FAIR ISAAC CORP — Call Transcript 2026

Good afternoon, everybody. Thank you for being here. We're happy to continue our session here with FICO. We have CEO William J. Lansing and CFO Steven Weber. Thank you both for being here. Thank you. Well, maybe I guess let's take a step back. I think there are some newer investors in the space now. Obviously, your stock has been under some pressure for a while. Maybe, kind of a From your perspective, what is the FICO pitch today from your perspective? Because you guys keep obviously buying back shares every opportunity you get. Yeah. Well, I guess just on that point, we're kind of a slow-moving LBO. We have been buying back our stock for a very long time. We started at 74 million shares, when I joined the board, we were at 36 million shares. When I became CEO in 2012, we were at 30 million shares. Today, we're at 23 million shares. What we do is we take our cashflow and we buy back stock and lever up, our cashflow grows, then we buy back some more stock and lever up a little bit more and trying to keep the leverage up in kind of a two to three times range. That's the capital side of the equation. The business has just gotten stronger and stronger and stronger for, well, certainly for the last 14 years. We see a pretty bright future. We're a little surprised at where the stock price is, frankly. You know, we're kinda trading at multiples that surprise us. Maybe it's just worth going back in time and giving you a little bit of the FICO story. Sure So you kinda have a level set on where we are. I guess before I do that, I'd remind you, take a look at the charts. You know, we had well over a decade of kinda rocketing to top decile performance on TSR. In the last 15 months, we've been pretty beat up, mostly because of fear about some political things going on in Washington and our mortgage business. I'm sure we'll spend more time on that. Yeah. But again, you know, by way of context, just maybe a few minutes on FICO history and how we got here. Well, actually, just a show of hands, how many of you guys know the story, the FICO story? You guys, you guys know nothing about us. Okay. That's fine. It's a good place to start. The company was founded in 1956 by a mathematician and an engineer, the idea was let's apply analytics to data and make better decisions. For 30 or 40 years, that was the business. It was a consulting business, a body business of doing that. We built scorecards, proprietary scorecards for banks because banks had big money decisions. It was worth taking the time to invest in a better decision. That went on. In the 1970s, we got this idea that maybe we should try to build a software business too because if we have software, if we embody the analytics and software, we'll be able to get returns to scale, make money while we sleep. We won't just be a body business. We started a software business. We took the half dozen questions that banks asked us most frequently, and we built applications around them. Originations, should we or should we not make this loan? Customer management, line management, should we increase this person's credit card line? Should we decrease it? If we increase it, should we decrease something else, some other risk somewhere else? Fraud, fraud detection, collections and recovery. These were the big areas where we had applications, and we built a really substantial software business in the through the 1980s, 1990s, 2000, and on around these franchises. I took over in 2012, and we made some changes. On the software side, we went to a cloud model from an on-premise model. We also put a lot of energy into building out the technology stack so that we're not just an applications business anymore. We are a decisioning platform. We're a true platform. It took a lot of years to achieve that success, but that's kinda where we are now. We'll spend more time on it if we have time at the end. On the score side, in 1987, we decided instead of building proprietary scorecards for each bank, what we would do is build a generic scorecard that could be used by any bank. They just show up. They don't have to give us any special parameters. We did that in partnership with Equifax, and it was wildly successful. You know, we kind of made this thing that made it super easy for lenders to evaluate credit, low cost evaluation of credit. This is also, you know, in response to the Fair Lending Laws that want you to demonstrate that there's no discrimination in the way you do your underwriting and scores are completely clean and science-based. We had this idea that we should build the same kind of a score with the other bureaus. In the U.S., there are three bureaus. Equifax, Experian, and TransUnion are the big three. We went and built scores with Experian and with TransUnion as well as with Equifax. What we did was we aligned the odds to score ratio across all three bureaus the same. What that did was effectively say a FICO Score is a FICO Score regardless of where you get your data, regardless of which bureau you use. You can imagine how popular that was with the lenders. I mean, it commoditized the data at some level, and it gave them a lot of leverage versus the data providers because they could easily switch from one bureau to another. Pretty popular. That went on and, you know, we had the lenders liking it. Regulators got into it. They thought that it was pretty useful for them because they could measure the risk of the banks that they're regulating. What's the average FICO Score of the portfolio? How will it behave in a downturn? Then the securitization market evolved, and they needed a metric for pricing the risk, and the most obvious one was FICO. Pretty much all your asset-backed securities, your mortgage-backed securities all come with an average weighted FICO Score so that people actually know what the paper's worth. Now you've got lenders, you've got regulators, you've got the investors and the securities market, finally we got consumers on board. We give them their score for free, there's a lot of demand pull for FICO Scores. That's the, that's how scores got to be the industry standard that they are and kind of positioned us where we are. Another wrinkle, starting in about a decade ago, we started raising prices for scores. Why did we do that? Well, for 30 years we didn't raise prices for scores because our pricing was hardwired into our contracts with the bureaus. We distribute our scores through the bureaus, the prices were all fixed, and we never changed them. You should just talk to my predecessors about why. I decided we should have the flexibility to change our pricing, 30 years is too long to go without a price increase, we started changing our prices about a decade ago. Every year we're in the business of trying to capture some of the value that's been left behind. I mean, that's really the story of FICO is we have a mountain of IP that has been undermanaged and undermonetized for decades, and we're in the process of figuring out how do you monetize that with the least amount of disruption to markets, with a, in a steady and continuous way march up the value, march up the monetization of the value. That's what we've been doing. In mortgage in particular, we've raised prices. If you read the, you know, the bad press, they focus on the % increases that we've raised prices, and it's true. We've raised prices from $0.05 years ago to $10 today. Remember, that's $10 out of $6,000 of closing costs, so it's still kind of a trivial number in the scheme of things. What's happened is it turned into a headline. Our mortgage price increases turned into a headline for the populists in Washington, in particular for the Director of the FHFA, who's very pro-competition, very focused on how do I, you know, make housing more affordable in the U.S. One of the things he's looking at is closing costs. Among other things, you know, he's questioned our pricing. I think that we've actually responded by coming out with some new pricing models, some innovation that, I think he likes, where, you know, we have an option to buy mortgage scores from FICO for $0.99. That's a big step in the direction that I think he was looking for. I would say the noise in our stock is almost entirely tied to that. There might be a little bit of spillover from the AI software scare, but I think that's pretty minor. We never got much credit for software before, so I don't know how much we should get bashed for it now. We are very happy with the software business. Grew 49% last quarter in the, you know, in our new platform, so strong business. Anyway, that's the background. All right. Helpful. We'll get into some of the noise, but maybe Steven, you can help here. Like, with that history, with the current context around, you know, pricing and mortgage and so forth, is there a long-term algorithm, financial algorithm that the audience should keep in mind, whether revenue, EPS? I mean, we don't, we don't have any, you know, issued numbers. If you look at our past, you can kind of see that we've been pretty consistent. We, we do target internally. We want to, you know, maintain the same pace that we've done in the past. You know, we try to get in, you know, at least into the teens of revenue growth, which could drive us into the 20+% with, you know, margin expansion in the net income, and then a lot of times that can be above 30% with EPS with the buyback. Just rough justice, that's how we've been looking at it. That's, you know, as we make plans for the coming year, that's what we try to target going forward. Got it. Okay, well, let's jump into the mortgage market and the political noise you were referring to. Okay. You know, we just had MSCI before you. We had S&P in the morning. You know, those indices, there's a lot of competition, but once you're the benchmark, you're the benchmark. The way you described it, FICO is the benchmark. Obviously, Director William J. Pulte has implemented a lender's choice, allowed or in the process of allowing VantageScore to come in. You know, from your perspective, how do you see the potential shifts in the market if and when they are approved? Well, we'll see if Vantage gets any share at all. I mean, we've been competing with Vantage for over 20 years in every other market outside mortgage, and they have no share. They push a lot of scores, and the way they do that is by sending them along for free. If a lender asks the bureau for a credit file and a FICO Score, they'll often get the VantageScore sent along for free, and that's where the big numbers come from. I'm not exactly sure that should be considered market share because nobody asked for it and nobody paid for it. In mortgage, remains to be seen whether having an option for a VantageScore gets you anywhere. I would say that the value proposition is still pretty thin. Why would someone buy a VantageScore? If, if they're buying it because they're interested in credit default risk and predictiveness, and certainly the entire non-conforming market cares about credit default risk, and I would say that the conforming market also cares about credit default risk because it comes back to haunt them. If, if the loans go bad, you know, a lot of those loans are put back by the GSEs to the originator. They also care about credit default risk. If that's what you care about, FICO Score 10T is 8% more predictive than VantageScore 4, and FICO Score 10T qualifies 5% more borrowers than VantageScore 4. Predictiveness is not gonna get you there from a value proposition standpoint. You say, "Well, what about on price?" You know, maybe somebody cares about price, and even though we're talking about a very small price in the scheme of things, is there someone who cares? On that, I'd say our new pricing model at $0.99 meets VantageScore pricing at $0.99. I don't think there's a reason to move for price. That leaves you with one and only one reason to buy a VantageScore, and that's if you're trying to game the GSEs. That's real. That's not, you know, that's not hypothetical. I mean, if anytime you have a two-score system, one score's always better than the other. When you typically, you would give a better price to the better score. If Fannie and Freddie are constantly being presented with the better of two scores, they're being gamed. Frankly, what'll occur in the long run, if anybody does this gaming, what occurs in the long run is that the non-conforming market, the lenders in the non-conforming market will skim off the best credits out of the conforming market and leave the Government-Sponsored Enterprises with the inferior credits, which will cost Fannie Mae and Freddie Mac quite a lot. That is the likely outcome of gaming. I would caution you, just by saying that the addressable market for gaming is fairly limited. It's under 10%. You know, if you look at the rules that came out last week, which are you need less than 80% loan to value, meaning you have to put down 20%, or you can't get the mortgage. For Vantage, you need 80% less than 80% loan to value, and you need, there's not actually a separate Vantage LLPA grid. That's the pricing grid. There's not a separate one for Vantage. What they did was they said, "Take a VantageScore, subtract 20 points, and jam it into a FICO LLPA grid," which is suspect science, but anyway, that's what they've done. If you work through all the math on it, and I'll spare you guys the math today, it takes you to about a 9% addressable market. I guess just to be clear, that even the gaming, in order to game, don't you just have to pull both scores all the time? Well, yeah. potential share loss? Great point. There's no volume loss. If you have to pull both scores in order to compare them to do the gaming, our volume doesn't go down. You're still pulling a FICO score. The overall market of scores volume went up a little bit. Yeah, technically we could have share loss, but no volume loss. That's theoretically possible. Got it. You know, the $0.99, yes, you've matched kind of the upfront pull fee, but in the, in the performance model, you do have the $65 closing fee per report. How do you think the lenders, originators market will address that when they're trying to compare whether they want to save money or not? Well, you know, that's money that's paid by the consumer. Ultimately, of course, consumers pay for everything. We know that. It's really about kind of what bucket you put it in. You know, the industry has always tried to push cost to the closing statement and out of their own P&Ls. That's why we have RESPA laws. The RESPA laws are designed to keep that from happening, really, to ensure that the only costs that go into a closing are appropriate costs that have something to do with the closing. To that extent, what we've done is matched them perfectly. There's nothing that's closer to what the closing's all about than you got your mortgage, successful funding fee. You know, I think that we're actually helping the lenders with this. In terms of their true cost to themselves, it's identical whether they're paying $0.99 to Vantage or $0.99 to FICO. Got it. In order to get that $0.99 to FICO, they have to go through the direct, the DLP model. That's correct. through you guys. That's right. It seems like it's been a case of gonna be ready in the next month for a few months now. What's the latest on when the DLP will be out there? It's gonna be ready next month. Well, I mean, it shouldn't take that much longer. We're waiting on certification from the GSEs. They're supportive. The Director's supportive. It's a matter of time. Okay. In all that you described on the lenders want FICO Score 10T, you know, $0.99 takes care of the cost, once DLP is live, how fast and how much adoption should we be, you know, looking out for? Well, no one really knows, but I think that there's a lot of demand for the performance model, which will only be available through the tri-merge resellers, through the DLP model. The tri-merge resellers have the, by far, the lion's share of the market. Almost all the scores are purchased ultimately through the tri-merge resellers. It could easily be half. It could get to half, certainly within a year. Got it. I think it's probably worth spending a little bit of time on the FICO Score 10T independent study that was put out recently because I think VantageScore obviously claims to be better than the Classic FICO, which might make sense because it was developed so many years later. Can you just talk about this was a second iteration of the independent study, I believe. what changed and what are some of the stats again, and why FICO Score 10T is much better than the other? I would encourage people to go to the FICO website and read our white paper on it, and you can go to Milliman, which is the independent third party that did the analysis, and read theirs. It's quite technical. They've done a scientifically rigorous assessment of FICO Score 10T versus VantageScore 4, and we are better on predictiveness. They actually go through the gaming issues with the two-score system and identify the costs around that. I mean, it's worth a read, but it's quite technical. There's probably other things you'll read before you read that. Take my word for it, FICO Score 10T is better than VantageScore 4. Okay. You know, the FHFA had a press conference recently, actually two questions. The first one is, I think the Director William J. Pulte had mentioned that he had a conversation with you around this $0.99 pricing model. He had also mentioned a few times, you know, it sounds too good to be true, so I'm gonna make sure there's nothing in there. I guess I just wanna confirm, he knows of the performance model. Absolutely The closing, the 65, that's not gonna be new to him, correct? No, no, no. He's smart guy, and he's completely aware of the structure, and I think he supports it. Okay. The other main thing for that conference is obviously the pilot. I guess they've selected 21 lenders to try and test out VantageScore. It's a little bit of a black box, gray box, whatever, for a lot of us. Anything your mortgage team and Julie may have shed any insights you can share with us? Yes. There's not a lot to know there. I mean, all those lenders, whoever they are under NDA, and can't talk about it, and can't disclose, and so very little is known. We know some of the rules around accepting a VantageScore, the 20 points and the 80%. Okay loan-to-value. But other than that, I can't tell you much. Okay. I, you know, I don't know. I think it's a manual process. Not sure. Okay. Maybe the other thing you might be able to tell us about is the FICO Score 10T data has not yet been released. They said in the coming months, quote, unquote, "summer." You know, what is the holdback for when that gets released? Once that gets released, do these 21 lenders have to go back and test that as well? Don't know the answer to that. I know that the GSEs are working on it and intend to release. I mean, I think they mentioned the press conference early summer. We're kinda waiting for them to do that. You know, they have their own processes and procedures, they're working their way through them. You know, we fully anticipate that it will be released, but we don't have a timeline. Got it. In terms of FICO Score 10T though, when it does come out, I think, you know, historically you've talked about how even today the mortgage market's using FICO Score 4 and 5. How quickly do you think FICO Score 10T can be adopted or even VS4, like? 10T's being adopted fairly quickly in the non-conforming market, it can be adopted. I do think there's a ton of inertia. I think if the, if you ask the industry, "Do you wanna change?" They would say no. They would like to just stay with Classic FICO forever. We are seeing, you know, we are seeing adoption in the non-conforming market. Once all of Classic FICO, VantageScore 4.0, and FICO Score 10T are accepted in the conforming market, it's a little hard to say. I mean, you could see a shift. I mean, there's if you were gonna shift, you should shift from Classic FICO to FICO Score 10T because you'd get more predictiveness out of it. Again, you know, all the systems, models, everything's designed around Classic FICO, we'll see how long that takes. Got it. There's also an advantage. We could run, I mean, you'd run FICO Score 10T in parallel with Classic FICO, right? That's what's happening in the non-conforming market. From that point of view, it's easier to, you know, to run them both at the same time, compare the results, and you can do some forecasting on that. Got it. In the past, you know, you've talked about it's a heavy uplift to switch from scores, but, or go from a Classic to something totally different like a VantageScore. What is the lift like to go from Classic to FICO Score 10T? It's a little easier. The reason, FICO Scores are designed to be backward-compatible with prior generation FICO Scores, and they always have been right up to FICO Score 10. FICO Score 10 is backward-compatible with FICO Score 9. FICO Score 10T uses trended data, so it's not perfectly backward-compatible. It's a little bit different. I would say that FICO Score 10T is architecturally very similar to prior FICO Scores. It leverages the same kind of weighting, same attributes. If you were gonna make some assumptions about how FICO Score 10T behaves relative to Classic, FICO Score 10T will be a lot closer than VantageScore 4 would be. Got it. The $0.99 plus $0.65 for FICO Score 10T, I think implies a modest price increase versus the $4.95 plus $0.33 you have for Classic FICO. Yes. Some people think that's your 2027 pricing that you've introduced today. Is that the case? How should we think about that? Well, no. I would say that 2027 pricing is not here yet. We haven't really decided what we're gonna do there. You know, our process is in September, August, September every year, we kind of review things, decide where it would be appropriate to make bigger pricing adjustments, and then we publish them to our partners so that they can be implemented on January 1. None of that has occurred. Any pricing that you see in the market today is 2026 pricing. Got it. With all this noise, with all this change, how should we think about, you know, what your price value gap in mortgages, like let's say it's roughly $10 a score today, versus what you think it should be? I know you know, you talked about this for years. Before this all began, I think people thought, "Sure, it's gonna get there," but now I think they're a lot more skeptical. You know, is your approach changed? Are you gonna balance the annual increases differently? You know, what's a FICO mortgage score worth, right? That's the question. Nobody knows the answer to that. I mean, really, no one knows the answer to it. All you can do is look at analogs. If you look at S&P and Moody's, they charge approximately 8 basis points to rate a mortgage-backed security. They each do, that's 16 basis points, okay? That's typical. Those securities that they rate, triple A rated, guaranteed by the government, they're all triple A rated, I'm not sure how useful that is. They also supply the average weighted FICO score of those securities. That's what the pricing is built on. The pricing's built on the FICO score, not actually the S&P rating. I only share that by way of, you know, background because we don't charge anything for using our Score in that context. We charge zero. They charge 16 basis points and we charge zero, and yet the value is all coming from the FICO Score. Another way to think about it is 16 basis points on an average $400,000 mortgage is a little over $600. We charge $10 for a Score. You guys will have to make up your own minds about what the value gap is, but I would submit that it's quite large. Okay remains so. Got it. Fair enough. Okay, maybe one last opportunity on mortgage. We've talked about a lot of noise. What do you think is the most underappreciated or misunderstood aspect of this, of this debate that keeps pressuring your stock? Look, I think that the FICO mortgage score is deeply embedded in the system. Not just because it's used by the originators to, you know, to get the mortgage, but everybody downstream uses it, that Fannie Mae and Freddie Mac use that score in their LLPA pricing grids. The mortgage insurers use it in their models for providing mortgage insurance. The credit risk transfer guys, CRT, they use it in their models. The mortgage-backed securities investors themselves use it when they're pricing the MBS. The prudential regulators use it. There are lots and lots of parties who are pretty deeply, you know, focused on FICO as the cornerstone of the system. I think changing it's very hard. It's just really hard. I mean, you can create an option, say, sure, you have an option to use a VantageScore. Guess what? There's an option to use a VantageScore in every other market that we have, in auto, in credit card, in account management, in pre-qual, pre-screen, you name it. You want a VantageScore, Vantage would be happy to provide you with one, and yet nobody uses them. How different is it gonna be in the mortgage market? We'll have to see. Got it. That's a good segue into the other parts of the market. In auto for the last several years, I think you've done modest price increases. In card, it's been inflation type stuff. Maybe just talk on auto firstly. You know, what like, how do we think about the historical price increases? What's the opportunity going forward? Yeah, I mean, we've been, I think, you know, like you said, modestly increasing prices in auto. You know, a lot of it's really understanding the market, understanding the dynamics. There's a lot of different players in that space. There's a lot of value derived from the score. A lot of times it's the score that determines whether a car is bought or sold. There's a lot of value there to the, you know, to the dealers, to the people that actually do the financing. Again, we just need to understand the market, and every year we learn a little bit more, and we look at the market and look for opportunities to raise prices there, where we think that the value is much higher than what we charge. Got it. Both in auto and maybe mortgage as well, right? Does the forecasted volumes impact how much pricing you're gonna take? Yeah, I think a little bit. I mean, Because in the sense that we don't rely on increases in volume to provide our guidance. Every year what we do is we sit down, we look at all the data sources, come up with kind of a consensus view of the volumes for mortgage or for auto or for whatever, and then we heavily haircut that, you know, because we don't believe it. Most of those are wrong. And because we're conservative and, you know, if you've followed us for any time, you know we have a reputation for sandbagging. You know, that's kind of where we get to. We don't count on a lot of volume increase to make our numbers. Got it. What happens is, if we really do get a good volume year, which someday we will have in mortgage for sure, you know, we closed $5.8 million mortgages this past year and, you know, the average over the last five years is over $8 million closed mortgages. I mean, there's a lot of room to grow. Volumes will come back someday. We don't count on that. Our guidance is not built on an expectation about volume increase. Got it. We get questions a lot of times like if you know, "If mortgage goes up next year, would that mean you'd do less in the pricing side?" Well, we'll never know, right? We can't count on that. We tend to assume that the markets will remain relatively flat. Got it. Maybe to round it up, like the card, strategy.Is that just inflation 'cause it's a high volume market? Yeah, it's a high volume market. It's probably, you know, there's more discretion. There's probably more elasticity because you really don't need the score in the same way, and there's not really the transaction that takes place like we have in the other markets. It's more inflation. There are some pockets there where we'll charge a little bit more than inflation but, you know, it's closer to a CPI type price increase. Got it. you know, even when and if the DLP program is introduced, the credit bureaus are still gonna be your largest customer, whatever the disclosures you have in your 10-K. What are the relationships like with the bureaus now with after all this has happened? I think they've improved a lot. It's not a secret that there was some friction. We've gotten along very, very well for certainly for the last 14 years. FICO surprised them with the Direct License Program. I called the CEOs of the bureaus several hours before we announced it to the world and said, "Guess what? We're launching an alternate distribution channel," probably the most rattling thing in our industry in a decade. Needless to say, they didn't appreciate the lack of a heads-up, the fact that we just dropped it on them. Of course, it had big revenue implications for them, big profit implications for them. We caught them off guard. We didn't treat them with the respect that they deserve given our relationship. I mean, I understand why they reacted the way they did. As you know, they've all recovered, right? They figured out how to go get that revenue by increasing the data, the price of the data. They're, you know, the hole that was anticipated has been kind of closed up, so I think that's resolved. At the end of the day, we have symbiotic relationship with them. We need them as a channel. They need FICO scores or else their data's not worth very much. It's that combination that keeps us working closely together, and I'd say our relationships are pretty strong. Got it. No, potential spillover effects into card and auto? Any plans there for targeting? No, we don't have any plans there. Okay. How about on the direct-to-consumer side? You know, Experian obviously is a big, big partner there. Is that a completely separate entity relationship? They're a great partner there. No, it's not completely separate. It's part and parcel of the whole relationship. They are phenomenal consumer marketers. I would say that they have Although I'm very proud of my FICO and our own little consumer business, we give them every opportunity to take the business. You know, we don't compete with them on search words. We, I mean, we test things, and when they work, we tell them about it. They've done just a phenomenal job building that consumer business. It's really impressive, and that'll continue. We feel really good about it, and so do they. Got it. Okay, we have about nine minutes left. Let's turn to software. Maybe a little bit of not background, but a mix. Like, you know, what is software? It is a little bit kind of many different things all over the place, so how would you simplify software amongst your top few products or mixes that will help us appreciate it more? I think the easiest way to think about our FICO Software business is our new FICO Software business, cause the old one is the applications we talked about. The new FICO Software business is a decisioning platform, it's kind of next generation CRM. The idea is take data from a lot of different places and apply some analytics, and with that, make a decision which you can then feed into a workflow, and that workflow happens in real time. It gets, in real time, that decision to a point of interaction with the consumer. If you're a B2C company, whether you're a bank or a credit union or a retailer, anybody with a B2C relationship wants to optimize that interaction with the consumer to achieve some goal. It's not always the same thing. It could be they're after revenue. You're close to the end of quarter. They're all about conversion, okay? Someone showed up on my website, I just need them to convert and buy something and put a few more dollars in the revenue line. Maybe revenue's fine, but profit is what matters, so let's emphasize for this customer, you know, things that are more profitable for us. Maybe those are fine and we wanna focus on lifetime value. How do we get this customer from this category to a more valuable category even though the conversion rates will be lower? The objective function can change. It can change at any time, and it should change. It should really change and, you know, depending on what the management of the business wants it to do. What should be consistent is never interact with a customer without taking into account everything you know about the customer. If you've had 25 transactions with a customer over the prior 24 months, how about we use that knowledge in what we do with that customer? What we expect is when you show up, we know your brand proclivity. We know your price elasticity. We know what makes you tick. We know how to get you to respond to whatever it is we want you to do. That's what FICO Software does, and it does it better than anybody else's. There's nothing that comes close. A lot of B2C companies have tried to build this themselves. You know, usually we don't compete with other software companies. We compete with homegrown because there really are no solutions quite like ours on the market. We are so much lower cost than them building it themselves. You know, they'll go to do something that's halfway as good, they'll spend $100 million, or they can buy ours for $15 million. That, you know, that's kind of the dynamic. It's very popular. We're growing really fast. Maybe just to follow up there, like you said, a lot of, the way you described it, a lot of software companies, a lot of analytics companies try to say the same thing. What is the secret sauce? Like, are there some key IP assets, brands within that that help you know, keep growing at this rate? Well, if you think about part of the reason that you don't see a lot of analytics software companies is it's really, really hard to put analytics into software. That's because, you know, what do analytics do? You ask a question. You're looking for an answer to a question. Then you have to figure out which data is the right data to answer that question. Then you have to figure out what's the right analytics technology to put on that data to get to the answer you want, and do that all in real time. That's a very complex equation. I mean, it's just really hard to do, and we've mastered it over 40 years, and no one else has. Got it. maybe to that point, AI, the new LLMs, they making life easier for you? Are they introducing more competitive threats? Oh, it's- How do you evaluate that? For us, it's good on all, on all counts. We get the same productivity benefits that any software company would get from no longer having to write code, right? That's a labor saving. More importantly, The core of our platform is decisioning. We think that all of the adjacencies lend themselves really well to AI-driven agentic behavior. I don't know. Let me give you an example. We try to detect fraud, we'll go in and look at, you know, millions and millions and millions of transactions and try to identify patterns and profiles and figure out what looks odd. When we find those things, we either if it looks okay, within 17 milliseconds we say, "Looks good." Then the rest of the time it's an exception, gets kicked out to a fraud analyst. The fraud analyst takes that exception and studies it and looks into your account and checks your checking account balance and other kinds of things and makes a determination, not in 17 milliseconds, but maybe in a half hour. In our view, an AI agent could do what that analyst does in another 30 seconds. Instead of in 17 milliseconds, we get the exception, kicks it out, and now we have an AI agent that does what the fraud analyst used to do. I think that the banks are gonna get tremendous savings out of applying agents to the outcome output of our software. Got it. Maybe the last question in the last two minutes here. You know, sounds like a really neat decision platform. You've been accelerating growth recently, doing very well. What is the vision for software? How do you It's still relatively small in the scheme of software, so how do you scale it to the heights that you probably wanna take this? I think if we keep growing the new platform at over 40% a quarter, it'll scale to new heights very quickly. It has been growing really fast. I mean, the new platform is 1/3 of our total software business and growing, you know, much faster than the rest. The rest of it's pretty much flat. It you know, we've got the growth, and we'll see. I mean, I think and also our model is a land and expand model, anything we land, we typically get a lot more revenue out in the, you know, beyond that. Our dollar-based net retention revenue on the new platform is 136%. You can see that the customers who buy it, buy more. That, I mean, that's kinda what that means. We'll see. You know, we don't have, you know, every time, once in a while I get asked questions about are you gonna sell it or spin it off. Of course that's a question the Board asks once a year. We have no intention of doing that anytime soon. Right now, Software's not in favor. This wouldn't be a great time for us to spin it off anyway. We really think it's undervalued and under-recognized. Okay. Cool. All right. We'll leave it right there. Thank you, William. Thank you. We appreciate the time. Thank you. Thanks. Thank you, guys.

Speaker 1: Good afternoon, everybody. Thank you for being here. We're happy to continue our session here with FICO. We have CEO William J. Lansing and CFO Steven Weber. Thank you both for being here. Good afternoon, everybody. good afternoon everybody Thank you for being here. thank you for being here We're happy to continue our session here with FICO. we're happy to continue our session here with fico We have CEO William J. we have ceo william j Lansing and CFO Steven Weber. lansing and cfo steven weber Thank you both for being here. thank you both for being here

Speaker 3: Thank you. Thank you. thank you

Speaker 1: Well, maybe I guess let's take a step back. I think there are some newer investors in the space now. Obviously, your stock has been under some pressure for a while. Maybe, kind of a From your perspective, what is the FICO pitch today from your perspective? Because you guys keep obviously buying back shares every opportunity you get. Well, maybe I guess let's take a step back. well maybe i guess let's take a step back I think there are some newer investors in the space now. i think there are some newer investors in the space now Obviously, your stock has been under some pressure for a while. obviously your stock has been under some pressure for a while Maybe, kind of a From your perspective, what is the FICO pitch today from your perspective? maybe kind of a from your perspective what is the fico pitch today from your perspective Because you guys keep obviously buying back shares every opportunity you get. because you guys keep obviously buying back shares every opportunity you get

Speaker 3: Yeah. Well, I guess just on that point, we're kind of a slow-moving LBO. We have been buying back our stock for a very long time. We started at 74 million shares, when I joined the board, we were at 36 million shares. When I became CEO in 2012, we were at 30 million shares. Today, we're at 23 million shares. What we do is we take our cashflow and we buy back stock and lever up, our cashflow grows, then we buy back some more stock and lever up a little bit more and trying to keep the leverage up in kind of a two to three times range. That's the capital side of the equation. Yeah. yeah Well, I guess just on that point, we're kind of a slow-moving LBO. well i guess just on that point we're kind of a slow-moving lbo We have been buying back our stock for a very long time. we have been buying back our stock for a very long time We started at 74 million shares, when I joined the board, we were at 36 million shares. we started at 74 million shares when i joined the board we were at 36 million shares When I became CEO in 2012, we were at 30 million shares. when i became ceo in 2012 we were at 30 million shares Today, we're at 23 million shares. today we're at 23 million shares What we do is we take our cashflow and we buy back stock and lever up, our cashflow grows, then we buy back some more stock and lever up a little bit more and trying to keep the leverage up in kind of a two to three times range. what we do is we take our cashflow and we buy back stock and lever up our cashflow grows then we buy back some more stock and lever up a little bit more and trying to keep the leverage up in kind of a two to three times range That's the capital side of the equation. that's the capital side of the equation The business has just gotten stronger and stronger and stronger for, well, certainly for the last 14 years. We see a pretty bright future. We're a little surprised at where the stock price is, frankly. You know, we're kinda trading at multiples that surprise us. Maybe it's just worth going back in time and giving you a little bit of the FICO story. The business has just gotten stronger and stronger and stronger for, well, certainly for the last 14 years. the business has just gotten stronger and stronger and stronger for well certainly for the last 14 years We see a pretty bright future. we see a pretty bright future We're a little surprised at where the stock price is, frankly. we're a little surprised at where the stock price is frankly You know, we're kinda trading at multiples that surprise us. you know we're kinda trading at multiples that surprise us Maybe it's just worth going back in time and giving you a little bit of the FICO story. maybe it's just worth going back in time and giving you a little bit of the fico story

Speaker 1: Sure Sure sure

Speaker 3: So you kinda have a level set on where we are. I guess before I do that, I'd remind you, take a look at the charts. You know, we had well over a decade of kinda rocketing to top decile performance on TSR. In the last 15 months, we've been pretty beat up, mostly because of fear about some political things going on in Washington and our mortgage business. I'm sure we'll spend more time on that. So you kinda have a level set on where we are. so you kinda have a level set on where we are I guess before I do that, I'd remind you, take a look at the charts. i guess before i do that i'd remind you take a look at the charts You know, we had well over a decade of kinda rocketing to top decile performance on TSR. you know we had well over a decade of kinda rocketing to top decile performance on tsr In the last 15 months, we've been pretty beat up, mostly because of fear about some political things going on in Washington and our mortgage business. in the last 15 months we've been pretty beat up mostly because of fear about some political things going on in washington and our mortgage business I'm sure we'll spend more time on that. i'm sure we'll spend more time on that

Speaker 1: Yeah. Yeah. yeah

Speaker 3: But again, you know, by way of context, just maybe a few minutes on FICO history and how we got here. Well, actually, just a show of hands, how many of you guys know the story, the FICO story? You guys, you guys know nothing about us. Okay. That's fine. It's a good place to start. The company was founded in 1956 by a mathematician and an engineer, the idea was let's apply analytics to data and make better decisions. For 30 or 40 years, that was the business. It was a consulting business, a body business of doing that. We built scorecards, proprietary scorecards for banks because banks had big money decisions. It was worth taking the time to invest in a better decision. That went on. But again, you know, by way of context, just maybe a few minutes on FICO history and how we got here. but again you know by way of context just maybe a few minutes on fico history and how we got here Well, actually, just a show of hands, how many of you guys know the story, the FICO story? well actually just a show of hands how many of you guys know the story the fico story You guys, you guys know nothing about us. you guys you guys know nothing about us Okay. okay That's fine. okay that's fine It's a good place to start. it's a good place to start The company was founded in 1956 by a mathematician and an engineer, the idea was let's apply analytics to data and make better decisions. the company was founded in 1956 by a mathematician and an engineer the idea was let's apply analytics to data and make better decisions For 30 or 40 years, that was the business. for 30 or 40 years that was the business It was a consulting business, a body business of doing that. it was a consulting business a body business of doing that We built scorecards, proprietary scorecards for banks because banks had big money decisions. we built scorecards proprietary scorecards for banks because banks had big money decisions It was worth taking the time to invest in a better decision. it was worth taking the time to invest in a better decision That went on. that went on In the 1970s, we got this idea that maybe we should try to build a software business too because if we have software, if we embody the analytics and software, we'll be able to get returns to scale, make money while we sleep. We won't just be a body business. We started a software business. We took the half dozen questions that banks asked us most frequently, and we built applications around them. Originations, should we or should we not make this loan? Customer management, line management, should we increase this person's credit card line? Should we decrease it? If we increase it, should we decrease something else, some other risk somewhere else? Fraud, fraud detection, collections and recovery. In the 1970s, we got this idea that maybe we should try to build a software business too because if we have software, if we embody the analytics and software, we'll be able to get returns to scale, make money while we sleep. in the 1970s we got this idea that maybe we should try to build a software business too because if we have software if we embody the analytics and software we'll be able to get returns to scale make money while we sleep We won't just be a body business. we won't just be a body business We started a software business. we started a software business We took the half dozen questions that banks asked us most frequently, and we built applications around them. we took the half dozen questions that banks asked us most frequently and we built applications around them Originations, should we or should we not make this loan? originations should we or should we not make this loan Customer management, line management, should we increase this person's credit card line? customer management line management should we increase this person's credit card line Should we decrease it? should we decrease it If we increase it, should we decrease something else, some other risk somewhere else? if we increase it should we decrease something else some other risk somewhere else Fraud, fraud detection, collections and recovery. fraud fraud detection collections and recovery These were the big areas where we had applications, and we built a really substantial software business in the through the 1980s, 1990s, 2000, and on around these franchises. I took over in 2012, and we made some changes. On the software side, we went to a cloud model from an on-premise model. We also put a lot of energy into building out the technology stack so that we're not just an applications business anymore. We are a decisioning platform. We're a true platform. It took a lot of years to achieve that success, but that's kinda where we are now. We'll spend more time on it if we have time at the end. These were the big areas where we had applications, and we built a really substantial software business in the through the 1980s, 1990s, 2000, and on around these franchises. these were the big areas where we had applications and we built a really substantial software business in the through the 1980s 1990s 2000 and on around these franchises I took over in 2012, and we made some changes. i took over in 2012 and we made some changes On the software side, we went to a cloud model from an on-premise model. on the software side we went to a cloud model from an on-premise model We also put a lot of energy into building out the technology stack so that we're not just an applications business anymore. we also put a lot of energy into building out the technology stack so that we're not just an applications business anymore We are a decisioning platform. we are a decisioning platform We're a true platform. we're a true platform It took a lot of years to achieve that success, but that's kinda where we are now. it took a lot of years to achieve that success but that's kinda where we are now We'll spend more time on it if we have time at the end. we'll spend more time on it if we have time at the end On the score side, in 1987, we decided instead of building proprietary scorecards for each bank, what we would do is build a generic scorecard that could be used by any bank. They just show up. They don't have to give us any special parameters. We did that in partnership with Equifax, and it was wildly successful. You know, we kind of made this thing that made it super easy for lenders to evaluate credit, low cost evaluation of credit. This is also, you know, in response to the Fair Lending Laws that want you to demonstrate that there's no discrimination in the way you do your underwriting and scores are completely clean and science-based. We had this idea that we should build the same kind of a score with the other bureaus. In the U.S., there are three bureaus. On the score side, in 1987, we decided instead of building proprietary scorecards for each bank, what we would do is build a generic scorecard that could be used by any bank. on the score side in 1987 we decided instead of building proprietary scorecards for each bank what we would do is build a generic scorecard that could be used by any bank They just show up. they just show up They don't have to give us any special parameters. they don't have to give us any special parameters We did that in partnership with Equifax, and it was wildly successful. we did that in partnership with equifax and it was wildly successful You know, we kind of made this thing that made it super easy for lenders to evaluate credit, low cost evaluation of credit. you know we kind of made this thing that made it super easy for lenders to evaluate credit low cost evaluation of credit This is also, you know, in response to the Fair Lending Laws that want you to demonstrate that there's no discrimination in the way you do your underwriting and scores are completely clean and science-based. this is also you know in response to the fair lending laws that want you to demonstrate that there's no discrimination in the way you do your underwriting and scores are completely clean and science-based We had this idea that we should build the same kind of a score with the other bureaus. we had this idea that we should build the same kind of a score with the other bureaus In the U.S., there are three bureaus. in the u.s there are three bureaus Equifax, Experian, and TransUnion are the big three. We went and built scores with Experian and with TransUnion as well as with Equifax. What we did was we aligned the odds to score ratio across all three bureaus the same. What that did was effectively say a FICO Score is a FICO Score regardless of where you get your data, regardless of which bureau you use. You can imagine how popular that was with the lenders. I mean, it commoditized the data at some level, and it gave them a lot of leverage versus the data providers because they could easily switch from one bureau to another. Pretty popular. That went on and, you know, we had the lenders liking it. Regulators got into it. Equifax, Experian, and TransUnion are the big three. equifax experian and transunion are the big three We went and built scores with Experian and with TransUnion as well as with Equifax. we went and built scores with experian and with transunion as well as with equifax What we did was we aligned the odds to score ratio across all three bureaus the same. what we did was we aligned the odds to score ratio across all three bureaus the same What that did was effectively say a FICO Score is a FICO Score regardless of where you get your data, regardless of which bureau you use. what that did was effectively say a fico score is a fico score regardless of where you get your data regardless of which bureau you use You can imagine how popular that was with the lenders. you can imagine how popular that was with the lenders I mean, it commoditized the data at some level, and it gave them a lot of leverage versus the data providers because they could easily switch from one bureau to another. i mean it commoditized the data at some level and it gave them a lot of leverage versus the data providers because they could easily switch from one bureau to another Pretty popular. pretty popular That went on and, you know, we had the lenders liking it. that went on and you know we had the lenders liking it Regulators got into it. regulators got into it They thought that it was pretty useful for them because they could measure the risk of the banks that they're regulating. What's the average FICO Score of the portfolio? How will it behave in a downturn? Then the securitization market evolved, and they needed a metric for pricing the risk, and the most obvious one was FICO. Pretty much all your asset-backed securities, your mortgage-backed securities all come with an average weighted FICO Score so that people actually know what the paper's worth. Now you've got lenders, you've got regulators, you've got the investors and the securities market, finally we got consumers on board. We give them their score for free, there's a lot of demand pull for FICO Scores. They thought that it was pretty useful for them because they could measure the risk of the banks that they're regulating. they thought that it was pretty useful for them because they could measure the risk of the banks that they're regulating What's the average FICO Score of the portfolio? what's the average fico score of the portfolio How will it behave in a downturn? how will it behave in a downturn Then the securitization market evolved, and they needed a metric for pricing the risk, and the most obvious one was FICO. then the securitization market evolved and they needed a metric for pricing the risk and the most obvious one was fico Pretty much all your asset-backed securities, your mortgage-backed securities all come with an average weighted FICO Score so that people actually know what the paper's worth. pretty much all your asset-backed securities your mortgage-backed securities all come with an average weighted fico score so that people actually know what the paper's worth Now you've got lenders, you've got regulators, you've got the investors and the securities market, finally we got consumers on board. now you've got lenders you've got regulators you've got the investors and the securities market finally we got consumers on board We give them their score for free, there's a lot of demand pull for FICO Scores. we give them their score for free there's a lot of demand pull for fico scores That's the, that's how scores got to be the industry standard that they are and kind of positioned us where we are. Another wrinkle, starting in about a decade ago, we started raising prices for scores. Why did we do that? Well, for 30 years we didn't raise prices for scores because our pricing was hardwired into our contracts with the bureaus. We distribute our scores through the bureaus, the prices were all fixed, and we never changed them. You should just talk to my predecessors about why. I decided we should have the flexibility to change our pricing, 30 years is too long to go without a price increase, we started changing our prices about a decade ago. That's the, that's how scores got to be the industry standard that they are and kind of positioned us where we are. that's the that's how scores got to be the industry standard that they are and kind of positioned us where we are Another wrinkle, starting in about a decade ago, we started raising prices for scores. another wrinkle starting in about a decade ago we started raising prices for scores Why did we do that? why did we do that Well, for 30 years we didn't raise prices for scores because our pricing was hardwired into our contracts with the bureaus. well for 30 years we didn't raise prices for scores because our pricing was hardwired into our contracts with the bureaus We distribute our scores through the bureaus, the prices were all fixed, and we never changed them. we distribute our scores through the bureaus the prices were all fixed and we never changed them You should just talk to my predecessors about why. you should just talk to my predecessors about why I decided we should have the flexibility to change our pricing, 30 years is too long to go without a price increase, we started changing our prices about a decade ago. i decided we should have the flexibility to change our pricing 30 years is too long to go without a price increase we started changing our prices about a decade ago Every year we're in the business of trying to capture some of the value that's been left behind. I mean, that's really the story of FICO is we have a mountain of IP that has been undermanaged and undermonetized for decades, and we're in the process of figuring out how do you monetize that with the least amount of disruption to markets, with a, in a steady and continuous way march up the value, march up the monetization of the value. That's what we've been doing. In mortgage in particular, we've raised prices. If you read the, you know, the bad press, they focus on the % increases that we've raised prices, and it's true. We've raised prices from $0.05 years ago to $10 today. Every year we're in the business of trying to capture some of the value that's been left behind. every year we're in the business of trying to capture some of the value that's been left behind I mean, that's really the story of FICO is we have a mountain of IP that has been undermanaged and undermonetized for decades, and we're in the process of figuring out how do you monetize that with the least amount of disruption to markets, with a, in a steady and continuous way march up the value, march up the monetization of the value. i mean that's really the story of fico is we have a mountain of ip that has been undermanaged and undermonetized for decades and we're in the process of figuring out how do you monetize that with the least amount of disruption to markets with a in a steady and continuous way march up the value march up the monetization of the value That's what we've been doing. that's what we've been doing In mortgage in particular, we've raised prices. in mortgage in particular we've raised prices If you read the, you know, the bad press, they focus on the % increases that we've raised prices, and it's true. if you read the you know the bad press they focus on the % increases that we've raised prices and it's true We've raised prices from $0.05 years ago to $10 today. we've raised prices from $0.05 years ago to $10 today Remember, that's $10 out of $6,000 of closing costs, so it's still kind of a trivial number in the scheme of things. What's happened is it turned into a headline. Our mortgage price increases turned into a headline for the populists in Washington, in particular for the Director of the FHFA, who's very pro-competition, very focused on how do I, you know, make housing more affordable in the U.S. One of the things he's looking at is closing costs. Among other things, you know, he's questioned our pricing. I think that we've actually responded by coming out with some new pricing models, some innovation that, I think he likes, where, you know, we have an option to buy mortgage scores from FICO for $0.99. Remember, that's $10 out of $6,000 of closing costs, so it's still kind of a trivial number in the scheme of things. remember that's $10 out of $6,000 of closing costs so it's still kind of a trivial number in the scheme of things What's happened is it turned into a headline. what's happened is it turned into a headline Our mortgage price increases turned into a headline for the populists in Washington, in particular for the Director of the FHFA, who's very pro-competition, very focused on how do I, you know, make housing more affordable in the U.S. our mortgage price increases turned into a headline for the populists in washington in particular for the director of the fhfa who's very pro-competition very focused on how do i you know make housing more affordable in the u.s One of the things he's looking at is closing costs. one of the things he's looking at is closing costs Among other things, you know, he's questioned our pricing. among other things you know he's questioned our pricing I think that we've actually responded by coming out with some new pricing models, some innovation that, I think he likes, where, you know, we have an option to buy mortgage scores from FICO for $0.99. i think that we've actually responded by coming out with some new pricing models some innovation that i think he likes where you know we have an option to buy mortgage scores from fico for $0.99 That's a big step in the direction that I think he was looking for. I would say the noise in our stock is almost entirely tied to that. There might be a little bit of spillover from the AI software scare, but I think that's pretty minor. We never got much credit for software before, so I don't know how much we should get bashed for it now. We are very happy with the software business. Grew 49% last quarter in the, you know, in our new platform, so strong business. Anyway, that's the background. That's a big step in the direction that I think he was looking for. that's a big step in the direction that i think he was looking for I would say the noise in our stock is almost entirely tied to that. i would say the noise in our stock is almost entirely tied to that There might be a little bit of spillover from the AI software scare, but I think that's pretty minor. there might be a little bit of spillover from the ai software scare but i think that's pretty minor We never got much credit for software before, so I don't know how much we should get bashed for it now. we never got much credit for software before so i don't know how much we should get bashed for it now We are very happy with the software business. we are very happy with the software business Grew 49% last quarter in the, you know, in our new platform, so strong business. grew 49% last quarter in the you know in our new platform so strong business Anyway, that's the background. anyway that's the background

Speaker 1: All right. Helpful. We'll get into some of the noise, but maybe Steven, you can help here. Like, with that history, with the current context around, you know, pricing and mortgage and so forth, is there a long-term algorithm, financial algorithm that the audience should keep in mind, whether revenue, EPS? All right. all right Helpful. helpful We'll get into some of the noise, but maybe Steven, you can help here. we'll get into some of the noise but maybe steven you can help here Like, with that history, with the current context around, you know, pricing and mortgage and so forth, is there a long-term algorithm, financial algorithm that the audience should keep in mind, whether revenue, EPS? like with that history with the current context around you know pricing and mortgage and so forth is there a long-term algorithm financial algorithm that the audience should keep in mind whether revenue eps

Speaker 2: I mean, we don't, we don't have any, you know, issued numbers. If you look at our past, you can kind of see that we've been pretty consistent. We, we do target internally. We want to, you know, maintain the same pace that we've done in the past. You know, we try to get in, you know, at least into the teens of revenue growth, which could drive us into the 20+% with, you know, margin expansion in the net income, and then a lot of times that can be above 30% with EPS with the buyback. Just rough justice, that's how we've been looking at it. That's, you know, as we make plans for the coming year, that's what we try to target going forward. I mean, we don't, we don't have any, you know, issued numbers. i mean we don't we don't have any you know issued numbers If you look at our past, you can kind of see that we've been pretty consistent. if you look at our past you can kind of see that we've been pretty consistent We, we do target internally. we we do target internally We want to, you know, maintain the same pace that we've done in the past. we want to you know maintain the same pace that we've done in the past You know, we try to get in, you know, at least into the teens of revenue growth, which could drive us into the 20+% with, you know, margin expansion in the net income, and then a lot of times that can be above 30% with EPS with the buyback. you know we try to get in you know at least into the teens of revenue growth which could drive us into the 20+% with you know margin expansion in the net income and then a lot of times that can be above 30% with eps with the buyback Just rough justice, that's how we've been looking at it. just rough justice that's how we've been looking at it That's, you know, as we make plans for the coming year, that's what we try to target going forward. that's you know as we make plans for the coming year that's what we try to target going forward

Speaker 1: Got it. Okay, well, let's jump into the mortgage market and the political noise you were referring to. Got it. got it Okay, well, let's jump into the mortgage market and the political noise you were referring to. okay well let's jump into the mortgage market and the political noise you were referring to

Speaker 2: Okay. Okay. okay

Speaker 1: You know, we just had MSCI before you. We had S&P in the morning. You know, those indices, there's a lot of competition, but once you're the benchmark, you're the benchmark. The way you described it, FICO is the benchmark. Obviously, Director William J. Pulte has implemented a lender's choice, allowed or in the process of allowing VantageScore to come in. You know, from your perspective, how do you see the potential shifts in the market if and when they are approved? You know, we just had MSCI before you. you know we just had msci before you We had S&P in the morning. we had s&p in the morning You know, those indices, there's a lot of competition, but once you're the benchmark, you're the benchmark. you know those indices there's a lot of competition but once you're the benchmark you're the benchmark The way you described it, FICO is the benchmark. the way you described it fico is the benchmark Obviously, Director William J. Pulte has implemented a lender's choice, allowed or in the process of allowing VantageScore to come in. obviously director william j. pulte has implemented a lender's choice allowed or in the process of allowing vantagescore to come in You know, from your perspective, how do you see the potential shifts in the market if and when they are approved? you know from your perspective how do you see the potential shifts in the market if and when they are approved

Speaker 3: Well, we'll see if Vantage gets any share at all. I mean, we've been competing with Vantage for over 20 years in every other market outside mortgage, and they have no share. They push a lot of scores, and the way they do that is by sending them along for free. If a lender asks the bureau for a credit file and a FICO Score, they'll often get the VantageScore sent along for free, and that's where the big numbers come from. I'm not exactly sure that should be considered market share because nobody asked for it and nobody paid for it. In mortgage, remains to be seen whether having an option for a VantageScore gets you anywhere. I would say that the value proposition is still pretty thin. Well, we'll see if Vantage gets any share at all. well we'll see if vantage gets any share at all I mean, we've been competing with Vantage for over 20 years in every other market outside mortgage, and they have no share. i mean we've been competing with vantage for over 20 years in every other market outside mortgage and they have no share They push a lot of scores, and the way they do that is by sending them along for free. they push a lot of scores and the way they do that is by sending them along for free If a lender asks the bureau for a credit file and a FICO Score, they'll often get the VantageScore sent along for free, and that's where the big numbers come from. if a lender asks the bureau for a credit file and a fico score they'll often get the vantagescore sent along for free and that's where the big numbers come from I'm not exactly sure that should be considered market share because nobody asked for it and nobody paid for it. i'm not exactly sure that should be considered market share because nobody asked for it and nobody paid for it In mortgage, remains to be seen whether having an option for a VantageScore gets you anywhere. in mortgage remains to be seen whether having an option for a vantagescore gets you anywhere I would say that the value proposition is still pretty thin. i would say that the value proposition is still pretty thin Why would someone buy a VantageScore? If, if they're buying it because they're interested in credit default risk and predictiveness, and certainly the entire non-conforming market cares about credit default risk, and I would say that the conforming market also cares about credit default risk because it comes back to haunt them. If, if the loans go bad, you know, a lot of those loans are put back by the GSEs to the originator. They also care about credit default risk. If that's what you care about, FICO Score 10T is 8% more predictive than VantageScore 4, and FICO Score 10T qualifies 5% more borrowers than VantageScore 4. Predictiveness is not gonna get you there from a value proposition standpoint. Why would someone buy a VantageScore? why would someone buy a vantagescore If, if they're buying it because they're interested in credit default risk and predictiveness, and certainly the entire non-conforming market cares about credit default risk, and I would say that the conforming market also cares about credit default risk because it comes back to haunt them. if if they're buying it because they're interested in credit default risk and predictiveness and certainly the entire non-conforming market cares about credit default risk and i would say that the conforming market also cares about credit default risk because it comes back to haunt them If, if the loans go bad, you know, a lot of those loans are put back by the GSEs to the originator. if if the loans go bad you know a lot of those loans are put back by the gses to the originator They also care about credit default risk. If that's what you care about, FICO Score 10T is 8% more predictive than VantageScore 4, and FICO Score 10T qualifies 5% more borrowers than VantageScore 4. they also care about credit default risk. if that's what you care about fico score 10t is 8% more predictive than vantagescore 4 and fico score 10t qualifies 5% more borrowers than vantagescore 4 Predictiveness is not gonna get you there from a value proposition standpoint. predictiveness is not gonna get you there from a value proposition standpoint You say, "Well, what about on price?" You know, maybe somebody cares about price, and even though we're talking about a very small price in the scheme of things, is there someone who cares? On that, I'd say our new pricing model at $0.99 meets VantageScore pricing at $0.99. I don't think there's a reason to move for price. That leaves you with one and only one reason to buy a VantageScore, and that's if you're trying to game the GSEs. That's real. That's not, you know, that's not hypothetical. I mean, if anytime you have a two-score system, one score's always better than the other. When you typically, you would give a better price to the better score. If Fannie and Freddie are constantly being presented with the better of two scores, they're being gamed. You say, "Well, what about on price?" You know, maybe somebody cares about price, and even though we're talking about a very small price in the scheme of things, is there someone who cares? you say "well what about on price?" you know maybe somebody cares about price and even though we're talking about a very small price in the scheme of things is there someone who cares On that, I'd say our new pricing model at $0.99 meets VantageScore pricing at $0.99. on that i'd say our new pricing model at $0.99 meets vantagescore pricing at $0.99 I don't think there's a reason to move for price. i don't think there's a reason to move for price That leaves you with one and only one reason to buy a VantageScore, and that's if you're trying to game the GSEs. that leaves you with one and only one reason to buy a vantagescore and that's if you're trying to game the gses That's real. that's real That's not, you know, that's not hypothetical. that's not you know that's not hypothetical I mean, if anytime you have a two-score system, one score's always better than the other. i mean if anytime you have a two-score system one score's always better than the other When you typically, you would give a better price to the better score. when you typically you would give a better price to the better score If Fannie and Freddie are constantly being presented with the better of two scores, they're being gamed. if fannie and freddie are constantly being presented with the better of two scores they're being gamed Frankly, what'll occur in the long run, if anybody does this gaming, what occurs in the long run is that the non-conforming market, the lenders in the non-conforming market will skim off the best credits out of the conforming market and leave the Government-Sponsored Enterprises with the inferior credits, which will cost Fannie Mae and Freddie Mac quite a lot. That is the likely outcome of gaming. I would caution you, just by saying that the addressable market for gaming is fairly limited. It's under 10%. You know, if you look at the rules that came out last week, which are you need less than 80% loan to value, meaning you have to put down 20%, or you can't get the mortgage. Frankly, what'll occur in the long run, if anybody does this gaming, what occurs in the long run is that the non-conforming market, the lenders in the non-conforming market will skim off the best credits out of the conforming market and leave the Government-Sponsored Enterprises with the inferior credits, which will cost Fannie Mae and Freddie Mac quite a lot. frankly what'll occur in the long run if anybody does this gaming what occurs in the long run is that the non-conforming market the lenders in the non-conforming market will skim off the best credits out of the conforming market and leave the government-sponsored enterprises with the inferior credits which will cost fannie mae and freddie mac quite a lot That is the likely outcome of gaming. that is the likely outcome of gaming I would caution you, just by saying that the addressable market for gaming is fairly limited. i would caution you just by saying that the addressable market for gaming is fairly limited It's under 10%. it's under 10% You know, if you look at the rules that came out last week, which are you need less than 80% loan to value, meaning you have to put down 20%, or you can't get the mortgage. you know if you look at the rules that came out last week which are you need less than 80% loan to value meaning you have to put down 20% or you can't get the mortgage For Vantage, you need 80% less than 80% loan to value, and you need, there's not actually a separate Vantage LLPA grid. That's the pricing grid. There's not a separate one for Vantage. What they did was they said, "Take a VantageScore, subtract 20 points, and jam it into a FICO LLPA grid," which is suspect science, but anyway, that's what they've done. If you work through all the math on it, and I'll spare you guys the math today, it takes you to about a 9% addressable market. For Vantage, you need 80% less than 80% loan to value, and you need, there's not actually a separate Vantage LLPA grid. for vantage you need 80% less than 80% loan to value and you need there's not actually a separate vantage llpa grid That's the pricing grid. that's the pricing grid There's not a separate one for Vantage. there's not a separate one for vantage What they did was they said, "Take a VantageScore, subtract 20 points, and jam it into a FICO LLPA grid," which is suspect science, but anyway, that's what they've done. what they did was they said "take a vantagescore subtract 20 points and jam it into a fico llpa grid," which is suspect science but anyway that's what they've done If you work through all the math on it, and I'll spare you guys the math today, it takes you to about a 9% addressable market. if you work through all the math on it and i'll spare you guys the math today it takes you to about a 9% addressable market

Speaker 1: I guess just to be clear, that even the gaming, in order to game, don't you just have to pull both scores all the time? I guess just to be clear, that even the gaming, in order to game, don't you just have to pull both scores all the time? i guess just to be clear that even the gaming in order to game don't you just have to pull both scores all the time

Speaker 3: Well, yeah. Well, yeah. well yeah

Speaker 1: potential share loss? potential share loss? potential share loss

Speaker 3: Great point. There's no volume loss. If you have to pull both scores in order to compare them to do the gaming, our volume doesn't go down. You're still pulling a FICO score. The overall market of scores volume went up a little bit. Yeah, technically we could have share loss, but no volume loss. That's theoretically possible. Great point. great point There's no volume loss. there's no volume loss If you have to pull both scores in order to compare them to do the gaming, our volume doesn't go down. if you have to pull both scores in order to compare them to do the gaming our volume doesn't go down You're still pulling a FICO score. you're still pulling a fico score The overall market of scores volume went up a little bit. the overall market of scores volume went up a little bit Yeah, technically we could have share loss, but no volume loss. yeah technically we could have share loss but no volume loss That's theoretically possible. that's theoretically possible

Speaker 1: Got it. You know, the $0.99, yes, you've matched kind of the upfront pull fee, but in the, in the performance model, you do have the $65 closing fee per report. How do you think the lenders, originators market will address that when they're trying to compare whether they want to save money or not? Got it. got it You know, the $0.99, yes, you've matched kind of the upfront pull fee, but in the, in the performance model, you do have the $65 closing fee per report. you know the $0.99 yes you've matched kind of the upfront pull fee but in the in the performance model you do have the $65 closing fee per report How do you think the lenders, originators market will address that when they're trying to compare whether they want to save money or not? how do you think the lenders originators market will address that when they're trying to compare whether they want to save money or not

Speaker 3: Well, you know, that's money that's paid by the consumer. Ultimately, of course, consumers pay for everything. We know that. It's really about kind of what bucket you put it in. You know, the industry has always tried to push cost to the closing statement and out of their own P&Ls. That's why we have RESPA laws. The RESPA laws are designed to keep that from happening, really, to ensure that the only costs that go into a closing are appropriate costs that have something to do with the closing. To that extent, what we've done is matched them perfectly. There's nothing that's closer to what the closing's all about than you got your mortgage, successful funding fee. You know, I think that we're actually helping the lenders with this. Well, you know, that's money that's paid by the consumer. well you know that's money that's paid by the consumer Ultimately, of course, consumers pay for everything. ultimately of course consumers pay for everything We know that. we know that It's really about kind of what bucket you put it in. it's really about kind of what bucket you put it in You know, the industry has always tried to push cost to the closing statement and out of their own P&Ls. you know the industry has always tried to push cost to the closing statement and out of their own p&ls That's why we have RESPA laws. that's why we have respa laws The RESPA laws are designed to keep that from happening, really, to ensure that the only costs that go into a closing are appropriate costs that have something to do with the closing. the respa laws are designed to keep that from happening really to ensure that the only costs that go into a closing are appropriate costs that have something to do with the closing To that extent, what we've done is matched them perfectly. to that extent what we've done is matched them perfectly There's nothing that's closer to what the closing's all about than you got your mortgage, successful funding fee. there's nothing that's closer to what the closing's all about than you got your mortgage successful funding fee You know, I think that we're actually helping the lenders with this. you know i think that we're actually helping the lenders with this In terms of their true cost to themselves, it's identical whether they're paying $0.99 to Vantage or $0.99 to FICO. In terms of their true cost to themselves, it's identical whether they're paying $0.99 to Vantage or $0.99 to FICO. in terms of their true cost to themselves it's identical whether they're paying $0.99 to vantage or $0.99 to fico

Speaker 1: Got it. In order to get that $0.99 to FICO, they have to go through the direct, the DLP model. Got it. got it In order to get that $0.99 to FICO, they have to go through the direct, the DLP model. in order to get that $0.99 to fico they have to go through the direct the dlp model

Speaker 3: That's correct. That's correct. that's correct

Speaker 1: through you guys. through you guys. through you guys

Speaker 3: That's right. That's right. that's right

Speaker 1: It seems like it's been a case of gonna be ready in the next month for a few months now. It seems like it's been a case of gonna be ready in the next month for a few months now. it seems like it's been a case of gonna be ready in the next month for a few months now What's the latest on when the DLP will be out there? What's the latest on when the DLP will be out there? what's the latest on when the dlp will be out there

Speaker 3: It's gonna be ready next month. Well, I mean, it shouldn't take that much longer. We're waiting on certification from the GSEs. They're supportive. The Director's supportive. It's a matter of time. It's gonna be ready next month. it's gonna be ready next month Well, I mean, it shouldn't take that much longer. well i mean it shouldn't take that much longer We're waiting on certification from the GSEs. we're waiting on certification from the gses They're supportive. they're supportive The Director's supportive. the director's supportive It's a matter of time. it's a matter of time

Speaker 1: Okay. In all that you described on the lenders want FICO Score 10T, you know, $0.99 takes care of the cost, once DLP is live, how fast and how much adoption should we be, you know, looking out for? Okay. okay In all that you described on the lenders want FICO Score 10T , you know, $0.99 takes care of the cost, once DLP is live, how fast and how much adoption should we be, you know, looking out for? in all that you described on the lenders want fico score 10t you know $0.99 takes care of the cost once dlp is live how fast and how much adoption should we be you know looking out for

Speaker 3: Well, no one really knows, but I think that there's a lot of demand for the performance model, which will only be available through the tri-merge resellers, through the DLP model. The tri-merge resellers have the, by far, the lion's share of the market. Almost all the scores are purchased ultimately through the tri-merge resellers. It could easily be half. It could get to half, certainly within a year. Well, no one really knows, but I think that there's a lot of demand for the performance model, which will only be available through the tri-merge resellers, through the DLP model. well no one really knows but i think that there's a lot of demand for the performance model which will only be available through the tri-merge resellers through the dlp model The tri-merge resellers have the, by far, the lion's share of the market. the tri-merge resellers have the by far the lion's share of the market Almost all the scores are purchased ultimately through the tri-merge resellers. almost all the scores are purchased ultimately through the tri-merge resellers It could easily be half. it could easily be half It could get to half, certainly within a year. it could get to half certainly within a year

Speaker 1: Got it. I think it's probably worth spending a little bit of time on the FICO Score 10T independent study that was put out recently because I think VantageScore obviously claims to be better than the Classic FICO, which might make sense because it was developed so many years later. Can you just talk about this was a second iteration of the independent study, I believe. what changed and what are some of the stats again, and why FICO Score 10T is much better than the other? Got it. got it I think it's probably worth spending a little bit of time on the FICO Score 10T independent study that was put out recently because I think VantageScore obviously claims to be better than the Classic FICO, which might make sense because it was developed so many years later. i think it's probably worth spending a little bit of time on the fico score 10t independent study that was put out recently because i think vantagescore obviously claims to be better than the classic fico which might make sense because it was developed so many years later Can you just talk about this was a second iteration of the independent study, I believe. what changed and what are some of the stats again, and why FICO Score 10T is much better than the other? can you just talk about this was a second iteration of the independent study i believe what changed and what are some of the stats again and why fico score 10t is much better than the other

Speaker 3: I would encourage people to go to the FICO website and read our white paper on it, and you can go to Milliman, which is the independent third party that did the analysis, and read theirs. It's quite technical. They've done a scientifically rigorous assessment of FICO Score 10T versus VantageScore 4, and we are better on predictiveness. They actually go through the gaming issues with the two-score system and identify the costs around that. I mean, it's worth a read, but it's quite technical. There's probably other things you'll read before you read that. Take my word for it, FICO Score 10T is better than VantageScore 4. I would encourage people to go to the FICO website and read our white paper on it, and you can go to Milliman, which is the independent third party that did the analysis, and read theirs. i would encourage people to go to the fico website and read our white paper on it and you can go to milliman which is the independent third party that did the analysis and read theirs It's quite technical. it's quite technical They've done a scientifically rigorous assessment of FICO Score 10T versus VantageScore 4, and we are better on predictiveness. they've done a scientifically rigorous assessment of fico score 10t versus vantagescore 4 and we are better on predictiveness They actually go through the gaming issues with the two-score system and identify the costs around that. they actually go through the gaming issues with the two-score system and identify the costs around that I mean, it's worth a read, but it's quite technical. i mean it's worth a read but it's quite technical There's probably other things you'll read before you read that. there's probably other things you'll read before you read that Take my word for it, FICO Score 10T is better than VantageScore 4. take my word for it fico score 10t is better than vantagescore 4

Speaker 1: Okay. You know, the FHFA had a press conference recently, actually two questions. The first one is, I think the Director William J. Pulte had mentioned that he had a conversation with you around this $0.99 pricing model. He had also mentioned a few times, you know, it sounds too good to be true, so I'm gonna make sure there's nothing in there. I guess I just wanna confirm, he knows of the performance model. Okay. okay You know, the FHFA had a press conference recently, actually two questions. you know the fhfa had a press conference recently actually two questions The first one is, I think the Director William J. Pulte had mentioned that he had a conversation with you around this $0.99 pricing model. the first one is i think the director william j. pulte had mentioned that he had a conversation with you around this $0.99 pricing model He had also mentioned a few times, you know, it sounds too good to be true, so I'm gonna make sure there's nothing in there. he had also mentioned a few times you know it sounds too good to be true so i'm gonna make sure there's nothing in there I guess I just wanna confirm, he knows of the performance model. i guess i just wanna confirm he knows of the performance model

Speaker 3: Absolutely Absolutely absolutely

Speaker 1: The closing, the 65, that's not gonna be new to him, correct? The closing, the 65, that's not gonna be new to him, correct? the closing the 65 that's not gonna be new to him correct

Speaker 3: No, no, no. He's smart guy, and he's completely aware of the structure, and I think he supports it. No, no, no. no no no He's smart guy, and he's completely aware of the structure, and I think he supports it. he's smart guy and he's completely aware of the structure and i think he supports it

Speaker 1: Okay. The other main thing for that conference is obviously the pilot. I guess they've selected 21 lenders to try and test out VantageScore. It's a little bit of a black box, gray box, whatever, for a lot of us. Anything your mortgage team and Julie may have shed any insights you can share with us? Okay. okay The other main thing for that conference is obviously the pilot. the other main thing for that conference is obviously the pilot I guess they've selected 21 lenders to try and test out VantageScore. i guess they've selected 21 lenders to try and test out vantagescore It's a little bit of a black box, gray box, whatever, for a lot of us. it's a little bit of a black box gray box whatever for a lot of us Anything your mortgage team and Julie may have shed any insights you can share with us? anything your mortgage team and julie may have shed any insights you can share with us

Speaker 3: Yes. There's not a lot to know there. I mean, all those lenders, whoever they are under NDA, and can't talk about it, and can't disclose, and so very little is known. We know some of the rules around accepting a VantageScore, the 20 points and the 80%. Yes. yes There's not a lot to know there. there's not a lot to know there I mean, all those lenders, whoever they are under NDA, and can't talk about it, and can't disclose, and so very little is known. i mean all those lenders whoever they are under nda and can't talk about it and can't disclose and so very little is known We know some of the rules around accepting a VantageScore, the 20 points and the 80%. we know some of the rules around accepting a vantagescore the 20 points and the 80%

Speaker 1: Okay Okay okay

Speaker 3: loan-to-value. But other than that, I can't tell you much. loan-to-value. loan-to-value But other than that, I can't tell you much. but other than that i can't tell you much

Speaker 1: Okay. Okay. okay

Speaker 3: I, you know, I don't know. I think it's a manual process. Not sure. I, you know, I don't know. i you know i don't know I think it's a manual process. i think it's a manual process Not sure. not sure

Speaker 1: Okay. Maybe the other thing you might be able to tell us about is the FICO Score 10T data has not yet been released. They said in the coming months, quote, unquote, "summer." You know, what is the holdback for when that gets released? Once that gets released, do these 21 lenders have to go back and test that as well? Okay. okay Maybe the other thing you might be able to tell us about is the FICO Score 10T data has not yet been released. maybe the other thing you might be able to tell us about is the fico score 10t data has not yet been released They said in the coming months, quote, unquote, "summer." You know, what is the holdback for when that gets released? they said in the coming months quote unquote "summer." you know what is the holdback for when that gets released Once that gets released, do these 21 lenders have to go back and test that as well? once that gets released do these 21 lenders have to go back and test that as well

Speaker 3: Don't know the answer to that. I know that the GSEs are working on it and intend to release. I mean, I think they mentioned the press conference early summer. We're kinda waiting for them to do that. You know, they have their own processes and procedures, they're working their way through them. You know, we fully anticipate that it will be released, but we don't have a timeline. Don't know the answer to that. don't know the answer to that I know that the GSEs are working on it and intend to release. i know that the gses are working on it and intend to release I mean, I think they mentioned the press conference early summer. i mean i think they mentioned the press conference early summer We're kinda waiting for them to do that. we're kinda waiting for them to do that You know, they have their own processes and procedures, they're working their way through them. you know they have their own processes and procedures they're working their way through them You know, we fully anticipate that it will be released, but we don't have a timeline. you know we fully anticipate that it will be released but we don't have a timeline

Speaker 1: Got it. In terms of FICO Score 10T though, when it does come out, I think, you know, historically you've talked about how even today the mortgage market's using FICO Score 4 and 5. How quickly do you think FICO Score 10T can be adopted or even VS4, like? Got it. got it In terms of FICO Score 10T though, when it does come out, I think, you know, historically you've talked about how even today the mortgage market's using FICO Score 4 and 5. in terms of fico score 10t though when it does come out i think you know historically you've talked about how even today the mortgage market's using fico score 4 and 5 How quickly do you think FICO Score 10T can be adopted or even VS4, like? how quickly do you think fico score 10t can be adopted or even vs4 like

Speaker 3: 10T's being adopted fairly quickly in the non-conforming market, it can be adopted. I do think there's a ton of inertia. I think if the, if you ask the industry, "Do you wanna change?" They would say no. They would like to just stay with Classic FICO forever. We are seeing, you know, we are seeing adoption in the non-conforming market. Once all of Classic FICO, VantageScore 4.0, and FICO Score 10T are accepted in the conforming market, it's a little hard to say. I mean, you could see a shift. I mean, there's if you were gonna shift, you should shift from Classic FICO to FICO Score 10T because you'd get more predictiveness out of it. Again, you know, all the systems, models, everything's designed around Classic FICO, we'll see how long that takes. 10T's being adopted fairly quickly in the non-conforming market, it can be adopted. 10t's being adopted fairly quickly in the non-conforming market it can be adopted I do think there's a ton of inertia. i do think there's a ton of inertia I think if the, if you ask the industry, "Do you wanna change?" They would say no. i think if the if you ask the industry "do you wanna change?" they would say no They would like to just stay with Classic FICO forever. they would like to just stay with classic fico forever We are seeing, you know, we are seeing adoption in the non-conforming market. we are seeing you know we are seeing adoption in the non-conforming market Once all of Classic FICO, VantageScore 4.0, and FICO Score 10T are accepted in the conforming market, it's a little hard to say. once all of classic fico vantagescore 4.0 and fico score 10t are accepted in the conforming market it's a little hard to say I mean, you could see a shift. i mean you could see a shift I mean, there's if you were gonna shift, you should shift from Classic FICO to FICO Score 10T because you'd get more predictiveness out of it. i mean there's if you were gonna shift you should shift from classic fico to fico score 10t because you'd get more predictiveness out of it Again, you know, all the systems, models, everything's designed around Classic FICO, we'll see how long that takes. again you know all the systems models everything's designed around classic fico we'll see how long that takes

Speaker 1: Got it. Got it. got it

Speaker 3: There's also an advantage. We could run, I mean, you'd run FICO Score 10T in parallel with Classic FICO, right? That's what's happening in the non-conforming market. From that point of view, it's easier to, you know, to run them both at the same time, compare the results, and you can do some forecasting on that. There's also an advantage. there's also an advantage We could run, I mean, you'd run FICO Score 10T in parallel with Classic FICO, right? we could run i mean you'd run fico score 10t in parallel with classic fico right That's what's happening in the non-conforming market. that's what's happening in the non-conforming market From that point of view, it's easier to, you know, to run them both at the same time, compare the results, and you can do some forecasting on that. from that point of view it's easier to you know to run them both at the same time compare the results and you can do some forecasting on that

Speaker 1: Got it. In the past, you know, you've talked about it's a heavy uplift to switch from scores, but, or go from a Classic to something totally different like a VantageScore. What is the lift like to go from Classic to FICO Score 10T? Got it. got it In the past, you know, you've talked about it's a heavy uplift to switch from scores, but, or go from a Classic to something totally different like a VantageScore. in the past you know you've talked about it's a heavy uplift to switch from scores but or go from a classic to something totally different like a vantagescore What is the lift like to go from Classic to FICO Score 10T ? what is the lift like to go from classic to fico score 10t

Speaker 3: It's a little easier. The reason, FICO Scores are designed to be backward-compatible with prior generation FICO Scores, and they always have been right up to FICO Score 10. FICO Score 10 is backward-compatible with FICO Score 9. FICO Score 10T uses trended data, so it's not perfectly backward-compatible. It's a little bit different. I would say that FICO Score 10T is architecturally very similar to prior FICO Scores. It leverages the same kind of weighting, same attributes. If you were gonna make some assumptions about how FICO Score 10T behaves relative to Classic, FICO Score 10T will be a lot closer than VantageScore 4 would be. It's a little easier. it's a little easier The reason, FICO Scores are designed to be backward-compatible with prior generation FICO Scores, and they always have been right up to FICO Score 10. the reason fico scores are designed to be backward-compatible with prior generation fico scores and they always have been right up to fico score 10 FICO Score 10 is backward-compatible with FICO Score 9. fico score 10 is backward-compatible with fico score 9 FICO Score 10T uses trended data, so it's not perfectly backward-compatible. fico score 10t uses trended data so it's not perfectly backward-compatible It's a little bit different. it's a little bit different I would say that FICO Score 10T is architecturally very similar to prior FICO Scores. i would say that fico score 10t is architecturally very similar to prior fico scores It leverages the same kind of weighting, same attributes. it leverages the same kind of weighting same attributes If you were gonna make some assumptions about how FICO Score 10T behaves relative to Classic, FICO Score 10T will be a lot closer than VantageScore 4 would be. if you were gonna make some assumptions about how fico score 10t behaves relative to classic fico score 10t will be a lot closer than vantagescore 4 would be

Speaker 1: Got it. The $0.99 plus $0.65 for FICO Score 10T, I think implies a modest price increase versus the $4.95 plus $0.33 you have for Classic FICO. Got it. got it The $0.99 plus $0.65 for FICO Score 10T, I think implies a modest price increase versus the $4.95 plus $0.33 you have for Classic FICO. the $0.99 plus $0.65 for fico score 10t i think implies a modest price increase versus the $4.95 plus $0.33 you have for classic fico

Speaker 3: Yes. Yes. yes

Speaker 1: Some people think that's your 2027 pricing that you've introduced today. Is that the case? How should we think about that? Some people think that's your 2027 pricing that you've introduced today. some people think that's your 2027 pricing that you've introduced today Is that the case? is that the case How should we think about that? how should we think about that

Speaker 3: Well, no. I would say that 2027 pricing is not here yet. We haven't really decided what we're gonna do there. You know, our process is in September, August, September every year, we kind of review things, decide where it would be appropriate to make bigger pricing adjustments, and then we publish them to our partners so that they can be implemented on January 1. None of that has occurred. Any pricing that you see in the market today is 2026 pricing. Well, no. well no I would say that 2027 pricing is not here yet. i would say that 2027 pricing is not here yet We haven't really decided what we're gonna do there. we haven't really decided what we're gonna do there You know, our process is in September, August, September every year, we kind of review things, decide where it would be appropriate to make bigger pricing adjustments, and then we publish them to our partners so that they can be implemented on January 1. you know our process is in september august september every year we kind of review things decide where it would be appropriate to make bigger pricing adjustments and then we publish them to our partners so that they can be implemented on january 1 None of that has occurred. none of that has occurred Any pricing that you see in the market today is 2026 pricing. any pricing that you see in the market today is 2026 pricing

Speaker 1: Got it. With all this noise, with all this change, how should we think about, you know, what your price value gap in mortgages, like let's say it's roughly $10 a score today, versus what you think it should be? I know you know, you talked about this for years. Before this all began, I think people thought, "Sure, it's gonna get there," but now I think they're a lot more skeptical. You know, is your approach changed? Are you gonna balance the annual increases differently? Got it. got it With all this noise, with all this change, how should we think about, you know, what your price value gap in mortgages, like let's say it's roughly $10 a score today, versus what you think it should be? with all this noise with all this change how should we think about you know what your price value gap in mortgages like let's say it's roughly $10 a score today versus what you think it should be I know you know, you talked about this for years. i know you know you talked about this for years Before this all began, I think people thought, "Sure, it's gonna get there," but now I think they're a lot more skeptical. before this all began i think people thought "sure it's gonna get there," but now i think they're a lot more skeptical You know, is your approach changed? you know is your approach changed Are you gonna balance the annual increases differently? are you gonna balance the annual increases differently

Speaker 3: You know, what's a FICO mortgage score worth, right? That's the question. Nobody knows the answer to that. I mean, really, no one knows the answer to it. All you can do is look at analogs. If you look at S&P and Moody's, they charge approximately 8 basis points to rate a mortgage-backed security. They each do, that's 16 basis points, okay? That's typical. Those securities that they rate, triple A rated, guaranteed by the government, they're all triple A rated, I'm not sure how useful that is. They also supply the average weighted FICO score of those securities. That's what the pricing is built on. The pricing's built on the FICO score, not actually the S&P rating. You know, what's a FICO mortgage score worth, right? you know what's a fico mortgage score worth right That's the question. that's the question Nobody knows the answer to that. nobody knows the answer to that I mean, really, no one knows the answer to it. i mean really no one knows the answer to it All you can do is look at analogs. all you can do is look at analogs If you look at S&P and Moody's, they charge approximately 8 basis points to rate a mortgage-backed security. if you look at s&p and moody's they charge approximately 8 basis points to rate a mortgage-backed security They each do, that's 16 basis points, okay? they each do that's 16 basis points okay That's typical. that's typical Those securities that they rate, triple A rated, guaranteed by the government, they're all triple A rated, I'm not sure how useful that is. those securities that they rate triple a rated guaranteed by the government they're all triple a rated i'm not sure how useful that is They also supply the average weighted FICO score of those securities. they also supply the average weighted fico score of those securities That's what the pricing is built on. that's what the pricing is built on The pricing's built on the FICO score, not actually the S&P rating. the pricing's built on the fico score not actually the s&p rating I only share that by way of, you know, background because we don't charge anything for using our Score in that context. We charge zero. They charge 16 basis points and we charge zero, and yet the value is all coming from the FICO Score. Another way to think about it is 16 basis points on an average $400,000 mortgage is a little over $600. We charge $10 for a Score. You guys will have to make up your own minds about what the value gap is, but I would submit that it's quite large. I only share that by way of, you know, background because we don't charge anything for using our Score in that context. i only share that by way of you know background because we don't charge anything for using our score in that context We charge zero. we charge zero They charge 16 basis points and we charge zero, and yet the value is all coming from the FICO Score. they charge 16 basis points and we charge zero and yet the value is all coming from the fico score Another way to think about it is 16 basis points on an average $400,000 mortgage is a little over $600. another way to think about it is 16 basis points on an average $400,000 mortgage is a little over $600 We charge $10 for a Score. we charge $10 for a score You guys will have to make up your own minds about what the value gap is, but I would submit that it's quite large. you guys will have to make up your own minds about what the value gap is but i would submit that it's quite large

Speaker 1: Okay Okay okay

Speaker 3: remains so. remains so. remains so

Speaker 1: Got it. Fair enough. Okay, maybe one last opportunity on mortgage. We've talked about a lot of noise. What do you think is the most underappreciated or misunderstood aspect of this, of this debate that keeps pressuring your stock? Got it. got it Fair enough. fair enough Okay, maybe one last opportunity on mortgage. okay maybe one last opportunity on mortgage We've talked about a lot of noise. we've talked about a lot of noise What do you think is the most underappreciated or misunderstood aspect of this, of this debate that keeps pressuring your stock? what do you think is the most underappreciated or misunderstood aspect of this of this debate that keeps pressuring your stock

Speaker 3: Look, I think that the FICO mortgage score is deeply embedded in the system. Not just because it's used by the originators to, you know, to get the mortgage, but everybody downstream uses it, that Fannie Mae and Freddie Mac use that score in their LLPA pricing grids. The mortgage insurers use it in their models for providing mortgage insurance. The credit risk transfer guys, CRT, they use it in their models. The mortgage-backed securities investors themselves use it when they're pricing the MBS. The prudential regulators use it. There are lots and lots of parties who are pretty deeply, you know, focused on FICO as the cornerstone of the system. I think changing it's very hard. It's just really hard. I mean, you can create an option, say, sure, you have an option to use a VantageScore. Guess what? Look, I think that the FICO mortgage score is deeply embedded in the system. look i think that the fico mortgage score is deeply embedded in the system Not just because it's used by the originators to, you know, to get the mortgage, but everybody downstream uses it, that Fannie Mae and Freddie Mac use that score in their LLPA pricing grids. not just because it's used by the originators to you know to get the mortgage but everybody downstream uses it that fannie mae and freddie mac use that score in their llpa pricing grids The mortgage insurers use it in their models for providing mortgage insurance. the mortgage insurers use it in their models for providing mortgage insurance The credit risk transfer guys, CRT, they use it in their models. the credit risk transfer guys crt they use it in their models The mortgage-backed securities investors themselves use it when they're pricing the MBS. the mortgage-backed securities investors themselves use it when they're pricing the mbs The prudential regulators use it. the prudential regulators use it There are lots and lots of parties who are pretty deeply, you know, focused on FICO as the cornerstone of the system. there are lots and lots of parties who are pretty deeply you know focused on fico as the cornerstone of the system I think changing it's very hard. i think changing it's very hard It's just really hard. it's just really hard I mean, you can create an option, say, sure, you have an option to use a VantageScore. i mean you can create an option say sure you have an option to use a vantagescore Guess what? guess what There's an option to use a VantageScore in every other market that we have, in auto, in credit card, in account management, in pre-qual, pre-screen, you name it. You want a VantageScore, Vantage would be happy to provide you with one, and yet nobody uses them. How different is it gonna be in the mortgage market? We'll have to see. There's an option to use a VantageScore in every other market that we have, in auto, in credit card, in account management, in pre-qual, pre-screen, you name it. there's an option to use a vantagescore in every other market that we have in auto in credit card in account management in pre-qual pre-screen you name it You want a VantageScore, Vantage would be happy to provide you with one, and yet nobody uses them. you want a vantagescore vantage would be happy to provide you with one and yet nobody uses them How different is it gonna be in the mortgage market? how different is it gonna be in the mortgage market We'll have to see. we'll have to see

Speaker 1: Got it. That's a good segue into the other parts of the market. In auto for the last several years, I think you've done modest price increases. In card, it's been inflation type stuff. Maybe just talk on auto firstly. You know, what like, how do we think about the historical price increases? What's the opportunity going forward? Got it. got it That's a good segue into the other parts of the market. that's a good segue into the other parts of the market In auto for the last several years, I think you've done modest price increases. in auto for the last several years i think you've done modest price increases In card, it's been inflation type stuff. in card it's been inflation type stuff Maybe just talk on auto firstly. maybe just talk on auto firstly You know, what like, how do we think about the historical price increases? you know what like how do we think about the historical price increases What's the opportunity going forward? what's the opportunity going forward

Speaker 3: Yeah, I mean, we've been, I think, you know, like you said, modestly increasing prices in auto. You know, a lot of it's really understanding the market, understanding the dynamics. There's a lot of different players in that space. There's a lot of value derived from the score. A lot of times it's the score that determines whether a car is bought or sold. There's a lot of value there to the, you know, to the dealers, to the people that actually do the financing. Again, we just need to understand the market, and every year we learn a little bit more, and we look at the market and look for opportunities to raise prices there, where we think that the value is much higher than what we charge. Yeah, I mean, we've been, I think, you know, like you said, modestly increasing prices in auto. yeah i mean we've been i think you know like you said modestly increasing prices in auto You know, a lot of it's really understanding the market, understanding the dynamics. you know a lot of it's really understanding the market understanding the dynamics There's a lot of different players in that space. there's a lot of different players in that space There's a lot of value derived from the score. there's a lot of value derived from the score A lot of times it's the score that determines whether a car is bought or sold. a lot of times it's the score that determines whether a car is bought or sold There's a lot of value there to the, you know, to the dealers, to the people that actually do the financing. there's a lot of value there to the you know to the dealers to the people that actually do the financing Again, we just need to understand the market, and every year we learn a little bit more, and we look at the market and look for opportunities to raise prices there, where we think that the value is much higher than what we charge. again we just need to understand the market and every year we learn a little bit more and we look at the market and look for opportunities to raise prices there where we think that the value is much higher than what we charge

Speaker 1: Got it. Both in auto and maybe mortgage as well, right? Does the forecasted volumes impact how much pricing you're gonna take? Got it. got it Both in auto and maybe mortgage as well, right? both in auto and maybe mortgage as well right Does the forecasted volumes impact how much pricing you're gonna take? does the forecasted volumes impact how much pricing you're gonna take

Speaker 3: Yeah, I think a little bit. I mean, Because in the sense that we don't rely on increases in volume to provide our guidance. Every year what we do is we sit down, we look at all the data sources, come up with kind of a consensus view of the volumes for mortgage or for auto or for whatever, and then we heavily haircut that, you know, because we don't believe it. Most of those are wrong. And because we're conservative and, you know, if you've followed us for any time, you know we have a reputation for sandbagging. You know, that's kind of where we get to. We don't count on a lot of volume increase to make our numbers. Yeah, I think a little bit. yeah i think a little bit I mean, Because in the sense that we don't rely on increases in volume to provide our guidance. i mean because in the sense that we don't rely on increases in volume to provide our guidance Every year what we do is we sit down, we look at all the data sources, come up with kind of a consensus view of the volumes for mortgage or for auto or for whatever, and then we heavily haircut that, you know, because we don't believe it. every year what we do is we sit down we look at all the data sources come up with kind of a consensus view of the volumes for mortgage or for auto or for whatever and then we heavily haircut that you know because we don't believe it Most of those are wrong. most of those are wrong And because we're conservative and, you know, if you've followed us for any time, you know we have a reputation for sandbagging. and because we're conservative and you know if you've followed us for any time you know we have a reputation for sandbagging You know, that's kind of where we get to. you know that's kind of where we get to We don't count on a lot of volume increase to make our numbers. we don't count on a lot of volume increase to make our numbers

Speaker 1: Got it. Got it. got it

Speaker 3: What happens is, if we really do get a good volume year, which someday we will have in mortgage for sure, you know, we closed $5.8 million mortgages this past year and, you know, the average over the last five years is over $8 million closed mortgages. I mean, there's a lot of room to grow. Volumes will come back someday. We don't count on that. Our guidance is not built on an expectation about volume increase. What happens is, if we really do get a good volume year, which someday we will have in mortgage for sure, you know, we closed $5.8 million mortgages this past year and, you know, the average over the last five years is over $8 million closed mortgages. what happens is if we really do get a good volume year which someday we will have in mortgage for sure you know we closed $5.8 million mortgages this past year and you know the average over the last five years is over $8 million closed mortgages I mean, there's a lot of room to grow. i mean there's a lot of room to grow Volumes will come back someday. volumes will come back someday We don't count on that. we don't count on that Our guidance is not built on an expectation about volume increase. our guidance is not built on an expectation about volume increase

Speaker 1: Got it. Got it. got it

Speaker 3: We get questions a lot of times like if you know, "If mortgage goes up next year, would that mean you'd do less in the pricing side?" Well, we'll never know, right? We can't count on that. We tend to assume that the markets will remain relatively flat. We get questions a lot of times like if you know, "If mortgage goes up next year, would that mean you'd do less in the pricing side?" Well, we'll never know, right? we get questions a lot of times like if you know "if mortgage goes up next year would that mean you'd do less in the pricing side?" well we'll never know right We can't count on that. we can't count on that We tend to assume that the markets will remain relatively flat. we tend to assume that the markets will remain relatively flat

Speaker 1: Got it. Maybe to round it up, like the card, strategy.Is that just inflation 'cause it's a high volume market? Got it. got it Maybe to round it up, like the card, strategy. maybe to round it up like the card strategy Is that just inflation 'cause it's a high volume market? is that just inflation 'cause it's a high volume market

Speaker 3: Yeah, it's a high volume market. It's probably, you know, there's more discretion. There's probably more elasticity because you really don't need the score in the same way, and there's not really the transaction that takes place like we have in the other markets. It's more inflation. There are some pockets there where we'll charge a little bit more than inflation but, you know, it's closer to a CPI type price increase. Yeah, it's a high volume market. yeah it's a high volume market It's probably, you know, there's more discretion. it's probably you know there's more discretion There's probably more elasticity because you really don't need the score in the same way, and there's not really the transaction that takes place like we have in the other markets. there's probably more elasticity because you really don't need the score in the same way and there's not really the transaction that takes place like we have in the other markets It's more inflation. it's more inflation There are some pockets there where we'll charge a little bit more than inflation but, you know, it's closer to a CPI type price increase. there are some pockets there where we'll charge a little bit more than inflation but you know it's closer to a cpi type price increase

Speaker 1: Got it. you know, even when and if the DLP program is introduced, the credit bureaus are still gonna be your largest customer, whatever the disclosures you have in your 10-K. What are the relationships like with the bureaus now with after all this has happened? Got it. you know, even when and if the DLP program is introduced, the credit bureaus are still gonna be your largest customer, whatever the disclosures you have in your 10-K. got it you know even when and if the dlp program is introduced the credit bureaus are still gonna be your largest customer whatever the disclosures you have in your 10-k What are the relationships like with the bureaus now with after all this has happened? what are the relationships like with the bureaus now with after all this has happened

Speaker 3: I think they've improved a lot. It's not a secret that there was some friction. We've gotten along very, very well for certainly for the last 14 years. FICO surprised them with the Direct License Program. I called the CEOs of the bureaus several hours before we announced it to the world and said, "Guess what? We're launching an alternate distribution channel," probably the most rattling thing in our industry in a decade. Needless to say, they didn't appreciate the lack of a heads-up, the fact that we just dropped it on them. Of course, it had big revenue implications for them, big profit implications for them. We caught them off guard. We didn't treat them with the respect that they deserve given our relationship. I think they've improved a lot. i think they've improved a lot It's not a secret that there was some friction. it's not a secret that there was some friction We've gotten along very, very well for certainly for the last 14 years. we've gotten along very very well for certainly for the last 14 years FICO surprised them with the Direct License Program. fico surprised them with the direct license program I called the CEOs of the bureaus several hours before we announced it to the world and said, "Guess what? i called the ceos of the bureaus several hours before we announced it to the world and said "guess what We're launching an alternate distribution channel," probably the most rattling thing in our industry in a decade. we're launching an alternate distribution channel," probably the most rattling thing in our industry in a decade Needless to say, they didn't appreciate the lack of a heads-up, the fact that we just dropped it on them. needless to say they didn't appreciate the lack of a heads-up the fact that we just dropped it on them Of course, it had big revenue implications for them, big profit implications for them. of course it had big revenue implications for them big profit implications for them We caught them off guard. we caught them off guard We didn't treat them with the respect that they deserve given our relationship. we didn't treat them with the respect that they deserve given our relationship I mean, I understand why they reacted the way they did. As you know, they've all recovered, right? They figured out how to go get that revenue by increasing the data, the price of the data. They're, you know, the hole that was anticipated has been kind of closed up, so I think that's resolved. At the end of the day, we have symbiotic relationship with them. We need them as a channel. They need FICO scores or else their data's not worth very much. It's that combination that keeps us working closely together, and I'd say our relationships are pretty strong. I mean, I understand why they reacted the way they did. i mean i understand why they reacted the way they did As you know, they've all recovered, right? as you know they've all recovered right They figured out how to go get that revenue by increasing the data, the price of the data. they figured out how to go get that revenue by increasing the data the price of the data They're, you know, the hole that was anticipated has been kind of closed up, so I think that's resolved. they're you know the hole that was anticipated has been kind of closed up so i think that's resolved At the end of the day, we have symbiotic relationship with them. at the end of the day we have symbiotic relationship with them We need them as a channel. we need them as a channel They need FICO scores or else their data's not worth very much. they need fico scores or else their data's not worth very much It's that combination that keeps us working closely together, and I'd say our relationships are pretty strong. it's that combination that keeps us working closely together and i'd say our relationships are pretty strong

Speaker 1: Got it. No, potential spillover effects into card and auto? Any plans there for targeting? Got it. got it No, potential spillover effects into card and auto? no potential spillover effects into card and auto Any plans there for targeting? any plans there for targeting

Speaker 3: No, we don't have any plans there. No, we don't have any plans there. no we don't have any plans there

Speaker 1: Okay. How about on the direct-to-consumer side? You know, Experian obviously is a big, big partner there. Is that a completely separate entity relationship? Okay. okay How about on the direct-to-consumer side? how about on the direct-to-consumer side You know, Experian obviously is a big, big partner there. you know experian obviously is a big big partner there Is that a completely separate entity relationship? is that a completely separate entity relationship

Speaker 3: They're a great partner there. No, it's not completely separate. It's part and parcel of the whole relationship. They are phenomenal consumer marketers. I would say that they have Although I'm very proud of my FICO and our own little consumer business, we give them every opportunity to take the business. You know, we don't compete with them on search words. We, I mean, we test things, and when they work, we tell them about it. They've done just a phenomenal job building that consumer business. It's really impressive, and that'll continue. We feel really good about it, and so do they. They're a great partner there. they're a great partner there No, it's not completely separate. no it's not completely separate It's part and parcel of the whole relationship. it's part and parcel of the whole relationship They are phenomenal consumer marketers. they are phenomenal consumer marketers I would say that they have Although I'm very proud of my FICO and our own little consumer business, we give them every opportunity to take the business. i would say that they have although i'm very proud of my fico and our own little consumer business we give them every opportunity to take the business You know, we don't compete with them on search words. you know we don't compete with them on search words We, I mean, we test things, and when they work, we tell them about it. we i mean we test things and when they work we tell them about it They've done just a phenomenal job building that consumer business. they've done just a phenomenal job building that consumer business It's really impressive, and that'll continue. it's really impressive and that'll continue We feel really good about it, and so do they. we feel really good about it and so do they

Speaker 1: Got it. Okay, we have about nine minutes left. Let's turn to software. Maybe a little bit of not background, but a mix. Like, you know, what is software? It is a little bit kind of many different things all over the place, so how would you simplify software amongst your top few products or mixes that will help us appreciate it more? Got it. got it Okay, we have about nine minutes left. okay we have about nine minutes left Let's turn to software. let's turn to software Maybe a little bit of not background, but a mix. maybe a little bit of not background but a mix Like, you know, what is software? like you know what is software It is a little bit kind of many different things all over the place, so how would you simplify software amongst your top few products or mixes that will help us appreciate it more? it is a little bit kind of many different things all over the place so how would you simplify software amongst your top few products or mixes that will help us appreciate it more

Speaker 3: I think the easiest way to think about our FICO Software business is our new FICO Software business, cause the old one is the applications we talked about. The new FICO Software business is a decisioning platform, it's kind of next generation CRM. The idea is take data from a lot of different places and apply some analytics, and with that, make a decision which you can then feed into a workflow, and that workflow happens in real time. It gets, in real time, that decision to a point of interaction with the consumer. If you're a B2C company, whether you're a bank or a credit union or a retailer, anybody with a B2C relationship wants to optimize that interaction with the consumer to achieve some goal. It's not always the same thing. It could be they're after revenue. I think the easiest way to think about our FICO Software business is our new FICO Software business, cause the old one is the applications we talked about. i think the easiest way to think about our fico software business is our new fico software business cause the old one is the applications we talked about The new FICO Software business is a decisioning platform, it's kind of next generation CRM. the new fico software business is a decisioning platform it's kind of next generation crm The idea is take data from a lot of different places and apply some analytics, and with that, make a decision which you can then feed into a workflow, and that workflow happens in real time. the idea is take data from a lot of different places and apply some analytics and with that make a decision which you can then feed into a workflow and that workflow happens in real time It gets, in real time, that decision to a point of interaction with the consumer. it gets in real time that decision to a point of interaction with the consumer If you're a B2C company, whether you're a bank or a credit union or a retailer, anybody with a B2C relationship wants to optimize that interaction with the consumer to achieve some goal. if you're a b2c company whether you're a bank or a credit union or a retailer anybody with a b2c relationship wants to optimize that interaction with the consumer to achieve some goal It's not always the same thing. it's not always the same thing It could be they're after revenue. it could be they're after revenue You're close to the end of quarter. They're all about conversion, okay? Someone showed up on my website, I just need them to convert and buy something and put a few more dollars in the revenue line. Maybe revenue's fine, but profit is what matters, so let's emphasize for this customer, you know, things that are more profitable for us. Maybe those are fine and we wanna focus on lifetime value. How do we get this customer from this category to a more valuable category even though the conversion rates will be lower? The objective function can change. It can change at any time, and it should change. It should really change and, you know, depending on what the management of the business wants it to do. You're close to the end of quarter. you're close to the end of quarter They're all about conversion, okay? they're all about conversion okay Someone showed up on my website, I just need them to convert and buy something and put a few more dollars in the revenue line. someone showed up on my website i just need them to convert and buy something and put a few more dollars in the revenue line Maybe revenue's fine, but profit is what matters, so let's emphasize for this customer, you know, things that are more profitable for us. maybe revenue's fine but profit is what matters so let's emphasize for this customer you know things that are more profitable for us Maybe those are fine and we wanna focus on lifetime value. maybe those are fine and we wanna focus on lifetime value How do we get this customer from this category to a more valuable category even though the conversion rates will be lower? how do we get this customer from this category to a more valuable category even though the conversion rates will be lower The objective function can change. the objective function can change It can change at any time, and it should change. it can change at any time and it should change It should really change and, you know, depending on what the management of the business wants it to do. it should really change and you know depending on what the management of the business wants it to do What should be consistent is never interact with a customer without taking into account everything you know about the customer. If you've had 25 transactions with a customer over the prior 24 months, how about we use that knowledge in what we do with that customer? What we expect is when you show up, we know your brand proclivity. We know your price elasticity. We know what makes you tick. We know how to get you to respond to whatever it is we want you to do. That's what FICO Software does, and it does it better than anybody else's. There's nothing that comes close. A lot of B2C companies have tried to build this themselves. You know, usually we don't compete with other software companies. We compete with homegrown because there really are no solutions quite like ours on the market. What should be consistent is never interact with a customer without taking into account everything you know about the customer. what should be consistent is never interact with a customer without taking into account everything you know about the customer If you've had 25 transactions with a customer over the prior 24 months, how about we use that knowledge in what we do with that customer? if you've had 25 transactions with a customer over the prior 24 months how about we use that knowledge in what we do with that customer What we expect is when you show up, we know your brand proclivity. what we expect is when you show up we know your brand proclivity We know your price elasticity. we know your price elasticity We know what makes you tick. we know what makes you tick We know how to get you to respond to whatever it is we want you to do. we know how to get you to respond to whatever it is we want you to do That's what FICO Software does, and it does it better than anybody else's. that's what fico software does and it does it better than anybody else's There's nothing that comes close. there's nothing that comes close A lot of B2C companies have tried to build this themselves. a lot of b2c companies have tried to build this themselves You know, usually we don't compete with other software companies. you know usually we don't compete with other software companies We compete with homegrown because there really are no solutions quite like ours on the market. we compete with homegrown because there really are no solutions quite like ours on the market We are so much lower cost than them building it themselves. You know, they'll go to do something that's halfway as good, they'll spend $100 million, or they can buy ours for $15 million. That, you know, that's kind of the dynamic. It's very popular. We're growing really fast. We are so much lower cost than them building it themselves. we are so much lower cost than them building it themselves You know, they'll go to do something that's halfway as good, they'll spend $100 million, or they can buy ours for $15 million. you know they'll go to do something that's halfway as good they'll spend $100 million or they can buy ours for $15 million That, you know, that's kind of the dynamic. that you know that's kind of the dynamic It's very popular. it's very popular We're growing really fast. we're growing really fast

Speaker 1: Maybe just to follow up there, like you said, a lot of, the way you described it, a lot of software companies, a lot of analytics companies try to say the same thing. What is the secret sauce? Like, are there some key IP assets, brands within that that help you know, keep growing at this rate? Maybe just to follow up there, like you said, a lot of, the way you described it, a lot of software companies, a lot of analytics companies try to say the same thing. maybe just to follow up there like you said a lot of the way you described it a lot of software companies a lot of analytics companies try to say the same thing What is the secret sauce? what is the secret sauce Like, are there some key IP assets, brands within that that help you know, keep growing at this rate? like are there some key ip assets brands within that that help you know keep growing at this rate

Speaker 3: Well, if you think about part of the reason that you don't see a lot of analytics software companies is it's really, really hard to put analytics into software. That's because, you know, what do analytics do? You ask a question. You're looking for an answer to a question. Then you have to figure out which data is the right data to answer that question. Then you have to figure out what's the right analytics technology to put on that data to get to the answer you want, and do that all in real time. That's a very complex equation. I mean, it's just really hard to do, and we've mastered it over 40 years, and no one else has. Well, if you think about part of the reason that you don't see a lot of analytics software companies is it's really, really hard to put analytics into software. well if you think about part of the reason that you don't see a lot of analytics software companies is it's really really hard to put analytics into software That's because, you know, what do analytics do? that's because you know what do analytics do You ask a question. you ask a question You're looking for an answer to a question. you're looking for an answer to a question Then you have to figure out which data is the right data to answer that question. then you have to figure out which data is the right data to answer that question Then you have to figure out what's the right analytics technology to put on that data to get to the answer you want, and do that all in real time. then you have to figure out what's the right analytics technology to put on that data to get to the answer you want and do that all in real time That's a very complex equation. that's a very complex equation I mean, it's just really hard to do, and we've mastered it over 40 years, and no one else has. i mean it's just really hard to do and we've mastered it over 40 years and no one else has

Speaker 1: Got it. maybe to that point, AI, the new LLMs, they making life easier for you? Are they introducing more competitive threats? Got it. maybe to that point, AI, the new LLMs, they making life easier for you? got it maybe to that point ai the new llms they making life easier for you Are they introducing more competitive threats? are they introducing more competitive threats

Speaker 3: Oh, it's- Oh, it's- oh it's-

Speaker 1: How do you evaluate that? How do you evaluate that? how do you evaluate that

Speaker 3: For us, it's good on all, on all counts. We get the same productivity benefits that any software company would get from no longer having to write code, right? That's a labor saving. More importantly, The core of our platform is decisioning. We think that all of the adjacencies lend themselves really well to AI-driven agentic behavior. I don't know. Let me give you an example. We try to detect fraud, we'll go in and look at, you know, millions and millions and millions of transactions and try to identify patterns and profiles and figure out what looks odd. For us, it's good on all, on all counts. for us it's good on all on all counts We get the same productivity benefits that any software company would get from no longer having to write code, right? we get the same productivity benefits that any software company would get from no longer having to write code right That's a labor saving. that's a labor saving More importantly, The core of our platform is decisioning. more importantly the core of our platform is decisioning We think that all of the adjacencies lend themselves really well to AI-driven agentic behavior. we think that all of the adjacencies lend themselves really well to ai-driven agentic behavior I don't know. i don't know Let me give you an example. let me give you an example We try to detect fraud, we'll go in and look at, you know, millions and millions and millions of transactions and try to identify patterns and profiles and figure out what looks odd. we try to detect fraud we'll go in and look at you know millions and millions and millions of transactions and try to identify patterns and profiles and figure out what looks odd When we find those things, we either if it looks okay, within 17 milliseconds we say, "Looks good." Then the rest of the time it's an exception, gets kicked out to a fraud analyst. The fraud analyst takes that exception and studies it and looks into your account and checks your checking account balance and other kinds of things and makes a determination, not in 17 milliseconds, but maybe in a half hour. In our view, an AI agent could do what that analyst does in another 30 seconds. Instead of in 17 milliseconds, we get the exception, kicks it out, and now we have an AI agent that does what the fraud analyst used to do. I think that the banks are gonna get tremendous savings out of applying agents to the outcome output of our software. When we find those things, we either if it looks okay, within 17 milliseconds we say, "Looks good." Then the rest of the time it's an exception, gets kicked out to a fraud analyst. when we find those things we either if it looks okay within 17 milliseconds we say "looks good." then the rest of the time it's an exception gets kicked out to a fraud analyst The fraud analyst takes that exception and studies it and looks into your account and checks your checking account balance and other kinds of things and makes a determination, not in 17 milliseconds, but maybe in a half hour. the fraud analyst takes that exception and studies it and looks into your account and checks your checking account balance and other kinds of things and makes a determination not in 17 milliseconds but maybe in a half hour In our view, an AI agent could do what that analyst does in another 30 seconds. in our view an ai agent could do what that analyst does in another 30 seconds Instead of in 17 milliseconds, we get the exception, kicks it out, and now we have an AI agent that does what the fraud analyst used to do. instead of in 17 milliseconds we get the exception kicks it out and now we have an ai agent that does what the fraud analyst used to do I think that the banks are gonna get tremendous savings out of applying agents to the outcome output of our software. i think that the banks are gonna get tremendous savings out of applying agents to the outcome output of our software

Speaker 1: Got it. Maybe the last question in the last two minutes here. You know, sounds like a really neat decision platform. You've been accelerating growth recently, doing very well. What is the vision for software? How do you It's still relatively small in the scheme of software, so how do you scale it to the heights that you probably wanna take this? Got it. got it Maybe the last question in the last two minutes here. maybe the last question in the last two minutes here You know, sounds like a really neat decision platform. you know sounds like a really neat decision platform You've been accelerating growth recently, doing very well. you've been accelerating growth recently doing very well What is the vision for software? what is the vision for software How do you It's still relatively small in the scheme of software, so how do you scale it to the heights that you probably wanna take this? how do you it's still relatively small in the scheme of software so how do you scale it to the heights that you probably wanna take this

Speaker 3: I think if we keep growing the new platform at over 40% a quarter, it'll scale to new heights very quickly. It has been growing really fast. I mean, the new platform is 1/3 of our total software business and growing, you know, much faster than the rest. The rest of it's pretty much flat. It you know, we've got the growth, and we'll see. I mean, I think and also our model is a land and expand model, anything we land, we typically get a lot more revenue out in the, you know, beyond that. Our dollar-based net retention revenue on the new platform is 136%. You can see that the customers who buy it, buy more. That, I mean, that's kinda what that means. We'll see. I think if we keep growing the new platform at over 40% a quarter, it'll scale to new heights very quickly. i think if we keep growing the new platform at over 40% a quarter it'll scale to new heights very quickly It has been growing really fast. it has been growing really fast I mean, the new platform is 1/3 of our total software business and growing, you know, much faster than the rest. i mean the new platform is 1/3 of our total software business and growing you know much faster than the rest The rest of it's pretty much flat. the rest of it's pretty much flat It you know, we've got the growth, and we'll see. it you know we've got the growth and we'll see I mean, I think and also our model is a land and expand model, anything we land, we typically get a lot more revenue out in the, you know, beyond that. i mean i think and also our model is a land and expand model anything we land we typically get a lot more revenue out in the you know beyond that Our dollar-based net retention revenue on the new platform is 136%. our dollar-based net retention revenue on the new platform is 136% You can see that the customers who buy it, buy more. you can see that the customers who buy it buy more That, I mean, that's kinda what that means. that i mean that's kinda what that means We'll see. we'll see You know, we don't have, you know, every time, once in a while I get asked questions about are you gonna sell it or spin it off. Of course that's a question the Board asks once a year. We have no intention of doing that anytime soon. Right now, Software's not in favor. This wouldn't be a great time for us to spin it off anyway. We really think it's undervalued and under-recognized. You know, we don't have, you know, every time, once in a while I get asked questions about are you gonna sell it or spin it off. you know we don't have you know every time once in a while i get asked questions about are you gonna sell it or spin it off Of course that's a question the Board asks once a year. of course that's a question the board asks once a year We have no intention of doing that anytime soon. we have no intention of doing that anytime soon Right now, Software's not in favor. right now software's not in favor This wouldn't be a great time for us to spin it off anyway. this wouldn't be a great time for us to spin it off anyway We really think it's undervalued and under-recognized. we really think it's undervalued and under-recognized

Speaker 1: Okay. Cool. All right. We'll leave it right there. Thank you, William. Okay. okay Cool. cool All right. all right We'll leave it right there. we'll leave it right there Thank you, William. thank you william

Speaker 3: Thank you. Thank you. thank you

Speaker 1: We appreciate the time. We appreciate the time. we appreciate the time

Speaker 3: Thank you. Thanks. Thank you. thank you Thanks. thanks

Speaker 1: Thank you, guys. Thank you, guys. thank you guys