Greetings, and welcome to the Fair Isaac Corporation quarterly earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. Should you require operator assistance at any time, please press star zero. As a reminder, this conference is being recorded today, Wednesday, August 3rd, 2022. I'd now like to turn the call over to Steve Weber. Please go ahead, sir.
Thank you. Good afternoon, everyone, and thank you for joining FICO's third quarter earnings call. Steve Weber, Vice President of investor relations, and I'm joined today by our CEO, Will Lansing, and our CFO, Mike McLaughlin. Today, we issued a press release that describes 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 under the Private Securities Litigation Reform Act of 1995. Those statements involve many uncertainties, including the impact of COVID-19 on macroeconomic conditions and the company's business, operations, and personnel that could cause actual results 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 August 3rd, 2023. Now I'll turn the call over to Will Lansing.
Thanks, Steve, and thank you everyone for joining us for our third quarter earnings call. We posted some slides with our results on the Investor Relations section of our website. I'll be referencing some of those slides during our presentation today. I'll go over the results of our third fiscal quarter and discuss what we're seeing in the markets we serve. We again delivered very strong results in an uncertain marketplace, which demonstrates the resiliency of our business model and the value proposition we deliver. As you can see on page 2 of the presentation, we reported revenues of $349 million, an increase of 3% over the same period last year, or 7% when adjusted for last year's sale of our Collections and Recovery products.
We delivered $93 million of GAAP net income and GAAP earnings of $3.61 per share, up 21% and 36% respectively when adjusted for last year's gain on sale. On a non-GAAP basis, net income was $116 million, up 17%, and earnings per share of $4.47 was up 32% from last year. Our scores business continues to perform well despite headwinds in the mortgage market. Scores were up 4% in the quarter versus the prior year, as you can see on page 6 of the presentation. On the B2B side, revenues were up 3%. Mortgage continues to be the headwind as originations have declined as interest rates rise. Mortgage originations revenues were down 25% versus last year.
Mortgage origination revenues now account for about 12% of our scores revenues and 6% of our total company revenues. Excluding mortgage, total B2B revenues were up about 12% versus last year. Auto origination revenues were up 12%, and credit card and personal loan originations revenues were up 37%. We also had double-digit year-over-year increases in our pre-screen scores. On the B2C side, revenues were up 7% from the previous year. The slowdown in growth came primarily in our direct myFICO.com channel, where we are seeing fewer new customers coming online. Our partner channel, which includes paid and freemium components, continues to drive double-digit growth. In our software segment, we delivered $170 million of revenue, up 2% from last year and 11% after adjusting for the divestiture.
As you know, over several quarters, we've talked about the demand for our platform and how we see substantial growth opportunities. As shown on page 7, total ARR was up 9%, and the platform ARR again grew at a remarkable 60%. Our net retention rate is also very strong as our existing customers continue to expand their usage. Total NRR for the quarter, shown on page 8, was 108%. Platform NRR was 135%. We also had a very good quarter with new sales. Our ACV bookings, as shown on page 9, was up 64% over last year. We're extremely excited about the continued growth potential for our FICO Platform, and that excitement was shared by our customers at our recent FICO World Conference.
The three-day event hosted in May was an opportunity to finally connect face-to-face with our clients, partners, industry experts, and colleagues to reinforce FICO's vision and commitment to client success. We hosted 750 FICO clients from leading banks, financial services firms, auto finance companies, insurance providers, and telcos. The event in Orlando included 90 breakout sessions as well as hundreds of individual strategic consulting engagements, all designed to help our customers identify how FICO can enable them to accelerate and achieve their goals with the FICO Platform. It was also a great opportunity to hear from FICO customers. With nearly 70 clients presenting during breakout sessions, sharing the success stories and lessons learned.
FICO World 2022 was an essential moment where we had the opportunity to explain and demonstrate our platform strategy directly to our most strategic clients. Clients rated this FICO World the best FICO World of all past events, and we've already seen a surge in registrations for the next FICO World to be held May 13 through 16 in Hollywood, Florida. I'll have some final comments in a few minutes, but first, let me turn the call back over to Mike for financial details.
Thanks, Will, and good afternoon, everyone. We delivered another quarter of strong results and remain confident that we can deliver on the increased guidance we issued last quarter. Total revenue for the third quarter was $349 million, an increase of 3% over the prior year, or 7% after adjusting for the divestiture of our Collections and Recovery product line last June. In our score segment, revenues were $179 million, up 4% from the same period last year. B2B scores revenue was up 3% over the prior year. As Will mentioned, we continue to see a decline in mortgage origination revenues, which were down 25% from the same quarter last year. However, other parts of the portfolio continue to be strong.
Credit card and personal loan originations revenues were up 37%, and originations revenues and auto originations revenues were up 12%. We continue to see nice growth in our pre-screen scores, which is a good sign for continued strength in credit card originations. B2C scores revenues were up 7% from the same period last year, driven by strong growth from our partner channel. FICO Software segment revenues in the third quarter were $170 million, up 2% versus the same period last year, or 11% after adjusting for the divestiture of our Collections and Recovery business. Software license revenue recognized upfront or at a point in time was $20 million in the quarter, compared to $13 million in the same period last year.
As a reminder, these point-in-time revenues are a result of GAAP accounting rules that require us to recognize upfront a portion of the total contract value of multi-year on-premise software license, subscription sales, and renewals. Point-in-time revenues will vary from quarter to quarter, driven primarily by the mix of on-premise versus SaaS subscription sales. It's important to note that our ARR metric is not impacted by these point-in-time revenue accounting rules. As expected, we continue to see lower software Professional Services revenues. Those revenues were $27 million this quarter, up slightly from last quarter, but down 24% from the same period last year, much of it due to last year's divestiture. This quarter, 84% of total company revenues were derived from our Americas region, our Asia Pacific region generated 5%, and the remaining 11% was from EMEA.
Our software ARR at the end of the third fiscal quarter of 2022 was $561 million, a 9% increase over the prior year quarter. Our platform business continues to perform extremely well. Platform ARR was $108 million, representing 19% of our total third quarter ARR, with a growth rate of 60% versus the prior year. Our non-platform ARR was $453 million in the quarter, up 1% from the prior year. As a reminder, our reported ARR and related metrics exclude all revenues from divestitures in prior periods. Our dollar-based net retention rate in the quarter was 108% overall. Again, we're seeing exceptional performance in our platform business as customers continue to expand their usage. The dollar-based net retention rate for platform was 135% in the third quarter.
Our non-platform customers software usage continues to be mature and relatively stable, with a net retention rate of 101% this quarter. Software sales were again strong this quarter with annual contract value bookings of $19 million versus $11.6 million in the prior year, an increase of 64%. Our ACV bookings include only the annual recurring value of software sales, excluding Professional Services. Turning now to our expenses for the quarter. Total operating expenses were $208 million this quarter, up slightly from our second quarter. We expect expenses to continue to increase modestly in our fourth quarter. Our non-GAAP operating margin, as shown on our Reg G schedule, was 49% for the quarter. We delivered non-GAAP margin expansion of 1,000 basis points over the same period last year.
GAAP net income this quarter was $93 million, and our GAAP EPS was $3.61, which was down from last year when we had a $93 million pre-tax gain on sale of our Collections and Recovery product line. Our non-GAAP net income was $116 million for the quarter, up 17% from the same quarter last year. The effective tax rate for the quarter was 23%. We expect our FY 2022 recurring tax rate to be approximately 25% before any excess tax benefit and other discrete items. The resulting net effective tax rate is estimated to be about 24%. Free cash flow for the quarter was $115 million, up 16% from the same period last year. For the trailing 12-month period, free cash flow was $449 million.
At the end of the quarter, we had $182 million in cash and investments. Our total debt at quarter end was $1.96 billion, with a weighted average interest rate of 3.86%. Turning to return of capital, we bought back 735,000 shares in the third quarter at an average price of $384 per share. At the end of June, we had about $119 million remaining on the current board authorization and continue to view share repurchases as an attractive use of cash. With that, I'll turn it back over to Will for his thoughts on the rest of FY 2022.
Thanks, Mike. As I said in my opening remarks, I'm pleased with our ability to continue to deliver strong results and how we can meet our customer needs while working in the best interest of our shareholders. We continue to deliver mission-critical software and analytics to customers. As the financial services industry continues to navigate the impacts of economic volatility, the need for precision through advanced analytics has never been more important. Lenders are seeking more ways to assess risk and opportunity in real time to inform decision-making, and we have the technology and expertise to deliver best-in-class solutions. Our scores business continues to provide lenders with time-tested analytics that help manage risk throughout the consumer lending market. The use of those scores throughout the many different lending markets means we're not highly leveraged to specific types of lending or customers.
On the software side, we continue to drive remarkable platform ARR and NRR growth, demonstrating a strong market appreciation and appetite for our latest decisioning technology. Finally, as you know, it's our practice to provide only annual guidance, so it's not our policy to raise guidance in our fourth quarter. I'm pleased to say we are reiterating the full year guidance that we raised last quarter. We remain confident we are well positioned to meet or beat the numbers we have presented and look forward to discussing our fiscal 2023 expectations when we release our results next quarter. I'll turn the call back to Steve for Q&A.
Thanks, Will. This concludes our prepared remarks, and we're now ready to take any questions you may have. Operator, please open the line.
Thank you very much. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a 3-tone prompt to acknowledge that request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Once again, to register a question, it's one-four on your telephone keypad. The first question will come from Manav Patnaik with Barclays. Your line is open.
Thank you. Good evening. Will, I just want to touch on that last point you made where you said, you know, you're kind of prepared to meet or beat the guidance, but I was hoping you could just walk us through some of the moving pieces. You know, it sounds like maybe mortgage got worse, myFICO.com got worse. Anything else that, you know, perhaps either got worse or better and maybe, you know, throw in some comments on pricing in there as well.
Well, I mean, pricing is really a discussion for next year. I mean, the pricing is baked in for this year. Those really are the puts and takes. I mean, we've got mortgage headwind, and everything else is pretty strong.
Our next question will come from the line of Kyle Peterson with Needham. Your line is open.
Hey, good afternoon, guys. Appreciate you guys taking the question. Just wanted to, you know, have a question on, you know, software. You know, results are really strong, especially on the ARR side, you know, this quarter for platform. Have you guys seen any change, whether it's, you know, in, you know, longer sales cycles or clients looking at, you know, potentially down gauging, you know, deals, you know, with, you know, some recessionary fears kind of perking up here?
No, no, we really have not. I would say that, you know, the IT spending financial services industry seems to be on track and hasn't moved a whole lot. Sales cycles have not gotten any longer. They're the same, which is not to say they're short, but they're what they've always been. I would say no change.
Understood. That's really helpful. Then, you know, I guess just, you know, following up on, you know, the expense run rate, you know, it showed some really good margin leverage this quarter despite having, you know, your conference. I know you guys said, you know, expenses up modestly next quarter. You know, what are the biggest, you know, drivers, you know, of, you know, higher expenses here? Is it just higher, you know, personnel and, you know, wage costs just given the tight labor market? Or are there any other investments that you guys are making?
It's a couple things.
You guys want to call out right now?
It's a couple things. You know, we're going back to a little bit more of the pre-COVID travel expense that's just starting to kick in again. I would say that we, you know, we are hiring. Attrition is more or less where it's always been, but I think it's taking us a little longer to backfill than in years past. You know, it's a tight market out there.
Understood. Thanks, guys. Nice quarter.
Thank you.
Our next question comes from line of Surinder Thind with Jefferies. Your line is open.
Hi, guys. A question about the ACV bookings here. It's a third consecutive quarter of a really strong number. Any color or commentary there additional to what you've kind of said on the call in the sense that I think the expectation is that, relative to where expectations were, you guys are well ahead of that. There also tends to be seasonality next quarter. How should we think about that? Has there been any pull forward, or should we just expect the normal seasonality as well?
ACV bookings, as you know, is a new metric reported externally. We've been tracking it internally longer than that, of course. We set high goals for ourselves for this year in terms of new sales, and we're on track to hit those. There isn't a material amount of pull forward or any that I can put my finger on, that's happened this quarter or quarters before. You know, ACV bookings is a pretty good metric because it doesn't have the revenue acceleration dynamics or distortions that you see with other metrics. We do expect Q4 to be good in terms of ACV bookings, as it usually is.
Fair enough. In terms of the Professional Services, they had been declining for a while. I think last quarter you talked about them kind of bottoming, and then there was a meaningful uptick this quarter. I mean, I realize it's not a large number, but it still was a bigger uptick than I was anticipating. Any color there or what kind of drives the run rate there? Where should that kind of balance out?
Yeah, I think, you know, it was what my prediction, as you correctly point out last quarter, that we may have reached the bottom. I think that's demonstrated, or at least we have one quarter's data point that that is the case. When we shifted our strategic focus away from lower margin Professional Services to focus more of our go-to-market energies on Annual Recurring Software, we saw significant decline in the bookings of new Professional Services once we made that decision. It takes a while for those bookings to work their way through revenues because we, in any given quarter, have, you know, three or four quarters of backlog of Professional Services that we continue to work our way through.
You can't see it from the outside, but we saw our Professional Services new bookings go down pretty rapidly when we made the policy change. That decline in bookings stabilized about 3-4 quarters ago, so the bookings are no longer declining, and it took a few quarters for the PS revenues to catch up and hit this, as you say, the new normal. This kind of $25 million a quarter is probably a pretty good expectation in the near term.
Helpful. A question or color on the B2C part of the business. You talked about continued double-digit growth at your partner, potentially seeing a slowdown in growth at myFICO.com. Any color there in terms of, is it simply the net new additions number? Are you seeing a bit more perhaps turnover at myFICO.com? Any color you can provide there?
No, it's really the net new additions. I mean, it has to do with the fact that we, you know, we see spike in that business when people are out mortgage shopping. And so as mortgage volumes fall off, consumers subscribe to that in smaller numbers.
Got it. Okay. Thank you. That's it for me.
As a brief reminder to all, to register a question, it is one four on your telephone keypad. The next question comes from the line of George Tong with Goldman Sachs. Your line is open.
Hi. Thanks. Good afternoon. You provided revenue performance across mortgage, autos, cards and personal loans. Can you describe how price and volume trends contributed to performance in those categories?
Price played a part. I think that if you look at the externally available numbers for performance in those three categories, that our volume realizations were similar to what you would think they would be if you looked at things like JD Power or the MBA or the results of the bureaus that reported in the last week or week and a half. I would say, as we said last quarter, that the mortgage decline in terms of units has been pretty consistent with what we expected it would be for the year when we set guidance and then revised it. Last quarter, autos have been a little worse than we expected, but our revised guidance bakes in that change. Credit card and others is, you know, those volumes are doing really nicely, as we expected.
We are tracking the market pretty closely as best we can tell in terms of volumes.
Got it. With respect to your software business, the percentage of ARR that's moving on platform continues to tick higher. Can you lay out what your internal goals you have for where you would like to see the mix of ARR on platform versus off platform over the near to medium term?
You know, we don't have a forced mix. We aggressively go after as much new platform business and expansion platform business as we can get so that, you know, that is a strategic priority for us. At the same time, you know, we have so many customers who are involved with our legacy solutions and rely on us for that and renew those, you know, those deals that we continue to invest in features and functionality there. I think, you know, from our perspective, as long as that's neutral to growing very modestly, we're thrilled. Even if it were shrinking a little bit, it probably wouldn't bother us very much.
We're pretty happy with the mix the way it is, you know, with dramatic growth on the platform side and kind of flat growth on the legacy side.
Great. Thank you.
Our next question comes from the line of Jeff Meuler with Baird. Your line is open.
Yeah, thank you. Good afternoon. On B2B scores, what's the typical lag from when the bureau gets the inquiry to when it's recognized by FICO as revenue?
Six weeks.
And the reas-the, the reas-
Well-
The reason I ask is like.
Yeah.
It looks like you're seeing some acceleration in card growth relative to last quarter. Your delta versus industry credit inquiries within mortgage was a little bit wider this quarter than it was last quarter. Just trying to understand to what extent that's a timing difference or if there's some other factor that's accounting for that.
Yeah, Jeff, there really isn't a timing difference with one caveat. The last month of the quarter, the data that we get from the bureaus by the time we need to finalize it for closing the books, is tentative and subject to revision, I guess I would say. We have to make some estimates and accruals based on judgment and lots of past experience as to what that'll be. Occasionally there will be a little bit of a true up when we get the final data in there, but it's not material and it's not an explanation to the dynamic that, you know, you see in the data you just cited there. It's real time for June, with, you know, as I say, with that asterisk.
Okay. On myFICO, just so I understand it correctly, it's still growing year-over-year. Is that correct?
It's more or less flat on a quarter-to-quarter basis, which means it's still growing on a year-over-year basis. If you look at the, you know, the last couple of quarters, as Will mentioned, we're seeing a lot less net new, probably because less people are shopping for mortgages and, you know, that leads us to be cautious about the next couple of quarters of myFICO.
Understood. Yeah, the whole industry is seeing a much softer direct channel. I think if you're up year-over-year and flat sequentially, you're pretty significantly outperforming the industry's direct channel. Just on FICO World, you know, great to hear the registrations and that you're doing it again in May of next year. How is the pipeline build? I'd imagine that was a pretty significant pipeline-building event for you. It felt a little bit like a coming out party for platform, and you haven't had it for a few years, so I would think that it's actually a pretty big needle mover relative to the last couple of years. If you could just talk about pipeline builds coming out of FICO World.
Yes, that's exactly right. FICO World is several days of our showcasing our wares. But really the heavy relationship building occurs in these consultation sessions where we sit down with clients individually and really work through what we can do for them. The pipeline that comes out of FICO World is phenomenal.
Okay. Thank you.
Our next question comes from line of Ashish Sabadra with RBC Capital Markets. Your line is open.
Hi, this is John filling in for Ashish. Can you just talk about the slowing total software ARR growth in the quarter? Thanks.
Well, it's, you know, it's slowed by a relatively small amount, and I would attribute that to normal quarter-to-quarter variability. If you look at the 8+ quarters that we revealed for that metric when we introduced it in November, you can see that kind of quarter-to-quarter variation is commonplace. It's not a reflection of anything fundamental, I wouldn't say.
Understood. Thank you.
All that does conclude the Q&A session for today. Mr. Weber, I'll turn the call back to you. Please continue with your presentation or closing remarks. Thank you.
Thank you. Thank you to everyone for joining. We look forward to speaking with you again soon. This concludes today's call. Thank you.
All that will conclude the call for today. We thank you very much for your participation. You may now disconnect.