FICO - Investment Flash Update | Wells Fargo 7th Annual TMT Summit 2023 ( 28 Nov, 2023 )
FICO CFO REITERATES MULTI-YEAR PRICING POWER & 50 %+ PLATFORM TRAJECTORY—RAISE POSITION ADD 10 bps.
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WHAT’S NEW — CHANGE LOG
Weber’s Wells Fargo fireside chat reaffirmed double-digit FY-24 growth, flagged incremental R&D spend for SDK/SI scaling, and stressed “multiyear” value-based price headroom. Management again sees no slowdown in platform ARR or bank demand despite rate-driven mortgage freeze.
KEY DELTAS BOX
∆ Platform ARR still +53 % y/y to $173 m (“ARR grew 53 %”) with 100+ logos and 55 enterprise customers.
∆ Net revenue retention reiterated 145 % platform / 120 % total (“NRR 140-plus on platform”).
∆ Software segment margin guide unchanged; CFO indicates FY-24 opex up “a couple points” for SDK/security—implies ~+200 bps y/y leverage remains intact.
∆ Scores segment growth mortgage origination revenue +147 % y/y; consumer credit volumes stable; sub-prime squeezed.
∆ Cloud migration: AWS now hosts nearly all new installs; legacy data-centres being decommissioned.
∆ Cash-flow outlook: FY-24 FCF set to exceed $520 m, allocation “systematic-plus-opportunistic” buybacks.
QUICK MODEL REVISIONS.
We lift FY-24 software opex +1 % for SDK/API build-out; revenue unchanged at $1.69 bn, gross margin 86 %, resulting EPS $22.60 (-0.7 % vs prior but still 4 % above Street). FY-25 EPS raised $0.20 on faster Falcon volume and lower tax mix.
TAPE CHECK.
Since session start FICO +0.9 %; Experian +0.3 %, Equifax –0.2 %, TransUnion flat, analytics-SaaS basket +0.4 %. Week-of options implied ±4 % move; realised <1 % so far.
COMPETITIVE EDGE ASSESSMENT.
CFO underscored that platform faces “no real competitors” for end-to-end decisioning; resistance is mostly installed-base inertia, now eroding as sales cycles fall below 270 days. Rate-card resets after 30 years of flat pricing demonstrate formidable elasticity and network stickiness. Falcon fraud engine remains a two-thirds-share moat and will be left on-prem until banks voluntarily migrate—minimising disruption while preserving cash flows. Planned SDK/API tool-kits shift distribution to SIs, broadening TAM beyond financials without heavy PS drag. Capital-return discipline (170 % FCF payout last 12 m) provides EPS back-stop.
CATALYST MAP (🆕 first)
🆕 Apr-24 — FICO World (San Diego): SDK launch, new platform modules, additional bank case-studies.
2H-24 — First SI-led non-FI platform deployment.
Mid-24 — FHFA bi-merge final rule; implementation horizon likely >2026.
FY-24 — Platform crosses 200 ARR customers target.
Nov-24 — FY-24 results; watch for >35 % platform ARR.
BEAR COUNTERPOINTS & REBUTTAL
Higher rates stunt credit volumes, neutering price lifts.
Pushback: Guidance already assumes “flat at trough” originations; mortgage revenue +147 % y/y on price proves elasticity.Platform growth unsustainable after early-adopter banks.
Pushback: Only 55 of ~300 global FIs fully live; SDK/SI channel opens new verticals, extending pipeline.Falcon on-prem legacy risk of displacement.
Pushback: Two-thirds market share, decades-long renewal cycles, and planned platform add-ons make rip-and-replace uneconomic.
ACTIONABLE TAKEAWAY
Add +10 bps to 175 bps core weight on reiterated pricing convexity. Re-evaluate if platform ARR drops <35 % y/y for two consecutive quarters or if FHFA imposes adverse dual-score economics.