All right, I guess good morning still. Good morning, everybody. Thank you for being here at our Americas Tech Conference again. It's been a great two days, and, you know, I'm happy to leave my last presentation to be Fair Isaac, I guess, official name, but FICO here. And we have with us, I'm sure many of you know, but Will Lansing, who's the CEO, and then Steve Weber, who's the CFO as well. So thank you, Will and Steve, for being here.
Great to be here.
So, Will, maybe just first question, you know, we were just talking about this outside, but, you know, you've been you were on the board of FICO since 2007. You took over as CEO in 2012, I believe, and, you know, so and now we're here in 2024. But just, you know, we get the question a little bit, but just your plans on, you know, how long you plan on sticking around and, you know, what, what, what the next many years look like?
I'm here for another five years anyway, most likely. I mean, obviously I could get fired tomorrow, but, you know, and I don't actually have a contract. But, I think the board's happy with me, and I'm happy with them, happy with all of you. So I think five years is a good way to think about it.
Okay, fine. Fair enough. So just talk to us high level. I would say I think most of the room is familiar with FICO, but if you feel like you wanna elaborate on something. But, you know, you have the scores business, you have the software business. So just talk about the vision on having those two businesses and, you know, how you see FICO, you know, in that next five years, let's say.
Yeah, maybe it's worth just a little bit of a history lesson. I, I know a lot of you are pretty familiar with the company, but there's a lot that doesn't actually make it into the research reports. And so, you know, I beg your forgiveness in advance if you've heard me share some of this history, but I, I just wanna spend five minutes.
Oh, please. Take your time.
On how FICO got to be where it is today. That takes us back to the 1950s, 68 years ago, when the company was founded by a mathematician and an engineer in Stanford, California. They had this vision that you could apply analytics to problems and make data-driven decisions, and that that was a good idea. They started this consulting firm to do that. They quickly gravitated to banks and financial institutions because those were the guys who were willing to spend money on high-stakes problems. You know, they're money problems: mortgages, auto loans, card. They rapidly wound up building a business around proprietary scorecards for banks. This went on for 20, 30 years. They'd build scorecards for banks and help with originations. Obviously, low-cost way to make a credit determination.
You didn't have to rely on the banker knowing the consumer applicant. In 1987, we entered a partnership with Equifax and built the Beacon Score, which is the first industry-wide score built on credit bureau data that was available not just to a single bank but to any and all banks. Anyone who was interested could have the Beacon Score, the FICO Beacon Score. That was hugely popular with lenders because it was a low-cost way to evaluate credit. We went the next step and said, "Well, let's make it available on top of all the credit bureau data." We took the same kind of algorithm and put it on top of TransUnion data, on top of Experian data. Now you had a FICO Score with the same odds-to-score ratio, available across all the credit bureaus. The lenders really loved that.
I wouldn't say it commoditized the credit bureau files, but it did give the lenders a little bit more leverage. So they were really pleased with it, and now we had this industry-wide score. Well, it didn't take very long before the regulators figured out it was a great tool for evaluating the risk of the banks that they were regulating. So they got into it and said, "What's the credit risk of this portfolio or that portfolio?" And the FICO Score was a good way to do it. So this went on, and then the investors found it a very useful way to evaluate the risk of the paper that they were buying when banks securitized their loans. And then finally, some years ago, we got the consumer into it by offering to the consumer the FICO Score for free.
And so now over 250 million accounts get their FICO Score for free. If the bank buys a score, they can reshare it. They can share it with the consumer at no additional cost. So you have four constituencies that are all wrapped around the FICO Score. And that's why the FICO Score is the cornerstone of the credit ecosystem in the U.S. It's not so much that the math is superior, although there's nothing more predictive than a FICO Score, but it's because we're deeply, deeply embedded in the system. Along the way, we also had this idea that we would build software. And so in the 1970s and 1980s, we thought if we could get these analytics into software, you know, we could get returns to scale, it'd be a good business.
And so we started to build software franchises for very specific kinds of business problems, and, you know, originations, collections and recovery, fraud, and became kind of the number one in each of the questions that we answered. We became the dominant player for banks worldwide. And so that kinda got us up to 2012. And so now to get through the 2012 to 2024 chapter, and then we'll talk about the future. The couple of things that we did, starting a little over a decade ago. One, we moved to the cloud. And so that was, you know, a fairly obvious move, although it wasn't as obvious in 2012. It wasn't clear that banks would be willing to use the cloud. But they are, and we did.
The other thing we did was we started to find commonality between our different software franchises. So they all had a decision engine inside. And so how could you get into inside of each one of these software solutions and have similar decisioning so that we wouldn't have to repeat the expense of R&D on different decision engines? So we had a common decision engine across these different applications. And then we realized, you know, the data ingestion is very similar, so we standardized that and the cleansing and the wrangling. And before you knew it, we realized we were building a platform. And so this is 2014, 2015, 2016.
We started to build out this software platform that could ingest data, cleanse it, wrangle it, apply analytics, take the analytics to, you know, take to a decision, and then in real time take that decision, put it in a workflow, and use it to interact with the consumer in real time. And so that end-to-end way of optimizing what you did with a consumer became kinda the mission for FICO and the FICO platform. And that's where we are today. We think that we have the world's leading decisioning engine for optimizing interactions with consumers for B2C companies that wanna do that. We also think that every B2C company should wanna do that.
Shame on them if they're still in kind of an old world of segmentation and treating consumers as members of segments as opposed to individuals based on everything we know about that individual. So that's kinda where we are. We think we're at the very beginning of the software journey. We think that most B2C companies have yet to adopt truly one-to-one marketing, truly individualized optimization of these interactions with consumers. So that's all in the future. We're really well positioned for that. So that's, you know, in a nutshell, that's where we've been. That's where we are now and a little of what the future holds.
Got it. So Fair, on this history lesson, can we go back to the scores business? And, you know, you've been on this, you know, we call it special pricing. You call it pricing, whatever it is, this just nice pricing journey. And, just help us understand why did that journey begin in 2018 when you joined in 2012? Like, what, what had to happen in that period before you could get to where you are?
Well, yeah, great question. So as I said, we started with the scores with the bureaus in 1987. For about 30 years, or really almost 30 years, for a long time, we had bureau contracts where they were our channel partners. They brought our scores to market. The way it works is the bureau has the credit data. They apply our algorithm, produce a score, and then they send over a credit file and the FICO Score to a lender who's asking the question. So we actually don't even compute the score. We provide the algorithm to the bureaus. And it's kind of like a licensing business, really. That's why it's so high margin. It's over 90% margin.
So for many, many years, there were no changes in price because we had prices frozen in these contracts, and the contracts went on with evergreen renewal provisions for literally decades. And in the 2013 timeframe, we reworked our arrangements with the bureaus to give ourselves a little bit more flexibility around pricing, around a few other terms too, but pricing was one of them. We wanted to be able to adjust our prices once a year, and so we started that. That's where the pricing journey kinda began. And so the way we look at it is we had about 30 years of frozen prices to make up for it. There's a gigantic value gap. If you think about a FICO Score, it costs between basis points to several dollars depending on what the purpose is.
But relative to a decision about credit, which could be worth $100s, $1,000s, $10,000s, $100,000s, basis points to single-digit dollars is a pretty small expense. And so we, you know, we believe there's a pretty big value gap. And so we are in this process of bringing up the prices to a more natural level.
Got it. And then that value gap, can you just talk to us about how you think about, you know, what the right—I don't know if benchmark is the right word, but, you know, what percentage of the total cost should the FICO Score be a value of? Or, you know, something along those lines. How do you think about it?
Yeah, it's an interesting question. And it's, you know, typically the FICO Score doesn't happen by itself. It happens as part of a credit package with a credit file and with some other stuff that goes to the lender. And when that occurs, we like to think about our IP being worth about 25% of that bundle. Often it's much less than that. I mean, we really don't charge that much. But that, you know, that's a way to think about it.
Okay. Maybe let's just focus on mortgage for a second. You know, we've had to for many years, you know, kind of guess what the pricing is. Then, you know, this year you've been pretty transparent with the levels. Just talk about your thought process around, you know, why that changed.
Yeah, I think that, really the thing that changed was there's increasing focus and scrutiny on the expenses that a consumer pays for a mortgage, which number in the thousands. I mean, consumer can spend $5,000 or $6,000 on fees associated with a mortgage. And so there are consumer advocacy groups and others who are focused on the cost to the consumer. And so, you know, every aspect of that cost gets scrutinized. And so there was some noise around, "Well, gosh, FICO's been raising their prices." And we thought, "Well, maybe we should really just tell the world what our prices are." And so we decided that transparency was our friend here. And we published to the world our pricing for mortgages. Last year it's $3.50 for a mortgage score. And, you know, it's interesting.
I used to do an exercise with investors who'd ask me about scores pricing. And I'd say, "Well, what do you think a FICO Score should cost?" And I would get a pretty wide range of answers. Most of them started with, you know, $10, $12. And, and, you know, here we are with a mortgage score at $350. So that's really the, the impetus for the transparency was, you know, we're not the guys driving the high expense for a consumer at all. We provide a lot of value. I arguably the single most important thing in a mortgage is the FICO Score.
Got it. And, you know, as you know in your meetings, I'm sure, like, you know, we have a lot of focus on that price and, you know, the percentage increase, etc. But can you just help us understand when you do kinda raise the prices like you said, it's sold through the bureaus. What, you know, what do the bureaus do react to that price? And then do the banks come back to you and be like, "Hey, did you just raise that that much?
Well, you know, it's an ecosystem. And so we value and leverage our channel partners, the bureaus. They have the direct relationships with the banks. And so we value them as partners. When we raise our prices, they typically raise their prices as well to maintain the same rate, operating margin on it. And again, in the scheme of things, in the scheme of the overall costs, we think that it's very more than fair. So that's how we think about it.
Got it. And then when we think about, I mean, like you said, you're kind of in the early innings, I believe you said, on the scores as well. But if you think about, you know, will you do a price increase every year? And what goes into your head in terms of good macro, bad macro, and how much that price might rise?
Yeah, you know, I think it's very important for the lenders, for the end customers, to have an understanding and expectation around what's coming so that they can budget appropriately. And so we try to be fairly consistent with our increases. I think it's fair for them to expect increases every year. I think they do. I think most lenders recognize there's a pretty big value gap there, and they understand what's going on with the market. So, I mean, the goal is a lot of transparency and not surprising anyone.
Got it. And then maybe one last one on mortgage. You know, and we were talking about this over dinner. But in terms from a volume perspective, you know, Equifax was here yesterday, and they've had this slide out where, you know, we're 50% below, and there's a huge potential. Where do you stand from a mortgage volume health side of the equation?
Well, I mean, we look a lot like Equifax on that. I mean, obviously, our volumes are very similar. And so as, you know, as their volume expectations go, so do ours. You know, we expect some recovery someday in the volumes. I think we're at a pretty low point. We're definitely down quite a bit, maybe not 50%, but we're down close to that, versus the peak. And I, you know, I don't imagine we'll see the peak again even in 2025. But will we start to see some volume increases over the coming 12, 18 months? I absolutely. We fully expect that.
Got it. If we move to the other lending categories, maybe let's just start with card. I think that's one area where, you know, it's a volume game, really, I guess. And you haven't really touched pricing there to a certain extent. But just maybe just talk about the pricing element on card where you are and how we should think about that.
You know, the way we think about card is the way we think about all the scores in our portfolio. We look at it market by market and think about the size of the value gap, the price elasticity, the likely volumes. And we make adjustments each year, once a year accordingly. Typically, you know, we raise prices with CPI. And then in some places where we think that the gap is really pronounced, we'll raise more than that.
Okay. And, just from a volume perspective, Steve, maybe I'll bring you here just 'cause there was, and you heard it too. But there was a lot of questions around you reported card origination revenues to be down 9% year-over-year. And this was in comparison to the bureaus talking about being flat to slightly up.
Right.
Could you just help us?
Yeah, it was an apples and oranges comparison. I mean, we were talking about one component of the overall card, you know, revenue, where they were talking about more broadly. And to some degree, they have different product sets as well. They have other things that they'll that are, you know, add-on kinda products they have in their card market. But we were just talking about specifically the originations. If you took into account our entire card portfolio, it was actually up a few percentage points year-over-year.
Okay.
But it was the originations piece that was down.
Got it. But I guess to that effect, I mean, you know, the other reason I think that question came up, and Will, I'd love your opinion too, is, you know, VantageScore has, you know, doing that self-study with Oliver Wyman where they were talking about the usage going up like crazy. So do you see any signs of share loss, I guess, is the implied question here?
No, we don't see any signs of it whatsoever. I mean, you know, Vantage has touted big volume numbers for quite a long time, years, years and years. I think the big question is who's paying for it because the answer is hardly anyone. You know, Vantage scores get sent along for free. When a lender inquires at a bureau for a credit file and a FICO Score, they get the credit file and the FICO Score, and they get a Vantage score that they didn't ask for. And so that's the genesis of the big volume numbers that Vantage reports. We're not seeing any share loss at all.
Okay. And, and I guess to that point, though, do you think VantageScore being mandated now in the mortgage market by the FHFA will change that dynamic at all?
No, I don't. You know, I think that VantageScore has been available in the marketplace for over 15 years. And it's a good product. You know, VantageScore works. It's, you know, it's math, and it does the job. It's different from FICO. You know, at any particular three-digit score, they have a different odds-to-score ratio than we do. So a VantageScore 681 is not the same as a FICO 681. So they're not interchangeable, which means that if you were to change from FICO to VantageScore, you've got a lot of work to do internally. Besides just the mechanical, the operational plumbing, you actually have to re-rate your portfolios, and you have to explain to the regulators what you're doing. And there's a fair bit of work in switching over, which is part of the reason no one does it.
So, you know, I would say that the strength of our franchise has as much or more to do with the fact that we are the industry standard and we're so deeply embedded than just the predictive power. Now, I would say, you know, FICO Score works better than any. I mean, you're not gonna improve on our predictive value by switching scores. But there's lots of other reasons to stay with FICO.
Got it. Sorry, since we moved back into mortgage, I had two follow-ups. I forgot to ask. One, you know, we heard from the bureaus on their view on the whole bi-merge, tri-merge, to bi-merge debate. Where do you stand on whether that will? I mean, I know they've, they've moved the timeline out to when it needs to start or, or could start. But do you think that the industry will go to bi-merge, or?
You know, only the FHFA knows the answer to that question. You know, it's clear that the bureaus are opposed to bi-merge and for some good reasons. I, I think on the margin, there are some consumers who will be left behind. So if the goal is to make sure that we are scoring as broad a population as possible and providing mortgages and credit to everyone who can responsibly handle it, if that's your goal - and I think that is truly the goal - bi-merge doesn't help. It hurts. The bureaus are against it. I think, the, the agencies are in a review process where they're reevaluating that. Officially, they're still committed to moving to it at some point in the future. Maybe they will. Maybe they won't. Maybe they'll decide it's not worth it.
We're economically neutral because I, you know, I think that we would be compensated in a bi-merge or tri-merge world. It doesn't really matter. It sounds like fewer units, but we could charge more to offset the loss of units. So it doesn't really affect FICO very much. But for the health of the industry, for the good of the order, I think that reevaluating that decision's not a bad thing.
Got it. And just one more, Steve. Maybe I can ask you this one. But, you know, the two kind of new buzzwords for the year were prequals and soft pulls.
Right.
That's because, you know, you went from charging virtually nothing to the same price from your perspective. Then I think in the prequel space also, you can now do one report versus three. Maybe just a little bit of history on that and then how it impacts you guys.
Yeah, I think on the front end, some originators are before they go in, you know, go on forward with the entire process, they'll just pull one score to see if it's even worth moving forward. And that's where the real prequel happens. And in some cases in the past, they were paying a very small amount for that. We made it the same price. It doesn't really have that much impact. There wasn't that much of that activity. But, you know, again, putting it at the same price, you know, has a little bit more impact on the front end than it did before. But not on our numbers overall very much at all.
Okay. All right. Fine. Okay, let's keep going down the line. So auto, you know, I think there, I believe in if I got my year right, 2019, maybe you did your first price increase, and then it's kinda sorted out. So just your view on how you've envisioned the auto landscape and how you would alter pricing in that.
You know, it's this, it's the same kind of a situation where, you know, we look at it every year. There is a gap there in terms of the value we provide. I mean, you think about what we charge, and you think about, you know, the value that the dealer gets out of it, the value that the lender gets out of it, the value the consumer gets out of it getting an auto loan, you know, and the fact that we charge, you know, not a lot. There's a pretty good value gap there. I think price increases there will continue. That said, we're always mindful of a system in which we don't want shocks. We, you know, we really wanna move in a gradual and predictable way for the benefit of the end customers. I think auto is the same.
I think you know, I think price increases can be expected. I think they could be expected to be moderate as they have been and can be planned for and budgeted for.
Got it. Okay. I wanted to move to software. I had a bunch of questions there. So we'll come back to direct to consumer if we have time. But so, you know, earlier in the little history lesson you gave us, you said you started moving to the cloud in 2015, 2016. But you know, the fruits of that or the real move only happened, or at least from the numbers, in the last couple of years. So why was your cloud transition so slow as opposed to, you know, an Adobe or whatever who announced SaaS cloud, and then like in three years, they were done or whatever it was?
Yeah, well, so we started really even earlier than that, really in 2012. I would say that it was really slow because of market receptivity. Banks were the last to move to the cloud. In 2012, if any of you can remember that far back, no one thought that banks would actually move to the cloud. There were security issues. Would the consumer data ever be allowed to go outside of the bank firewall and so on? That was kinda the predominant thinking. I had come from several other software companies, cloud software companies, and I really thought that there was a tremendous cost advantage to the public cloud. So I, you know, I thought it was gonna happen. Our transition took several steps because we started with data centers of our own, FICO private cloud.
Then it became pretty clear I'd say in 2014, it became pretty clear that there was no private player who was gonna be able to compete with the big public clouds, and at that time, particularly with AWS. So we decided back then that we would make the move to AWS. While we continued to run FICO private cloud, private data centers for the benefit of customers who wanted them, we also made available public cloud. And that's been ever since.
Got it. And, you know, in terms of your vision to be like this one-stop-shop platform with all your IP in it, I'll get to the details in a second. But, you know, one of the questions everyone has is, who's the competition, right? And so can you just help us break down who you see as your competition in these areas?
Well, I'll tell you, when we look at our loss reports I look at loss reports every month. We lose mostly to project canceled and project delayed. We don't lose to other competitors. And, the reason is that for most of the people certainly for the people buying the platform, for the lenders who are buying our FICO software platform, there really is no alternative. You can build your own. And the expense of building what we have we spent $500 million building what we have. You know, could you build something close for $100 million? Maybe. I doubt it. It wouldn't even be as good. Or you can buy our product for, you know, single-digit millions. And so invariably, customers come to the conclusion that they should just adopt the FICO platform. There are other players who do bits and pieces of it.
You know, you've got some workflow guys who, if they could work backward into decisioning, you know, they have a story to tell. But I wouldn't say that there's significant competition for us. There are some very small horizontal players who don't really focus on financial services, so we don't bump into them. There's companies like Palantir who are, you know, highly skilled, qualified, smart analytics guys. We never bump into them. Someday, maybe we will. So but so I would say the competition is not significant. It's the biggest issue is, it's just our own execution.
Is that because it's such a niche, you know, use cases that you're targeting? Is the TAM small, which is why they're not involved, or?
No, I don't think it's that. The TAM's huge. I think it's just very hard to do. So what-what's the TAM? Okay, let's just take a step back and say, what is the TAM for what we do? What we do better than anyone else is we take data, we apply some analytics to answer a question, we produce a decision, we put the decision into a workflow. The workflow goes to the consumer in real time at a moment of truth and optimizes that interaction. Maybe it's to increase conversion rates to maximize revenue. Maybe it's to increase lifetime value. You know, lower revenue, but, you know, when the consumer opts for this particular transaction, it, it, it will lead to greater lifetime value. Maybe it's about profitability. We're optimizing for profitability 'cause that's what we need this quarter. The objective function for the B2C company changes.
But the goal of optimizing that interaction with the consumer, that's what's constant. What you always wanna do is optimize that interaction with the consumer. And anytime you are interacting with that consumer (email, chat, inbound voice, call it a call center, outbound, call it a voice center), you know, you pick your channel, text message. Anytime you're interacting with that consumer, if you're not bringing to bear everything that can possibly be known about that consumer at that moment in time, you're suboptimizing. And so when that moment of interaction occurs, you should be making your offer, making your interaction with an awareness of the last 25 transactions you've had with that consumer. What did they buy? What's their brand proclivity? What's their price elasticity? You know, what is most likely to result in the behavior we want?
And that's the holy grail. That's what every B2C company wants to do when they're interacting with a consumer. It should always be done with a view to what happened the last time this consumer interacted with one of our other channels. That shouldn't operate in a vacuum. Well, everyone wants to do this, and yet it's very, very hard to do. I mean, it's just incredibly hard to do. And we've been at it for a long, long time. And we've cracked the code on how to do it. And, you know, we've figured out a lot of issues that have to do with scale.
How do you know, how do you compact all that knowledge about brand proclivity and price elasticity based on, you know, on dozens of interactions over the last several years into, you know, a 20-millisecond response with a consumer at this moment? That is not trivial. It's just a gigantic challenge. And we've solved it. I mean, we, you know, we solved it because we've been doing Falcon Fraud for 24 years. And we can tell you whether transaction's likely fraudulent or not in 15 milliseconds. And so we, you know, we've brought some of that technology to this. And so where others are doing crude, brute-force kinds of interactions, we're doing these highly, highly tailored ones. I think the TAM for it is huge. I just think it's really hard to do it. To do what we do is hard.
Got it. So this concept of cracking the code, I guess, over the last couple of years, to a certain extent is reflected in your platform growth rates. Platform is 20% of your software mix. So, you know, it was growing 50%. Then you said you can see it growing 40%. Now you've kinda brought us down to 30%. So just help us, like, you know, is it just with the macros maybe now? What do you think the right growth rate for the platform business is?
So it's, it's a, you know, we grew over 50% for 15 quarters. And then now we're at, we have a 30% grow 32% growth quarter. I don't know what the actual numbers, I mean, 32% growth on a $200 million ARR software business is not a bad, that's not a bad number. I don't know whether we'll slide into the 20s or we'll have pops into the 40s. I do think that you catch up with large numbers. And, you know, we're very happy with growth rates in the 30s. I can tell you that the customer's very happy. We have a land and expand strategy that's working extremely well. There, you know, there's plenty of room for growth. If, you know, if we have any constraint at all, it's probably our sales force. We don't have enough distribution for our IP.
So that, you know, that would, that's probably a little bit of a lid on how fast we can grow. But that's up to us to fix.
Got it. You know, I've been to many FICO Worlds, but the last two, you know, have been tangibly different. You know, this kind of excitement that you're talking about shows up in there. From this past one in April, what would you say were your one or two main conclusions that give you this confidence in this kind of high growth rates?
Well, so we, you know, I've shared with you guys the vision for what it is that our platform does. We, you know, we would get up at FICO World four years ago and, and share the picture of what we could do. But it was hard to find, you know, customers who were really implementing it and getting the power and the use out of it. Last year, we, we had customers get up on stage and say, you know, put in the FICO platform, surpassed all expectations on business case, you know, pays back in year, you know, 80% ROI, you know, kinda great, great results. This year, even more so. This year, we had customers clamoring to get on stage and brag about all the things they were doing with the FICO platform. And so it there are very tangible shift in the direction.
I, you know, I think that the people who are doing it have been rewarded in the banks in which they work. Those who have put in the platform have been promoted to, you know, positions of greater responsibility, and they look like heroes. The stuff really works. It works. Customers are happy with it. The payback is real. And the sense of that was palpable at FICO World. It was just a month ago.
Got it. And, and Steve, you can help with some numbers here too. But, like, you know, Will, you talked about you've already spent $500 million on this platform initiative. To maintain these growth rates and to achieve or, or go after that big TAM you talked about, how much more spend should we be expecting?
Well, I mean, we don't anticipate that you'll step function in more spend. As a percentage of revenue, it probably starts to trend down. We're starting to see some scale now. You know, we're still continuing to invest, add features and functionality. But we've built a product that works very well. So we don't expect to have to spend more. But there's always things we have to spend on. And we're looking for ways to build efficiencies into it to give us more scale as we move forward. So those are the kind of investments we're making today: ways to, you know, solidify the platform, build in efficiencies so we can take costs out, and then, you know, build more features and functionality that drives more demand.
Got it. And Will, you know, you talked about sales being your constraint, salespeople being your constraint. You know, the TAM and the ambition you talk about, you know, FICO is a relatively small company in the scheme of software, if you call it, in that TAM. So at some point, do you envision needing to be with another bigger player or something to get to your ultimate goal?
Oh, there's a lot of pieces to that question. Let's say let's take it a step at a time. So, first, software business as part of FICO, what you know, how do you manage that constraint? Well, A, on the direct sales side, we are adding salespeople. It's a long, slow process. I mean, we highly technical sale. You need super-skilled people. We sell to the C-suite. It's not your average Joe who can go do that. So you know, we're working that side of the equation. But there again, there's limits to how fast you can grow with direct sales. The other part that we're doing to kind of, push on the distribution end is we're focused on partnership. So we, we are this year, at FICO World, we announced, publication of our APIs. We're gonna have open APIs, heavily documented, open ecosystem.
We're trying to encourage systems integrators and VARs and resellers and ISVs to come to use the FICO Platform and to design solutions for their customers in their verticals leveraging our decisioning platform. And that's perfect for us because we sit at the center and, you know, collect our rents as provider of the platform and let them go and work all the detail around these other verticals where we really don't have the domain knowledge, nor do we have the sales skills. That's underway today. We have a pretty big investment going in direct sales, in partnership, and it's working. You know, is the software business more valuable in someone else's hands? Well, that is a super-interesting question. You can imagine what I've thought about it.
Most software businesses, you know, when they hit sales of $100 million or maybe $150 million of revenue, they wind up getting acquired by one of the big software companies. The pretty simple reason for that is there's so much value to be created by taking the software product and putting it through the distribution of a big software player, that value is instantly created. In FICO's case, we've been a subscale software business forever and should have been in the hands of another much larger software player throughout our existence. But we had this very, very profitable scores business with which to subsidize the software business and to keep it independent. So we've grown this thing into an $800 million software revenue business within FICO even as our distribution is truly anemic.
I mean, with all due respect to our you know, terrific salespeople, it's we have a little over 100 quota-carrying salespeople. We have several hundred salespeople in our sales organization. That's pretty small for an $800 million revenue business. And it's certainly small relative to the TAM and the potential. So yeah, more valuable to somebody else. How's that ever gonna happen? You know, we think about it. I think that today, the software business is not valued appropriately by the markets. They don't recognize just what a special asset we have. And so we're gonna continue to grow it and nurture it internally and grow it organically. I think the day will come when the two businesses, scores and software, get separated. That's not crazy. That's something that we explore, you know, periodically.
You know, within that, you know, one option would obviously be to sell it to a large software player that would be interested. There's a tax implication for that. Our cost basis is nearly zero. And so, so there'd be a significant, you know, 21% tax, if we were to do that. If we spun it off to FICO shareholders, that would be tax advantage. That would be the way to do it. So under the right market conditions, when if, if and when we felt that was the right thing to do, I think, you know, FICO shareholders could expect to hold two pieces of paper. I, you know, I, I think that's not unlikely. I think someday in the future, that could happen. It won't happen anytime soon. I, I think there's just a lot of, growing we need to do first.
Fair enough. In the few minutes we have left, let's just touch on capital allocation. I think we all know the answer, but it's always good to hear it again. But, you know, since you joined in 2012, I think you've done two acquisitions. One, medium-sized. That's now a very successful CCS business. And the other was a tiny, anti-fraud something that you sold back anyway. And the rest, buybacks. Any changes?
No, no change. I mean, you know, our philosophy on capital allocation's pretty simple. We, we love our business more than any other business that we see out there, although we look. We look. I mean, someday, we might find one we like as much as our own. Almost anything that we could buy would be accretive in the short term. So, you know, if, if that's all we cared about, you know, you could go do it. But the way we think about it, any business that we look at that we don't love as much as our own - and that includes pretty much the whole universe - would be dilutive in the long run. And so we're not very acquisitive. We have a we have a, a really strong corporate development function. Suhas Joshi runs it, and he's like the Maytag repairman.
But he brings us a lot of stuff to look at. But we, you know, it's so never say never, but I would say that acquisitions are very low on the use of cash. We're big believers in buyback. We think there's a natural level of, of debt for a company like ours. I think that there's a natural level of cash to hold. There is an optimal capital structure. You know, we target 2.5-3 times leverage. We're a little low right now. I think you can expect us to continue to play in that range for the indefinite future. We could certainly handle more. Our cash flow is extremely predictable.
And, you know, we could go over three and might, on an opportunistic basis, if, you know, if every so often, there's, like, a bad news story gets published or it gives us an opportunity to dial up our buyback a little bit. You know, when we had the FHFA overhang, a lot of people were very worried about what was gonna happen to FICO. We weren't worried, but a lot of other people were. And it showed up in our stock price, and we wound up buying in $2 billion worth of stock over a 2-year period. Our free cash flow at the time was about $500 million a year. So, you know, we do dial it up opportunistically. But in general, our goal is to maintain leverage in that 2.5-3 times range.
and I don't expect that to change.
Got it. All right. We're just about out of time, so let's leave it there. Thanks, Will, and Steve for being in. Thanks everyone else.
Thank you.
Thanks.