FICO - Investment Flash Update | 45th Annual Raymond James Institutional Investors Conference 2024 (5 Mar, 2024)
FICO PLATFORM FIREPOWER INTENSIFIES; SCORE PRICING & SHARE BUYBACKS KEEP EPS COMPOUNDING ― RAISE CONVICTION.
Link to Historical FICO Investment Flash Updates - Link
Link to Qualitative Analytic Bank - Link (Message me for access)
WHAT’S NEW — CHANGE LOG
Management used the Raymond James fireside to (1) reaffirm >40 % ARR growth for FICO Platform and flag that Q1 software margins are “probably the bottom,” and (2) frame 2024 capital deployment around the new $500 mm buy-back while reiterating a price-led strategy in Scores. No changes to FY-24 top-line or tax guidance.
KEY DELTAS BOX
∆ Platform ARR: still “>40 %” y/y and $190 mm exit rate; management reiterated 100+ live customers and 55 enterprise-wide users.
∆ Net Revenue Retention: platform NRR “~140 %” vs. 136 % in Q1 print; non-platform steady ≈108 %.
∆ Software segment margin: CFO called Q1 margin “the bottom” as R&D and cyber spend peak; expect multi-year expansion as scale kicks in.
∆ Scores growth %: mortgage revs rebounding from historic lows; pricing remains primary driver—“we raise what we think is right…volumes are out of our control.”
∆ Cloud-migration %: 100 % of new workloads landing on AWS; legacy private DCs being de-commissioned, cutting cap-ex and depreciation.
∆ Cash-flow guide: reiterated FCF trajectory with CapEx “tiny,” reinforcing capacity for the brand-new $500 mm authorization.
QUICK MODEL REVISIONS
We hold FY-24 revenue at $1.68 bn (Street $1.67 bn) and non-GAAP EPS at $22.50 (Street $22.45). Gross-margin view unchanged (~84 %). Software OI margin nudged down 50 bps to 43 % on incremental R&D, recovering >300 bps by FY-26. No change to Score-segment assumptions.
TAPE CHECK
Fundamental scoreboard vs. closest comps:
*Basket = EFX ID&Fraud, COUP, DDOG, NOW, MDB (equal-weighted).
FICO out-grew legacy bureaus by >5 ppt on revenue and >30 ppt on cloud ARR, while preserving the sector’s top margin/FCF profile. Balance-sheet leverage now at the low end of the peer set despite aggressive repurchases.
COMPETITIVE EDGE ASSESSMENT
We believe FICO’s moat continues to widen. Score ubiquity and regulatory embed create formidable switching costs; collapsing mortgage tiers simplifies purchasing without ceding pricing power. On software, 55 enterprise-wide platform customers (up from 40 a year ago) confirm accelerating SaaS adoption, and the end-to-end decisioning stack still lacks a credible peer. Rapid migration to AWS improves time-to-value and eliminates capital drag, while explainable-AI patents (220 issued) defend against generative-AI up-starts. Importantly, management refuses “end-of-quarter discounting,” signalling durable demand-pull rather than price competition.
CATALYST MAP
🆕 Apr-24 FICO World (San Diego) – expect SDK launch & open-API marketplace; early SI partnerships.
Jun-24 FHFA update on bi-merge timeline—any slippage de-risks Score share.
Jul-24 FY-Q2 print: first quarter of post-tier mortgage pricing; watch mortgage rebound.
Sep-24 Platform SDK GA release – unlocks ISV channel.
FY-25 Material uplift in software margin as R&D taper and multi-tenancy efficiencies land.
BEAR COUNTERPOINTS & REBUTTAL
“Generative AI will commoditise credit decisioning.”
– Reg‐tech hurdles (Fair Credit Reporting Act, adverse-action codes) limit black-box models; FICO’s explainable-AI IP and regulator familiarity sustain advantage.“Software growth will stall as penetration matures.”
– Only ~100 of 300 global FSIs use one use-case; 55 enterprise customers average ≤3 modules vs. 10-plus TAM. NRR 136 % proves early expand momentum.“Buy-backs mask dilution from high SBC.”
– SBC is ~5 % of revenue, below high-growth SaaS medians; repurchases >2× offset. EPS CAGR still >mid-teens even on cash-EPS basis.
ACTIONABLE TAKEAWAY
Increase position +25 bps (to 150 bps active weight). Source funds from EFX where mortgage leverage is higher. Re-assess if Platform ARR slips below 30 % y/y for two consecutive quarters or FHFA mandates bi-merge without FICO inclusion.
Disclaimer
This commentary is for informational purposes only and reflects the author’s views as of the publication date. It does not constitute investment advice or an offer to buy or sell any security. Information is believed reliable but accuracy is not guaranteed. Forward-looking statements involve risks and uncertainties. The author or affiliates may hold positions in securities mentioned. Conduct your own due diligence or consult a professional before investing.