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Edited Transcript of FICO.N earnings conference call or presentation 10-Nov-20 10:00pm GMT

·38 min read

Q4 2020 Fair Isaac Corp Earnings Call MINNEAPOLIS Nov 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Fair Isaac Corp earnings conference call or presentation Tuesday, November 10, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Michael I. McLaughlin Fair Isaac Corporation - Executive VP & CFO * Steven P. Weber Fair Isaac Corporation - VP of IR & Treasurer * William J. Lansing Fair Isaac Corporation - President, CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Brett Richard Huff Stephens Inc., Research Division - MD * Jake Leonard Williams Wells Fargo Securities, LLC, Research Division - Associate Analyst * Jeffrey P. Meuler Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst * Kyle David Peterson Needham & Company, LLC, Research Division - Associate * Manav Shiv Patnaik Barclays Bank PLC, Research Division - Director & Lead Research Analyst * Surinder Singh Thind Jefferies LLC, Research Division - Equity Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, and welcome to the Fair Isaac Corporation Quarterly Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. It's Tuesday, November 10, 2020. I would now like to turn the conference over to Steve Weber. Please go ahead. -------------------------------------------------------------------------------- Steven P. Weber, Fair Isaac Corporation - VP of IR & Treasurer [2] -------------------------------------------------------------------------------- Thank you, Eric. 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 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 an 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, including the impact of COVID-19 on macroeconomic conditions and the company's business, operations and personnel 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 10, 2021. And with that, I'll turn the call over to Will Lansing. -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Steve, and thank you, everyone, for joining us for our fourth quarter earnings call. I hope you and your families are healthy and staying safe as we deal with the effects of the pandemic. At FICO, we continue to make the health and safety of our employees a priority and are primarily working from home with most of our offices remaining closed. I'd like to take this opportunity to thank our entire team for their perseverance and their adaptability and their commitment to our customers. On the Investor Relations section of our website, we posted some slides that I will reference during our presentation today. 2020 has been a remarkable year for all of us. At FICO, we've been focused on navigating an extremely volatile and unpredictable environment. I'm happy to report that our Q4 results again demonstrate not only the quality of our management team, but also the resilience of our business model. In our fourth quarter, we posted exceptional results that capped off a very successful fiscal year. We reported record revenues of $374 million, an increase of 23% over the same period last year. For the full fiscal year, we recorded $1.29 billion of revenue, up 12% from fiscal 2019. We delivered $59 million of GAAP net income and GAAP earnings of $1.98 per share even after taking a large charge in restructuring and impairment losses. On a non-GAAP basis, the $3.25 earnings per share was up 62% from last year, and we're delivering strong free cash flow growth as well. Q4 free cash flow was $135 million, up 51% from last year. Total fiscal year '20 free cash flow was $343 million, up 45% from fiscal '19. We had another solid year throughout our business. In our Applications segment, we had a great quarter, up 12% versus last year, in large part due to some Falcon license renewals. For the year, the segment was essentially flat, a good result considering we entered the year with difficult comps as a result of large license sales in fiscal '19. Applications bookings in the quarter were $117 million, up 42% over the same period last year and $282 million for the full year, up 6% versus fiscal '19. In our Decision Management segment, we continue to prove that we're gaining traction with our new technology. We again delivered our largest DMS revenue quarter ever, up 36% from last year's fourth quarter. And the segment was up 22% for the full year versus fiscal 29 (sic) ['19]. Our bookings were even more impressive. We signed $99 million in new DMS deals this quarter, up 62% from the same quarter last year. For the full year, we signed $199 million of new DMS deals, up 27% versus last year. Let me take a few moments to highlight the DMS success this quarter. First, we signed the biggest single platform and centralized decision solution in company history with a large Latin American bank. The bank is looking to implement 19 different instances on our platform to drive the decision to support use cases related to auto, credit line management for the different retail products and collections and others on the corporate platform. We're signing more deals and bigger deals as we find operators are eager to use our advanced analytic tools to automate their most difficult decisions. We continue to focus our strategy of investing for platform success. We've been making coordinated changes across the business to grow revenue from our on-platform solutions, favor software over services, optimize pricing and manage operating expenses. In our fourth quarter, we made some changes, including reducing headcount and some of our facilities footprint. Those were announced in September when we disclosed the charge we would be taking. Subsequent to the end of our fiscal year, we also made the decision to exit our FICO cyber risk score business, which we sold to institutional shareholder services last month. We don't make these decisions lightly. We're committed to becoming the preeminent platform player in decisioning analytics, and we need to be focused on that mission. That may mean exiting nonstrategic products or not signing or renewing low-margin project work. We are constantly looking at our business to identify areas for growth and improvement and implement actions to deliver our strategic initiatives. We'll continue to keep you updated on the progress we're making in our software business, and we'll be providing more information in the coming quarters to explain the transformation we're making there. In our Scores business, we had another very successful year. Scores were up 32% in the quarter versus the prior year and up 25% for the full year. On the B2B side, revenues were up 27% as we saw continued strong mortgage originations volumes. We saw a small rebound in auto originations in the quarter, while cards and other personal loan volumes continue to be down. The quarter also included a onetime true-up of royalty revenues. For the full year, B2B revenues were up 26% compared to 2019. Our B2C revenues were up 45% versus the same quarter last year, and 23% for the full year compared to last year. We continue to see incredible growth at myFICO.com, which was up 62% this quarter versus last year and are also getting good growth through our partners. As we look to our fiscal 2021, we see customers looking to accelerate their digital transformation and looking to our technology to facilitate the process, but we're also faced with a number of uncertainties. Obviously, we're all still dealing with the ongoing pandemic and all of the resulting health and economic impacts. We may see a new stimulus package from the federal government, but with the just-completed elections, it's difficult to predict any timing or impacts. It's also difficult to predict what we'll see in debt markets in the coming year. Obviously, the mortgage markets have been growing at phenomenal levels, but we can't predict when or to what degree those markets will cool off. In auto and personal loans, there's still a great deal of volatility, and we cannot confidently predict how the next 12 months will play out. As in past years, we've instituted some pricing increases in various areas within Scores. But it's also difficult to determine their potential impact because of volume uncertainty. We're coming off a quarter with record revenues and record bookings. But again, with an ongoing pandemic, it's difficult to predict with certainty how quickly our solutions from the new sales will be implemented. In addition, our subscription-based go-to-market strategy will have an impact on the timing of revenue recognition in fiscal '21, causing less revenue to be claimed upfront and more to be taken ratably, which Mike will describe in his remarks. We're proud of how our business performed in fiscal '20 and are excited as we embark on a new year. But we're also realistic in understanding that we are in unprecedented times with many uncertainties. Because of this, we remain committed to providing as much transparency as possible, but are not providing guidance for fiscal '21 at this time. I'll have some final comments in a few minutes. But first, let me turn the call over to Mike for more financial details. -------------------------------------------------------------------------------- Michael I. McLaughlin, Fair Isaac Corporation - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Will, and good afternoon, everyone. As Will said, we had a great finish to our fiscal year, and were able to post exceptional results in the midst of a tumultuous business environment. Revenue for the quarter was $374 million, an increase of 23% over the prior year. Our full year revenue of $1.29 billion was up 12% over last year. Within our 3 reported business segments, our Application revenues were $168 million, up 12% versus the same period last year. The quarterly increase in revenue was driven by increased term license sales, including an unusually high number of large multiyear license renewals. Full year revenues for Applications were $602 million, roughly flat with last year. Applications bookings were up 42% over the same quarter last year and up 6% for the full year. In our Decision Management Software segment, Q4 revenues were $53 million, up 36% over the same period last year. Full year DMS revenues were $164 million, up 22% from fiscal '19. The revenue increases for both the quarter and the year were due to increased license sales as well as increased SaaS subscription revenue. Q4 DMS bookings were $99 million, up 62% from the previous year. For the full year, DMS bookings of $199 million were up 27% over last year. Finally, our Scores segment revenues were $153 million, up 32% from the same period last year. The B2B part of the business was up 27% over the same period, driven by high volumes in mortgage originations and a onetime true-up of past royalties. B2C revenues were up 45% from the same period last year, both myFICO.com and partner revenues grew significantly. For the full year, Scores revenues were $529 million, up 25% from last year. This quarter, 74% of total revenues were derived from our Americas region. Our EMEA region generated 18% and the remaining 8% was from Asia Pacific. Recurring revenues derived from transactional and maintenance sources for the quarter represented 71% of total revenues. Consulting and implementation services revenues were 13% of total quarterly revenues and license revenues were 16% of the total. SaaS software revenues, not including related professional services revenues for the full year of fiscal 2019 were $237 million, up 11% from fiscal 2019. We had record total bookings in Q4 of $235 million, up 46% from the previous year. These bookings generated $34 million of current period revenues, which is a 15% yield. Full year bookings of $537 million represent an 11% increase from last year. SaaS bookings were $221 million for the year, up 18% from 2019. As you may recall, our total bookings lagged in Q2 and Q3 of this year due to disruptions from the pandemic. But the strong finish put us in line with our annual expectations. Our operating expenses totaled $289 million this quarter, including $42 million of restructuring and impairment charges. Excluding those onetime charges, expenses were $247 million compared to $231 million in the prior quarter, up $16 million due to increased expenses associated with additional revenue and incentive expenses. Our non-GAAP operating margin, as shown on our Reg G schedule, was 41% for the quarter and 34% for the full year. We delivered non-GAAP margin expansion of 400 basis points for the full fiscal year. GAAP net income this quarter, which again included onetime charges, was $59 million, up 8% from Q4 in fiscal 2019. Our non-GAAP net income was $97 million for the quarter, up 59% from the same quarter last year. For the full year, GAAP net income was $236 million, including $45 million of restructuring and impairment charges and $50 million in reduced tax expense from onetime excess tax benefits recognized upon the settlement or exercise of employee stock awards. Non-GAAP net income was $292 million, up 28% from the prior year. Our effective tax rate for the full year was 8%, including the $50 million of reduced tax expense from excess tax benefits. We expect our FY 2021 recurring tax rate to be approximately 26% to 27%, compared with 28% in FY '20. That expected recurring tax rate is before an estimated excess tax benefit of approximately $20 million in FY 2021. The resulting net effective tax rate is estimated to be about 20% in fiscal '21. Free cash flow for the quarter was $135 million compared to $90 million in the same period last year, an increase of 51%. For the full year, free cash flow was $343 million, up 45% from last year's $236 million. Turning to the balance sheet. At the end of the quarter, we had $157 million in cash. This is up $32 million from last quarter due to cash generated from operations, partially offset by $25 million of share repurchases in Q4. Our total debt now stands at $845 million with a weighted average interest rate of 4.3%. Turning to return of capital. We bought back 60,000 shares in the fourth quarter at an average price of $123 per share. In fiscal 2020, we repurchased a total of 675,000 shares at an average price of $348 per share for a total of $235 million. At the end of September, we had about $225 million remaining on the Board repurchase authorization, and we continue to view share repurchases as an attractive use of cash. Finally, as Will mentioned, we have recently shifted the sales of our on-premise software away from the sale of separate license and maintenance components to subscriptions that include both the rights to use the software and the ongoing maintenance. As a result, at the beginning of FY '21, we adjusted our revenue recognition assumptions to be consistent with industry standards for software subscription sales. This change will result in less upfront revenue recognized in the year we signed subscription contracts and more revenue from those contracts recognized ratably during their term. This will likely result in a material decline of our software license revenues in fiscal '21 as a greater percentage of the total expected revenue to be received from newly signed on-premise subscription sales and renewals of existing term licenses are spread over the term of the deal. This will not have an impact on our cash flows or the total revenue recognized from software license sales over the term of each subscription contract. With that, I'll turn it back over to Will for his thoughts on FY '21. -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [5] -------------------------------------------------------------------------------- Thanks, Mike. As I said in my opening remarks, I'm proud of our team in what we were able to accomplish in fiscal '20. I'm excited about our prospects for 2021 and beyond. Clearly, there's uncertainty, but we're confident that our future is bright. We can't pin down exact expectations, but we've proven our business is remarkably resilient, and we're well positioned for the future. We'll continue to innovate, fine-tune and improve our business model with an eye toward improving margins and delivering on our potential, and we look forward to keeping you all informed as we progress. Now let's turn to Q&A. -------------------------------------------------------------------------------- Steven P. Weber, Fair Isaac Corporation - VP of IR & Treasurer [6] -------------------------------------------------------------------------------- This concludes our remarks. Eric, if you could please open the lines for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question comes from the line of Manav Patnaik. -------------------------------------------------------------------------------- Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [2] -------------------------------------------------------------------------------- Just on the software business, clearly, a solid end to the year to you. You characterized it as a backlog that kind of paused because of a pandemic. But I was hoping you could give us just a little bit more color on how the clients are viewing the next few quarters ahead, I guess, is the fact that you ended strong just to try and get back to normal? Or is there some shift in where you're signing these deals? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- Hi Manav, I think that -- I wouldn't say things are back to normal, but I would also say that with respect to the software that banks buy from us, things didn't change that much. Remember, we have a very long sales cycle, 270 days on average. And so a lot of what we've booked in 2020 was pipeline built even earlier. Now we're now in the process of building pipeline for 2021. We have some pipeline built. We have more to build. And it's a little hard to say how do all turn out. But I would say that our customers are -- they have the same needs for the software that they had before the pandemic. If anything, there is increased appetite because the pandemic has gotten everyone focused on digital transformation. And our software, obviously, plays really well for that. So I anticipate continued interest. I don't think we're just working off a backlog. -------------------------------------------------------------------------------- Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [4] -------------------------------------------------------------------------------- Okay. Got it. And then if I may, just on the Scores side. First, can you just quantify how much that true-up was that you talked about? And then secondly, just going into next calendar year, I guess, how should we think about the pricing initiatives that you've been doing in the last few years, like should we be expecting another one? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [5] -------------------------------------------------------------------------------- We can't disclose the amount of the true-up, that's health confidential. But as you know, these things happen every several years, we wind up doing a true-up of the sort. With respect to the pricing actions in Scores, we took some actions. But as in years past, we don't really know exactly how it will feather in. We don't know exactly what the volumes will be. And so it's a little hard to predict. I would say not a lot more nor a lot less than years past, is probably a way to think about it. But it's -- we have uncertainty. We always -- we wind up getting the activity and arrears from the bureaus, and that's just the way it is. -------------------------------------------------------------------------------- Manav Shiv Patnaik, Barclays Bank PLC, Research Division - Director & Lead Research Analyst [6] -------------------------------------------------------------------------------- Got it. And if I can just squeeze in one more. You're selling the cyber score business to ISS. I guess I don't know if you've ever sold or pruned your portfolio before. So I was just curious if something -- is there a fresh look? Is there a lot more that maybe we can see coming? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [7] -------------------------------------------------------------------------------- Yes. Good question, Manav. We've undertaken a pretty massive strategic look at our business over the last 6, 7 months. We hired in a former McKinsey Director, Tab Bowers, to help us. And we've been really focused on what is strategic and what is not. And so we're -- the things that look promising, but they really are not central to our mission for building a decisioning platform are definitely being moved to the periphery and cyber risk score is an example when that was sold. We're proud of it. It was good technology, but our success in the decisioning platform business doesn't turn on whether we're successful in cyber risk score. So at some level, it was a distraction for us. Are there other things like that? We're in a state of constant evaluation, and we hope to find some things that are less strategic and free up resources for more strategic. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Our next question comes from the line of Kyle Peterson with Needham. -------------------------------------------------------------------------------- Kyle David Peterson, Needham & Company, LLC, Research Division - Associate [9] -------------------------------------------------------------------------------- Just wanted to touch a little bit on the SG&A trajectory. I know you guys took some restructuring kind of rationalized headcount in real estate. How should we think about kind of the expense trends over the next, like, coming year, given that it seems like some of these efficiencies could be permanent, but I'm not sure whether you guys are going to reinvest part of that in some higher growth areas such as DMS. -------------------------------------------------------------------------------- Michael I. McLaughlin, Fair Isaac Corporation - Executive VP & CFO [10] -------------------------------------------------------------------------------- Yes. I'll give you some quantitative thoughts and then maybe will can provide qualitative. A big part of the reduction in the expense run rate in the second half of the year was T&E. You can see from the additional slides we provide as a part of this call that our -- going into the pandemic, T&E run rate was about $30 million to $35 million a year. I think it was something like $100,000 in Q4. So that's not going to persist, but it's probably going to be less than $30 million to $35 million. So even if we do have a vaccine, we get back to normal. So that's 1 moving piece. We've also taken actions to reduce our geographic footprint and to a minor extent, reduce headcount in nonstrategic areas. That real estate savings will accrue over the years. And so that will be a one-way benefit that isn't going to change. But with respect to some of the headcount reductions, we actually did that so that we could reinvest, if not all of that money into headcount augmentation in areas related to the software platform to pursue our strategic ambitions there. So we expect overall expenses for the business -- probably, again, with the pandemic so much is uncertain, but we expect flat to single-digit growth in expenses as the year goes on. Maybe we'll do better than that if perversely, we can't travel for the full year. Hopefully, we can, and we expect -- we have some money to spend in that category. But hopefully, that at least gives you some color. -------------------------------------------------------------------------------- Kyle David Peterson, Needham & Company, LLC, Research Division - Associate [11] -------------------------------------------------------------------------------- Yes, that's helpful. And then I guess just more of a housekeeping item, particularly on some of these longer-term license sales that you guys recognized this quarter. Was that more on the application side? Just trying to think about how we should incorporate that in our model moving forward? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [12] -------------------------------------------------------------------------------- Yes. You can -- if you look at the segment breakout in the 10-K, you can figure it out, you have to do a little quarterly subtraction math because we don't show the quarter-over-quarter comparison. In as friendly way as we might. But the license growth was really driven by renewals. We had a healthy new business license sales quarter as well as we would expect in the fourth quarter, particularly given some of the delayed purchases that flowed over from Q2, Q3. But if you look at our $62.5 million of license bookings for the quarter, which is up -- of that, $21 million or so is renewals. That renewals in excess of renewals we had in the year ago quarter. So -- and just for better or worse, they're lumpy, we have to recognize a lot of it upfront. And so it was both increase in new business sales, which was up sort of mid- to high-teens from year-over-year, but most of the increase but not all was just by this lumpiness of renewals, it happened to be a whopper renewal quarter. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Our next question comes from the line of Jeff Mueler with Baird -------------------------------------------------------------------------------- Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [14] -------------------------------------------------------------------------------- Yes. I wanted to ask on B2C scores, kind of a really, really good quarter. On the myFICO side, recognize you have a strong brand and recognized that direct is the part of the market that's been performing well lately. But anything that you've changed for myFICO, either in terms of go-to-market or product or just any other changes that are driving that exceptionally strong result? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [15] -------------------------------------------------------------------------------- It's -- I would say it's more on the market side than on our side. But we're constantly innovating over there. We're constantly pushing the -- trying to push the value that the consumer gets in that offering. Our strategy around myFICO is to be kind of best-in-class credit monitoring for consumers. And at the same time, we mostly go-to-market through partners like Experian. And so myFICO is at some level, a laboratory for us, a place to test out ideas, to test out value proposition changes. And so we're always doing that. There's -- that's not like a new thing this year. We constantly do that. I think that the biggest thing responsible for the lift is the -- is consumer demand. I mean the consumer is really interested in tracking his or credit score. -------------------------------------------------------------------------------- Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [16] -------------------------------------------------------------------------------- Yes. Okay. And then, Mike, just on these accounting changes. I just want to make sure that, I guess, a couple of clarifying questions, but there's no change to the timing of expense recognition would be one question. And then, I guess, is -- are you viewing bookings as kind of the best way to track the performance of the business throughout 2021. And I think that's unaffected? Or is there some other kind of metric or some way that you're going to be adjusting revenue to give us a like-for-like impact or something to track the performance of the business as we progress through '21? -------------------------------------------------------------------------------- Michael I. McLaughlin, Fair Isaac Corporation - Executive VP & CFO [17] -------------------------------------------------------------------------------- Thanks for those 2 questions. The first one definitely merits some additional detail, I think, for everyone listening to the call. So the change really is to get in line with industry standard for how subscription software is recognized. We had been recognized revenue for on-premise term license sales essentially in the way that you would recognize a perpetual license sale, where you had a onetime license upfront and then 20% maintenance every year. We were treating the total contract value of term license in sort of the same way. That led to about between 80% and 85% of the total contract value for a multiyear deal being recognized in the year you sign it -- when you sign it. And only 17% -- 15% to 20% recognized ratably in years 2 and 3. With this change, again, which is what the vast majority of subscription software companies already do, we're shifting that revenue recognition to better reflect the fact that the value of the ongoing support and maintenance for the on-prem software in a term license as opposed to a pressure license situation, is higher than what we had been recognizing before. That nets out to about a 30% reduction in the percent of TCV, total contract value, recognized in year 1 versus years 2, 3 and in some cases years 4 and 5. So when you think about the revenue side, and I know you asked about the expense side as well. We had $128 million of license revenue in our software business in fiscal '20. Going forward, we would recognize about 30% less of that in the first year, and 30% will then be recognized as recurring revenue, in the remaining years of the contract. So it's all about revenue recognition for accounting purposes. It doesn't change when we build a customer, how much we build them or what total revenue we'll recognize over the term of the contract. So hopefully, that's clear. And you can do your own math on how much of a headwind that will be for revenue, but it will be a headwind in fiscal '21, for sure. And we want to make sure everybody knows that. With respect to expenses, these are on-prem license sales. So there aren't that much -- there isn't that much expense associated with it. Our margins on our on-prem business are consistent with what others earn 90-plus percent. So the -- but it will change revenue recognition a little bit to the extent that we recognize more revenue ratably, we match expense with revenue recognition. But it's -- that's not going to be a material impact relative to the revenue impact. And then you're talking -- you asked about booking, a separate question. Yes, for now, that's the best indicator to measure our current period performance in generating new revenue. It's not a perfect metric, as you know, it's on a TCV basis, so term length matters. But we're sticking with that metric for now. As we move more to a subscription and SaaS business, annual recurring revenue and its derivatives becomes more important to us. And we do expect to be able to expose to you guys at some point during this fiscal year, those kind of metrics for FICO, but we're not ready to do that again. -------------------------------------------------------------------------------- Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [18] -------------------------------------------------------------------------------- Got it. Sorry for the 3-parter. Appreciate all the detail. -------------------------------------------------------------------------------- Michael I. McLaughlin, Fair Isaac Corporation - Executive VP & CFO [19] -------------------------------------------------------------------------------- Thank you for the questions. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question comes from the line of Brett Huff with Stephens Inc. -------------------------------------------------------------------------------- Brett Richard Huff, Stephens Inc., Research Division - MD [21] -------------------------------------------------------------------------------- Just a quick follow-up on pricing. Could you guys give us a sense -- I think sometimes you've given us a sense of which part of scoring you sort of dug into and were tweaking the pricing on. Could you -- any insight there that you could share with us for this new round of price tweaks? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [22] -------------------------------------------------------------------------------- Yes. To the extent we're willing to share that information. It's less to do with the type of scores, and it's more to do with the size of the customer. So we're into a more kind of a tiered pricing philosophy. And so I would say that the price increases were spread across the Scores portfolio with a view to the size of the customer buying the Scores. -------------------------------------------------------------------------------- Brett Richard Huff, Stephens Inc., Research Division - MD [23] -------------------------------------------------------------------------------- And I'm assuming that the smaller customers may have been getting a pretty good deal for a long time, and maybe we're tweaking that based on just volumes? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [24] -------------------------------------------------------------------------------- Yes, absolutely. And I would say they're still getting a good deal, but not as good a deal. -------------------------------------------------------------------------------- Brett Richard Huff, Stephens Inc., Research Division - MD [25] -------------------------------------------------------------------------------- In terms of bank buying behavior, you touched on this a couple of times. I know your sales cycles are long. And so when things exactly come out of the pipe and get booked, I know it takes a while. But as you're having conversations with folks, I know you mentioned digitization is really important. But as you think about Falcon, Strategy Director, debt collector, sort of those key apps, any sort of detail on the conversations there that stick out that might be useful to know? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [26] -------------------------------------------------------------------------------- Well, what's interesting is, historically, we have provided, for lack of a better term, point solutions for our bank customers, originations and customer management and fraud and collections and recovery, as you note. What we're seeing, what we saw last year and what we're starting to see more of is more engagement with the IT department, more engagement with the CIO and a better understanding on the part of our customers of just the benefits and value of the platform. So while they may still be buying a solution like originations, now they appreciate that it's originations on top of the platform. And there's all kinds of potential that goes with that, where for small incremental investments, they get large incremental value out. I think that's the biggest change we're seeing in the conversation is customers increasingly understanding our strategy around platform and looking to leverage it. -------------------------------------------------------------------------------- Brett Richard Huff, Stephens Inc., Research Division - MD [27] -------------------------------------------------------------------------------- Okay. And then any update on the sort of the master plan of moving everything over to sort of the core underlying DMS platform on the app side. Can you just -- sometimes you sort of say we expect Falcon to be completely done in a year or whatever. Can you just give us the update on that to remind us where we are in terms of finish line? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [28] -------------------------------------------------------------------------------- Yes. So I guess the honest answer is our work is never done. Okay. So it's not like we will just say, okay, "Now it's all on the platform, we can all go home." It's a process. And so we've moved some core fraud applications from Falcon onto the platform. Our compliance is now available in Falcon X on the platform. We're also looking at I would say, more flexible and modular approaches to providing fraud solutions on the platform. So there'll be some of that. Some of our applications aren't going to make it to the platform. So for example, collections and recovery has a massive code base, 8 million lines of code, and it just doesn't make sense to rewrite it onto the platform. And so that will remain a distinct code base. So when are we done? I guess another way to think of it is, when are we going to feel that the platform is sufficiently mature that customers who want to have multiple use cases on the platform have that work. I think we're almost there now. We're pretty much there now. This Latin American Bank deal that we just referenced, it started out with a conversation about a handful of use cases that they would want to do on the platform and that we're up to '19, and I think there's more in the future. So it's a different way of thinking about the value that we provide. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from the line of Jake Williams with Wells Fargo. -------------------------------------------------------------------------------- Jake Leonard Williams, Wells Fargo Securities, LLC, Research Division - Associate Analyst [30] -------------------------------------------------------------------------------- Can you help us understand how much of an impact mortgage volumes were in this quarter in the B2B Scores segment? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [31] -------------------------------------------------------------------------------- So like last quarter, Experian -- sorry, Equifax and TransUnion reported before us last week and end of the prior week. And you can see how they broke out mortgage volumes. We don't break out mortgage volumes, but we can say that what we saw was consistent with what they told the street they saw. I think one showed up 45% in terms of volume, and the other was closer to 60%, although it's a little unclear whether that was for the quarter itself or sort of run rate, including the last -- including the month of October, but our volumes were consistent with what you could see from them. -------------------------------------------------------------------------------- Jake Leonard Williams, Wells Fargo Securities, LLC, Research Division - Associate Analyst [32] -------------------------------------------------------------------------------- Got it. And then in terms of the average bookings term, stretched out to 55 months this quarter from 37. Was that impacted by the decision to change the revenue recognition on-prem? Or is this an independent evolution? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [33] -------------------------------------------------------------------------------- No. It's independent. It's not related to that. What it's related to is, we had some deals that are really long-term deals, much longer than typical than has been our usual. And I would say that, that trend could continue. We'll have to see how things play out. But I think when banks adopt our platform and standardize on the platform, it's not surprising that they would want to lock us in for a long period of time with an understanding what it's going to cost. So I think there's going to be pressure for longer-term deals on us. -------------------------------------------------------------------------------- Jake Leonard Williams, Wells Fargo Securities, LLC, Research Division - Associate Analyst [34] -------------------------------------------------------------------------------- So can we assume that the clients are the ones who are coming to you asking for this long-term deal because of stability and return, there's probably some price escalator built in each year? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [35] -------------------------------------------------------------------------------- Yes. We try to be smart about it. And yes, it's definitely a client request. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Our next question comes from the line of Surinder Thind with Jefferies. -------------------------------------------------------------------------------- Surinder Singh Thind, Jefferies LLC, Research Division - Equity Analyst [37] -------------------------------------------------------------------------------- Following up on an earlier question about just the DMS platform. Maybe can you provide a little bit more color on the investments you're making in terms of the -- you're redirecting some of this $36 million in savings that you have towards additional headcount for the build-out of that platform. Is that something you're just trying to accelerate the build-out of certain functionality? I was just hoping for maybe a better understanding of where the road map is in terms of I think, ultimately, what we're trying to get to, I guess, in terms of the function that we currently have versus where it will be a fairly equivalent product to your on-prem in your old architecture cloud stuff. -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [38] -------------------------------------------------------------------------------- So part of the strategy with the platform is to have a lot of interoperability around the data, right? So we have a data orchestration layer. We can take data from lots of different places and bring it into the platform. And then we have a wide range of analytics that can be applied to that data. And then we have various solutions that sit on top of that platform -- of that decision platform to meet specific needs. Our strategy with the platform has been to -- as we migrate our applications to the platform, the way we think about it is we say, what are the components of this solution that we ought to modularize? What are the micro services that are involved here? And let's break them up and make them available to users of the platform so they can be mixed and matched in different ways. And so that's really kind of the heavy listing that's going on. We've also put a lot of energy into a thing called FICO studio, which is kind of a front-end fourth generation language kind of a programming environment where you can drag and drop a lot of things to build workflows based on the decisioning analytics in the platform. So there's a lot of work that's gone into that. But the way we think about it is not let's port an application to the platform. It's more break up the application into its component parts, understand how they can be micro services that could be consumed independently and then bring those to the platform, so that they can be reassembled on the platform for all different kinds of purposes. -------------------------------------------------------------------------------- Surinder Singh Thind, Jefferies LLC, Research Division - Equity Analyst [39] -------------------------------------------------------------------------------- Fair enough. And then in terms of just a bigger picture question. Obviously, with a potential change in the administration, is there any other considerations that enter into picture here where maybe could there be, let's say, an acceleration in the upgrade cycle for, let's say, from FICO 8 to FICO 9 or even to FICO 10 or something for that matter that might drive based on the differences in the policy administrations? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [40] -------------------------------------------------------------------------------- I'm not sure that we'll have a change in the rate and pace of adoption of new scores under -- based on the administration. I do think that all lenders are really focused right now on how do they get the most value out of their scoring algorithms, and they're increasingly using things like FICO Resiliency Index to complement the traditional FICO score to make these decisions. I wouldn't say that's driven by the administration. I think that's more driven by the innovation coming out of our Scores team. But there's a tremendous appetite on the side of the banks to get the full benefit out of it. And so we're pretty focused on that. -------------------------------------------------------------------------------- Surinder Singh Thind, Jefferies LLC, Research Division - Equity Analyst [41] -------------------------------------------------------------------------------- And then just a quick one on -- or maybe on the B2C revenues, obviously, really strong growth there. I'm assuming the run rate is what is a sustainable run rate at this point. Is there any color you can provide on how -- is this -- there's just this initial phase where we should expect this big ramp-up that we've seen with the kind of the dislocation in the markets? Or how should we think about the growth rate forward should it -- customers stay on a little bit or how long do customers stay on the platform? -------------------------------------------------------------------------------- William J. Lansing, Fair Isaac Corporation - President, CEO & Director [42] -------------------------------------------------------------------------------- I think we've definitely enjoyed a spike because of the environment. There's no question that consumers are more focused than ever on their score and whether it's going up or down, I get letters in the mail all the time. And that's definitely the environment driving that. So I'd say the 62% spike I referenced earlier, that is -- that's driven by the environment. In terms of lifetime value, how long they stay on. We have not -- it's too early to tell, but we haven't seen changes. So what we're seeing so far is kind of the same attrition over time that we've historically had. So we'll see. What we have noticed is that there's an inexorable trend to consumers being ever more focused on their credit score. I mean this has been every year, year in, year out, it's become bigger and more important to them. And so I'm not sure that it's like a spike up and then a ramp down. I mean it may just be part of a trend. -------------------------------------------------------------------------------- Operator [43] -------------------------------------------------------------------------------- All right. And Mr. Weber, we have no further questions from the phones at this time. I'll turn the call back to you. -------------------------------------------------------------------------------- Steven P. Weber, Fair Isaac Corporation - VP of IR & Treasurer [44] -------------------------------------------------------------------------------- Thank you. This concludes our call today. Thank you all for joining, and we look forward to speaking with you again soon. Thank you. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.