Good day, and thank you for joining us. Welcome to FICO's Third Quarter 2025 Earnings Conference Call. Please be aware that today's conference may be recorded. I will now turn the call over to your speaker host, David Singleton. Please proceed.

Good afternoon, and thank you for attending FICO's third 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 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 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 at the company's website, fico.com or on the SEC's website, sec.gov. A replay of this webcast will be available through July 30, 2026. I will now turn the call over to our CEO, Will Lansing.

Thanks, Dave, and thank you, everyone, for joining us for our third quarter earnings call. In the Investor Relations section of our website, we posted some financial highlights slides that we'll be referring to during this earnings announcement. We had another strong quarter and are increasing our fiscal year '25 guidance. As shown on Page 2 of the third quarter financial highlights, we reported Q3 revenues of $536 million, up 20% over last year. We reported $182 million in GAAP net income in the quarter, up 44% and GAAP earnings of $7.40 per share, up 47% from the prior year. We reported $211 million in non-GAAP net income in the quarter, up 35% and non-GAAP earnings of $8.57 per share, up 37% from the prior year. As shown on Page 10, we delivered record-breaking free cash flow of $276 million in our third quarter. We continue to return capital to our shareholders through buybacks by repurchasing 284,000 shares in Q3. We repurchased over $0.5 billion of shares this quarter, the largest single quarter buyback in FICO history. In our Scores segment, as shown on Page 6 of the presentation, our third quarter revenues were $324 million, up 34% versus the prior year. While B2B Scores was the key driver of growth, we also saw encouraging growth in B2C Scores. FICO Score 10 T is the most predictive broad-based credit scoring model in the U.S. industry today. Through our early adopter program, participating clients are already seeing measurable benefits. Even since the recent FHFA announcement, we signed our latest lender deal just last week, and we've now secured adoption from institutions representing over $313 billion in annualized mortgage originations and approximately $1.52 trillion in eligible mortgage portfolios under servicing, all of which underscore the strong momentum and confidence in FICO Score 10 T. Lenders in the program have been able to validate the power of FICO Score 10 T in real-world mortgage underwriting in loan production, in execution and in servicing. This quarter, we announced the launch of FICO Score 10 BNPL and FICO Score 10 T BNPL. These are the first credit scores from a leading credit scoring provider to incorporate Buy Now, Pay Later data. These scores will provide lenders with greater visibility into consumers' repayment behavior, enabling a more comprehensive view of their credit readiness, which ultimately improves the lending experience, and we'll expand financial inclusion by helping more consumers to gain access to credit. These scores will initially each be offered side-by-side with existing versions of the FICO Score at no additional fee from FICO. This approach allows lenders to evaluate the new BNPL enhanced credit scores while continuing to use FICO's industry-leading models that they use today, ensuring a seamless transition and added value. Lastly, our FICO Score Mortgage Simulator penetration is gaining speed in the U.S. industry. We now have multiple resellers and mortgage technology platform providers, hundreds of active lenders and thousands of orders placed. In our Software segment, we delivered $212 million in Q3 revenue, up 3% from the prior year. The revenue increase was driven mainly by growth in platform SaaS. We continue to drive growth in ARR and NRR through our land and expand strategy, with expand driven by increased customer usage. Pages 7 and 8 of our investor deck highlight the total ARR increased by 4%, with total NRR at 103%, both driven largely by the FICO Platform. ACV bookings for the quarter were $26.7 million compared to $27.5 million in the prior year. With the help of product innovations announced at FICO World, our pipeline is stronger today than this time last year. Before passing on to Steve, I'll highlight our strong innovation in the software business. The FICO Platform revolutionizes how organizations make decisions and apply intelligence across their customer life cycle. Innovation is at the core of our ability to power an intelligent enterprise. This quarter, we hosted FICO World, bringing together customers and partners from around the world. Participants collaborated on how FICO Platform makes real-time decisions at scale and optimizes interactions with consumers. On main stage, we unveiled innovation, spotlighting advancements that will shape the future of decisioning and enterprise AI. We will bring next-generation FICO Platform, enterprise fraud solutions powered by FICO Platform and FICO Marketplace to general availability in the second half of calendar 2025. These innovations will bring new use cases to the market. They will enable smarter explainable outcomes. They'll improve performance. They'll improve the speed of deployment and yield better customer ROI. On the AI frontier, we leveraged our AI principles, trustworthy, ethical, explainable and responsible and provided a sneak peek of the upcoming FICO-focused foundation model, the FICO-focused language model and FICO-focused sequence model built for financial services, delivering greater accuracy, explainability and control in high-stakes domains. This will be released for general availability this calendar year. Our industry analysts are delighted with our innovation. Forrester recently recognized FICO Platform as the leader in AI decisioning platforms. This for the fourth time. AI decisioning platforms transform how organizations operationalize both human intelligence and AI at scale, enabling faster, more accurate decisions across complex business processes. AI decisioning is an important enabler for agentic AI, which is natively available in the next generation of FICO Platform. Our partners continue to value our innovation. In the quarter, we signed a new strategic collaboration agreement with Amazon Web Services. Under the new agreement, FICO and AWS will amplify their work to bring more organizations worldwide the power of AI-driven automated decision workflows with FICO Platform. In addition, FICO will broaden its participation in AWS Partner programs to accelerate client adoption of FICO Platform. Let me now pass it over to Steve to provide further financial details.

Thanks, Will, and good afternoon, everyone. As Will mentioned, we had another successful quarter with total revenue of $536 million, a 20% increase compared to the previous year. Revenue from the Scores segment for the quarter was $324 million, up 34% year-over-year. B2B revenues rose by 42%, mainly due to higher unit prices, a boost in mortgage originations, and a multiyear license renewal for our Insurance Scores product in the U.S. Our B2C revenues were up 6% from last year, primarily driven by increased revenue from our indirect channel partners. In the third quarter, mortgage origination revenues soared by 53% compared to the previous year, accounting for 53% of B2B revenue and 44% of total Scores revenue. Revenues from auto originations were up 23%, while revenues for credit cards, personal loans, and other originations grew by 3% year-over-year. Software segment revenues for the quarter reached $212 million, reflecting a 3% increase from the prior year. Both on-premises and SaaS revenue grew by 2% year-over-year, while professional services experienced a 7% increase. During this quarter, 87% of our total company revenues came from the Americas region, which includes both North America and Latin America. The EMEA region contributed 8% of revenues, and the Asia Pacific region accounted for 5%. Our updated guidance indicates fourth-quarter revenues of $505 million, a decrease sequentially due to lower point-in-time revenues, including those from Insurance Scores and Software licenses. We also expect a slight decline in Scores origination volumes due to seasonality and a sequential drop in PS revenues. Our total Software ARR was $739 million, marking a 4% increase from the previous year. Platform ARR stood at $254 million, which represents 34% of our total Q3 '25 ARR, up from 30% in Q3 '24. Platform ARR grew by 18% compared to the previous year, while non-platform ARR decreased by 2% to $485 million this quarter. Our CCS business, which encompasses both platform and non-platform, saw a slight sequential increase, but overall challenges that we noted last quarter continue to affect our year-over-year ARR growth. Our platform land and expand strategy remains effective. Our dollar-based net retention rate this quarter was 103%, with platform NRR at 115% and non-platform NRR at 97%. The platform NRR was boosted by a mix of new use cases and heightened usage of existing ones. Software ACV bookings for the quarter totaled $26.7 million compared to $27.5 million in the prior year. Now, moving on to expenses for the quarter, as shown in our financial highlight presentation. Our total operating expenses were $274 million this quarter, compared to $253 million in the prior quarter, reflecting an 8% increase. The growth in expenses was mainly due to our FICO World event. Additional factors included incremental headcount and adjustments to our supplemental retirement and savings plan, which are offset in other income and expense and thus do not impact our net income. In the fourth quarter, we anticipate increased interest expenses, heightened marketing costs, and exceptional one-time items that may exceed $10 million. All these expenses are included in our updated guidance. Our non-GAAP operating margin was 57% for the quarter, up from 52% the same quarter last year, representing a non-GAAP margin expansion of 470 basis points year-over-year. GAAP net income this quarter was $182 million, up 44% from the previous year's quarter. Our non-GAAP net income was $211 million, reflecting a 35% increase from last year. GAAP earnings per share were $7.40, which is a 47% rise from the previous year. Our non-GAAP earnings per share stood at $8.57, a 37% increase from last year. The effective tax rate for the quarter was 23.3%, and the operating tax rate was 24.6%. We expect our full-year net effective tax rate to settle around 20%, with our recurring tax rate at about 25%. This quarter, we achieved very strong free cash flow of $276 million, marking a 34% increase from the previous year. Over the past four quarters, we’ve generated $748 million in free cash flow, representing a 36% increase over the trailing 12-month period ending June 30, 2024. At the close of the quarter, we had $240 million in cash and marketable investments. In May, we issued an 8-K detailing our debt refinancing. Our total debt at quarter end was $2.78 billion, with a weighted average interest rate of 5.25%. As of June 30, 2025, all our debt was in senior notes, with no term loans and no balance on our revolving line of credit, meaning 100% of our total debt was fixed rate. Now, regarding return on capital, we repurchased 284,000 shares in the third quarter at an average price of $1,802 per share, and we continue to see share repurchases as an appealing use of cash. I will now turn it back to Will for his closing remarks.

Thank you, Steve. Elevated interest rates and ongoing affordability challenges continue to weigh on the mortgage market, keeping loan originations below historical norms. While the macro environment remains fluid, our strategy, our innovation, our execution remain disciplined and consistent. I'm pleased to report that today, we're raising our full year guidance as we enter the fourth quarter of our fiscal year. Revenue guidance will remain at $1.98 billion. GAAP net income guidance is $630 million with GAAP earnings per share of $25.60. Non-GAAP net income guidance is $718 million with non-GAAP earnings per share of $29.15. Before we take questions, I'd like to discuss the interim FHFA decision and how we are engaging with the industry. First, I'd like to emphasize that the FICO Score is the industry standard measure of consumer credit risk in the U.S. The FICO Score is the backbone of safety and soundness in the mortgage industry. Over the last 30 years, the FICO Score has fundamentally transformed the mortgage industry, enhancing stability and liquidity in secondary markets, standardizing credit evaluation for investors, expanding fair and objective access to credit and empowering cost-effective and sustainable homeownership for Americans. FICO Scores are used across the U.S. and internationally for more than just mortgages. In the U.S., 99% of all FICO Scores are freely chosen by market participants outside the mortgage market. In the nonconforming mortgage market, FICO is also widely used. Classic FICO was specified over 20 years ago for use by the GSEs while they were publicly traded companies and before the FHFA even existed. As the mortgage industry standard, thousands of industry participants use models incorporating classic FICO. FICO Scores are critically relied on throughout the mortgage credit ecosystem in mortgage insurance, in underwriting and pricing models, in investor credit risk and prepayment models, in models used by the GSEs and those used by mortgage insurers, by investors and prudential regulators for capital requirements and by credit rating agencies for mortgage-backed securities ratings. Therefore, classic FICO is critical to driving investor pricing of mortgage-backed securities and ultimately, the cost consumers pay. Our innovations are best-in-class, including our latest innovation, FICO 10 T, FICO 10 T BNPL and the FICO Score Mortgage Simulator. As you all know, FICO 10 T was approved by the FHFA and remains the most predictive general-purpose credit scoring model in the U.S. While previous FICO Score versions included rental, telco and utility data, FICO 10 T also now includes trended data. During the process required by the Credit Score Competition Act, the GSEs originally concluded based on predictiveness and accuracy that FICO 10 T significantly outperforms VantageScore 4.0. We joined a long-standing industry demand that FHFA released that analysis and the recommendation of each of the GSEs publicly as part of this process in the spirit of transparency and responsible policymaking. We recently posted a white paper that reached the same conclusion, which can be found on our website. As for lender choice, the FHFA has long rejected the practice because it undermines the safety and soundness of the enterprises and their counterparties, damaging liquidity in the $12 trillion mortgage industry. Lender choice encourages mortgage participants to shop for the most lenient score, which drives unavoidable gaming and adverse selection for all risk holders. It creates a race to the bottom by incentivizing score providers to weaken their credit decision criteria to score more consumers and win more business with their score, which will lead to increased costs for consumers. Lender choice will result in higher capital requirements from regulators that the holders of mortgage risk will have to bear, and American taxpayers will bear significant additional risk. Any initiative to promote competition and ultimately lower cost should include the best Score, which is FICO Score 10 T. FICO Score 10 T's superior predictiveness will drive significant loss avoidance savings for market participants and billions of dollars of savings for consumers. Lastly, so long as there is a tri-merge mandate, coupled with the credit bureaus' common ownership of VantageScore, lender choice will harm competition rather than foster it because it further entrenches the credit bureaus' market power. In speaking to numerous market participants since the FHFA announcement, it's clear there are many significant outstanding questions by the industry. FICO will continue to remain engaged with market participants, the GSEs, the FHFA and other stakeholders. With that, let me turn this call back to Dave, and we'll open up the Q&A session.

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

Our first question comes from Manav Patnaik with Barclays.

I want to revisit FICO 10 T. You mentioned that there are customers currently using it, amounting to around $313 billion. I'm curious about how many customers are utilizing it and what the pipeline looks like. Do they need to upgrade their systems to implement FICO 10 T, or is it functioning as a side-by-side workflow at this point? I'm looking for insights on how quickly adoption might occur if FICO 10 T is reintroduced in the market.

All good questions, Manav. I have to get back to you with the exact number of customers. But I would tell you that the pipeline is strong. There are customers testing it now. There are customers who are using it now. There's a certain amount of retooling required, but it is modest.

Okay. And then maybe just as a follow-up, for the insurance score product that had the renewal this quarter, can you just remind us what that is and if there's a bunch of these that could occur over time? Or is this a one-off? Just any color...

I'd say that's a one-off. We have some insurers that use FICO Scores in their underwriting processes, and this was just a license deal over a multiyear that we claim in the quarter that we signed it. So this is kind of a one-off.

Our next question coming from the line of Jason Haas with Wells Fargo.

I'm curious, following the FHFA announcement, if you've seen any lenders start to move over to VantageScore. Curious if you could describe maybe some of the technological challenges that they may have faced along the way if that something you've heard of.

We are not aware of anyone moving to VantageScore since the announcement. There are significant challenges kind of at every step of the way. With the FICO Score, which has been in place now for 20 years, virtually every participant in the industry has built models and infrastructure around that score. It's the only score that has actually been in use and therefore, for which we have data going through a full economic cycle, including 2008, the downturn. And so any time you make any kind of a move away from that, you have to think through what are the implications for remodeling. And I'm talking about everything from consumers to mortgage originators, to lenders, to the government-sponsored entities, to Fannie and Freddie. And on downstream to the securitization market, the mortgage-backed securities, players and the mortgage insurers, CTI and ultimately, the prudential regulators. All of these participants or nearly all of them have models that are built and have the risk assessment understood around the FICO Score. And so it's not a simple thing to just swap 3 digits out and swap new 3 digits in. It really isn't that simple. So I would say there are significant obstacles, and I think that's why the industry has a lot of concerns and is thinking through under what circumstances, how it could work.

That's very helpful explanation. In light of that, is there any change in terms of how you're thinking about where you can take Mortgage Score prices over time, given it's been years where the pricing of what you charge the Mortgage Score is beneath the value that is providing to the ecosystem. So is there any change in the thought about how you can normalize that going forward?

I think probably everyone on this call is curious about what's FICO's pricing strategy going forward in light of some of the pronouncements from the FHFA. Here's what I would say to you. First of all, no decisions have been made. We make our decisions about pricing towards the end of our fiscal year, and they go effective January 1st of the subsequent year. So it's early days still. What I would say is that we continue to believe that there's a pretty big value gap between what we charge and the value that we provide. And so we're always looking at how we're going to close that gap, and we don't want to do it in a reckless way. We don't want to do it in a rapid way. We want to do it in a very understandable, predictable way so that the people affected can budget for it and see where it's going. And so we continue to be committed to that philosophy on price change. I would just say I'm not sure how much different the world is today after these pronouncements because we have been competing with VantageScore virtually everywhere for the last 15 years, and we remain the industry standard for all kinds of good reasons. So obviously, mortgage is an important business for us, and a lot of people focus on mortgage pricing. But we welcome competition. And at some level, the way we go about running our business is unchanged.

Our next question coming from the line of Simon Clinch with Rothschild & Co Redburn.

I was wondering if you could elaborate on Jason's last question regarding your current approach to engaging with regulators. How are you considering the best way to engage with them for the benefit of FICO shareholders and the industry? Has your approach changed in any way?

We have always maintained a close relationship with the FHFA and the GSEs, like Fannie and Freddie, as they depend on our data and build models around the FICO Score. They are keen on the innovations we introduce. Recently, we went through a multi-year process where they were heavily involved in assessing the benefits of FICO Score 10 T. Our communication with them is strong and I expect it to continue. Regarding other industry participants, I believe there is still a significant amount of industry feedback to come on the latest recommendations. This multi-year process involved extensive industry input and analysis, and the quick shift in conclusions is unexpected for many in the industry. However, I am confident that, given the importance of safety and soundness in the industry and the mortgage market in the United States, there will be careful and thoughtful analysis rather than hasty decisions. The issues we've highlighted concerning gaming, adverse selection, and risk to safety and soundness will need to be addressed and evaluated. We are part of that discussion, but it’s not only about the FICO Score; it encompasses the entire industry.

I appreciate that. That's very useful. Just as a follow-on question, how should we think about the potential value gap in your other categories outside of mortgages and their ability to take on the heavy lifting if pricing in mortgages were to slow down compared to what we've been used to?

Every year, we look at everything. We do billions and billions and billions of scores per year. And each year, as we think through our growth strategy, we think about different parts of the market. And that continues this year as it has in every year over the last decade. So again, no real change in terms of do we look broadly across the portfolio to see where the growth opportunities are. So I think that's largely the same.

And our next question coming from the line of Faiza Alwy with Deutsche Bank.

I wanted to ask about the software business. Maybe how has the feedback been on the next-generation launch of the Platform. And how do you expect sort of bookings to trend from here and just what the general demand environment is like?

We continue to grow nicely. We continue to have customers very interested in the platform. We're bringing them on. I think that we're not completely immune to the care that goes into IT spend right now. But we feel pretty good. We're not growing at the rate we were over the last 40 quarters. We're more like the rate we had in the last several quarters. I continue to hope that that will tick upward. I mean, I would love to see us growing in the 20s in the platform. And our bookings feel pretty good. And so from a visibility standpoint, we think that's potentially achievable. So we'll have to see.

I wanted to ask about the auto B2B origination revenue, which increased nicely compared to last quarter. I'm curious if there was a rise in volumes or a change in customer mix. I know there was a pricing adjustment, so could you share some of the feedback you've received on that pricing and what contributed to the growth acceleration?

Yes, most of the increase is related to pricing. We did experience some growth in volume, but primarily it was driven by pricing. There wasn't a significant shift in the mix. In the past, we've noticed that mix shifts among different tier levels can impact results, but that wasn't the case this time. The growth was mainly a combination of price and volume.

And our next question coming from the line of George Tong with Goldman Sachs.

Given the FHFA's decision to move to lender's choice for mortgages, how much of a priority is it to drive industry migration to FICO 10 T, which could be facilitated by the release of historical benchmarking data? Or would you rather see the industry stay with classic FICO to minimize disruption?

I believe the industry will ultimately decide on this matter. FICO 10 T is now available and has received approval from the FHFA. Several lenders are already using it, and we expect this trend to continue. It is by far the most predictive score available. In the risk business, particularly for those who retain any level of risk, these factors are important. This suggests a positive outlook for FICO 10 T. However, there are valid reasons for some parts of the industry to continue using FICO Classic. This is a well-established and finely-tuned score that has been developed over two decades, with extensive historical data backing it up. Therefore, I don't anticipate a quick transition from FICO Classic. Nevertheless, for those who are responsible for managing risk, FICO 10 T is a strong alternative.

Got it. That's helpful. Now, moving to the software side, the FICO Platform ARR growth increased to 18% in the quarter. Can you provide more details on the trends you're observing regarding new client adoption and consumption patterns that could drive further growth acceleration?

We have always believed that our platform adoption would start with a significant presence in a large number of the top 300 global financial institutions, followed by a shift in growth towards expansion. Our strategy has focused on both landing and expanding. Over the past several years, we have successfully penetrated about half of the top 300 financial institutions worldwide. Therefore, it aligns with our expectations that growth trends are moving more towards expansion rather than new customer acquisition. While we continue to attract new customers, those who have been using our platform for some time are significantly increasing their usage, leading to higher revenue.

And our next question coming from the line of Surinder Thind with Jefferies.

Can you discuss the clients who have adopted the FICO 10 T score? I assume they are mostly in the nonconforming market. What factors influenced their decision to upgrade to 10 T now, especially considering the request for public release of some benchmarking data? What data do you need to make that decision?

Well, we would like to see the FHFA and the GSEs release the data in the evaluation process that led to 10 T being identified as the most predictive score in the market. We've obviously done that analysis independently, and we've put it into a white paper, which you can find on our website. There are some pretty significant advantages to 10 T. It's more predictive. It has higher K-S. What does that translate into? It translates into lower credit defaults than you would get with classic FICO and lower credit defaults than you would get with VantageScore. So there's a real benefit that comes with it. And yet, it's a new score, and so it takes time to adopt. And there's all the transition issues that go with that.

That's helpful. And then just following up, in terms of the next generation of the FICO Platform going GA in the second half here, can you talk about the update process? So if you're an existing FICO Platform customer, what is the update process? And what is the benefit of moving to the new platform at this point?

I believe the transition for current platform customers to the new FICO Platform will be quite easy. While the term seamless may be an exaggeration, it will be straightforward since we have planned for it. The benefits of the platform become more apparent through the economies of scale we achieve. A reduced cost structure in serving our customers will lead to lower prices for them. These are some of the advantages, including a clear cost benefit. Additionally, the new platform offers many new features and improved usability. I anticipate that both our existing customers and new ones will be very pleased with the new platform.

And our next question coming from the line of Ashish Sabadra with RBC Capital Markets.

I just wanted to drill down on opportunities for using FICO Scores at having more use cases for FICO Scores or using it in more places within the processes where it may currently not be used, like, for example, securitization market where they may not have access to real-time FICO Score. So is that an opportunity? How should we think about that opportunity presenting itself?

Thank you for the question. We are continually seeking ways to enhance value for our customers and attract new ones. A clear opportunity lies in allowing the securitization market and downstream investors to refresh their scores. Currently, pricing and models are generally based on the score from when the mortgage loan was initially originated, but this score can become outdated over time. We are actively exploring how to provide the securitization market the capability to update these scores.

That's very helpful color. And then just going back to the Mortgage Score question. The nonconforming market doesn't really are not bounded by the GSE requirements. However, most of them continue to use FICO or FICO 10 T. And so I was just wondering what are the moats around the business and then in the event that if there is a lender's choice for the GSE, could that affect the non-GSE market.

Well, it's funny how people talk about moats around the FICO business. I mean what is the moat really? The moat is that we have the most predictive score. That's the moat. I mean if you're in the business of measuring risk, and you benefit when you reduce the risk and you suffer when the risk comes home to roost. You want the most predictive score. You want to avoid as much credit default as possible. That's what you achieved with FICO 10 T. And with respect to FICO classic, I would say, it's also very, very good. And it's not very good for a 20-year-old score. It's very, very good in absolute terms. Not as good as FICO 10 T, but still very, very good and has the advantage of having been the backbone of the system for all this time. And so it's extremely well understood. All the models, everything is optimized around it. And that's truly the moat. It's not some government-conferred monopoly. That's not what makes it successful.

Our next question coming from the line of Kyle Peterson with Needham.

I wanted to start off with your thoughts on capital allocation. It does seem like you guys have kind of stepped up the pace of buyback. It seems like things are dislocated here. Given where the stock is and what your cash flow is like now, do you guys anticipate you being able to kind of continue to buy back at an accelerated pace? Or how are you guys looking at capital allocation, specifically buyback versus debt paydown at these levels?

We've always believed in maintaining an optimal capital structure for FICO, ensuring we don't hold more cash than necessary. Historically, we've returned excess cash through share buybacks, and I expect this practice to continue. We've made significant buybacks in the last quarter and over the past 13 years, and that trend will persist. While we don't aim to time the market, we do target using our free cash flow for stock buybacks annually. However, this can lead to our leverage decreasing to unacceptably low levels over time, prompting us to increase our buybacks to sustain a healthy leverage ratio of around 2 to 3 times. We also pay attention to stock price corrections, as recent events have created significant buying opportunities. Consequently, we do take advantage of these situations, as reflected in our buyback activity last quarter. We have substantial capacity available, and while we won't use it all at once, we are active buyers at this level.

Yes. And Kyle, I would just add, if you look at what our leverage is today, it's still pretty modest by historical standards. It's even down a little bit from last quarter. So there's a lot of opportunity for us.

Okay. That's really helpful. I'm curious about how you're perceiving the current environment. Has anything changed in your outlook?

Kyle, we lost you.

Yes, I think we lost Kyle.

I think we lost Kyle. We lost the second half of that question.

Operator, we can just go to the next question, and we'll see if Kyle jumps back in the line.

Sure. Our next question in the queue coming from the line of Owen Lau with Oppenheimer.

So a follow-up on that moat question, Will, could you please talk about other markets such as credit card, auto and personal loan? When there's no requirement from anyone, do you see any traction that VantageScore is gaining any market shares?

It's a good question, and we do not see any indication that VantageScore is gaining market share. As I mentioned earlier, we've been competing with VantageScore for a long time, over a decade, and we have not experienced any significant loss in share to Vantage. I believe this is due to two main factors: we have the best score, and there are substantial benefits to working with the industry standard, which is FICO.

Got it. That's helpful. Just if lenders were to move to VantageScore, usually, how long does it take for lenders to switch over? Can they do it within 1 or 2 years? Or it will take longer than that?

That's a question no one can answer because it hasn't happened.

Our next question coming from the line of Jeff Meuler with Baird.

Will, what have you been told as kind of the next steps for 10 T usage for conforming? Or what are you getting asked to do from your end to make that happen?

I believe it's up to the FHFA to decide on implementation. From an industry perspective, it's undesirable to stagger the implementation of multiple scores because it complicates retooling. I anticipate that we will reach a point where 10 T is not only approved but also implemented sooner rather than later. We are currently in discussions with the FHFA on how to facilitate this.

Our next question coming from the line of Ryan Griffin with BMO Capital Markets.

You made a comment on ACV bookings pipeline being stronger than last year. I was just wondering what's driving that and how we should expect that to flow through to bookings.

I believe much of the momentum is stemming from FICO World. We introduced numerous new functionalities, as Will mentioned, and there was a great deal of enthusiasm at FICO World. With these developments coming to fruition, our pipeline has been reinforced. Many people recognize the benefits of the current platform, and they are eager about the upcoming version. There is a growing understanding within the industry, supported by numerous success stories shared at FICO World, where various companies discussed their effective use of the platform. We are reaching a point where we can start to build some momentum, and that's what we are currently experiencing.

Great. And then just on the Amazon partnership. I'm wondering what the mechanics are for that and how you expect that to impact the distribution model and bookings going forward.

A little early to say. I mean we're optimistic. Every one of these things helps us, but we'll just have to see how that plays out.

And our next question coming from the line of Alexander Hess with JPMorgan.

I want to follow up on the earlier questions from Jeff and George. It's been about a year since VantageScore provided the loan level data set to the banks, which I understood was necessary for their score approval. Are you hesitant to share that data with the banks for any reason? Or is there ongoing negotiation with the FHFA regarding this? I'm unclear on why FICO 10 T doesn't have a similar data set available in the market.

We are working with them to get the data out.

Got it. That's super helpful. And then just maybe as a maintenance question. I think you guys have said in the past that the Mortgage Scores are less than 1% of scores, and that's presumably GSE and non-GSE channels. Can you sort of give us a sense of how many scores are being generated on an annualized basis now and where you've seen particularly strong adoption in volumes over the last, say, 2, 3 years?

Are you talking about mortgage or across the board?

No, I'm talking across the board, excuse me.

Across the board. Mortgage volumes across the board are down from the peak, not down as much as in mortgage elsewhere, but down some, which gives us a lot of optimism about volume growth going forward, particularly in a declining rate environment if that ever happens. So I think there's upside there. I'm not sure exactly what you're getting at, but...

His question is about adoption of scores just in general, like the credit card, auto, personal loan places and what have we seen over the last few years in terms of adoption...

Oh. Well. So our scores are being used more widely than ever. We introduced new scores. We have all kinds of new scores based on alternative data. We talked about the BNPL score. We have scores that are built around telco and utility payment data off the Equifax NCTUE Plus database. So we're finding adoption of additional scores and scores are being used more frequently than they were in the past in things like account management. So it's not just like the scores volume goes up and down with GDP. I think that it's fair to say that we're finding new uses and expanding market for scores.

Our next question coming from the line of Scott Wurtzel with Wolfe Research.

I just had one on the pricing side in light of all the Vantage and FHFA stuff. I mean, is there a world where you would potentially consider having different pricing on conforming versus nonconforming mortgage given your share in the nonconforming market relative to Vantage right now and the potential uncertainty on what happens in the conforming market?

Yes. I believe that we continuously assess our pricing strategies. There are numerous pricing models available beyond our historical methods. We consider all options, and it's likely that some models we haven't used could benefit everyone, including the industry as a whole. However, due to the size and significance of the industry, we approach any changes with caution. We conduct thorough evaluations to determine their viability and avoid any unforeseen consequences. While we've looked into various pricing models, which may involve adjusting pricing for different markets, we also examine the structure of our pricing, intellectual property usage, and monetization. We consistently review these aspects, and any insights we gain are approached thoughtfully before implementation.

Our next question coming from the line of Matthew O'Neill from FT Partners.

I'll try to avoid the subsequent pricing question here. So I was just wondering, I don't think I missed it, but would you be willing to give us the numbers around the one-time license renewal just for modeling purposes going forward?

No. I mean we don't separate that out. But you can take a look at our overall numbers in terms of how much point-in-time revenue we had that's in the Q. And that's included in that number. So you can kind of look at it that way. I mean it's a pretty significant number for this quarter.

Got it. And I guess just as a follow-up, more broadly on guidance, what's implied for fourth quarter versus where consensus sits today. There's a little bit of a delta there. Obviously, I know you're not guiding to consensus. Just curious how you think about the opportunities to outperform in the last fiscal quarter. And what could go right or what degree of macro conservatism is built into the remainder of the FY guide here?

Well, we only got 2 months to go. So there's not a whole lot of uncertainty. We guided what we guide. We're pretty confident in that. And if I were to say something else, then it wouldn't really be guidance anymore. So that's the number we put out there. And again, when we guide for the full year, there's a lot of things that can happen. But when you're only guiding with a couple of months left, there's not nearly as much uncertainty.

And our next question coming from the line of Craig Huber with Huber Research Partners.

A couple of questions if I could ask. In our Scores segment here, I just wanted to understand a little bit better about the expense growth here year-over-year, about 39%, up about 23%, 24% sequentially. Is there any extra maybe internal investment spending going on there that you can talk about publicly? Just curious why it's up so much. I thought this was largely a pretty fixed cost model here, but...

Could you please clarify if you're referring to revenue or expenses?

The expenses within your Scores segment are up, as you know, roughly 39% year-over-year or 23%, 24% sequential. Why...

The largest expense in our Scores business is in our B2C segment, where we face higher costs for goods sold and expenses related to credit files and data. As this segment grows, you can expect some fluctuations in expenses. Additionally, we have hired more personnel and increased our innovation efforts, which contributes to higher expenses, but not to a significant extent.

One of the things to notice is that it's a relatively low cost model. So when there are some additional incremental costs, it can affect the numbers because the margins are high. However, it is mostly a fixed cost model, apart from the B2C aspect that Will mentioned.

But do you guys think, in general, this new expense level in Scores here, all else being equal in the environment and so forth that you might repeat that again in the subsequent quarters? Or does it dip down? It sounds like it's going to be the higher level here.

Yes, we're likely at a higher level. While it's not overly significant in the broader context, there will be some fluctuations. We're investing more in marketing, especially in the B2C area, as we see promising opportunities there. This is the main factor driving the current changes. We've conducted tests on this in the past year, and the results showed a substantial return on investment. Therefore, we're prepared to increase our investment in this area, as it leads to strong growth on the B2C side.

I would just add that we're also seeing a pretty big return from some of the investments that we've made. And so I wouldn't be surprised if you saw some of the trends go back down again after this initial burst as we invest.

But I also think we keep our eye on the ball. You know we’re always mindful of the market conditions. If those remain challenging, we won't be reckless.

And then my unrelated question, please. Can you share with us what you think your market share is for FICO Scores in auto, credit card, and personal loans and also nonconforming mortgages? What do you think your market share is...

Yes. I mean there's been external third-party analysis done on this, and it's in the mid-90s, probably. If you look at securitizations that take place, it's very high. It's in the high 90% range. So it's hard to come up with exact numbers on this because it's not really reported anywhere. But from third parties that have done the actual work on this, it's a pretty high number.

Our next question coming from the line of Kevin McVeigh with UBS.

I wanted to understand how you can explain the significant beat this quarter while also reaffirming the full-year guidance. Are there any factors to consider regarding the reaffirmation compared to the quarter's performance? It appears that the increase in guidance is less than the quarter's beat. Was this a conservative estimate or are there other points to highlight regarding the quarter versus the full-year guidance increase?

Yes, we discussed in the script that we have some one-time expenses anticipated for the fourth quarter. Some of these were not accounted for earlier in the year. As we approach the year-end, we can take some charges, which we have done before. I think we will likely do some of that this year too, so that's probably where the difference lies.

That's super helpful. And then just with all the questions, I know the regulation is so hard to frame, but are there any goalposts in terms of timing or just events that you could kind of point us to where there may just be some clarification, whether it's out of the FHFA or a border organization, just as we're thinking about expectations over the course of the year, I mean, just given it feels like there's kind of...

No, I think if we take where we are today as the status quo, which is what it is, I think you're looking at years to figure out how market share settles out because it's not easy to switch and because we have a better score. So TBD under what circumstances and whether at all there's share shift. But we'll see. But it won't happen fast. It will take time.

And I'm showing no further questions at this time. I will now turn the call back to David for any final comments.

Yes. I just want to circle back. Manav asked the question at the beginning around the number of FICO 10 T lenders and the traction in the market. So I think it's just important to remind the audience, lenders use FICO 10 T for a lot of use cases, underwriting, loan production, execution, servicing. We have over 30 mortgage lenders today using FICO 10 T. Some of those lenders use it for securitization. They're securitizing with FICO 10 T already. And the MCT is a platform where the MBS market flows through, and they also have adopted FICO 10 T. So we have a lot of places where FICO 10 T exists in the ecosystem and the traction is very strong. So thanks, everyone, for the call. Appreciate it.

This concludes today's conference call. Thank you for your participation, and you may now disconnect. Goodbye.