Fair Isaac Corporation — 2024 Q1

Yes. I think it's not so much -- well, just to take this in reverse order, not really a seasonal thing so much as it is deals move around, and they move from quarter-to-quarter. And I would say, this quarter, some deals were pushed to next quarter. We don't see that as a very big deal, I mean, not something that we're focused on.

So we're very comfortable with our guidance, and we continue to see volumes roughly where we expected, frankly. I'm not sure I agree with the view that there's more optimism. I mean rates have ticked up in mortgages recently, and so, if anything, I guess, I feel like the rate -- the fall in rates might be slower than a lot of industry pundits had been forecasting.

We have not had any challenges bringing on new clients. I mean as our penetration goes up, we will have captured more and more of our target enterprise customer base, and more and more of the growth will be from the expand part of the business, which is more use cases and more volume with existing customers.

Yes. I would just say, Surinder, that when we start with someone that's really new, the lead time is longer on them than an existing customer. So that's why you'll see some of that. But we still signed a lot of new deals with a lot of new customers or at least different use cases with customers that are using some of our legacy products.

Yes. That's a great question. I think, in general, that's a fair statement. We're pretty comfortable with where the margins are, and our expenses are running in line with what we expect and what we forecast and what we planned for. And so what you said is largely right. Incremental revenue should fall through to the bottom line.

Yes. So I mean we talked about that a little bit last quarter that we're making some investments. There's a lot of growth here, and we think there's a lot more room for growth. And we're doing some investment on the R&D side to add more functionality. And we're doing some investment on cybersecurity as well. So there is some investment coming in there. There's a lot of different moving parts this quarter because you've got -- we had the end of the year bonuses that happened too, so that rolls in here as well.

I don't have a lot of additional to add there. I mean it's down a little bit and again, not a gigantic surprise to us. I think we're very kind of comfortable with that. It's within our kind of range of forecast, so not -- we wouldn't consider it a big surprise. And in terms of guessing about the future, honestly, Manav, your guess is as good as ours. We're -- as you know, we're a trailing indicator.

No. I mean so the professional services piece is a little bit unique because most of the PS work is done by internal resources. So in some cases, if they're not working on billable deals, they're working on R&D. In some cases, we've moved people into that function as well. So those costs don't necessarily go away.

Well, I mean, there's still a lot of -- obviously a lot of volatility around the volume. So I think next quarter, yes, all the pricing went into effect in first part of January. We'll have a lot more color that we can provide next quarter because we'll see the impacts of all that. We'll see how -- we'll be that much farther into the year, and we'll know a lot more about what volumes look like. And frankly, we'll know a lot more about what the rate environment looks like probably in 3 months. So we'll be able to provide more color for the rest of the year at that point.

So we have adjusted price -- you identified, you highlighted probably the biggest change in pricing this year, which was collapsing the tiers in mortgage. And that was really in response to a lot of feedback from the industry about a level playing field, and so we accommodated that.

With mortgage, I'd say the surprise is that we're seeing a little bit of refi activity. It doesn't take very much for people to come back in the market and try to refinance their mortgages. And so even a point of decline is enough to generate some volume that we didn't really anticipate.

Yes. I mean in terms of real time, frankly, most of the reporting we get is in arrears to some degree, so the numbers you can get from industry analysts are going to be much more real time than what we can provide. There's a lot of industry data that's provided on a weekly basis. That's going to be much more real time than what we'll be able to give you.

Well, I think like card was running a lot hotter last year, right? I mean coming out of -- when the refi slowed down, although there was a big pickup in card, and we're still seeing that kind of slowdown then about a year ago now. So it's pretty steady. I think there's been a lot of pullback on the subprime markets. But overall, it's not all that materially different. The volumes are not. They'll fluctuate a little bit depending on even what some of the bigger players might do in any one given quarter. But again, that's not -- that's probably not as across the board as mortgage, which is more driven by consumer demand that's tied to interest rates.

Autos, I mean, autos is relatively stable and has been through that. I mean it's a few percent here or there, but you don't see a lot of volatility in the auto market, at least on the lending side.

I wanted to ask, just to go back to the comment about some deals getting pushed to the second quarter, is there anything idiosyncratic that you'd call out there? Or is there any focus on any certain product -- customer categories or regions or anything that you'd attribute that to? Or are you just seeing an elongation of the sales cycle? Because I think, in prior quarters, you guys had talked about a shortening of the sales cycle. So I'm just trying to understand if there's any kind of bigger change that's going on here.

No, not really. I mean the sales cycle is roughly where it's been lately, which is shorter than where it was a year or 2 years ago. I would say that -- and really I mean just there's nothing special there. The -- we -- it's probably worth reiterating that FICO, unlike a lot of other software companies, doesn't do a lot of wheeling and dealing at the end of the quarter to pull in business, and it is cultural with us.

Yes. And I would just say, practically, we had some deals that we didn't sign that last week of December just because it was hard to get people, right? I mean you run into this issue every December that you might have people that are out on vacation or traveling. You just can't get the ink on the paper. So some of these deals have actually closed in January.

Got it. Okay. That's helpful. And then just can you -- just expanding on that a little bit, can you just update us on any traction that you're seeing, whatever traction you're seeing kind of outside the financial services area for the Platform business and whether you're seeing bigger uptake there from nontraditional customers?

Yes. I would say that our Platform business is still very much focused on financial services. The business we do outside financial services today, we do closely aligned stuff like insurance. We do that. But in terms of really nonfinancial services verticals, I would say the lion's share of that is in the optimization area, where we have the world's leading optimization engine. And so it's used by airlines and retailers and all kinds of -- sports scheduling and all kinds of places that are not as typical when you think of FICO.

No, we just talked about the revenues. We don't pull out the different components in terms of the volumes. But I mean you can get the volumes from other third-party sources pretty easily.

There's potentially license -- I mean the renewals are hard to project, frankly, because we don't know when they're going to renew or sometimes, they'll renew early. Sometimes they will renew later if they'll -- taking on additional pieces. So the renewal piece is [ still gummy ].

Yes, that was in Scores. I'm sorry. That was in Scores. And the ones in Scores happen occasionally. We'll have license deals. Typically, they're foreign deals in areas where a large bank wants to build their own score model, and we'll sign deals with them. So that -- within Scores, we occasionally have those, and it's difficult to -- again, even with those, it's difficult to know what the timing is going to be.

Yes, it's primarily -- it's completely due to Lat Am and lower mortgage volumes in Q1 versus Q4, right? I mean that's -- we're volume takers, obviously, right? I mean if the volumes are down, which they're going to be -- they're going to be anyway seasonally in that quarter. The December quarter has fewer mortgages typically than the September quarter does. So it's the combination of those 2 things. Outside of originations, it was up slightly. The non-origination business was up slightly but not all that significant.

Yes. Frankly, we don't know because we don't -- I mean, actually, I think if you asked the bureaus, they'll tell you the same thing. The bundles get pulled for -- with scores and data, and they don't necessarily know -- nobody necessarily knows. If ever, the actual lender knows if it was closed or not. So we don't really know whether they turned into a closed loan or not. That's not reported to us.

Yes. We didn't provide that. I don't have the number in front of me, what the percentage was. So I -- we don't -- we didn't -- occasionally, we will do that. We didn't provide that this quarter. So you could probably back into it if you took the numbers we gave you from last year and then the percentage increases.

Yes, we had our license deal in Asia in Scores. So we had a much larger one in Latin America last year. And then we -- if you look at it in any given quarter, probably half the time, we have a license deal somewhere. But obviously, the total license deals this year were much smaller this year than they were last year. And that was because of the Latin American deal.