FICO at Raymond James Conference: Strategic Focus and Challenges

On Tuesday, 04 March 2025, Fair Isaac Corporation (NYSE: FICO) presented at the Raymond James & Associates’ 46th Annual Institutional Investors Conference. The discussion, led by CFO Steve Weber, highlighted both strategic advancements and ongoing challenges. While FICO aims to enhance its software platform’s efficiency, it faces headwinds in revenue growth and macroeconomic uncertainties.

Key Takeaways

• FICO’s business is divided into two main segments: scores and software, with a strong focus on North American markets.
• The company is prioritizing software platform scalability and efficiency, while continuing innovation in its scores segment.
• FICO’s pricing strategy remains stable, with long-term contracts and CPI-linked adjustments.
• Challenges include software revenue deceleration due to previous lower bookings and FX headwinds.
• FICO is optimistic about leveraging AI capabilities and expanding into new verticals.

Financial Results

• Software ARR Growth: Declined to 20% in the last quarter, following a decrease from a high of 50%.
• Adjusted EBITDA Margin: Down by 50 basis points in fiscal year 2024, expected to remain flat in fiscal year 2025.
• Pricing Strategy: Contracts typically locked for three years with CPI escalators; repricing opportunities at renewal.

Operational Updates

• Software Platform: Efforts to stabilize and build efficiencies for better scalability.
• Partner Channel: Expansion efforts to tap into the addressable market, especially for smaller banks.
• B2C Scores Business: Targeted marketing strategies have been implemented to boost growth.
• Challenges: Slower U.S. adoption of the software platform and macroeconomic volatility impacting origination volumes.

Future Outlook

• Platform Enhancements: Continued investment to improve software platform efficiency and reduce costs.
• Partner Development: Expanding partner channels to increase market penetration.
• AI Integration: Focus on ethical and explainable AI, particularly in fraud detection and risk management.
• Potential Opportunities: Benefits from GSEs leaving conservatorship and leveraging Gen AI capabilities.

Q&A Highlights

• Competitive Threat: Fintechs are seen as complementary to FICO scores.
• FHFA Leadership Change: Expected focus on increasing housing inventory, potentially benefiting FICO.
• Capital Allocation: Focus on share repurchases, with acquisitions subject to high integration standards.

In conclusion, FICO remains committed to long-term growth through strategic investments and innovations. For a deeper dive into the conversation, refer to the full transcript below.

Full transcript - Raymond James & Associates’ 46th Annual Institutional Investors Conference 2025:

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: right. We will go ahead and get started. Thank you everybody for joining us this afternoon. I know the weather outside is beautiful right now, so I appreciate you sticking around, listening to us talk this afternoon. I’m Patrick O’Shaughnessy.

I cover capital markets here at Raymond James. And up next, we have Fair Isaac Corporation better known to most of you as FICO. And on their behalf, we have Steve Weber, CFO. Steve, thanks for joining us.

Steve Weber, CFO, FICO: Great. Thanks. Great to be here, Patrick.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Maybe just to kick things off for the benefit of folks in the room who are a little bit less familiar with FICO, maybe just spend a few minutes talking about the company as you see it today.

Steve Weber, CFO, FICO: Sure. So the company, we actually have two different segments that we report. We have a scores business, which most people know. We provide scores that are used for originating new loans, be they a mortgage, auto, or credit card. And then we also sell scores to for account management to look at the underlying risk in a portfolio that a bank may have.

We also sell scores that help with marketing, so determining who to send offers to. So if you get a mailing, you know, that says you’ve been prequalified, usually there’s a FICO score that determines who should we mail to. So with that, we do those. Those are mostly in North America. We also have some scores that are sold throughout the world.

It’s a relatively small portion of our business, but we do sell scores throughout the world as well. And And then on the other side, we have a software business that we’ve had for forty years now that takes a historically, it’s been sold primarily to financial services, to help with different parts of the customer life cycle, be it originations or account management or fraud detection, collections. And increasingly now we’ve built on top of a platform. We have a decisioning platform now that’s available to banks and outside of banks, but mostly it’s used in banks to help them with make decisions on an automated basis. So the more that you hear about digital transformation, they, you know, they’ve gathered a lot of data.

They need to find ways to actually make that data actionable in real time and make decisions on a one to one basis with their customers.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: All right. Terrific. Good place to start. And then moving off from that point, what are some of FICO’s key priorities for 2025?

Steve Weber, CFO, FICO: Yeah. Well, on the software side, we’re doing a lot to, you know, to stabilize and to build efficiencies into the platform. We’ve built this platform. We’ve done really well with it so far. We’ve gotten really good growth off of that.

But in order to scale it, we really need to have efficiencies built into the architecture. So it works very well now, but we if we put a little bit of investment into that today to move to the new architecture, there’s a lot of savings we’re going to get from that as it scales. So that’s what our real investment is today on the software side. On the SCORES side, we continue to work with we’re doing a lot of the innovation, with different areas within software. Typically, we don’t talk much about the innovation to a rate or roll it out.

But there will be some things we’ll probably see happening throughout the course of this year as we continue to roll out some new products there.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Let’s dig into your scores business for a little bit. What is the current role that FICO scores play across the ecosystem, and how did that role develop over time?

Steve Weber, CFO, FICO: So the FICO score has been around for over thirty years. It was introduced in 1989. For originally it was based on one bureau data set, and then we managed to put the same algorithm on top of the other data sets as well from the other two bureaus. And then it became kind of over a couple decades, it became the industry standard for helping to identify how do we, who do we originate with. So, gradually throughout the credit card industry, and then through the mortgage industry, and then in auto as well, it became the standard measure, to determine risk, you know, as as you made originations decisions.

And then as you as you package the the the different loans into portfolios to sell, it became the way the measure that was used to price securitization or to price mortgage or to price any kind of portfolio that could be sold.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Is there a way to quantify the savings that FICO generates for lenders by allow by allowing them to better underwrite risk and then maybe compare that savings relative to what you would charge?

Steve Weber, CFO, FICO: Yeah. It’s it’s hard to really quantify it. It’s been in place for a long, long time, and and there’s multiple ways to look at this. So if you were if you were to use a score, you would probably have a person sitting at a desk looking at a credit bureau report and trying to score everything themselves. You build a scorecard around that.

Obviously that would be, you know, a pretty onerous task. It’d be labor intensive. And you’d have a hard time probably defending it to regulators. One of the things that the beauties of the FICO score is that, you know, over the last thirty plus years, you can show how you’ve, you know, how you’ve originated in the past and how your loans have reacted through different parts of the credit cycle, through different, you know, environments. If through recession, you can see how the portfolio has performed.

So there’s a lot of value created throughout the whole process, not just with the origination, but also with the ongoing monitoring you do to see how the portfolio performs and what and how you might want to treat people in that portfolio differently. You might want to offer them more if their credit remains strong. If their credit is deteriorating, you might decide to change the terms that you offer them.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: If it’s hard to quantify how much savings you’re providing to lenders and to the whole ecosystem, how is it that you guys feel comfortable that you’re still offering way more value than what you’re charging for? Yeah. We

Steve Weber, CFO, FICO: well, I mean, we we do have some internal measures we do that we we we look at how the scores are being used and what the alternatives are to that. And we think that, again, we’re providing a lot of value in a lot of cases. And frankly, part of it is because of the fact that we didn’t change the price for years. We didn’t change the price of the FICO score for thirty years. So you know, when we put this in place in the nineteen eighties, we didn’t really know how to price it.

We probably could have priced it a lot higher then, but it was probably good that we priced it low. It became ubiquitous. Everybody used it. It you know, the the the usage was dramatically increasing over time. And by the time we got around to raising prices on it, now just seven years ago, there was a lot of extra value that had been gained and we realized that there’s a lot of price increase you could probably do as we move forward.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: So then seven years into this pricing journey, how are you guys thinking about pricing going forward? And maybe how does that look different for mortgages versus auto versus other use cases?

Steve Weber, CFO, FICO: Yeah, I mean, we try to look at how the scores are used and what the value is derived. We have a lot of discussions with our customers. We do a lot of market checks. We do a lot of, you know, again, we try to learn as much as we can about the processes that are taking place. And we understand how the scores are being used.

And frankly, in some cases that, you know, they’re using a lot of scores throughout the process that they probably don’t need to if it was too expensive. So the fact that they’re getting that much use, we want to see as much use as possible, frankly. We want to have because if there’s a lot of use, not only does it provide revenue for us, but it provides value for all those different use cases. So we want to, you know, we want to think about that through the process as well. But we’re pretty confident that as we move forward, we have a lot of discussions with our customers, and obviously nobody likes a price increase, but I think in most cases they’ll realize what we’re charging, why we’re charging it, and what kind of value they’re getting out of that.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: So FICO, the score evolves over time, and your latest and greatest is FICO 10T. Can you speak to the benefits of FICO 10T versus FICO Classic?

Steve Weber, CFO, FICO: Yeah. So it’s, you know, again, 10T. So in the last thirty years we’ve introduced 10 scores essentially, right. So it’s not we don’t do it really frequently, but we do introduce score updates occasionally. And there’s a lot of reasons for that.

In some cases, there’s more data available. You know, it was not that long ago that the bureaus coded medical debt differently than other types of debt. So we could look at medical debt and the predictiveness of that and score that differently because now we had the access to that level of detail. In some cases, you could see societal changes that happen over time that would change the way people should we should look at how people are going to repay their debt. That’s more of a glacial thing.

It does takes a long time to do that, but you see some things happen. And so over time, as we walk through the history, we’ve done updates based on additional data, based on, you know, different trends that we’re seeing. But for the most part, it’s relatively modest changes that happened. I mean, the banks don’t want to complete refresh. They don’t want to lose their history.

So the fact that they’ve used this score for thirty years, they want to be able to look back and see, okay, how did the score perform. It’s important for us to maintain a score that over time maintains the same score to odds ratio, so that they’re backward compatible, if you will. So that a six fifty today is also compatible to a six fifty from a prior version. So we look at that and again, it’s important to maintain that consistency throughout time because it’s used by so many different constituencies. The banks or the lenders are using it.

Their investors are using it to understand the risks. So if you look at the 10 ks for most banks, you’re going to see what their average FICO scores are in their portfolios. The regulators use it to understand the risk that the different lenders are taking on. If you’re securitizing it again, that’s used from that point of view to understand how to price a portfolio, to what risk is in that portfolio. So there’s a lot of different and now you have consumers that are looking at it, right?

We have a program called Open Access where we allow banks to share the FICO score that they’re buying for account management purposes with their consumer. So with a lot of banks, if you go online on their app, you can see what your FICO score is. And that’s a value to the consumer because they’ll look at that, they’ll understand how do banks view me, and what can I do to improve my score because I’m going to get a better going to get a better outcome with the bank as a result of that? So there’s a lot of different constituencies that look at this, and have for a long, long time, and that and that’s something we’re always mindful of as we make changes.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Current events question for you. To what extent do you see a change in leadership at the FHFA and renewed efforts to end the conservatorship of Fannie and Freddie as changing the competitive dynamics and risk scoring models?

Steve Weber, CFO, FICO: Well, it’s it’ll be interesting to see. I mean, I think my sense I think our sense at FICO is that the new FHFA leader is going to be he’s going to focus on probably inventory, housing inventory. I mean, the FHFA has a big mandate, right? And if and really if you want to increase homeownership, one of the best ways to do that is to bring down the cost of homeownership. And one of the best ways to do that is increase the supply of homes.

So, when rates went up as quickly as they did, as much as they did, it kind of froze the market to a large degree. A lot of people that would have otherwise been selling their houses and moving on someplace else stayed where they were because they, you know, they were locked in with the low mortgage. So there’s been a shortage of inventory. So you can address that in multiple ways. You could hopefully bring the rates down.

So there’s going to be more movement of the people. But again, one of the better even better ways is to increase the supply. You know, I mean, if you’re at some point, if it’s just the same supply, you’re kind of playing musical chairs. But if you can actually increase the supply, it’s another entry point for people who maybe don’t own a house today or are looking, you know, to move into that market. So a lot of their focus seems to be on that and looking at what you can do to increase supply.

So from that point of view, it doesn’t really impact us directly, but it impacts us to the fact that if there’s more supply, there’s probably going to be more volume, and more volume means more revenue for us. From the point of view of, you know, the changes to the credit score, we don’t see any real movement there. We haven’t heard any discussion around that. With the GSEs leaving conservatorship, there’s a lot of talk about that today. We think that would probably be a good thing from FICO’s point of view.

We’ve had a really good longstanding relationship with the GSEs in the past. I think they understand our business well. We’ve worked closely with them in the past. So we would welcome that and we look forward always to working with them. They’ve been, you know, good partners for us for a long, long time.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: So speaking of the competitive dynamics in terms of risks risk scoring models, what should investors read into announcements such as the FHLB of Dallas accepting your primary competitors’ scores for mortgage collateral? Is is that meaningful at all?

Steve Weber, CFO, FICO: Not really. I mean, that’s a court collateralization. I mean, so just to be clear, it has nothing to do with the Fannie and Freddie. Fannie and Freddie are actually buying the mortgages and then securitizing them. Right?

The the federal home loan banks that that’s essentially an institution that lends to member banks and uses the mortgages as collateral. So it’s very different. They’re not using the Fannie Square to originate loans. They’re just using it as collateral I mean, as a representation of the mortgages in that portfolio that are used as collateral. It’s not monetized.

And we they use FICO scores for that as well, but we don’t charge anything for that. So we we’re focused really on monetization, which is on the origination side.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Are alternative scoring models being created by fintechs a threat to FICO?

Steve Weber, CFO, FICO: Not really. I mean, when you see the fintechs, it’s usually complementary to the FICO score. So you’ve seen, you know, some fintechs talk about how they’ve got, you know, different ways of looking at additional data they’ll pull in. But typically they’re built around a FICO score first, and then they’ll pull in any additional information they might have to find, you know, they might look at a, you know, a FICO band of six fifty to six eighty, and then say, okay, how can we find the best of that band by pulling in additional pieces of information? There might be other information out there.

They might have, you know, information around, you know, income data from some of them that’s not included in the FICO score. I mean, there’s FICO scores built on the the credit bureau database. The credit bureau does not have income in there at all. There doesn’t have any investment income. So to the degree, you have other pieces of information you can pull in, and that’s always helpful.

But for the most part, what the fintechs are doing is taking us and they’re building on top of that. Because typically, when the fintechs do this, if they’re turning around and selling that account then on to a to a bank, the bank usually demands a FICO score be included with that as a third party measure of the of the risk profile of the consumer.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Alright. Maybe switching gears to software for a bit then. Revenue growth and ARR growth have decelerated somewhat in recent quarters. Is there cause for alarm here?

Steve Weber, CFO, FICO: I wouldn’t say alarm. I would say, you know, we had really strong growth, I mean, in the 50% ARR growth. We knew we were not going to maintain that. So we saw it slow into the 30s for a while. This last quarter was 20%, which is still pretty good for most software companies.

It was a little bit lower than what we thought for a few reasons. There was first of all, we had some lower bookings a year ago, so we knew that was going to roll through into this time period, and that we would have a temporary dip there. But we also saw some headwinds from FX. We have a lot of business in Brazil and they had took a really big hit in that December. And that had a little bit of an impact on us as well.

So there are things like that that can impact us, but we still think by the end of the year we’re going to be that will be accelerating due to some of the bookings we’ve seen now in the last few quarters. Just for context, when we book something, we release our annual contract value on our bookings every quarter, And it usually takes two to three quarters to actually implement that and then another quarter for that to ramp up. So it’s a leading indicator of what’s going to happen with our software business a few quarters later. So a year ago, the first and second quarter, our first and second quarter, we had lighter bookings. So now we’re seeing the impacts of that in our fourth quarter and our first quarter.

And now the third and fourth quarter last year, we saw stronger bookings. And even in our first quarter this year, we saw stronger bookings. So it will take a while for that to kind of to come through and waterfall into our numbers.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Got you. What are some of the incremental opportunities that you are excited about for software going ahead?

Steve Weber, CFO, FICO: Yes. I mean, there’s again, the platform that we built is pretty exciting. There’s a lot of opportunities for us. It’s a pretty huge addressable market. We haven’t really quantified it yet externally.

We’re still working on trying to figure out how to actually calculate that and what to include and whatnot. But there’s a, you know, there’s probably more, there’s probably more market than we can address, frankly. So one of the things we’re looking at is how do we build up our supplier, our partner channel to help with that. So in a lot of cases, we have, we do a lot of sales currently with our off platform, our old legacy business through processors that, you know, the process for smaller banks and mid market banks. And there’s some of our platform that will be perfect for them to take to market as well.

So we’re working on that. We’ve signed some deals early. We’ve signed some deals with that and it’s early stage yet, but we’ll start to see revenue flowing on that probably at the beginning of our next fiscal year. And then outside of that, we’re working with different systems integrators to take some of this platform to market in other verticals that we don’t serve. So we have a we’re relatively concentrated in financial services.

That’s where our domain expertise lies. That’s where all of our, you know, historical products are. That’s where we know that business well. But a lot of this software could be used in other verticals as well. We just don’t have the wherewithal really to distribute at, you know, at scale into these other markets.

But others do, and they’re looking for IP to take to those markets.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Does Gen AI pose a competitive threat at all to your software business?

Steve Weber, CFO, FICO: Well, we have a lot of AI built into our software, and we have for years. We have a lot patents around AI. We have a patents a lot of patents around explainable AI and ethical AI. And one of the things in the markets that we operate in, particularly in the financial services, is you have to be able to explain everything. So if you’re using AI, you have to explain why your model has changed.

Anything that deals with anything that deals with originations or credit, you have to be able to explain what you’ve done to make sure that you haven’t taken on additional risk. Less so with marketing or fraud detection, but anything that could potentially impact your risk profile, you have to explain that to regulators. So we have a lot of patents around that front. So, but we do have a lot of AI built into our products. Our Falcon Fraud product was probably one of the first to use AI in software.

We used, you know, going we used neural nets back in the 90s. We have continually built in things to look for more ways to identify fraud, and the AI is built into that. Different types, you know, from machine learning into different types of AI we’ve used for a long, long time. So, if it’s an opportunity or a threat, you know, it’s probably more of a, frankly, I don’t know if it’s either because it’s an opportunity for us as we move forward. But a lot of the what you’ve heard in the last six months is probably more hype, and we’re not really much of a we don’t talk about a lot of the things we’re doing publicly because, again, we don’t want to be thought of as somebody who’s just trying to hype it.

We talk to our customers a lot about how do you want to use AI and and how can we help with that and how do you not want to use AI? Where where would it be a problem for you? And we’ll make sure that we can provide what they’re looking for.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: How does FICO use pricing as a growth lever within software? And how does that differentiate between platform versus some of the legacy

Steve Weber, CFO, FICO: software? Well, most of our most of our deals have most of our deals tend to be three years long with pricing locked in, excuse me, with escalators for CPI. So, for the most part, you get you’ve got a unit cost built in for three years with CPI built into that. So, we don’t typically price a whole lot there. When the contract’s up for renewal, then typically there’s another chance to reprice depending on how the customer is using it.

It’s probably more dynamic on the platform side than on the legacy business, because the legacy business, most of it’s run on prem. It’s very profitable for us. It’s kind of installed. We have very little incremental costs, so there’s a, you know, if their portfolio is grown, there’s a benefit we’re going to get there. But the unit cost doesn’t change much beyond CPI because again, it’s a very mature product.

We’re happy to let it run as long as it will run there, because, again, it’s very profitable for us. All we need to do is maintain it essentially. But on the platform side, when that three years is up, typically there’s a lot more functionality available, and they’re going to end up buying more, you know, kind of modules, if you will, or more microservices that are going to provide more upside for us there.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: I think there’s a long term bull case that your software segment should have structurally higher margins, but segment adjusted EBITDA margin was actually down 50 bps in fiscal twenty twenty four.

Steve Weber, CFO, FICO: Yep.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Maybe it’s going to be flattish in fiscal twenty twenty five. Has your view on the long term margin trajectory of that business changed at all?

Steve Weber, CFO, FICO: No. I mean we still think there’s a lot of long term margin, but frankly, we’re focused on growth right now, and we could easily drive more margin, but I think it would cost us on growth. And frankly, what we’re doing today in terms of investments that we’re making, like I said before, it’s really a lot of we’re making investments now in the short term to pull long term costs out. And we’ll start to see that even as soon as next year that we’ll be able to pull a lot of costs out. And that the cost of running these we should be able to inflate our gross margins just by doing some of the structural work we’re doing today.

And so to me, that’s an easy call to put the dollars in short term to get the long term benefits from that. So again, we don’t think it we don’t run the business on short term margin targets. We run the business on longer term growth and longer term margin, and we’re really bullish on what we can do longer term for margin.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: As you think about your growth opportunities ahead, how do you think about that US versus non US? And I imagine if our scores is still is going to primarily remain US, but software probably more of a mix?

Steve Weber, CFO, FICO: Software is definitely more of a mix. Software always has been more of a mix. So about half of our software revenue comes from in The US and half outside The US. Yeah, the bulk of our Scores business is North America, U. S.

And Canada, probably 90% or close to that. But the software business has always been spread around the world. There’s a lot I mean, we do business with of one kind or another with almost every large bank in the world. We’ve seen a lot of early adoption of the platform with a lot of emerging markets. We saw really early adoption in Brazil with all the large banks there.

We saw a lot of early adoption in Canada and in The UK as well. We’re starting to see more adoption now in North America or in The US. It takes longer, frankly, because in a lot of cases, there’s more committees to go through. They’re just less agile. But we’re seeing a lot of interest there in The U.

S. And we, you know, we signed a big deal with a very large U. S. Bank last year. We’re seeing more interest, you know, throughout The U.

S.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Got it. And then on the capital allocation front, you guys continue to primarily deploy the majority of your cash flow towards share repurchases. How actively does the management team and the board kind of revisit that policy and look for acquisitions or other potential uses?

Steve Weber, CFO, FICO: Yes. I mean, it might look like we don’t at all because we don’t do any acquisitions, but we look at a lot of different things. We look at, you know, we have a team that looks at acquisitions. The bar is pretty high for what we would do. There aren’t a lot of opportunities on the score side, because frankly, you know, we can do all that ourselves.

There’s some potential foreign things we could do, but there aren’t a lot of opportunities on the score side. There’s a lot of things we look at on the software side. They tend to be smaller tuck in acquisitions that we’ve done and that we continue to look at. We look at bigger things, but if you buy a we’ve put a lot of effort into maintaining as close to a single code base as we can. We try to build everything on a common architecture.

And if we were to buy something sizable, then we have to integrate that somehow, and there’s a lot of risk with that. We’d end up paying a lot of money to do that, and at that point a lot of times you’re just better off building. So we choose building more than buying most of the time, but we do look at a lot of things. So, you know, the fact is we drive a lot of free cash flow. And if we don’t do a lot of acquisitions, which we don’t, that leaves you with the chance to either buy shares back or pay down debt or you could dividend back.

We don’t have a dividend today. We had one in the past was very small. We eliminated that. We like the ability to buy shares back because we think we can it’s more flexible. We can ramp that up and down easier than you can with a dividend.

We think it’s probably more tax advantageous to our shareholders than the dividend. Our shareholders tend to like it. And we think over the time horizons we look at, it makes a lot more sense than paying down debt because we like the prospects of the business longer term. So that’s what we’ve done. We tend to be pretty programmatic.

We look at it a lot. We don’t try to time the market, but there are opportunities where the market’s a little bit, you know, where we maybe get beat up along with the rest of the market more than we think we should, and we might you know, lean in a little bit harder there. But, you know, we tend to kind of dollar cost average and then and then lean in a little bit more when we have the opportunity.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Gotcha. I want to circle back to a couple more questions I have on the scores business. So your b to c yeah, b to c scores business, it kind of been a modest decline for most of the last several quarters. It did flip back to positive growth this most recent quarter. What are you guys doing differently there to, reaccelerate results?

And what’s your, let’s say, medium term outlook for that business?

Steve Weber, CFO, FICO: Yeah. So there’s a little history there. So for a long time, we’ve had the business for twenty years. We haven’t done a whole lot with it because it takes a significant investment to really go out and market heavily to consumers. What we saw during the pandemic and during the refi boom was a lot of just the power of the brand.

A lot of people signed up for the MyFICO product, which drove a lot of growth, you know, really rapid 70%, eighty % growth with us doing almost nothing. Well, then when rates went up, we saw the, you know, the volume start to tick back down again. But that go back to the levels they were before. So, you know, they came down a little bit, but it was relatively modest decline. Just in the last year, we’ve done some testing with different types of marketing we could do.

You know, small kind of targeted kind of gorilla marketing almost, if you will. We’re never going to be running an ad in the Super Bowl or doing really mass marketing like you see some others do. We have a really good partnership with Experian, and Experian does a lot of consumer marketing and uses the FICO brand in a lot of their consumer marketing. So we’re happy to do that. We’re happy to share a lot of the findings we have with Experian to help them grow that business, because it’s good for all of us.

But at the same time, we realize that, you know, a little bit of targeted marketing here and there, we can grow that MyFICO business. So we’ve done a little bit of that. We did some testing last year, and this year we’re putting a little bit more behind that. Not a lot. I mean, it’s single digit millions of dollars of marketing in really specific niches that we can see some some nice returns on that.

So we’re doing a little bit of that this year, which is helping us on that business.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: Gotcha. And then maybe lastly, origination volumes. Ten year goes up, ten year goes down. Kind of been a bit of a roller coaster. Higher for longer seems to be the the current theme.

How do you guys think about the origination volume outlook in terms of your kind of current year forecast, and then in terms of how you guys plan, you know, your multi year budgeting process as

Steve Weber, CFO, FICO: the rest

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: of it?

Steve Weber, CFO, FICO: I wish I knew. I mean, that’s the hardest part. Right? I mean, so much of our business is driven by the macro environment. We were still able to grow last year really nicely, even at a really, really rough macro environment, particularly in mortgage.

You know, we haven’t seen it get a lot better yet. But, you know, I mean, we’ll do okay through that, but it’d be a lot easier if I knew what the volumes are going to be, as you plan your budget. So what we do is plan for things to not get better. I mean, if we plan and just cross our fingers and hope things will get better, it would be pretty ugly because, you know, a lot of this revenue comes through at a really high incremental margin. So we don’t we wait until we can see the revenues before we spend anything.

So, you know, when there is a recovery or when the volumes return, it’ll be very good for us because we see a lot of uptick there. But I don’t know when that will happen. I mean, it’d be nice to know. It seems like the market right now, the mortgage market is looking fairly stable. It’s relatively modestly up or down every week depending on what you see the latest numbers look like.

But again, until you see the rates come down and every time that the ten year moves even a little bit, you see a lot of overreaction to that. If there was some sustainable trend, we probably could plan a little bit better. But really, I mean, you know, as it is now, you know, we’re starting to see a little bit of an uptick in B5 volumes because the rates are a little bit lower than they were last year. B5 was really down last year when the rates kind of peaked. So we’ll see what happens.

But, you know, I mean, again, we look at this from a longer time horizon and at some point things will come back to some sort of normal and then, you know, we can we can work out from there.

Patrick O’Shaughnessy, Raymond James, Capital Markets, Raymond James: All right. Terrific. We will leave it there. Thank you everybody for joining us and thank

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.