Greetings, and welcome to the Fair Isaac Corporation Quarterly Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, Monday, November 4, 2019. I would now like to turn the conference over to Steve Weber. Please go ahead.

Thank you, Dave. Good afternoon everyone, 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 McLaughlin. 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 4, 2020. And now, I'll turn the call over to Will Lansing.

Thank you, Steve. I'm pleased to report we delivered another very solid quarter, which kept off a remarkable fiscal 2019. In our fourth quarter, we reported revenues of $305 million, an increase of 19% over the same period of last year. For the full fiscal year, we recorded $1.16 billion of revenue, up 16% from 2018. We delivered $55 million of GAAP net income, up 67% and GAAP earnings of $1.80 per share, up 69%. On a non-GAAP basis the $2.01 earnings per share was up 50% from last year and we delivered free cash flow growth as well up 69% from fiscal 2018. I'm particularly pleased with the breadth of strength in our business. Our scores business has been growing very well for the past several years, but we were also able to deliver double-digit growth in our software business this year. We'll have some difficult comps in software next year as we project less upfront license and more ratable revenue, but we're steadily building a growing stream of predictable recurring revenue. In our application segment, we had a particularly strong year with our fraud and compliance solutions with both up double-digit over the previous year. We delivered 8% growth overall in the segment, which had transactional growth of 7%. In our decision management segment, we're validating our strategic vision with financial results. We delivered our largest DMS revenue quarter ever up 41% from last year's fourth quarter and the segment was up 34% for the full year versus fiscal 2018. The bookings were also good. We signed $61 million in new DMS deals this quarter, up 152% from the same quarter last year. For the full year, we signed $157 million of new DMS deals, up 90% versus last year. These solutions are best-in-class or more convinced than…

Thanks Will and good afternoon everyone. As Will said, we had a solid finish to another terrific year exceeding both our revenue and net income guidance. Revenue for the quarter was $305 million, an increase of 19% over the prior year. Our full year revenue of $1.16 billion was up 16% over last year. Bringing out revenue into our reported segments, applications revenues were $150 million, up 8% versus the same period last year; full year revenues for applications were $605 million, up 7% from last year. The increase in full year revenue was driven by higher usage based volumes and increased term license sales, which included two large multi-year license renewals that were recognized as upfront revenue. In our Decision Management Software, or DMS segment, Q4 revenues were $39 million, up 40% over the same period last year. Full year DMS revenues were $134 million, up 34% from FY 2018. This revenue increase was due to limited – due to increased license and services sales as well as increased volumes and our usage based contracts. And as Will pointed out, DMS bookings were $61 million this quarter, up 152% from the previous year. Finally, our scores segment revenues were $116 million, up 30% from the same period last year, B2B was up 40% over the same period last year and B2C revenues were up 7% from the same period last year. For the full year, scores revenues were $421 million, up 25% from last year. In terms of geographic distribution, this quarter’s 75% of total revenues were derived from our Americas region, our EMEA region generated 17% and the remaining 8% was from Asia Pacific. Recurring revenues derived from transactional and maintenance sources for the quarter represented 74% of total revenues. Consulting and implementation revenues were 16% of total…

Thanks Mike. We're speaking to you today from FICO World, which is our Global Decisioning Conference held this week in New York. More than a thousand professionals are here with us from 60 countries to discuss decision management innovations, artificial intelligence, machine learning, analytic innovation, fraud solutions, cyber risk and growth strategies. This sold-out event is an invaluable chance for us to meet with our customers to demonstrate our best-in-class solutions and help them optimize and automate their most difficult decisions. As we move into fiscal 2020, I'm pleased with the progress we've made and excited for what lies ahead. The investments we've been making on the software side have been leading to growth in bookings and recurring sustainable revenue. On the Scores side, the business is stronger than ever and we continue to drive value out of these incredible assets. With all of this in mind, we are providing the following guidance for fiscal 2020. We are guiding revenues of approximately $1.245 billion, an increase of about 7% versus fiscal 2019. We are guiding GAAP net income of approximately $204 million, up 6% versus 2019. GAAP earnings per share of approximately $6.75, non-GAAP net income of $251 million and non-GAAP earnings per share of $8.30. I'll now turn the call back over to Steve, who will take Q&A.

Thanks Will. This concludes our prepared remarks. And we're now ready for your questions. Operator, please open the lines.

Thank you. [Operator Instructions] Our first question comes from the line of Manav Patnaik with Barclays. Your line is open.

Good evening guys. Just the first question, Will, I think in your comments you mentioned that the 2020 guidance assumes high single-digit for Scores. I was wondering if you could just give us some color on the software piece of it. And Mike, you talked about the seasonality on the bookings side, if you could just elaborate on that a little bit?

Yes, I'll make a comment and turn it over to Mike. We see high single-digit for Scores, that's right, and then software will be a little below that and that's mostly because of some revenue recurrent – some revenue that was – that we were forced to take upfront license revenue in 2019, which is going to result in difficult comps for next year. So if you normalize all that, we're headed for a software growth on the order of 7% which is completely consistent with what we actually grew.

Yes, and I'd add if you want to think about the breakout between the projected Scores growth and software growth overall 7%, software growth is probably about 0.5% less than that, that's more precise than it will end up being of course and Scores growth is probably 1% higher than the average of the two.

Okay, got it. And then just from the cloud perspective, maybe I missed it, can you just remind us the percentage of your business on the growth rate and just a quick comment on the roll-out of Falcon on the cloud as well?

Sorry, could you repeat the question? I didn't quite get the first one.

The percentage of your revenues that are now on the cloud and what that's growing at?

Well, we have $270 million of SaaS revenue which is equivalent to – which is equivalent to cloud and you can do the percentage yourself. It's growing at in the teens to low-20s percentages quarter-to-quarter. And we expect that to continue to grow as strategically we shift clients to the platform that we're building.

And then your question on Falcon X, Falcon X is on track. So we actually have Falcon available in the cloud now, but in terms of getting Falcon onto the platform, what we call Falcon X, that's going to take until – well into 2020. I mean we launched it earlier, but the full robust Falcon X will be later on.

All right, thanks a lot guys.

Thank you.

Next question comes from the line of Bill Warmington with Wells Fargo. Your line is open.

So good evening everyone.

Hi, Bill.

And congratulations on the strong bookings at a $160 million, I think the previous high was a couple of years ago at $146 million, at least that's what I'm showing. So, I had a, a question for you on the deal distribution. It looked like another record point was the 25 deals between $1 million and $3 million and I wanted to know if you could talk a little bit about what verticals you're seeing success in? And how the – what changes you've made to the sales force configuration if any that are driving deals in that segment of the market which seems to be emerging as your sweet spot?

So, we are – first verticals. So it's still predominantly financial services as it has always been, but we're getting increasing success in Telco and Auto. And so we continue to work deals there. In terms of the sales force configuration, we are adding domain expertise for some of these non-financial services, verticals. So we have a Telco Group now, we have an Auto Group, and so we're going at it that way.

And Bill, this is Mike, I can give you the specific deal size numbers for this quarter, it happened to be 33 deals over $1 million and nine of which of those were over $3 million. And I'll circle back and answer Manav's question about the seasonality of the bookings, I neglected to do so earlier. If you look at quarterly booking trends for the last couple of years, you will see that typically sort of high teens to 20% of the bookings occur in the first quarter and then ramps throughout the year to be almost 30% in the fourth quarter again typically. Bookings are variable for FICO as you know. So we're not making a specific prediction about what they'll be in the first quarter. But seasonally we would expect them to taper off as usual.

Okay. And then on the software margins, the fiscal 2020 guidance would imply another heavy year of investment in the software business, although this is the first time in a while I've heard you talk about putting on some cost efficiencies and focusing increasingly on cost on the software margin side. So is 2020 potentially the year that we see the growth in the expenses in the software business start to slow and or is that more probably a 2021 event?

I think that we have an effort in that direction but 2021 is a safer bet. The way we think about that one is we have – as we do more and more cloud offering, that carries with it higher cost. And so that's a thing to work against, but the flip side of that is, as we have more scale in cloud, our unit costs go down. And so we're busy trying to identify where there – were in our cloud infrastructure there is savings to be had, that come from scale. And so the two offset each other a little bit, it’s another year of investment, that's true, but at the same time, we're trying to manage expenses as tightly as we can, because we love to see either additional cash freed up for investment or returned to shareholders. So we'll see how this effort goes. But we're focused on it without making a commitment to changing the margins.

Okay. And then I wanted to check in on the CCS business, I know a few quarters back there have been a couple of clients who had left. And then some of the client had come back and you had referenced some strong unit volumes in the quarter. And so I – that often ties with CCS, but not necessarily. So I just wanted to ask for some color there.

CCS is business as usual. It's where – it's a healthy business, we did lose some business, more commodity like business recently. But the business is generally strong.

Yes, in terms of the growth that we're projecting, as you would expect, DMS should continue to grow at much higher rates than the projected average and apps will go back down to a more normalized rate of low single-digit growth as we move clients onto the platform for strategic reasons. Within that, there is nothing that really stands out at least to me in terms of puts and takes around the product family that we expect to be any different that the past.

Got it. Well, last one from me. If I could just ask for an update on the UltraFICO Score, how that's doing? Thanks.

Yes, the UltraFICO is – it's in test, it's in pilot with customers and we'll see where it goes. Our plan is to get to kind of a more full-scale launch later in the year. It's still on track. So far, early returns are happy with the results and we're seeing – we're seeing improvements in our ability to predict.

Thank you very much.

Thank you, Bill.

Next question comes from Brett Huff with Stephens. Your line is open.

Good afternoon, guys. Thanks for taking the questions. Can you talk a little bit about – in the guidance, you noted that there I think, correct me if I'm wrong that you're assuming volume increases and then sort of the normal price increases that you rolled through most years but not including any of the strategic or special price increases. Two parts, one, can you tell us how the auto price increases are going? I know you used the word feather in to kind of talk about those. Did that – did they feather in more this quarter, is that why we saw the acceleration in B2B, kind of where are we in that penetration or whatever you want to call it. And then as we look into next year or look into fiscal 2020, is there a specific vertical within the Scoring business that you're going to focus on? I think there's maybe talked about card and things like that?

So with auto, it's gone very smoothly and not surprisingly because, we spent a lot of time thinking about where and how to strategically reprice, I would say that the impact is not fully felt by any means, we're just starting to see it come in. So again we're still not certain on the timing, but it is not reflected in the current numbers. With respect to other strategic areas, if you look at our Scores business, we have mortgage, we have auto and then almost everything else is in one way or another credit card related, we have account management and pre-screening and pre-qual. It's quite a large portfolio of different kinds of things. And so it's not as simple as just saying, oh we raised prices in X, it's definitely a case of us being very surgical in our approach and identifying pockets in that portfolio that can – that are basically demanded in the last that can handle a little bit more price. And so it's not as easy to describe this time around, but the potential is very much there.

Okay, thanks. And then can you talk a little bit about the homogenization of the platform? I think one example that you gave is that the FICO or the Falcon X is in the cloud, I think on AWS, but maybe not fully on your common platform yet. Is that – where are we in sort of moving everything to that common platform I think using kind of the underlying DMS infrastructure?

Yes, great question. As you know we have half a dozen major franchises and three of them are moved to the platform. So, origination is now on the platform and Strategy Director, which is the successor to TRIAD, is now on the platform. Blaze, our rules engine is now on the platform. So a number of our major solutions are there. The harder ones are Falcon and Debt Manager, Collections and Recovery and to a lesser extent CCS. And so, we're – Falcon is definitely the highest priority and we have a very strong team, large team working on moving Falcon from just being in the cloud to our cloud ready Falcon X platform based product. CCS is not as far along, but the interconnections with the platform are there. And so, that's less visible. And Debt Manager is a very complex code base. And so, it may remain a separate platform. We may find a way to bring it together. We will make it interoperable one way or another, but that's still under review. So I can't promise that we'll have 100% of our major solutions on the platform in 12 months, but we're almost there.

So that was going to be kind of my follow up question on that one on the timing. I mean the question was asked before “safer bet” to think about fiscal 2021 as margin improvement. Is that tied to the comment you just made? You don't want to promise 12 months, but maybe a little bit beyond that. Are those – am I putting the dots together there correctly?

Yes, I mean there's no question that when has more of our business on the platform; the economics are going to improve that. That's the whole idea here. And frankly, it should go along with being able to pass some savings through to customers. I mean, when we have – the platform in its full form, the economics should be good for us and good for our customers.

Great. That's all I had. I appreciate the time.

[Operator Instructions] Next question comes from the line of Jeff Meuler with Baird. Your line is open.

Yes, thank you. In terms of what's assumed in the scores revenue guidance, is it basically the typical mid single-digit volume growth that you assume? And then you have the auto pricing effect, especially in Q1 until it’s anniversaried? Or just any other callouts and I guess the other piece I'd be wondering on is if there's a mortgage market assumption?

Yes, it is the kind of standard price increases. And no, it does not include auto. The auto was – we did auto last year.

Right, I guess, what I'm wondering is did you assume kind of the mid single-digit volume growth plus you have the benefit from auto that you haven't yet anniversaried, so you'll get outsized growth there in Q1? Or are you assuming high single-digit because of something related to the mortgage end market assumption, just given that mortgage has been stronger recently?

Mike?

Yes, I can that. We have seen some strength in mortgage origination scores consistent with what you can see in external data from the MBA and otherwise, but that's not directly reflected in the guidance in the scores segment. It really is, as you described, low single-digit volume increases across the board, cost of living type price increases across the portfolio, and really nothing specifically in there for any kind of lingering effects of past price increases.

Okay. And then I guess that it's not baked into the guidance, but it sounds like you're planning some additional special pricing adjustments. Just order of magnitude do they have the potential this next round to have a similar impact on your revenue as the auto pricing or the mortgage pricing, just any rough sizing?

Yes, as you know, we won't commit to rough sizing, but they do have the potential. I would say the potential is certainly there.

Okay. Thank you. Have a good conference.

Thank you.

And that does conclude the Q&A session of the call for today. Gentlemen, I'll turn it back to yourselves. Please continue. Thank you.

Thank you. Thank you to everyone for joining, and that concludes today's call. We look forward to talking with you again. Thank you.

And that does conclude the call for today. We thank you very much for your participation. I ask that you please disconnect.