Greetings, and welcome to the Fair Isaac Corporation quarterly earnings call. [Operator Instructions]. As a reminder, this conference is being recorded today, Wednesday, November 10, 2021. I'd now like to turn the conference over to Steve Weber. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining FICO's fourth quarter earnings call. I'm Steve Weber, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing; and our CFO, Mike McLaughlin. Today, we issued a press release that describes financial results compared to the prior year. On this call, management will also discuss results in comparison to the prior quarter in order to facilitate understanding of the run rate of our business. Certain statements made in this presentation may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. Those statements involve many uncertainties, including the impact of COVID-19 on macroeconomic conditions and the company's business, operations and personnel, that could cause actual results to differ materially. Information concerning these uncertainties is contained in the company's filings with the SEC, in particular, in the risk factors and forward-looking statements portions of such filings. Copies are available from the SEC, from the FICO website or from our Investor Relations team. This call will also include statements regarding certain non-GAAP financial measures. Please refer to the company's earnings release and Regulation G schedule issued today for a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure. The earnings release and Regulation G schedule are available on the Investor Relations page of the company's website at fico.com or on the SEC's website at sec.gov. A replay of this webcast will be available through November 10, 2022. And with that, I'll turn the call over to Will Lansing.

Thanks, Steve, and thank you, everyone, for joining us for our fourth quarter earnings call. In the Investor Relations section of our website, we posted some slides that we'll be referencing during our presentation today. I'm pleased to report that our Q4 capped another terrific year, a year in which we posted record revenues, earnings and cash flows. And we were able to do this despite headwinds in fiscal '21 due to a shift in the timing of revenue recognition for term license subscription sales and the sale of 2 product lines in our software business and the managed and deliberate decline in our software and professional services revenues. Pages 2 and 3 show some financial highlights from our fourth quarter. We reported revenues of $335 million in Q4 and $1.32 billion of revenue for the fiscal year. We were able to grow our full year revenue despite these negative revenue factors. We delivered $86 million of GAAP net income in the quarter and GAAP earnings of $3 per share. For the full fiscal year, we delivered $392 million of GAAP net income and $13.40 of earnings per share, which includes the gain of $100 million on product line asset sales and business divestiture. On a non-GAAP basis, Q4 net income was $112 million, up 15%. And earnings per share of $3.92 was up 21% from the prior quarter -- prior year quarter. Full year non-GAAP net income was $383 million, up 31% over last year. And non-GAAP EPS of $13.07 was up 34% over the previous year. We continue to deliver strong free cash flow growth as well. Q4 free cash flow was $90 million, bringing the fiscal year total to $416 million, up 21% from the previous year. In fiscal 2021, we continued our commitment to shareholder return,…

Thanks, Will. And good afternoon, everyone. As you may have already seen in our 10-K and the financial highlights presentation posted to the FICO website, we have made significant enhancements to our financial reporting this quarter, including the introduction of new metrics in both our Scores and Software segments. We'll briefly preview these metrics, and I will take some extra time on this call to provide more details on what we are disclosing and what new insights these numbers provide. As Will said, we have a strong finish to our fiscal year, and we are well positioned as we enter fiscal 2022. Total revenue for the fourth quarter was $335 million, a decrease of 11% over the prior year due primarily to a reduction in upfront recognition of term license revenues on-prem software sales, the sale of our Collections and Recovery product line in June and lower professional services revenue in our Software segment. Our full year revenue of $1.32 billion was up 2% over last year. In our Scores segment, revenues were $169 million, up 10% from the same period last year. B2B revenue was up 2% over the prior year. As you may recall, last year's fiscal fourth quarter included a onetime royalty true-up that did not recur this year. Adjusting for this onetime true-up, B2B revenue was up about 15% this quarter. B2C revenues were up 32% from the same period last year. Both myFICO.com and partner revenues grew significantly. One of the new financial metrics we are adding to our 10-K and 10-Q disclosures going forward is the breakdown of our Scores segment revenues between B2B and B2C components. For the full year, Scores revenues were $654 million, up 24% from last year. As Will previewed, we have merged our Applications and Decision Management segments into…

Thanks, Mike. As we move into fiscal '22, I believe we are well positioned for the year ahead. In our Software business, we continue to solidify and add functional capabilities to our platform. And we remain committed to becoming the preeminent provider of decisioning analytics. We are committed to pursuing growth opportunities and improving our efficiency. In our Scores business, we continue to innovate and find new ways to add value for our customers and benefit from the diversification that comes from the broad usage through the various credit verticals. We entered the new year with more visibility than last year, and as such, are again providing guidance for fiscal '22, as shown on Page 15 of the presentation. We are guiding revenues of about $1.35 billion, an increase of about 3% versus fiscal '21 on an as-reported basis and about 6% when adjusted for the divestitures. We are guiding GAAP net income of approximately $318 million, GAAP earnings per share of approximately $11.29, non-GAAP net income of $397 million and non-GAAP earnings per share of $14.12. I'll turn the call back over to Steve, and then we'll take your questions.

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

[Operator Instructions]. And our first question comes from George Tong with Goldman Sachs.

You're guiding to Scores revenue growth up 6% next year. That excludes any special pricing increases. Could you talk about what the assumptions are and factors are that go into your 6% growth outlook?

It's a continuation. We break it down into the pieces. And we look at mortgage. We look at auto. We look at card. We look at prescreen. So we look at all the pieces and put estimates on that. We use industry forecasts to inform those estimates, although we're not always exactly on top, we form our own views. And that's basically how we do it. That's how we got to the 6%. I mean it's a combination of -- it combines both volume increases based on industry and price increases as well.

Okay. Got it. So there is some measure of underlying pricing increase in there?

Yes. Just to be clear, it's CPI kinds of increases.

Not including the strategic price increases.

Right.

And George, I would add to that. I just -- sorry to interrupt, just looking across those segments, we do our best to predict volumes for the 3 major parts of our B2B business. Just like you probably do. We don't have a crystal ball. But I can say that our expectations for mortgage are in line with what you would find from third-party forecasters. And likewise, we expect modest but positive growth in the auto and credit card and other segments.

Okay. Yes. That's helpful. That was the extra color I was hoping to get. And then with the extra Software disclosures, I guess if we dive into ARR performance, the percentage of ARR that's on platforms at 14%, it's nearly double what it was about 2 years ago. What are your expectations for how that continues to tick higher? What's embedded in your 2022 guide? And how would you expect that trajectory to just perform in the years ahead?

We see the platform side of ARR growing at over 50%.

And overall, if you just do the math on our guidance, the 6% total revenue growth is approximately equal in terms of percentage between the Software and Scores business. So if you expect very strong continued growth in the platform business, we think our platform is going to be relatively flat.

Okay. So 50% is a good run rate growth to apply to the platform piece.

That's right.

Our next question comes from Surinder Thind with Jefferies.

As a follow-up to the ARR question and more specifically the net revenue retention rate of 143% for the platform, can you talk about the sales process and how that works for the client in terms of what the client initially buys and kind of what the upsell is and how the timing of the upsell works?

Sure. And obviously, it varies from client to client. Typically, we put the platform in with a specific number of use cases and very specific ideas about how the platform will be used and what problem is being solved. But increasingly, it's being put in with a view to being able to provide additional solutions later on. And what we're seeing -- a classic land-and-expand strategy. And what we're seeing is that's working with our current platform customers and what -- and the ones that have gone in less recently, we're seeing expansion. We're seeing new uses, new ways of using the platform, and so -- which is what's really informing that 143% retention rate.

That's helpful. And then in terms of just bringing on new clients onto the platform, can you talk a little bit about the conversations you're having there and what it's kind of taking to get them across the finish line and the time lines generally involved?

The time line is a little bit longer than our historic 270-day sales cycle with our older applications. But the -- what's happening is it's a bigger deal at the client. It's being brought in as part of a broader strategy. It's being brought in with a view to using it to really interact with consumer customers strategically. And so it is a bigger, more complicated conversation, but it's -- we're kind of in the middle of it. We're right in the middle of the way our clients want to interact with our consumer customers. We're seeing ourselves pop up in their strategy presentations.

Got it. And just kind of a technical question on the accounting part of the ARR maybe. Is there a kind of a volume component to it in the sense that there's a head count of the number of people that are on there, all else equal, or usage?

I'm not following the head count part of it. Are you talking about our contracts that are usage-based as opposed to based on minimums per year?

Yes, the combination of minimums versus usage base. So let's say a use case has -- a lender has, I don't know, 10 million accounts or something like that as a use case or was part of that. And then obviously, that number can change. So are there kind of bands? Or how does that work? Just to understand what the volatility might be.

Yes, it's a good question. So our contracts have both. Many have minimums. Many have usage components. Some have minimum with usage if you exceed a certain amount of volume or use cases or accounts. What we do is if it's minimums, that's what goes in the ARR unless and until that customer exceeds the minimums, and then that additional run rate is added to ARR in the period in which that occurs. If it's a purely usage-based contract, some of our customer communication services contracts, for example, are based on the number of messages that are sent in cases where fraud is identified or what have you. There, we estimate once the solution has been installed and is running and has shown a stabilized usage rate, we then use that as the ARR that we will enter into the quarter's results. If that usage goes up or down in future quarters, we adjust ARR accordingly. Does that make sense?

Yes. That's actually very helpful. That's it for me.

Next question comes from Kyle Peterson with Needham.

Just wanted to touch on the margins. Obviously, it came in really strong this quarter. I know there's been a lot of moving pieces with deemphasizing professional services and the C&R divestiture. But just wanted to get any thoughts on what your assumptions would be on like the sustainability of operating margins in line with what we saw this quarter.

There isn't anything structural that has changed or we expect to change in the quarters ahead in fiscal '22 versus what you've seen in recent quarters other than the fact that we expect to return to traveling. So if you look at the expense breakdown in our supplemental materials, I think we spent $0.5 million on T&E in Q4. That's going to go back up to a more normal rate, or at least that's what we're projecting. Professional services, as that declines, that's a low gross margin business, therefore, a high cost of goods sold business. So the cost of goods sold declines as those revenues go down. But otherwise, in terms of what we're investing in R&D and go-to-market and G&A, nothing dramatic has changed in our forecast versus our historical other than we've taken out a lot of expense from divestitures.

Got it. That's helpful. And then I guess just a follow-up on the B2C side. The performance continues to be really impressive for Scores. Is this something that you guys think you can keep growing kind of above trend? It seems like you guys are putting up significantly faster growth than what we're seeing with some of the other players in the space.

I think that there's a lot of strength in the FICO brand, and I think that there's a lot of strength in the operating and management acumen of our B2C team. So doing better than others, I think you could expect that. Will we be able to repeat year-over-year performance in the 30s? I can't promise that. I think we're more likely to be on something closer to our quarter-to-quarter growth.

[Operator Instructions]. The next question comes from Ashish Sabadra with RBC Capital Markets.

This is John Mazzoni filling in for Ashish. Maybe just a quick one on the B2B revenues. I know there was a onetime impact that if adjusted, that would be around 15%. How should we think about these moving forward, especially going into kind of the '22?

Those kinds of onetimers happen periodically. It is kind of part of the business. We do audits and true-ups every few years with different channel partners. And so can you expect them to continue? Yes, there will be things like that, that are a little bit unpredictable. But it is part of the business.

Understood. And then maybe just a quick follow-up. How do you see the Software business evolving over time? Maybe of a longer-term perspective, just as we kind of wrap our heads around these new metrics, what could be a longer-term growth rate or any type of things that investors should be paying attention to?

Okay. With the caveat that this is not guidance, I would say look at our platform growth, 50% platform growth, which tells you that we have something there that the market wants. We have a large number -- a large number -- 19 enterprise customers, large customers who have adopted the platform and many more in the pipeline. And what we're seeing is that's a combination of conversion, substitution of platform solutions for more historical solutions, but it's also growth. It's also new stuff. And so over time -- and it could be a very long time. But over time, you'll see our software transition from our older solutions to platform solutions and the platform solutions piece is growing a lot faster. So will our growth rate go up? Yes, it almost certainly will go up as we do more and more of our total Software business on the platform. So if today is 6%, I would just extrapolate out from 6% upward. And I don't know how many years it will take, but we will be in double digits eventually.

And Mr. Weber, there are no further questions.

All right. Thank you all for joining today's call, and we look forward to speaking with you again soon. This concludes the call.

And that will conclude the conference call for today. We thank you very much for your participation. You may now disconnect.