Fair Isaac Corp Q4 FY2024 Earnings Call

Thank you for your patience, and welcome to FICO's Fourth Quarter 2024 Earnings Conference Call. I will now turn the call over to Dave Singleton. Please proceed.

Good afternoon, and thank you for attending FICO's fourth quarter earnings call. I'm Dave Singleton, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing; and our CFO, Steve Weber. 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 with the prior quarter to facilitate an understanding of the run rate of the business. Certain statements made in this presentation are forward looking under the Private Securities Litigation Reform Act of 1995. Those statements involve many risks and uncertainties that could cause actual results to differ materially. Information concerning these risks and uncertainties is contained in the company's filings with the SEC, particularly in the risk factors and forward-looking statements portion 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 appropriate comparable GAAP measure. This includes an FY '25 guidance reconciliation of GAAP to non-GAAP earnings, which are adjusted for items such as stock-based compensation and excess tax benefit. This reconciliation is part of the earnings release included in Exhibit 99.1 to our 8-K, which we filed with the SEC under Item 2.02 titled Results of Operations and Financials. 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, and a replay of this webcast will be available through November 6, 2025. I will now turn the call over to our CEO, Will Lansing.

Thanks, Dave, and thank you, everyone, for joining us for our fourth quarter earnings call. In the Investor Relations section of our website, we've posted some financial highlights slides. We'll be referencing those during our presentation. Today, I'll talk about this quarter's results and our guidance for fiscal '25. We had another fantastic year. We exceeded fiscal '24 guidance on all metrics and delivered strong growth in free cash flow. As shown on Page 2 of the fourth quarter financial highlights, we reported fourth quarter revenues of $454 million, up 16% over last year. For the full fiscal year, we delivered $1.718 billion in revenue, up 13% versus the prior year. We reported $136 million in GAAP net income in the quarter, up 34% and GAAP earnings of $5.44 per share, up 36% from the prior year. For the full fiscal year, we delivered $513 million in GAAP net income, equating to $20.45 of earnings per share, up 19% and 21%, respectively. We reported $163 million in non-GAAP net income in the quarter, up 29% and non-GAAP earnings of $6.54 per share, up 30% from the prior year. For the full fiscal year, we delivered $595 million in non-GAAP net income, which equates to $23.74 of earnings per share, up 19% and 20%, respectively. As shown on Page 10, we delivered record free cash flow of $219 million in our fourth quarter and $607 million over the last four quarters, an increase of 31% year-over-year. We continue to return capital to our shareholders through buybacks. In the fourth quarter, we repurchased 188,000 shares at an average price of $1,721 per share. For the fiscal year, we've repurchased 606,000 shares at an average price of $1,366 per share. In our Scores segment, on Page 6 of the presentation, our fourth quarter revenues were $249 million, up 27% versus the prior year. For the full year, our revenues were $920 million, up 19% versus last year. On the B2B side, fourth quarter revenues were up 38% versus the prior year and up 27% for the full year, primarily driven by mortgage originations. On the B2C side, fourth quarter revenues were down 1% versus the prior year and down 2% for the full fiscal year, driven by decreased sales on the myfico.com website. Fourth quarter mortgage originations revenues were up 95% versus the prior year. Mortgage origination revenue accounted for 47% of B2B revenue and 37% of total Scores revenue. Auto originations revenues were down 2%, while credit card, personal loan and other origination revenues were down 5% versus the prior year. Today, we've announced that for calendar 2025, FICO's wholesale royalty will be $4.95 per score for mortgage originations. At this new per score royalty, the amount collected by FICO will remain a small percentage, on average, about 15% of the Tri-Merge bundle cost, which typically runs $80 to well over $100. With total average closing costs of $6,000, FICO's share is only about two-tenths of 1%. As such, it will continue to be the lowest of all individual mortgage closing costs. The FICO Score plays a central role in facilitating about $2 trillion in mortgage originations every year as a critical tool for borrowers, lenders, insurers, investors and other important stakeholders. The royalty collected by FICO is entirely fair and reasonable, and the FICO score continues to deliver incredible value as the most trusted and cost-effective tool used to evaluate consumer credit risk and residential mortgage finance. More information on our new royalty pricing can be found on our website. We continue to drive strong adoption from FICO Score 10 T for the non-GSE mortgages. This quarter, we signed new lenders, including United Wholesale Mortgages, the largest global mortgage lender. We now have clients with over $244 billion in annualized mortgage originations and about $1.33 trillion in eligible mortgage portfolio servicing that have signed up for FICO Score 10 T. Firms are already using 10 T to make credit decisions, for securitization and for delivery to investors. FICO 10 T for conforming mortgages sold in the GSEs will be rolled out based on the timeline of the FAA's implementation of enterprise credit score requirements. Now we continue to innovate in our Scores business. Last week, we announced the upcoming launch of FICO Score mortgage simulator, which enables mortgage professionals to run credit event scenarios by applying simulated changes in an applicant's credit report data to simulate potential changes to the applicant's FICO score. This benefits both mortgage lenders and consumers by potentially providing more loan options and more favorable interest rates. In our Software segment, we delivered $205 million in fourth quarter revenue, up 5% from last year, driven mainly by growth in SaaS software, partially offset by a decline in professional services. We delivered $798 million in fiscal year revenue, up 8% from last year. We continued to drive growth in ARR and NRR through our land and expand strategy with expansion driven by increased customer usage. As shown on Page 7, the total ARR was up 8%, with platform ARR growing 31% and non-platform ARR flat year-over-year. Total NRR for the quarter, shown on Page 8, was 106% with platform NRR at 123% and non-platform at 99%. ACV bookings for the quarter were $22 million. Our total ACV bookings for the year were $85 million, down 10% year-over-year. While we face some macroeconomic headwinds in the first half of the year, second half bookings were consistent year-over-year. I am excited about the future of our software business. This quarter, IDC recognized FICO as a leader in the worldwide Decision Intelligence platform market. This is a testament to our commitment to innovation that enables real-time transparent decision-making at scale. We help organizations design, engineer and orchestrate decisions by automating steps in the decision-making process. FICO was recognized for its capabilities and strategy meeting both today's customers' needs and the needs of our customers in the future. We announced two FICO platform partnerships this quarter. We have partnered with Tata Consulting Services, generally known as TCS, a global services integrator and with iSON Xperiences the largest business process outsourcing solutions company in Africa. Both partnerships will leverage the FICO platform to create industry-specific solutions for real-time decision making. These partnerships will help us continue to drive strong growth for our platform business. Before I address fiscal '25 guidance, I'll pass it over to Steve to provide some other financial details.

Thanks, Will, and good afternoon, everyone. We had another strong quarter with total revenue of $454 million, reflecting a 16% increase compared to the previous year. Our full-year revenue reached $1.718 billion, up 13% from last year. Scores segment revenues for the quarter totaled $249 million, a 27% rise from the prior year, with B2B revenues in that area increasing by 38%, mainly due to higher mortgage originations. On the other hand, our B2C revenues decreased by 1% compared to the prior year because of lower volume in our myFICO.com business. For the full year, B2B revenues amounted to $712 million, an increase of 27%, while B2C revenues were $208 million, down 2%. Despite challenges in the mortgage originations market, total Scores revenues came to $920 million, up 19%. In the software segment, revenues for the quarter were $205 million, a 5% increase over the prior year. Both on-premises and SaaS software revenue grew by 8% year-over-year, although professional services saw a decline of 9%. For the full year, software revenues were $798 million, up 8% from the previous year. This quarter, 85% of our total revenues were generated from the Americas, which includes North America and Latin America. The EMEA region contributed 10% of revenues, and the Asia Pacific region added 5%. Our total software annual recurring revenue was $721 million, representing an 8% increase from the prior year. Platform ARR stood at $227 million, accounting for 31% of our total Q4 '24 ARR, up from 26% in Q4 '23. Platform ARR grew by 31% year-over-year, while non-platform ARR remained flat at $494 million this quarter. This aligns with our strategy to prioritize FICO platform growth while maintaining our non-platform customer base, which we expect will gradually transition to platform products over time. Our strategy of land and expand for the platform remains effective. Our dollar-based net retention rate for the quarter was 106%, with platform NRR at 123% and non-platform NRR at 99%. The increase in platform NRR was fueled by new use cases and heightened usage of existing ones. Our software annual contract value bookings for the quarter were $22 million, with full-year ACV bookings totaling $85 million. Now, regarding expenses for the quarter: our total operating expenses reached $257 million this quarter compared to $224 million the previous year, marking a 15% year-over-year increase and remaining flat from the prior quarter. For the full year, expenses came to $984 million, up from $871 million the previous year, which is a 13% increase. Our fiscal year 2025 guidance anticipates lower year-over-year expense growth compared to last year. We are focused on maintaining efficiencies and directing resources toward our most strategic initiatives, including investments aimed at accelerating the development and distribution of the FICO platform, alongside funding Scores resources and marketing efforts. Our non-GAAP operating margin was 52% for the quarter, compared to 51% in the same quarter last year, resulting in a non-GAAP margin expansion of 90 basis points for the full fiscal year. The GAAP net income for this quarter was $136 million, a 34% increase from the same quarter last year, while our non-GAAP net income was $163 million for the quarter, a 29% rise from the prior year's quarter. For the full year, GAAP net income was $513 million, up 19% from last year, and non-GAAP net income was $595 million, also up 19% from last year. GAAP earnings per share for this quarter were $5.44, an increase of 36% from the prior year, while our non-GAAP earnings per share were $6.54, up 30% from the previous year. For the full year, GAAP earnings per share were $20.45, a 21% increase from last year, and our non-GAAP earnings per share were $23.74, up 20% from last year. The effective tax rate for the quarter was 20.8% and for the full year it was 20.1%, which included a $30 million reduction in tax expense from excess tax benefits recognized when employee stock awards were settled or exercised. We anticipate our fiscal year 2025 net effective tax rate to be around 22%, with a recurring tax rate expected to be approximately 26%, excluding any excess tax benefits and other discrete items. Free cash flow for the quarter was $219 million, reflecting a 35% increase from the previous year, while the full-year free cash flow was $607 million, up 31% from last year. At the close of the quarter, we held $196 million in cash and marketable investments, with total debt at $2.21 billion and a weighted average interest rate of 5.2%. Currently, 59% of our total debt has a fixed rate. Our floating-rate debt can be prepaid at any time, providing flexibility to utilize free cash flow to decrease outstanding floating-rate debt balances in future periods. In terms of our capital return strategy, we repurchased 188,000 shares in the fourth quarter at an average price of $1,721 per share. We continue to view share buybacks as a favorable use of cash. In fiscal 2024, we repurchased a total of 606,000 shares at an average price of $1,366 per share, totaling $828 million. Now, I'll turn it back to Will to discuss our guidance for fiscal 2025.

Thanks, Steve. We continue to execute on our strategy, the proof is in our financial results and customer adoption of both our software and Scores products. Fiscal '24 was a great year. We had our most successful FICO World as we brought together customers and prospective customers from around the globe. We continue to win the trust of our customers with over 100 customers speaking on stage as to how our software helps achieve their goals. We continue to be an industry leader as evidenced by analyst community reports, including IDC, Forrester, Gartner and Chartis. We continue to innovate. At FICO World, we introduced APIs to drive partner channel adoption of FICO Platform. We previewed the upcoming launch of our new FICO Marketplace. In the year, we delivered new FICO Platform capabilities, created new IP using responsible AI methods and announced the upcoming launch of FICO Score mortgage simulator. We continued our commitment to financial literacy for both students and adults. We completed the field of dreams, the field of financial empowerment summer tour with Chelsea Football Club and U.S. Soccer Foundation. We hosted Score A Better Future workshops across the U.S., which is just one of FICO's programs that help millions of people gain access to credit. We're well positioned for strong fiscal '25. As we announce our guidance, I'll remind everyone that consistent with prior years, we expect some of the pricing initiatives in 2025 have an additional impact beyond our guidance numbers. And because of uncertainty in volumes, it's difficult to estimate the timing and magnitude of that impact. While macro trends are difficult to predict, our recurring revenues and diversified product portfolio give us considerable visibility into fiscal 2025. With that in mind, we are guiding double-digit growth for both revenue and earnings metrics as shown on Page 13 of the presentation. We are guiding revenues of about $1.98 billion, a 15% year-over-year increase. GAAP net income of about $624 million, an increase of 22%, GAAP EPS of about $25.05, an increase of 23%, non-GAAP net income of approximately $712 million, an increase of 20% and non-GAAP EPS of approximately $28.58, an increase of 20%. With that, I'll turn the call back to Dave to open the Q&A session.

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

Our first question comes from Manav Patnaik of Barclays. Please go ahead with your question, Manav.

Thank you. Good evening. Well, thank you for the disclosure and pointing us to the blog as well. I think the whole 0.2% that you've talked about, that's been pretty consistent. I guess just thinking ahead, do you still see more room for that gap to close? I mean, I guess it's 1% the mark?

Well, we continue to believe that our score delivers tremendous value relative to what we charge. And so yes, I would say that there is still opportunity.

I appreciate that. Could you provide an update on the software side? Specifically, I'd like to know what phase you're in and what key initiatives you have planned for this year. Are you considering additional investments in the platform, or is there anything else you could share?

I would say that we're still very much in the early stages. You can see this in our reach with enterprise platform customers, where we've engaged with just under half of the top 300 financial institutions globally. There remains significant opportunity to partner with major lending institutions, and that's before we explore other markets or verticals. So, it's still quite early for us. However, we have advanced well beyond just minimum viable products and are far enough along to be recognized as the leading platform for decision-making, gaining acknowledgment from those who require it. This remains a strong aspect for our business. Regarding investment and margin expansion, we will continue to enhance the platform, as our customers are requesting various additional features and functionalities. As we've mentioned previously, we are also investing in indirect sales and distribution and creating an ecosystem with our open APIs, enabling collaboration with various players outside our usual business scope to leverage our decision-making technology. Thus, the opportunity ahead is substantial and requires some level of investment. That said, we are currently reengineering our platforms for better scalability and margins. It's clear that even with high R&D spending, which we do now and plan to maintain for a while, our margins should improve over time due to increased scale and our strategic design aimed at enhancing those margins. I hope that's helpful. We're in the early days, continuing to invest, but we are on track to become more profitable.

Thank you, Will.

Thank you. Our next question comes from the line of Surinder Thind of Jefferies. Please go ahead, Surinder.

Thank you. Well, just on the software piece, can you maybe just disaggregate the overall guidance, what your expectations are for the software component and how we should think about maybe platform versus non-platform at this point?

Thank you for the question, Surinder. We don't provide guidance at that level or by segment. We only offer guidance at the total corporate level. Therefore, we do not discuss specifics regarding expectations for Scores compared to software, and we do not distinguish between platform and non-platform on the software side. It's also challenging to differentiate between platform and non-platform early on with some of these deals, as they may end up on the platform or in the legacy product. So, we do not break that out.

Understood. And then in terms of just when I think about the, what I would call the partnerships that you're putting into place, in the process of them trying to build out industry solutions. Any color there you can provide on what specific solutions they may be looking at or what industries they might be looking at, at this point? And then how does that work in terms of the IP sharing that such a relationship might have?

Sure. It's a good question. I mean, as all of you know, partnerships work best when there's enough economics in it for both sides and where the relationship is complementary and that partners are not competing for the same thing. And so in our partnership with TCS, for example, which is a very strong partnership. We have a number of things going on here. We have tremendous decisioning IP. They have tremendous reach and distribution and professional services and participation in a whole lot of verticals that FICO does not participate in. So they're doing two kinds of things with us. One is they're developing a level of expertise and confidence for implementing our solutions to help our direct customers because they favor professional services in a way that we do not. And so there's a benefit there. But they're also very interested in providing solutions to their customers, vertical by vertical and leveraging IP. And I think they recognize that our decisioning IP is pretty special. And so they're building solutions around our IP for particular verticals where they have a presence and some expertise. So for example, in the logistics area, TCS is building a proprietary solution based on our decisioning IP. But our intent is to do that and replicate that in other verticals as well.

Got it. That's helpful. Thank you, that's it for me.

Thank you. Our next question comes from the line of George Tong of Goldman Sachs. Your line is open, George.

Hi, thanks. Good afternoon. You're planning to raise mortgage prices by approximately 50% in 2025. Can you discuss how you're thinking about prices for non-mortgage scores in 2025?

Yes. So first of all, I guess I would point out that at $4.95, that's not a 50% increase, it's less than a 50% increase. But in terms of the other scores prices, as you know, we review the entire portfolio every year and we think about where it's appropriate and fair to raise prices, and we don't do the same thing in every pocket of scores demand. It varies, it varies by year, it varies by segment. And we did apply some increases to non-mortgage. Of course, mortgage isn't the entire business by any means.

Okay. Got it. And then broadly, can you talk about how you expect the Trump presidency to impact FICO's operations?

Yes. That's an obvious kind of a question. And as you can imagine, we think a lot about it. That said, I would just say that we work with both Republican and Democratic administrations, and we've had good success with both. The reason is that we're such a core component of the markets in which we operate, we're so integral to the system that it's really unlikely that Republican or Democratic administrations will do things that push FICO out of its position in the system. We anticipate that in a Trump administration, we'll continue to operate as we have is the cornerstone of the credit lending market in the U.S. And so we look forward to that.

Got it. Thank you.

Thank you. Our next question comes from the line of Faiza Alwy of Deutsche Bank. Please go ahead, Faiza.

Yes, hi. Thank you so much. So Will, you alluded to some macro uncertainty? And I'm curious if you could elaborate on that? Like are you expecting mortgage volumes to recover in 2025? We are seeing rates a little bit higher. And I'm curious if you can comment on like number of pools that you were seeing per application because there are some indications that those have been declining more recently.

Well, so with respect to macroeconomic uncertainty, I think that nobody knows what the future holds, not us and not you. We leave it to you to come up with your own estimates on where you think mortgage volumes will be over the coming year. We do anticipate mortgage volumes will increase in the future, but the schedule for that is a little hard to say. And so we've incorporated in our guidance as is typical for us an appropriate level of conservatism. We'll just have to see how things pan out. In terms of number of pools, we don't really have a public pronouncement on that.

Okay. Understood. And then I noticed you've been talking about the value that the FICO score provides to secondary market participants, and I'm curious if you have been thinking about that as a potential revenue opportunity going forward? Do you think there's something there?

You know that is a very interesting question. There's no doubt that many people who use the FICO Score don't pay for it. Many people use and rely on the FICO Score. Our business model today has historically been built around charging for the first use and then allowing downstream and subsequent uses when they are permitted by us by contract to be free. Of course, we're in business, and so we think about every kind of variation on a theme. We have thought about trying to put the pricing where the usage is to make sure that you could lower prices in one place and raise them somewhere else, maybe that's more fair. But we also recognize that the system is what it is, and every change has to be scrutinized from the standpoint of what kind of unforeseen consequences and what kind of difficulties might we encounter if we change the system. So it's easy for our strategic thinkers inside FICO to come up with dozens and dozens of variations on how we might price our IP. And trust me, we do think about those things, but we're also really mindful of the kind of responsibility we have to the economy, to the community, to our customers, to the participants in the ecosystem and we are loath to make changes that could rattle markets. We don't want to do that. So we're very, very cautious and careful about everything we do. And you've seen that, but that's not to say we don't study it. And if appropriate, we might consider something like that in the future.

Understood, thank you so much.

Thank you. Our next question comes from the line of Owen Lau of Oppenheimer. Please go ahead, Owen.

Hi, good afternoon and thank you for taking my questions. And going back to your guidance, could you please maybe add more color on how do you assume how many rate cuts you expect in 2025? And how will that impact loan volume? Thanks.

You know that's one of those areas where everybody has a different opinion and we don't publish our opinion. I think you know what our pricing is. And so I think you should apply that to your own best estimates as a guide to making your decisions about what the future holds for us. I don't know that my speculating on how many rate cuts is going to be helpful to anyone. I'm not sure that my opinion is worth more than anyone else's.

Got it. And then on the platform side, some of the analytic firms were under pressure because of the end market challenges and budget cuts and vendor consolidation and things like that. Could you please give us an update on what you're hearing from your clients given that we are going to the year-end budgeting period. Thanks.

Yes, absolutely. What you point out is something that we used to experience a lot in our applications business five and 10 years ago, where we were very much under budget pressure. So when our customers were under a lot of budget pressure, the sales cycle stretched out, and decisions were postponed, and deals were postponed. We see much less of that now. What we see is that the platform is truly a strategic investment by our customers. It tends to be decided at the C-suite level, and so I won't say that we're immune to budgetary pressures. But I think that there is this imperative for our customers to make a transition to digital relationships with their consumers, and they want the kind of power that our platform brings. Their choice is really to try to build it themselves, some kind of homegrown solution, or to buy it from FICO because there's really not any meaningful competition in terms of features and functionality with our platform. And as between building it in-house and buying the FICO solution, we've invested close to $1 billion in our software business to get to this point. A few customers have the wherewithal to make those kinds of investments, so a homegrown solution is just not going to be competitive with what FICO offers at a fraction of the cost. So what we see is tremendous adoption of our platform because they do the analysis, and it's a very cost-effective solution, and they get more functionality than they were planning on.

Got it. Thanks a lot.

Thank you. Our next question comes from the line of Kyle Peterson of Needham & Company. Your question please, Kyle.

Great. Hi guys. Thanks for taking the questions. I wanted to start off on the Scores revenue this quarter came in really strong. Just wanted to see whether there were any one-timers. I know in the past, sometimes, you guys have had some licensing deals or royalty true-ups. So I just want to see like, is that a clean number? Or was there anything onetime in the 4Q number?

Yes, there was some one-time revenue this quarter, likely a bit more than last quarter. It amounts to a few million dollars, but it's not significant in the overall figure. However, it does contribute to revenue that we don't usually expect in our run rate.

Okay. That's helpful, thank you. And then I guess just a follow-up on the mortgage score price rollout. I appreciate the transparency there. Should we think of this as being fully phased in on January 1? Or is there kind of a scheduled phasing or any lag time that we should be mindful of?

Yes, there is always a lag. It's not scheduled, but we have previously mentioned that the pricing might be gradually introduced because some customers have agreements that don’t start on January 1 but could begin later. So, this is consistent with what we've experienced in previous years.

Okay, thank you. Nice quarter.

Thank you. Our next question comes from the line of Jason Haas of Wells Fargo. Please go ahead, Jason.

Hi, good afternoon and thanks for taking my questions. I'm curious if you could talk about what sort of analysis you did to arrive at the $4.95 mortgage score price? Like why did you decide that was the right number to go with? And then I'm also curious, recognize you're not going to go through the details of the pricing for auto and card, but if you could also talk about what sort of analysis you've run to determine what would be the appropriate price for those verticals as well. Thanks.

There are a lot of factors that go into it. There's not a formula. It's not formulaic, but we look at everything. We do look at volumes. We look at the market. We think a lot about whether the price is fair, whether we're asking our customers to pay a price that exceeds the value that we provide. We think a lot about those things. And you can probably imagine my view on this, which is that we think it's tremendous value. And so we're fine with where we are. Every year is different. The percentage increases each year are different. The dollar amount increases are different each year. There's not a formula for it. We sit down in the couple of months before the September 1 rate card gets published to our partners and we think about it. We also have discussions with them. So there's just a lot of factors that go into it.

Got it, thank you. That's helpful. And then if I could ask a follow-up. On the non-platform business declined slightly, which is a little off trend. I know it's not the focus to grow that, but I was curious if there was anything in particular we should be aware for the quarter there?

No, there isn’t anything significant to note. It depends on the volumes, which can vary slightly. It’s just the volume and the usage we experienced this quarter.

That makes sense, thank you.

It's worth pointing out. I mean, how do we think about that business? We have this very strong legacy business where we have large market share in a half dozen very important applications for our customers. They typically renew on a three-year renewal cycle; that varies, but it happens often. We're not in a big hurry to push them to the platform. We have our hands full with new business on the platform. And as long as we have customers who are happy to renew the legacy products, we're happy with that. We continue to invest in those legacy products to make sure that the features and functionality are appropriate for today and for tomorrow and for the future. I think our legacy business is going to be healthy for a very long time to come. We're not really pushing to grow it quickly. We're not in a harvest mode either. We make modest investments to keep it current. The fluctuation, whether it's a little over 100% or a little below 100% in terms of where we stand tends to be volume driven. It tends to be usage by our customers that pushes us there.

Hi, this is David Paige standing in for Ashish. Thank you for taking our question and congratulations on the impressive results. I have two questions. First, could you discuss the competitive dynamics in the auto and card sectors? Secondly, as a follow-up, what are your capital allocation priorities for 2025? Thank you.

Okay. So with respect to auto and card, those two businesses look today like they did a year ago and like they did 2 years ago, very little change competitively. Our customers continue to use our products and just not a lot of change there, not a lot of competitive threat, not a lot of new innovation coming from competitors. So really kind of no change there. With respect to capital allocation, our strategy there remains unchanged. As you know, we strive to return capital to our shareholders. We have a very efficient business model. We try to run a pretty efficient balance sheet. We manage our leverage to between two and three times and have some level of efficiency there. It is remarkable to say with a PE north of 100 that we still think our stock is a screaming value, but we really do believe that. I've been doing these calls now for 13 years, and every single call, it seems like our stock is at an all-time high, and people wonder why are you still buying back your stock? To date, it's been a pretty good call. We expect that to continue. We have every intention of returning free cash flow and then some to our shareholders through stock buyback.

Thank you. Our next question comes from the line of Simon Clinch of Redburn Atlantic. Your question please, Simon.

Hi, everyone. Thank you for taking my question. I was wondering if you could share your thoughts on the FHFA's proposal and its implementation in the fourth quarter. Do you anticipate any changes regarding the chances of it being delayed or canceled? Any insights on that would be very helpful. Thank you.

We wonder the same thing, and I think no one knows I don't think it's a secret that the industry has been slow to move on the expected implementation because there are some things that still have to be sorted out. The FHFA has a plan. We're working with them, cooperating with them every way we can to see it happen. But there's no telling what a new administration might do. It's just really hard to say. Maybe things take a little bit longer than they otherwise might have. That's probably the most likely scenario. But there could be a change in direction; one just doesn't know.

Okay, that's useful, thank you. As a follow-up, could you provide more details about your software business and the investments you are making to expand your distribution beyond just large financial customers? Where do you stand with that? Thank you.

Yes. There are a few ways we're going at that. I mean, at the upper end of the ecosystem, we're working with partners. So I mentioned TCS was one, but we're in conversations with a number and have deals with a number of other partners. So the big systems integrators, they are very natural partners for us to get into other verticals. They have customers, distribution, skills, and domain expertise, and they can take that, apply it to our IP and provide solutions in these other verticals. The other thing that we're focused on, which I think is going to take longer is, I wouldn't call it quite a self-service model, but more a self-service model where we have open APIs and ISVs and resellers and VARs have the opportunity to come and leverage our platform and our IP with very little intervention from us. In the long run, we'd really like to see that flourish. We have a marketplace that we've built to facilitate this, but I think that's going to take time to build.

Thank you. Our next question comes from the line of Scott Wurtzel of Wolfe Research. Your question please, Scott.

Thanks, good afternoon, guys. Just first one on the ACV bookings trends. I know historically, we usually see a sequential step-up from 3Q to 4Q. I thought the number was still pretty good. But just wondering, was there any maybe pull forward of bookings into the third quarter that is maybe distorting that seasonal trend a little bit?

Yes. I mean, there's really no reason for a seasonal trend. Typically, a lot of times it does happen that our fourth quarter is higher. But if you look at this year, our third and fourth quarter was exactly the same number, give or take, as the third and fourth quarter combined last year. There probably was some pull forward on some deals from our fourth quarter this year into the third quarter. There have been some deals last year that pushed from the third and fourth quarter. So it's hard to really look at any one specific quarter that way.

Got it. That's helpful. And then just as a follow-up, just on your guidance, wondering if you can maybe help us understand how you're thinking about investments and expense growth in fiscal year '25. Thanks.

Yes. When you look at the numbers we've provided, you can see the elevation in our expenses. However, the expense growth projected in our guidance is lower than what we experienced in 2024. We have some one-time items occurring in 2024, including benefits from last year that won't repeat and some unique costs we incurred this year. While there is some growth factored into our expenses, it's less than what we saw this year and also less than our anticipated revenue growth. This should result in margin expansion for us. If we exceed our guidance throughout the year, it typically leads to a favorable margin increase. Thus, although there will be some expense growth associated with higher revenue, it will come with a significantly improved margin profile.

Thank you. Our next question comes from the line of Andrew Stein of FT Partners. Please go ahead, Andrew.

Hi, thank you. I just have one question tonight. Could you at least provide some color on the volume trends within scores when the 30-year mortgage was closer to 6% in the back half of September relative to the rest of the quarter? Thanks.

Yes. I mean the best source for data for that is actually just look at what the NBA publishes. That's what we look at. That's actually more real-time than the numbers that we see. So we can't really track it on a week-by-week basis like they do. I would push you to that, first of all. But we did see some upticks when the rate came down and then we saw it slow down a little bit. It's hard to really draw much of a trend from any of that. So we're obviously, very conservative with the way we guide going forward.

Thank you. Our next question comes from the line of Kevin McVay of UBS. Please go ahead, Kevin.

Great, thank you so much. Could you give us a sense of with the 2025 pricing, how much of that is factored into the guidance already just directionally? And is there anything from '24 that's factored into the '25 guidance? I guess, any sense of just how that phases, maybe anything that didn't occur in '24 in the '25 and '25 more broadly?

Yes, there are two key factors to consider. First, our new pricing takes effect annually on January 1, while our fiscal year runs from October 1 to September 30. This creates a one-quarter discrepancy in the pricing. Second, as Steve mentioned earlier, many of our channel partner customers have multiyear agreements. When that happens, we maintain the prices from previous years, which can also influence our pricing relationships.

Very helpful, thank you.

Thank you. Ladies and gentlemen, that does conclude the Q&A portion of our call and our conference for today. Thank you for participating. You may now disconnect.