we think about fiscal '15 and as we thought about it, the business, at least for the next few quarters and foreseeable -- for at least the next few quarters, is probably still going to be more heavily driven through on-premise and the revenue will be created, if you will, through an on-premise model which usually has an upfront license revenue to it. And as we start to sign more and more cloud deals and the ratable deals, some of that will probably add to it in the latter part of next year and then it will start to grow from there, because as you know, you have to go through the implementation process to get them live and then begin to grow the revenue. So we've built in similar kinds of thoughts into next year. There won't be a dramatic shift, at least not that we see over the next couple of quarters. But hopefully, we'll continue to sign more and more business as we did this year.

Okay. And then the second SaaS question. Can you just give us sort of the anecdotal or the sort of the best-use case, successful use case that you used? And maybe this is a SaaS question or channel question, I'm not really sure which. But the most successful channel -- new channel method that you're using or maybe -- and I assume again, that's a SaaS delivery, what's the one that's the most popular that you found that greatest traction with most quickly?

Just to clarify, you focused on what kinds of customers are interested in our cloud offerings, or you're focused on the distribution piece of it?

Well, I'm -- maybe I'm confusing the 2. My question is mostly around the channel. So what new channel have you used as a distribution mechanism? I know you've been talking about trying to do indirect IP distribution basically. What's the one that kind of works best...

Yes, good question. So we have a channels group with some very capable business development executives who are always looking for different mechanisms to take our products and our IP to market. And it's a wide range, everything from processors to major retailers, to -- I mean, there are different ways of taking our IP to market. Probably a great example is our eBay partnership. So we entered into this partnership with eBay, and as you know, they have tremendous, tremendous reach with a tremendous number of retailers who use them for eBay Enterprise is an infrastructure backbone end support for eBay retailers. And that's completely separate from their Marketplace division. This is eBay Enterprise. And one of the things that they wanted to do as part of providing capabilities to their retailer customers is improve the analytics that they provide. And so we entered into this partnership with them, where we took our campaign management platform and some of our analytics and did some additional work to tailor them to soothe eBay's needs. And eBay is now taking out our IP, our analytics IP and some of our campaign management IP out to their customers. And it's just -- it's a lovely partnership because they get best-in-class analytics and campaign management, and we get distribution to all kinds of retailers that we never ever would have gotten near.

Okay. And then one question, just on the margins. When we see a big license quarter, typically, I thought we would see a pretty big-margin quarter on the gross margins, and I didn't see that, but I'm wondering if I'm missing something. If there was -- there's a dynamic there that I'm not getting.

No, there's no dynamic there. The numbers are the numbers that we reported. The margin for the fourth quarter, which was around 30%, that's the adjusted margin we report. It also includes the cost to deliver the revenues. So some of that review growth came on the services side, so there's a bit of a mix shift, some additional expenses there. And at the end of the year, we true-up all of our incentives, our sales incentives and our across-the-business incentives, and we perform quite well and we had a larger-than-average incentive accrual. And I suppose that maybe takes away what you would have guessed some of the pop would have been with the license revenue we did do.

Okay. And then last question for me. I know you've had a logjam of longer sales cycles on the Applications business, and I know that we've had a couple of good bookings quarters in the past 2 quarters and the bookings were still sequentially up a little bit, but did down a little bit year-over-year. Is that logjam in Applications specifically over? I think you -- one of you mentioned in your prepared comments that sale cycles are still elongated. So I'm trying to figure out, is there sort of more to come on that, or are we through that initial logjam?

Well, last year, as you know, we had a lot of deals slip in our fourth quarter. So the same time last year, we were giving you a lot of different news and it was slipped deals. It took about 6, 9, 12 months to work many of those deals through the pipeline. And what had slipped last year for the most part has worked itself through the pipeline. Logjams can come and go. And whether we have another logjam that comes along is yet to be determined. But for the most part, we work through the issues we had last year and we're very happy with where it ended up. It maybe took a little longer but at the end of the day, it was worth the wait.

[Operator Instructions] Your next question comes from the line of Manav Patnaik from Barclays.

This is actually Greg calling on for Manav. I was wondering if you could give some color on how you're thinking about the different segments of the consumer credit landscape going into 2015. Where are you seeing strengths and where are you seeing the puts and takes there?

Yes, I'm not sure what's underneath your question. I mean it's a pretty complicated landscape. There's obviously the credit report monitoring business which we are in with myfico.com and which others, especially the bureaus are in with paid subscription products. There are incremental products that are now being overlaid on the credit report monitoring offerings, like identity theft. And again, we have it at myfico.com, and some others also have incorporated that capability in their offerings. I think increasingly, you're seeing any major player who has customers and good customer relationships who has some kind of logic for why they would be offering it is now considering or reconsidering being in the affinity space, where they take an offering from someone else and sell it through their consumers, and we are now on that business and starting to compete for that business. And so that's kind of a B2B2C business, but it's the same offering under the covers as myfico.com. I think that after slower growth over the last few years in the affinity space, I think we're going to see that space pick up a bit. So I hope that answers your question. I mean, it's a good -- and then we also have -- I guess the thing I would add that's new is we have some of the players in the premium space have come in to this credit report monitoring and they give away free scores and free summary credit reports in exchange for the right to use your -- the consumers' data for lead generation. I would note that to our knowledge, none of those players is using the FICO Score. They're using what are terribly called education scores. We call them Fake-o scores. And so they're not the score that lenders use. So there's a -- we have quite a bit of concern actually about confusion in the marketplace as these guys go out and say, "Get your free credit score." When in fact it's not your -- it's not the credit score that the banks are using. It's not a FICO Score. And so the question mark, "what is it?" But those players have gotten some traction and I think, again, with Open Access and with increasing consumer understanding of what's really going on in the marketplace, we think that consumers will know the difference between a FICO Score and some other score. The other thing is, you can see kind of the battle lines drawing between the premium players who give away your data. They take your data and they don't charge you anything for it, but they turnaround and they use it for lead generation purposes. And then the -- I would say the players who are much more careful with your data and don't use it that way. And that -- I'd say that we're in that category along with the major bureaus. We're very careful with the consumers' data and careful not to use it in ways it's not intended to be used. And so I -- you're seeing this kind of free/no privacy versus paid subscription, quality and regard for privacy. You're seeing that -- those battle lines developing in the consumer credit report monitoring space, and I think you're going to see that continue. I think that the consumers will become more aware. It's going to be interesting to see how that plays out.

Okay, that's great color. And I guess I probably wasn't totally clear on my question. I meant more along the lines of spaces in consumer lending that you're seeing strength, your auto has shown some strength recently. And how you're thinking about those different segments of the market going into 2015?

I'm not sure that we're in the best position to comment on that. I mean, I -- obviously, there've been a lot of credit card customer acquisition efforts in recent months, so I think that's way up. I think that refi has had much more longevity than anyone has expected, and so people are still pulling mortgage scores. I don't need to tell you that the auto industry is in pretty good shape and so auto scores are being pulled. But I don't think we're telling you anything you don't already know.

No, we haven't seen any big shift in mix or any kind of amazing emerging trends in that regard.

Okay, fair enough. And then you talked about the longer sales cycle, but you're seeing strong results in Applications business. I was just wondering if the tenor of conversations with the customers has changed at all. Or how you -- how those conversations have been going, especially heading into another budgeting cycle?

We are -- our products, our application offerings and also our tools, for that matter, are aimed at kind of 3 areas. One is revenue growth, and we come at that in a lot of different ways; the second is expense control, we come at that in a bunch of different ways; and third, risk and compliance. And our conversations with financial institutions are around all 3 of those areas. On the revenue side, our decisioning applications help banks to make the smartest decision they possibly can. And basically, their objective function is profitability or revenue growth, we help them with that. On the cost side, we have collections and recovery applications and other things that help them on the cost side. And then I guess, I'm very proud of our model central offering, which is a model management offering that is industry-leading and starting to be adopted by the major banks. And so I think there's a lot of interest there because all these banks are interested in demonstrating to regulators that they have excellent control of their business. They have a lot of visibility into the models that are being used. They have good visibility into how the risk around their decisions is. And our model central offering is very much designed to help them with model management, what models went into place when, what attributes were put in place when, when do they go from test to production. All of those kind of things that a bank wants in order to run its business better and also to demonstrate to a regulator that it understands how to run its business well, all of that is tremendously interesting to banks. And so that's been a big conversation recently.

Okay. And one more modeling one, if I can sneak it in. A popular topic over the last few weeks is FX, and I was just wondering how do you think of your exposure there and if you do anything to hedge any of your exposure?

Well -- oh I'm sorry. We hedge the balance sheet risks and kind of our receivables. We have business lines in kind of the larger parts of the world where we have operating expenses that naturally hedge the revenue that we generate. The FX impact frankly on the P&L hasn’t been that huge for us, and it's maybe not as big of an issue as it is for others you follow.

There are no further questions in the queue. I'll turn the call back over to the presenters.

Thank you, Lisa. This concludes today's call. Thank you all for your interest in FICO and for joining today.