FICO - Investment Flash Update | RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference (15 Nov, 2023)
FICO CFO REITERATES FY-24 DOUBLE-DIGIT PLAN; PRICING & PLATFORM STILL OUT-IN-FRONT—WE HOLD OVERWEIGHT.
Link to Historical FICO Investment Flash Updates - Link
Link to Qualitative Analytic Bank - Link (Message me for access)
WHAT’S NEW — CHANGE LOG
RBC fireside chat re-affirmed Sep-set rate-card increases, flat origination-volume assumption and 22 % Software ARR CAGR path. CFO flagged modest FY-24 opex lift for SDK/API build-out to enable SI channel.
KEY DELTAS BOX
∆ Platform ARR reiterated +53 % y/y to $173 m and now 26 % of total (“platform ARR grew 53 %”)
∆ Total NRR steady at 120 %; platform NRR 145 % (“customers show very strong net expansion”)
∆ Software margin non-GAAP op-margin guidance implies +200 bps y/y despite incremental security/SDK spend (“relatively modest and embedded in guide”)
∆ Scores growth: mortgage origination revenue +147 % y/y; auto flat, card –2 % (call)
∆ Cloud migration: EPC count 55 of ~300 global FIs live on platform; >100 signed
∆ Cash-flow guide: FY-24 FCF implied ~$520 m, share-buybacks to remain “systematic-plus-opportunistic”
QUICK MODEL REVISIONS.
No earnings-relevant deltas; we maintain $1.69 bn FY-24 revenue, 85.8 % gross margin and $22.75 EPS, 3 % above Street. CFO’s opex comment lifts our FY-24 expense line by just 1 %, trimming margin headroom 20 bps—absorbed by buybacks.
TAPE CHECK.
Since RBC session start FICO +1.8 %; Experian +0.4 %, Equifax +0.3 %, TransUnion flat, analytics-SaaS basket +0.6 %. Week-of options implied move ±4 %; realised <½, skew neutral.
COMPETITIVE EDGE ASSESSMENT.
Rate-card equalisation remains intact; Weber emphasised “multiyear” value-based pricing runway, signalling durable elasticity. Platform land-and-expand reinforced: sales cycle now <270 days and payback “as soon as a year”, accelerating embedded switching costs. SDK/API investments aim to unleash SI-led vertical expansion—if successful, TAM widens well beyond financials without denting margin. Falcon fraud franchise still defends transaction moat; management comfortable letting legacy workhorse run while platform layers incremental modules. Balanced capital allocation (70 % fixed-rate debt, opportunistic buybacks) protects EPS compounding.
CATALYST MAP (🆕 first)
🆕 January-24: new rate card effective across mortgage, auto, card.
1H-24: SI SDK launch; first non-FI pilot.
Mid-24: FHFA update on bi-merge implementation timing.
FY-24: Platform crosses 200 ARR customers (target).
Jul-24: Board share-repurchase authorisation refresh.
BEAR COUNTERPOINTS & REBUTTAL
Bear: Bi-merge change could pressure pricing.
Rebuttal: CFO: “move from tri-merge to bi-merge doesn’t directly impact us”; pricing based on value, not bureau count.Bear: Software GM exit risks disruption.
Rebuttal: CEO resumes direct oversight; product originator, margins guided to rise.Bear: Platform growth will fade as already penetrated core banks.
Rebuttal: Only 55/300 global FIs are live; SI channel opening extends reach and verticals, sustaining >40 % ARR run-rate.
ACTIONABLE TAKEAWAY
Maintain 175 bps weight; add 10 bps on dip < $860 as buyback floor. Review if platform ARR growth slips below 35 % for two quarters or if FHFA mandates punitive dual-score economics.
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.