Fair Isaac Corp (FICO) 2014 Q4 法說會逐字稿

Good afternoon. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fair Isaac Corporation quarterly earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions). Thank you. I now turn the call over to Steve Weber. You may begin your conference

Thank you Lisa. Good afternoon, and thank you for joining FICO's fourth quarter earnings call. I'm Steve Weber, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing, and our CFO, Mike Pung. Today we issued a press release that describes the financial results compared to the prior year. On this call, management will also discuss results in comparison to the prior quarter, in order to facilitate understanding of the run rate of our business.

Certain statements made in this presentation may be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995. Those statements involve many uncertainties that could cause actual results to differ materially. Information concerning these uncertainties is contained in the Company's filings with the SEC in particular in the Risk Factors and forward-looking statements portions of such filings. Copies are available from the SEC, from the FICO website, or from our Investor Relations team.

This call will also include statements regarding certain non-GAAP financial measures. Please refer to the Company's earnings release and Regulation G Schedule issued today, for a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure. The Earnings release and Regulation G schedule are available on the Investor Relations page of the Company's website at FICO.com, or on the SEC's website at SEC.gov. A replay of this webcast will be available through November 6, 2015. Now I'll turn the call over to Will Lansing.

Thanks Steve, and thank you everyone for joining us for our fourth quarter earnings call. I'll briefly summarize our financial results for the quarter and full fiscal year, and then talk about the progress we made this fiscal year on our strategic initiatives. Finally I will discuss our outlook for 2015. In our fourth quarter we reported revenues of $222 million, an increase of 16% over the same period last year, and the largest revenue quarter in Company history. We delivered $37 million of GAAP net income, and GAAP earnings of $1.10 per share, up 28% and 39% respectively from the prior year. We delivered $44 million of non-GAAP net income, up 25% from last year, and non-GAAP EPS of $1.33 per share, an increase of 36% from the same period last year.

Obviously I'm very pleased with these results, as it shows not only the strength of our recurring revenue base, but also the license revenue upside that we can deliver. And it's a great finish to a strong fiscal year, with growth throughout our business. Our Application segment was up 23% over the same period last year, and 6% for the full year. We drove significant growth both this quarter and for the full year in a number of our applications product lines. Most notably banking fraud, customer communications solutions, and originations. Our Tool segment was up 14% for the quarter and for the full year, versus the prior periods. Optimization led to growth this quarter, but Models and Rules Management were also up nicely for the full year, and our score segment was flat this quarter versus last year but up 3% for the full fiscal year. We've also made significant progress this year on our strategic initiatives. We've steadily rolled out SaaS enabled versions of our products, and have signed a number of recurring revenue deals. Most of our products are now available both on premise and in the FICO analytic cloud. While today most of our customers still prefer an on-premise model, we believe the cloud is the future of software, and long term the cloud benefits will make this model more and more attractive.

The FICO Decision Management Platform which we launched this year, continues to show promise. Just a few weeks ago, in assessing vendors worldwide in the Decision Management Platform space, IDC named FICO the major player. We were distinguished for our strategy, and scored higher than all other competitors in terms of the current offering. This evaluation validates our fundamental belief in the power and value of Decision Management Software to change the way business is conducted. In our Marketing Solutions business, we made great strides. We signed a landmark partnership with eBay, bringing our marketing products to the retail and e-commerce industries through a powerful channel partner. The commerce marketing platform we developed with eBay includes a powerful mix of analytics and planning tools that integrate existing eBay enterprise demand generation technologies with new solutions.

Additional strategic partners will be announced in the coming weeks. Targeting clients in the financial services, retail and healthcare verticals. The Marketing Solutions business also continues to scale internationally, with large deals closed in fourth quarter in Asia and Latin America. We're very excited by the momentum we currently have here, and by the potential to scale the business. On the Score side we had several major developments this year. We introduced FICO Score 9, which has been more enthusiastically received by the financial services industry, regulators and consumer advocacy groups, than any previous new score version we've developed. FICO Score 9 features a more nuanced way to assess consumer collection information, bypassing paid collection agency accounts, and offering a sophisticated treatment differentiating medical from non-medical collection agency accounts.

Through a new modeling approach, FICO Score 9 also achieves greater predictive power across multiple credit lines, credit products, and all phases of the credit granting life cycle. The improvement information the FICO Score 9 open up the possibility of lending responsibly and profitably to a larger population than before. We continue to build momentum with a FICO score open access program. Last month I attended an event at the CFPB offices in Washington, where President Obama discussed credit fraud, and announced that Citi was joining other financial institutions in making free FICO scores available to consumers. We now estimate more than 60 million Americans will have access to their FICO scores under this program in early 2015.

This quarter we rolled out a suite of powerful comprehensive three bureau monitoring products that provide consumers with the ability to monitor their credit, FICO scores and identity. Our new FICO three bureau monitoring product provides consumers with an industry first. Consumers can now monitor their credit reports and FICO scores from each of the three bureaus in one simple solution, receive customized alerts, and use our FICO score simulator tool to determine how financial decisions can affect their FICO score. With FICO Identity Ultimate, consumers can take it one step further and also receive identity theft detection and protection. These products are now available at myFICO.com.

Finally, we signed an agreement with Experian to make FICO scores available through Experian's direct to consumer services. This compelling solution will help consumers understand and monitor their credit eligibility. We are pleased to partner with Experian because of its leadership in the category and reputable brand, and are confident that providing FICO scores directly to consumers will promote transparency and consumer financial health. Looking to the future we continue to invest in areas of our business where we see the greatest growth potential. We remain committed to innovation, focusing our R&D investments on the FICO Decision Management Platform, which we see as a smart way to extend distribution of our existing IP. And we are committed to building out our growing network of partners, who are helping us bring our existing and new products to the widest and most receptive markets around the world. And as always, we remain on the lookout for the best ways to deploy our strong cash flow. We delivered record cash flow this year, presenting us with tremendous opportunities and also great responsibilities. We were very disciplined in how we deployed cash, and continue to consider strategic acquisitions, as well as share repurchases. As we look toward the year ahead, I'm more convinced than ever that FICO is well-positioned to excel in each segment of our business. We remain focused on execution to deliver superior products to our customers, and sustainable value growth to our investors. I'll talk more about our outlook for 2015, but first, I'll turn the call over to Mike for further financial details.

Thanks, will and good afternoon, everyone. Today I'll emphasize three points in my prepared comments. First, we delivered solid results this quarter, with $222 million of revenue, including a record $46 million of licensed revenue. We delivered $789 million of revenue for the year, which includes $112 million of licensed revenue. Second, we continue to deliver strong free cash flow of $65 million this quarter, and $160 million for the year. Which we used to repurchase $215 million of our stock, lowering our share count by 8% to around 32 million shares. Finally, we are continuing to invest in our growth initiatives while maintaining financial discipline. I'll begin by breaking the revenue down into our three reporting segments. Starting with applications, revenues were $147 million, up 23% versus the same period last year.

For the second consecutive quarter, we've deliver the highest revenue ever recorded in this segment. The biggest gains came in bank fraud, up 72% from the same period last year, due in part to a large multi-year term license renewal. In originations, up 18%, and in customer communications solutions, the former Adeptra business, up 10% from the same period last year. For the full year applications revenue were $504 million, up 6% from fiscal 2013. In the Tool segment, revenues were $29 million, up 14% versus the prior year. The growth this quarter is driven by sales of our Xpress Optimization product and our Blaze Rules products. We ended the year with $98 million of Tools revenue, up 14% from last year. And finally in our Score segment, revenues were $46 million, flat with the same period last year. On the B-to-B side, we're up 1% versus the same period a year ago. The B-to-C revenues were down 4% from the same quarter last year. For the full year, Scores revenues were $186 million, up 3% versus 2013.

Looking at our revenue by region, this quarter 68% of total revenue was derived from our Americas region, our EMEA region generated 23%, and the remaining 9% was from Asia-Pacific. Recurring revenues derived from our transactional and maintenance sources for the quarter represented 60% of total revenues, consulting and implementation revenues were 19% of total, and licensed revenues were 21% of total revenue. Which again included the large renewal of a term license.

Turning now to bookings. We generated $22 million of current period revenue on bookings of $86 million. Or a 26% yield. The weighted average term for our bookings was 22 months this quarter. Of the $86 million in bookings, 18% relates to originations, 16% to rules, 15% to fraud banking, and 10% to optimization solutions. We had 12 booking deals in excess of $1 million, three of which exceeded $3 million. Transactional and maintenance bookings were 28% of total this quarter, professional services bookings were 51% this quarter, and finally, licensed bookings were 21% in the quarter.

Our operating expenses totaled $170 million this quarter, compared to $161 million in the prior quarter. Or up $9 million. The increase is due to increased expense associated with the additional revenue, as well as the accrual of additional incentives associated with our annual performance. As we said last quarter, we have increased our investments to support important strategic initiatives, and we expect R&D and SG&A expenses to stay roughly at these levels for the next several quarters, with our cost of revenues fluctuating with revenue. Those assumptions give us an OpEx run rate of approximately $160 million to $165 million over the next few quarters, including the amortization expense. As you can see in our Reg G schedule, non-GAAP operating margin was 29% for the fourth quarter, and 27% for the full fiscal year, which is about 100 basis points lower than the prior year. GAAP net income this quarter was $37 million and $95 million for the fiscal year, up 28% and 5% respectively. Non-GAAP net income was $44 million for the quarter, up 25% from the same quarter last year. And it was $128 million for the year, up 5% from last year.

The effective tax rate was about 18% this quarter, and was positively impacted by a favorable adjustment related to the settlement of an audit, and due to a mix shift in profits to lower tax jurisdictions. We expect the effective tax rate to be about 31% to 32% for the full year in fiscal 2015. The free cash flow for the quarter was $65 million, or 29% of revenue, compared to $32 million, or 17% of revenues in the prior year. For the entire fiscal year, we delivered $160 million of free cash flow, compared with $109 million last year, an increase of 46%.

Moving onto the balance sheet, we have $105 million in cash on the balance sheet at the end of the quarter. This is up about $12 million from last quarter, driven by the cash generated from operations, and draws off our resolving line of credit and offset by share repurchases. Our total debt of $546 million with a weighted average interest rate of 5.2%. We now have $99 million balance on our $200 million revolving credit facility. The ratio of our total net debt to adjusted EBITDA is 2.1 times, which is below the covenant level of 3 times, and our total fixed charge coverage ratio is at 5 times, well above the covenant level of 2.5.

During the quarter we returned $56 million in excess cash to our investors, repurchasing about 900,000 shares at an average priority of $63.57. For the full fiscal year, we repurchased 3.7 million shares, at an average price of $58.87, effectively reducing our outstanding shares by 8%. We still have the full $250 million remaining on the new Board authorization, and continue to view share repurchases as an attractive use of cash. We are also actively evaluating opportunities to acquire relevant technologies and products, that advance our strategy, or strengthen our portfolio and competitive position. With that, I'll turn it back over to Will for his thoughts on fiscal 205.

Thanks, Mike. Adds I said in my opening remarks, I'm pleased with what we were able to accomplish this year. We continue to build out our product functionality through our own innovation and through strategic acquisitions. We've made great strides in enabling our applications for the cloud, and we've been identified as the leader in the Decision Management Platform space. We further solidified our market leading position in our Scores business, and have positioned ourselves for new opportunities through our open access program, and with our enhanced relationship with Experian.

With that as a backdrop, I'll now turn to guidance. As we look ahead, we see a number of opportunities as we extend our consumer and software offerings into new industries and new markets. At the same time, we see our core financial services customers continuing to operate under difficult regulatory and operating constraints, creating a challenging sales cycle and further lumpiness in our license revenue.

With all of this in mind, we're providing the following guidance for fiscal 2015. We expect revenues to be $820 million and $825 million, an increase of about 4% to 4.5% versus fiscal 2014. We expect GAAP net income between $92 million and $95 million. GAAP earnings per share between $2.78 and $2.88. Non-GAAP net income between $131 million and $134 million. And non-GAAP earnings per share of $3.97 to $4.06. The EPS guidance assumes current share counts, although as Mike said, we continue to view purchases as an attractive use of our cash. I'll now turn the call back over to Steve for Q&A.

Thanks, Will. This concludes our prepared remarks, and we are ready now to take your questions. Lisa, please open the lines.

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Bill Warmington from Wells Fargo. Your line is open.

Hi Bill.

Congratulations on the strong top line performance.

Thanks.

I wanted to ask about on the tax rate for the quarter, you mentioned there were some one-time adjustments there in terms of the settlement of the audit. What is that EPS?If you have an adjusted EPS with sort of a normalized, if you back that out, what would the EPS have been?

Yes, the EPS favorable impact of the EPS for that adjustment, Bill was $0.06 a share.

$0.06, got it. Now on the large buy-back that you have potentially in front of you, how much of that is reflected in the 2015 EPS guidance?

None of it is. We've left the EPS guidance on the average shares exiting the year, and any buy-back we do would be additive to the guidance we provided.

Got it. Okay. And then on the Open Access program, it sounds like that going to create a lot of brand awareness for you. My question for you is, how do you go about monetizing that?

So Bill, that's a great question. We rolled the Open Access program out about a year ago. To date we've had incredible branding done through the partners that have signed up for the program. Discover being one of the most notable. The way we see monetizing Open Access going forward is very consistent with what we've described in the past. First, driving traffic to the myFICO website. We've loaded the website up with a brand new set of products, a suite of products in the month of August, that includes credit monitoring and identity theft monitoring and protection, giving us one of the best offerings in the industry. And we believe the branding will naturally drive traffic to that and will convert into ratable revenue in the form of credit monitoring products. So that's number one.

Number two, we believe much like the Experian situation, that others that sell scores into the consumer industry will see the value of bundling a FICO score in with their products, and as consumers, demand for the FICO score as part of these offerings grows, we see more opportunities for relationships with others in the industry to resell our products. And finally, the banks historically have had affinity add-on programs that have included a number of financial products, including score monitoring and scores, that they've sold to their consumers on their own white labeled websites. We see an opportunity for the FICO score in that regard as well. So we see numerous opportunities over the next several years that the door has been opened through the Open Access program

This is Will. I would add that our intent with the Open Access program was not to make a lot of money from it. That was never the intent. The intent was to make sure that we could get the FICO score into the hands of consumers, so that they could see what their FICO score looked like, and this is the score the banks use, and we want to make sure that consumers get a chance to see it. So it's about transparency. There's obviously a big branding benefit for us, and we love the fact that consumers are increasingly aware of the difference between a FICO score, and so-called education scores that are similar looking to FICO scores, but that actually are not the scores that lenders use. So that was really the intent of the program, and so far we're very pleased with the way it's rolling out.

You'll have to brand it the FICO inside.

Yes, you got it. You definitely got it.

One last question for you then. If you could maybe talk a little bit about some of the assumptions that are in, or behind the revenue guidance for the year, in terms of how you're going to get to that level?

Yes, I'll take that, Bill. This is Mike. We obviously have come off of a tremendous fourth quarter, where we've had phenomenal license revenue, $46 million as I mentioned on the call. That $46 million is almost twice what it has historically been over the last couple of years on a quarterly basis. And so as we've said in the past, and I think as most know, the timing of when revenue signs can be very lumpy. When license revenue signs, in some quarters it slips and some quarters it doesn't, and this one it didn't slip. So as we took our fourth quarter and our year-to-date experience and we portrayed it forward, the timing of these license deals remains tricky, and with the challenges that the banks are still facing in the markets we serve, we weighed the pluses and the minuses, the plus momentum we're picking up through Open Access and on the consumer side. Other momentum on our recurring revenue base in the products that are starting to go live in that area, and we weighed that against the minuses, the headwinds in the industries we serve, and the lumpiness to the license revenue, and that became the basis for the 4% to 4.5% revenue growth we laid out. Certainly at that level, 4% to 4.5%, the licensed revenue is probably a bit lighter than it was this year, with some probably increased strength on the recurring revenue side.

Got it. Alright. Thank you very much.

You are welcome.

Your next question, comes from the line of Matthew Galinko from Sidoti. Your line is open.

Hey, guys. I guess the first one is around, I knew we talked last quarter about wanting to ramp your sales capacity, and I guess I'm wondering at the close of this quarter how you're feeling in terms of addressing that need?

Well, we have been in a build mode all year, and we've added some sales people. We've added some sales coverage and we have built into our budget for next year incremental sales coverage. So we're feeling pretty good. That said, we could always do more. I mean the fact is, and I have said this before, our product portfolio and our IP vastly outstrips our ability in sales and distribution. We just don't have the coverage that we wish we had, given the quality of our products and the appetite for our products. So we'll continue to be strong in financial services where we have a good sales force, and we will continue to invest, on I would say on a conservative basis in new verticals where we continue to do that. And I think channels will continue to be an important area for us, because that kind of amplifies and gives us additional leverage.

Got it. And then in terms of the new myFICO.com services, I'm curious if you could talk a little bit more about your marketing strategy to drive traffic and users to the site, and sort of how you looked at build awareness of those features?

I would say it's a two-pronged approach. On one hand we do what other e-commerce and internet-based players do, in terms of SEO and SEM, and we have, very smart and capable people doing the math on customer acquisition costs versus lifetime value, and we're kind of an open ended budget for spending as much on customer acquisition as the lifetime value will support. So on that basis, as our product continues to get stronger which it does, and we now have the industry-leading product, as it continues to get stronger, our lifetime value increases, and our ability to spend more on customer acquisition will go up, and so we see kind of the direct customer acquisition efforts as being strong from that standpoint.

The other side of it is all of the things that we wrap around the myFICO offering that are a little less traditional. So our myFICO site has a tremendous amount of educational content, hundreds and hundreds of pages of educational content, which is I would say it's industry leading, Best-in-Class and there is a fairly significant SEO component to what we do there. And then finally, the Open Access program as mentioned earlier is raising awareness, and we get some spillover effect from that.

Got it. Then one last one for me. I know you talked a little bit about preference for traditional license-type deals that you're seeing from your customers, which I think we clearly saw this quarter, versus a cloud or SaaS deal. I'm curious how that decision process is going for the customers, why are they the traditional license model, and do you think that sort of shifts as we move into 2015, and can that influence, the potential for repeat, growth kind of year in license?

Yes, let me see if I can clarify. I would say that to the extent there is a preference, there's not so much a preference for a licensed model that is a preference for on premise. So what we have is the banking industry, the financial institutions are far more in the on premise camp than in the cloud camp, and so that's how they typically buy, and with that comes a certain amount of license revenue and licensed structuring to the deals. But even within that we do a tremendous amount of volume based and transaction based revenue. As you know our earning revenue is the majority of our revenue. The thing that we see happening is as our SaaS offerings become more accepted by the marketplace, those typically are sold on a more ratable basis, the revenue gets recognized on a more ratable basis, so we will see that continue, and over time and I can't tell you exactly what the timeframe is, but over time I think you will see that our recurring revenue as a percent of total will continue to creep upward. But in any given quarter, who knows?Because all it takes is one big license deal to push the number down. So I think that's all we're saying is that today banks and financial institutions favor on premise solutions, which go hand-in-hand often with licensed revenue recognition. But longer term, I think we see that changing.

Got it. Thanks.

Your next question comes from the line of Brett Huff from Stephens Inc.

Hey guys, congratulations on this quarter.

Hey, Brad.

A couple questions just along the SaaS lines that I was trying to get my arms around. When you all think about how this year the SaaS deals that you closed, did it make a measurable dent or headwind into your revenue growth?And when you gave guidance for next year, I mean was from, like 20 basis point, or 80 basis points, or some sort of taking license out of this period and spreading it out forward, are there any thoughts on that?

Yes Brad, this is Mike. We have between our Adeptra business and or marketing solutions business and other pockets, we actually have about $160 million a year of hosted or SaaS business. And have for the last couple of years. This year's growth year-over-year was slightly below $5 million. Compared to the prior year. It relates that additional growth relates to some of the deals we signed this year, and that have gone live, as well as just growth and volumes that are being pushed through the existing line of business. And so to answer your question directly, the amount of growth into fiscal 2014 was quite small. It was less than $5 million.

As we think about fiscal 2015 and as we thought about it, the business at least for the next few quarters, and foreseeable, for at least the next few quarters, it is probably still going to be more heavily driven through on premise and the revenue will be created, if you will, through an on premise model, which usually has an up front license revenue to it. And as we start to sign more and more cloud deals and the ratable deals, some of that will probably add to it in the latter part of next year, and then it will start to grow from there, because as you know you have to go through the implementation process to get them live, and then begin to grow the revenue. So we've built in similar kinds of thoughts into next year. There won't be a dramatic shift, at least not the we see over the next couple of quarters. But hopefully we'll continue to sign more and more business as we did this year.

Okay. And then the second SaaS question, can you just give us sort of the anecdotal or sort of the best use case, successful use case that you would used, and maybe this is a SaaS question or a channel question, I'm not really sure which. But the most accessible channel, new channel method that you're using, or I assume again that's a SaaS delivery, what's the one that's the most popular that you found the greatest traction with most quickly?

Just to clarify. Are you focused on what kinds of customers are interested in our cloud offerings, or are you focused on the distribution piece of it?

Well, maybe I'm confusing the two. My question is mostly around the channel. So what new channel have you used as distribution mechanism?You've been talking about trying to do indirect IP distribution basically. What's the one that kind of works --

Yes, good question. So we have a channels group with some very capable business development executives, who are always looking for different mechanisms to take our products and our IP to market. And it's a wide range, everything from processors to major retailers. There's different ways of taking our IP to market. Probably a great example is our eBay partnership. We entered into this partnership with eBay, and as you know they have tremendous, tremendous reach with a tremendous number of retailers who use them for eBay enterprise is an infrastructure backbone and support for eBay retailers. This is completely separate from their marketplace division. This is eBay enterprise, and one of the things that they wanted to do as part of providing capabilities to their retailer customers, is improve the analytics that they provide. And so we entered into this partnership with them where we took our campaign management platform, and some of our analytics, and did some additional work to tailor to suit eBay's needs, and eBay is now taking out our IP, our analytics IP and some of our campaign management IP out to their customers. And it's just a lovely partnership, because they get Best-in-Class analytics and campaign management, and we get distribution to all kinds of retailers that we never ever would have gotten near.

Okay. And then one question just on the margins. When we see a big license quarter, typically I thought we would see a pretty big margin quarter on the gross margins, and I didn't see that but I'm wondering if I'm missing something? There's a dynamic there that I'm not getting?

No, there's no dynamic there. The numbers are the numbers that we reported. The margin for the fourth quarter which was around 30%, that's the adjusted margin we report, it also includes cost to deliver the revenue, so if some of that revenue growth came on the services side, so there's a bit of a mix shift, some additional expenses there, and at the end of the year, we true-up all of our incentives. . Our sales incentives and our across the business incentives, and we performed quite well, and had a larger than average incentive accrual, and I suppose that maybe takes away what you would have guessed some of the pop would have been with the license revenue we did do.

Okay. And then last question from me, I know we've had a log jam of longer sales cycles on the applications business, and I know that we've had a couple of good bookings quarters in the past two quarters, and the bookings were still sequentially up a little bit, but just down a little bit year-over-year. Is that log jam and application specifically over?I think one of you mentioned in your prepared comments that sales cycles were still elongated. So I'm still trying to figure out, is there still more to come on that, or are we through that initial log jam?

Well, last year as you know we had a lot of deals slip in our fourth quarter so the last time last year we are giving you a lot different news. And it was slipped deals. It took about six, nine, 12 months, to work many of those deals through the pipeline, and what had slipped year for the most part has worked itself through the pipeline. Log jams can come and go, and whether we have another log jam that comes along is yet to be determined. But for the most part we worked through the issues we had last year, and we're very happy with where it ended up. It maybe took a little longer, but at the end of the day it was worth the wait.

Okay. That's what I need. Thanks for your time.

No problem.

(Operator Instructions). Your next question comes from the line of Manav Patnaik from Barclays.

This is actually Greg calling on for Manav. I was wondering if you could give some color on how you're thinking about the different segments of the consumer credit landscape going into 2015, where you're seeing strength, and where you're seeing the puts and takes there?

I'm not sure what's underneath your question. It's a pretty complicated landscape. There's obviously the credit report monitoring business, which we are in with myFICO.com, and which others especially the bureaus are in with paid subscription products. There are incremental products that are now being overlaid on the credit report monitoring offerings, like identity theft, and again we have it at myFICO.com, and some others also have incorporated that capability in their offerings. I think increasingly you're seeing any major player who has customers and good customer relationships, and who has some kind of logic for why they would be offering it, is now considering or reconsidering being in the affinity space, where they take an offering from someone else and sell it through to their consumers.

And we're now in that business. And starting to compete for that business, and so that's kind of a B-to-B-to-C business. It's the same offering under the covers as myFICO.com. I think that after slower growth over the last few years in the affinity space, I think we're going to see that space pick up a bit. So I hope that answered your question. I think it's a good, and then we also have I guess the thing I would add that's new is, we have some of the players in the premium space have come into this credit report monitoring, and they give away free scores and free summary credit reports in exchange for the right to use the consumer's data for lead generation.

I would note that to our knowledge, none of those players is using the FICO score. They're using what are charitably called education scores. We call them fake-o scores and so they're not the scores that lenders use. So there's quite a bit of concern actually about confusion in the marketplace, as these guy goes out and say get you were free credit score when in fact it's not your the credit score that the banks are using. It's not a FICO score, and so it's a question mark, what is it? But those players have gotten some traction, and I think again with Open Access, and with increasing consumer understanding of what's really going on until the marketplace, we think that consumers will know the difference between a FICO score and some other score.

The other thing is you can see kind of the battle lines drawing between the premium players who give away your data. They take your data and they don't charge you anything for it, but they turn around and they use it for lead generation purposes. And then I would say the players who are much more careful with your data and don't use it in that way. And I would say that we're in that category, along with the major bureaus. We're very careful with the consumer's data, and careful not to use it in ways it's not intended to be used. You're seeing this kind of free/no privacy versus paid subscription quality and regard for privacy, you're seeing that the battle line is developing in the consumer credit report monitoring space, and I think you're going to see that continue. I think that the consumers will become more aware, and it's going to be interesting to see how that plays out.

Okay. That's great color, and I guess I probably wasn't totally clear on my question. I meant more along the lines of spaces in consumer lending that you're seeing strength, whether it's autos have shown some strength recently, and how you're thinking about those different segments of market going into 2015?

I'm not sure that we're in the best position to comment on that. Obviously there have been a lot of credit card customer acquisition efforts in recent months. I think that's way up. I think that refi has had much more longevity than anyone has expected, and so people are still pulling mortgage scores. I don't need to tell you that the auto industry is in pretty good shape, and so auto scores are being pulled, but I don't think we're telling you anything that you don't already know.

We haven't seen any big shift in mix or any kind of amazing emerging trends in that regard.

Okay. Fair enough. And then you talked about the longer sales cycle, but you are seeing strong results in the applications business. I'm just wondering if the tenor of conversations with the customers has changed at all, or how those conversations have been going especially heading into another budgeting cycle?

Our products, our application offerings and also our tools for that matter are aimed at kind of three areas. One is revenue growth, and we come at that a lot of different ways. A second is expense control, and we come at that a bunch of different ways, and third, risk and compliance, and our conversations with financial institutions around all three of those areas. And the revenue side, our decisioning applications help banks to make the smartest decision they possibly can, and basically if their objective function is profitability or revenue growth, we help them with that.

On the cost side, we have collections and recovery applications, and other things that help them on the cost side. I'm very proud of our model central offering, which is a model management offering that is industry leading, and starting to be adopted by the major banks. And so I think there's a lot of interest there because all of these banks are interested in demonstrating to regulators that they have excellent control of their business. They have a lot of visibility into the models that are being used, they have good visibility into how the risk around their decisions is. And our model central offering is very much designed to help them with model management. What models went into place when, what attributes were put in place when. When does it go from test to production. All those kinds of things that a bank wants in order to run its business better, and also to demonstrate to regulators that it understands how to run its business well. All of that is tremendously interesting to banks, and so that's been a big conversation recently.

Okay. Thank you and one more modeling one if I can sneak it in. Popular topic over the last few weeks is FX, and I was just wondering how you think of your exposure there, and if you do anything to hedge any of your exposure?

I'm sorry. We hedge the balance sheet risks, kind much our receivables. We have business lines in kind of the larger parts of the world, where we have operating expenses that naturally hedge the revenue that we generate. The FX impact frankly on the P&L hasn't been that huge for us, and it's maybe not as big of an issue as it is for others you follow.

Okay. Thanks guys.

There are no further questions in the queue. I turn the call back over to the presenters.

Thank you, Lisa. This concludes today's call. Thank you all for your interest in FICO, and for joining today.

This concludes today's conference call. You may now disconnect.