Earnings call transcript: Fair Isaac beats Q3 2025 expectations, stock reacts

Fair Isaac Corporation (FICO) announced its Q3 2025 earnings, reporting higher-than-expected results. The company posted a non-GAAP earnings per share (EPS) of $8.57, surpassing the forecasted $7.68. Revenue reached $536 million, exceeding the anticipated $515.33 million. According to InvestingPro data, FICO maintains impressive gross profit margins of 80.83% and received upward earnings revisions from 6 analysts for the upcoming period. The stock closed at $1,505.06, up 1.51% from the previous day, although it saw a slight dip of 0.34% in aftermarket trading.

Key Takeaways

• Fair Isaac reported a 37% increase in non-GAAP EPS year-over-year.
• Revenue grew by 20% compared to the same period last year.
• The company executed a record share buyback of $105 million.
• FICO launched innovative products, including FICO Score 10T and 10T BNPL.
• The stock experienced a post-earnings surge but faced minor aftermarket decline.

Company Performance

Fair Isaac demonstrated robust performance in Q3 2025, with both revenues and profits showing significant growth over the previous year. The revenue of $536 million marks a 20% increase year-over-year, driven by strong demand in both its Scores and Software segments. InvestingPro analysis shows the company maintains strong financial health with an overall score of "GOOD" and operates with a moderate level of debt. The company’s strategic focus on innovation and expansion in credit scoring technology has contributed to its competitive edge. Discover 14 additional exclusive insights about FICO’s performance with an InvestingPro subscription.

Financial Highlights

• Revenue: $536 million, up 20% YoY
• Non-GAAP EPS: $8.57, up 37% YoY
• GAAP Net Income: $182 million, up 44%
• Free Cash Flow: $276 million, up 34%
• Share buyback: $105 million, largest in company history

Earnings vs. Forecast

Fair Isaac’s Q3 2025 earnings exceeded expectations, with an EPS of $8.57 compared to the forecasted $7.68, reflecting an 11.59% surprise. Revenue also surpassed estimates, reaching $536 million against a forecast of $515.33 million, a 4.01% surprise. This performance continues the company’s trend of outperforming market expectations.

Market Reaction

Following the earnings announcement, Fair Isaac’s stock increased by 1.51% to close at $1,505.06. However, it experienced a slight decline of 0.34% in aftermarket trading. The stock currently trades near its 52-week low of $1,477.12, with a beta of 1.28 indicating higher volatility than the market average. The stock’s movement reflects investor confidence in the company’s strong financial results, tempered by cautiousness due to broader market conditions. Based on InvestingPro’s Fair Value analysis, FICO appears to be trading above its intrinsic value.

Outlook & Guidance

Fair Isaac raised its full-year revenue guidance to $1.98 billion, with a GAAP net income projection of $630 million and a non-GAAP net income forecast of $718 million. The company anticipates continued growth driven by platform expansion and AI innovation, particularly in its credit scoring models.

Executive Commentary

CEO Will Lansing highlighted the company’s leadership in credit scoring, stating, "We have the most predictive score. That’s the moat." He emphasized the widespread use of FICO scores, saying, "Our scores are being used more widely than ever." Lansing also addressed competition, noting, "We welcome competition and at some level, the way we go about running our business is unchanged."

Risks and Challenges

• Mortgage market challenges due to elevated interest rates.
• Potential shifts in credit scoring regulations.
• Competition from alternative scoring models like VantageScore.
• Economic volatility affecting consumer credit behavior.
• Innovation and technology integration risks.

Q&A

During the earnings call, analysts focused on the potential impact of the Federal Housing Finance Agency’s (FHFA) lender choice announcement. Executives expressed confidence in maintaining market leadership despite challenges in switching credit scoring models. Discussions also covered potential pricing strategies for mortgage scoring, reflecting the company’s proactive approach to market dynamics.

Full transcript - Fair Isaac and Comp Inc (FICO) Q3 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to FICO’s Third Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. Please note that today’s conference may be recorded.

I will now hand the conference over to your speaker host, David Singleton. Please go ahead.

Dave Singleton, Vice President of Investor Relations, FICO: Good afternoon, and thank you for attending FICO’s third quarter earnings call. I’m Dave Singleton, Vice President of Investor Relations, and I’m joined today by our CEO, Will Lansing, and our CFO, Steve Weber. Today, we issued a press release that describes financial results compared to the prior year. On this call, will also discuss results in comparison with the prior quarter to facilitate an understanding of the run rate of the business. Certain statements made in this presentation are forward looking under the Private Securities Litigation Reform Act of 1995.

Those statements involve many risks and uncertainties that could cause actual results to differ materially. Information concerning these risks and uncertainties is contained in the company’s filings with the SEC, particularly 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 at the company’s website, fico.com, or on the SEC’s website, sec.gov. A replay of this webcast will be available through 07/30/2026. I will now turn the call over to our CEO, Will Lansing.

Will Lansing, CEO, FICO: Thanks, Dave, and thank you everyone for joining us for our third quarter earnings call. In the Investor Relations section of our website, we’ve posted some financial highlights slides that we’ll be referring to during this earnings announcement. We had another strong quarter and are increasing our fiscal year 2025 guidance. As shown on page two of the third quarter financial highlights, we reported Q3 revenues of $536,000,000 up 20% over last year. We reported 182,000,000 in GAAP net income in the quarter, up 44% and GAAP earnings of $7.4 per share, up 47% from the prior year.

We reported $211,000,000 in non GAAP net income in the quarter, up 35 and non GAAP earnings of $8.57 per share, up 37% from the prior year. As shown on page 10, we delivered record breaking free cash flow of $276,000,000 in our third quarter. We continue to return capital to our shareholders through buybacks by repurchasing 284,000 shares in Q3. We repurchased over $05,000,000,000 of shares this quarter, the largest single quarter buyback in FICO history. In our Scores segment, as shown on page six of the presentation, our third quarter revenues were $324,000,000 up 34% versus the prior year.

While B2B scores was the key driver of growth, we also saw encouraging growth in B2C scores. FICO Score 10T is the most predictive broad based credit scoring model in The US industry today. Through our early adopter program, participating clients are already seeing measurable benefits. Even since the recent FHFA announcement, we signed our latest lender deal just last week, and we’ve now secured adoption from institutions representing over $313,000,000,000 in annualized mortgage originations and approximately $1,520,000,000,000 in eligible mortgage portfolios under servicing, all of which underscore the strong momentum and confidence in FICO Score 10T. Lenders in the program have been able to validate the power of FICO Score 10T in real world mortgage underwriting, in loan production, in execution and in servicing.

This quarter, we announced the launch of FICO Score 10BNPL and FICO Score 10TBNPL. These are the first credit scores from a leading credit scoring provider to incorporate buy now pay later data. These scores will provide lenders with greater visibility into consumers’ repayment behavior, enabling a more comprehensive view of their credit readiness, which ultimately improves the lending experience. And will expand financial inclusion by helping more consumers to gain access to credit. These scores will initially each be offered side by side with existing versions of the FICO score at no additional fee from FICO.

This approach allows lenders to evaluate the new BNPL enhanced credit scores while continuing to use FICO’s industry leading models that they use today, ensuring a seamless transition and added value. Lastly, our FICO Score mortgage simulator penetration is gaining speed in The U. S. Industry. We now have multiple resellers and mortgage technology platform providers, hundreds of active lenders and thousands of orders placed.

In our software segment, we delivered $212,000,000 in Q3 revenue, up 3% from the prior year. The revenue increase was driven mainly by growth in platform SaaS. We continue to drive growth in ARR and NRR through our land and expand strategy, with expand driven by increased customer usage. Pages seven and eight of our investor deck highlight the total ARR increased by 4%, with total NRR at 103%, both driven largely by the FICO platform. ACV bookings for the quarter were $26,700,000 compared to $27,500,000 in the prior year.

With the help of product innovations announced at FICO World, our pipeline is stronger today than this time last year. Before passing on to Steve, I’ll highlight our strong innovation in the software business. The FICO platform revolutionizes how organizations make decisions and apply intelligence across their customer lifecycle. Innovation is at the core of our ability to power an intelligent enterprise. This quarter we hosted FICO World, bringing together customers and partners from around the world.

Participants collaborated on how FICO platform makes real time decisions at scale and optimizes interactions with consumers. On main stage, we unveiled innovation, spotlighting advancements that will shape the future of decisioning and enterprise AI. We will bring next generation FICO platform, enterprise fraud solutions powered by FICO platform, and FICO marketplace to general availability in the 2025. These innovations will bring new use cases to the market. They will enable smarter explainable outcomes, they’ll improve performance, they’ll improve the speed of deployment, and yield better customer ROI.

On the AI frontier, we’ve leveraged our AI principles, trustworthy, ethical, explainable and responsible, and provided a sneak peek of the upcoming FICO Focus Foundation Model, the FICO Focus Language Model and FICO Focus Sequence Model built for financial services, delivering greater accuracy, explainability, and control in high stakes domains. This will be released for general availability this calendar year. Our industry analysts are delighted with our innovation. Forrester recently recognized FICO platform as the leader in AI decisioning platforms. This for the fourth time.

AI decisioning platforms transform how organizations operationalize both human intelligence and AI at scale, enabling faster, more accurate decisions across complex business processes. AI decisioning is an important enabler for Agentic AI,

Steve Weber, CFO, FICO: which is natively available in

Will Lansing, CEO, FICO: the next generation of FICO platform. Our partners continue to value our innovation. In the quarter, we signed a new strategic collaboration agreement with Amazon Web Services. Under the new agreement, FICO and AWS will amplify their work to bring more organizations worldwide the power of AI driven automated decision workflows with FICO platform. In addition, FICO will broaden its participation in AWS partner programs to accelerate client adoption of FICO platform.

Let me now pass it over to Steve to provide further financial details.

Steve Weber, CFO, FICO: Thanks, Will, and good afternoon, everyone. As Will mentioned, we had another good quarter with total revenue of $536,000,000 an increase of 20% over the prior year. SCOR segment revenues for the quarter were $324,000,000 up 34% from the prior year. B2B revenues were up 42%, primarily due to higher unit prices, an increase in volume of mortgage originations and a multi year U. S.

License renewal on our insurance core product. Our B2C revenues were up 6% versus the prior year, primarily due to increased revenue from our indirect channel partners. Third quarter mortgage revenues or originations revenues were up 53% versus the prior year. Mortgage origination revenue accounted for 53% of B2B revenue and 44% of total scores revenue. Auto originations revenues were up 23%, while credit card personal loan and other originations revenues were up 3% versus the prior year.

Software segment revenues for the quarter were $212,000,000 up 3% from the prior year. On premises and SaaS revenue grew 2% year over year, while professional services grew 7%. This quarter, eighty seven percent of total company revenues derived from our Americas region, which is a combination of our North America and Latin American regions. Our EMEA region generated 8% of revenues and the Asia Pacific region delivered 5%. The updated guidance we’re releasing today assumes fourth quarter revenues of $5.00 $5,000,000 This is down sequentially due to lower point in time revenues, including insurance Scores licenses and software licenses.

We also expect Scores originations volumes to be slightly lower due to seasonality, as well as the sequential decline in EPS revenues. Our total software ARR was $739,000,000 a 4% increase over the prior year. Platform ARR was $254,000,000 representing 34% of our total Q3 ’twenty five ARR, up from 30% of total Q3 ’twenty four ARR. Platform ARR grew 18% versus the prior year, while non platform declined 2% to $485,000,000 this quarter. Our CCS business, which spans both platform and non platform, saw a slight uptick sequentially, but overall headwinds we highlighted last quarter continue to be present putting pressure on year over year ARR growth.

Our platform land and expand strategy continues to be successful. Our dollar based net retention rate in the quarter was 103%, platform NRR was 115%, while our non platform NRR was 97%. Platform NRR was driven by a combination of new use cases and increased usage of existing use cases. Our software ACV bookings for the quarter were $26,700,000 compared to $27,500,000 in the prior year. Turning now to expenses for the quarter, as shown on Page five of the financial highlight presentation, our total operating expenses were $274,000,000 this quarter versus $253,000,000 in the prior quarter, an increase of 8%.

Quarterly expense growth was driven primarily by our FICO World event. Two other expense drivers were incremental headcount, as well as the marking to market of our supplemental retirement and savings plan, which is offset in other income and expense and thus has no net impact to our net income. In our fourth quarter, we expect increased interest expense. We also expect to have increased marketing expenses as well as some one time items that could exceed $10,000,000 These expenses are all embedded in our updated guidance. Our non GAAP operating margin is shown in our Reg G schedule, was 57% for the quarter compared with 52% in the same quarter last year.

This means we were able to deliver non GAAP margin expansion of four seventy basis points year over year. GAAP net income this quarter was $182,000,000 up 44% from the prior year’s quarter. Our non GAAP net income was $211,000,000 for the quarter, up 35% from the prior year’s quarter. GAAP earnings per share this quarter were $7.4 up 47% from the prior year. Our non GAAP earnings per share were $8.57 up 37% from the prior year.

The effective tax rate for the quarter was 23.3%. The operating tax rate was 24.6%. We expect our full year net effective tax rate to be around 20% and our recurring tax rate to be around 25%. This quarter we delivered very strong free cash flow of $276,000,000 a 34% increase from the prior year. Over the last four quarters, we’ve delivered $748,000,000 of free cash flow, which represents an increase of 36% over the trailing twelve month period ending 06/30/2024.

At the end of the quarter, we have $240,000,000 in cash and marketable investments. In May, we issued an eight ks detailing our debt refinancing. Our total debt at quarter end was $2,780,000,000 with a weighted average interest rate of 5.25%. As of 06/30/2025, all our debt was held in senior notes with no term loans and no balance on a revolving line of credit. So at that time, 100% of our total debt was fixed rate.

Turning to return of capital, we bought back 284,000 shares in the third quarter at an average price of $18.00 $2 per share, and we continue to view share repurchases as an attractive use of cash.

Will Lansing, CEO, FICO: With that, I’ll turn it back to Will for his closing comments. Thank you, Steve. Elevated interest rates and ongoing affordability challenges continue to weigh in the mortgage market, keeping loan originations below historical norms. While the macro environment remains fluid, our strategy, our innovation, our execution remain disciplined and consistent. I’m pleased to report that today we’re raising our full year guidance as we enter the fourth quarter of our fiscal year.

Revenue guidance will remain at $1,980,000,000 GAAP net income guidance is $630,000,000 with GAAP earnings per share of $25.6 Non GAAP net income guidance is $718,000,000 with non GAAP earnings per share of $29.15 Before we take questions, I’d like to discuss the interim FHFA decision and how we are engaging with the industry. First, I’d like to emphasize that the FICO score is the industry standard measure of consumer credit risk in The US. The FICO score is the backbone of safety and soundness in the mortgage industry. Over the last thirty years, the FICO Score has fundamentally transformed the mortgage industry, enhancing stability and liquidity in secondary markets, standardizing credit evaluation for investors, expanding fair and objective access to credit, and empowering cost effective and sustainable homeownership for Americans. FICO scores are used across The US and internationally for more than just mortgages.

In The US, 99% of all FICO scores are freely chosen by market participants outside the mortgage market. In the non conforming mortgage market, FICO is also widely used. Classic FICO was specified over twenty years ago for use by the GSEs while they were publicly traded companies and before the FHFA even existed. As the mortgage industry standard, thousands of industry participants use models incorporating classic FICO. FICO scores are critically relied on throughout the mortgage credit ecosystem.

In mortgage insurance, in underwriting, in pricing models, in investor credit risk and prepayment models, in models used by the GSEs, in those used by mortgage insurers, by investors and prudential regulators for capital requirements, and by credit rating agencies for mortgage backed securities ratings. Therefore, FICO is critical to driving investor pricing of mortgage backed securities and ultimately the cost consumers pay. Our innovations are best in class, including our latest innovation FICO 10T, FICO 10T BNPL and the FICO Score mortgage simulator. As you all know, FICO 10T was approved by the FHFA and remains the most predictive general purpose credit scoring model in The US. While previous FICO Score versions included rental, telco and utility data, FICO 10T also now includes trended data.

During the process required by the Credit Score Competition Act, the GSEs originally concluded based on predictiveness and accuracy that FICO 10T significantly outperforms VantageScore four point zero. We join a longstanding industry demand that FHFA released that analysis and the recommendation of each of the GSEs publicly as part of this process in the spirit of transparency and responsible policymaking. We recently posted a white paper that reached the same conclusion, which can be found on our website. As for lender choice, the FHFA has long rejected the practice because it undermines the safety and soundness of the enterprises and their counterparties, damaging liquidity in the $12,000,000,000,000 mortgage industry. Lender choice encourages mortgage participants to shop for the most lax score, which drives unavoidable gaming and adverse selection for all risk holders.

It creates a race to the bottom by incentivizing score providers to weaken their credit decision criteria to score more consumers and win more business with their score, which will lead to increased costs for consumers. Lender choice will result in higher capital requirements from regulators that the holders of mortgage risk will have to bear, and American taxpayers will bear significant additional risk. Any initiative to promote competition and ultimately lower costs should include the best score, which is FICO Score 10T. FICO Score 10T’s superior predictiveness will drive significant loss avoidance savings for market participants and billions of dollars of savings for consumers. Lastly, so long as there are Tri Merge mandate coupled with the credit bureaus common ownership advantage score, lender choice will harm competition rather than foster it, because it further entrenches the credit bureau’s market power.

In speaking to numerous market participants since the FHFA announcement, it’s clear there are many significant outstanding questions by the industry. FICO will continue to remain engaged with market participants, the GSEs, the FHA, FA and other stakeholders. With that, let me turn this call back to Dave and we’ll open up the Q and A session.

Dave Singleton, Vice President of Investor Relations, FICO: Thanks, Will. This concludes our prepared remarks. We’re now ready to take questions. Operator, please open the lines.

Conference Operator: Thank you. And our first question coming from the line of Manav Patnaik with Barclays. Your line is now open.

Manav Patnaik, Analyst, Barclays: Thank you. Will, I just wanted to touch on Cycle 10 t again. I think you said you had customers already using it, adding to about 313,000,000,000, I think, is what you said. I was just wondering how many customers are using it. You know, what is the pipeline for that?

And is it do they have to I guess, what I’m getting at is do they have to upgrade their systems in order to use FICO 10 t? Is it another side by side workflow at the moment? Just hoping for some, you know, color on the speed of adoption if FICO 10T were to be pushed in the market again.

Will Lansing, CEO, FICO: All good questions, Manav. I’d have to get back to you with the exact number of customers. But I would tell you that the pipeline is strong. There’s customers testing it now. There’s customers who are using it now.

There’s a certain amount of retooling required, but it is modest.

Manav Patnaik, Analyst, Barclays: Okay. And then maybe just as a follow-up, the insurance core product that had the renewal this quarter, can you just remind us what that is and if there’s a bunch of these that could occur over time or is this one off?

Steve Weber, CFO, FICO: Yeah, Manav, this is Steve. I’d say that’s a one off. We have some insurers that use FICO scores in their underwriting processes. And this was just a license deal over multi year that we claim in the quarter that we signed it. So this is kind of a one off.

Manav Patnaik, Analyst, Barclays: Okay. Thank you, guys.

Conference Operator: Thank you. Our next question coming from the line of Jason Haas with Wells Fargo. Your line is now open.

Jason Haas, Analyst, Wells Fargo: Hey, good afternoon, and thanks for taking my questions. I’m curious, following the FHFA announcement, if you’ve seen any lenders start to move over to VantageScore. Curious if you could describe maybe some of the technological challenges that they may face along the way, if that’s something you’ve heard of. Thank you.

Will Lansing, CEO, FICO: We are not aware of anyone moving to VantageScore since the announcement. There are significant challenges kind of at every step of the way. With the FICO score, has been in place now for over twenty years, virtually every participant in the industry has built models and infrastructure around that score. It’s the only score that has actually been in use and therefore for which we have data going through a full economic cycle, including 02/2008, the downturn. And so anytime you make any kind of a move away from that, you have to think through what are the implications for remodeling.

And I’m talking about everything from consumers to mortgage originators, to lenders, to the government sponsored entities, to Fannie and Freddie, and on downstream to the securitization market, the mortgage backed securities players and the mortgage insurers, CTI, and ultimately the prudential regulators. All of these participants or nearly all of them have models that are built and have the risk assessment understood around the FICO score. And so it’s not a simple thing to just swap three digits out and swap new three digits in, it really isn’t that simple. So I would say there’s significant obstacles. And I think that’s why the industry has a lot of concerns and is thinking through under what circumstances, how it could work.

Jason Haas, Analyst, Wells Fargo: Thank you. That’s very helpful explanation. In light of that, is there any change in terms of how you’re thinking about where you can take mortgage score prices over time, given it’s been years where the pricing of what you charge the mortgage scores is beneath the value that’s providing

Analyst: to the ecosystem? So is

Jason Haas, Analyst, Wells Fargo: there any change in the thought about how you can normalize that going forward?

Will Lansing, CEO, FICO: I think probably everyone on this call is curious about what’s FICO’s pricing strategy going forward in light of some of the pronouncements from the FHFA. Here’s what I would say to you. First of all, no decisions have been made. We make our decisions about pricing towards the end of our fiscal year and they go effective Jan one of the subsequent year. So it’s early days still.

What I would say is that we continue to believe that there’s a pretty big value gap between what we charge and the value that we provide. And so we’re always looking at how we’re gonna close that gap. And we don’t wanna do it in a reckless way. We don’t wanna do it in a rapid way. We wanna do it in a very understandable, predictable way, so that, you know, the the people affected can can budget for it and see where it’s going.

And so we, you know, we we continue to be committed to that philosophy on price change. You know, I would just say, I’m not sure how much different the world is today after these pronouncements because we have been competing with VantageScore virtually everywhere for the last fifteen years, and we remain the industry standard for all kinds of good reasons. So obviously, mortgage is an important business for us, and a lot of people focus on mortgage pricing. But we welcome competition and at some level, the way we go about running our business is unchanged.

Jason Haas, Analyst, Wells Fargo: That’s very helpful. Thank you.

Conference Operator: Thank you. Our next question coming from the line of Simon Klintch with Rothschild and Company, Redburn. Your line is now open.

Simon Klintch, Analyst, Rothschild and Company, Redburn: Hi, everyone. Thanks for taking my question. I was wondering maybe if you could expand a little bit more on Jason’s last question actually, but more in terms of your approach to engaging with regulators right now and how you’re thinking about what is the best pathway of that engagement for the benefit of FICO shareholders and the industry? And has any of that has that approach changed at all?

Will Lansing, CEO, FICO: Well, so, you know, we have always been relatively close to the people at FHFA and at the GSEs at Fannie and Freddie, because they rely on our data, they build models around the FICO score, they’re interested in the innovations coming along. And frankly, we’ve just been through a multi year process in which they were deeply involved in evaluating the benefits of FICO score 10T. And so those relationships are in place and the communication is there. And I would imagine that would continue. With respect to other industry participants, I believe that there’s a lot of industry input still to come on the latest recommendations.

Because we went through this multi year process with a lot of industry input with all kinds of evaluation analysis. And this is a fairly rapid reversal of the conclusions that that process brought us to. And so I think quite a few members of the industry have been persistence in the industry have been take it a little bit by surprise. But I’m confident that given the importance of safety and soundness in the industry and the importance of the mortgage market in The United States, that rash things will not occur, but that careful, thoughtful, measured analysis and evaluation will occur. And so some of the problems that we’ve been pointing out around gaming and adverse selection and risk to safety and soundness, I don’t imagine that those issues will be ignored.

Imagine that they have to be wrestled with and evaluated. And so we participate in that, but frankly, it’s not just a FICO thing. It’s really the whole industry.

Simon Klintch, Analyst, Rothschild and Company, Redburn: Yeah, appreciate that. That’s very useful. Thank you, Will. Just as a follow on question then. I mean, just theoretically, should we think about the value gap potential in your other categories outside of mortgages and the ability for those areas, those segments to

On Lau, Analyst, Oppenheimer: take on the

Simon Klintch, Analyst, Rothschild and Company, Redburn: heavy lifting, so it were, pricing in mortgages were to slow down compared to what we’ve been used to?

Will Lansing, CEO, FICO: Every year, we look at everything. Do billions and billions and billions of scores per year. And each year as we think through our growth strategy, we think about different parts of the market. And that continues this year as it has in every year over the last decade. So again, no real change in terms of do we look broadly across the portfolio to see where the growth opportunities are.

So I think that’s largely the same.

Steve Weber, CFO, FICO: Okay, great. Thanks very much.

Conference Operator: Thank you. And our next question coming from the line of Faiza Alwy with Deutsche Bank. Your line is now open.

Faiza Alwy, Analyst, Deutsche Bank: Yes. Hi. Thank you. I wanted to ask about the software business. Maybe, you know, how’s the feedback then on the next generation launch of the platform?

And, you know, how do you expect sort of bookings to to trend from here and just what the general demand environment is like?

Will Lansing, CEO, FICO: We continue to grow nicely. We continue to have customers very interested in the platform. We’re bringing them on. I think that we’re not completely immune to the care that goes into IT spend right now. But we feel pretty good.

We’re not growing at the rate we were over the last forty quarters. We’re more like the rate we have been the last several quarters. I continue to hope that that’ll tick upward. I mean, I would love to see us growing in the 20s in the platform. And our bookings feel pretty good.

And so from a visibility standpoint, we think that’s potentially achievable. So we’ll have to see.

Faiza Alwy, Analyst, Deutsche Bank: Okay, got it. And then just wanted to ask about the auto b to b origination revenue, saw a nice acceleration from last quarter. And I’m curious if there was you know, if you saw higher volumes, maybe it was customer mix. I know you took some pricing. So maybe talk about some of the feedback that you’ve gotten on the pricing and what led to that acceleration and growth.

Dave Singleton, Vice President of Investor Relations, FICO: Yeah. I mean, there’s a most of

Steve Weber, CFO, FICO: it’s related to pricing. Obviously, we had some pricing there. There was a little bit of a growth on the volume side as well, but most of it’s related to pricing. I don’t think it was a significant shift in mix. We have seen in the past sometimes the mix shift between the different tiering levels can have an impact.

There wasn’t a lot of that. It’s primarily just a combination of price and volume.

Faiza Alwy, Analyst, Deutsche Bank: All right. Thank you.

Conference Operator: Thank you. And our next question coming from the line of Jerstow with Goldman Sachs. Your line is now open.

Dave Singleton, Vice President of Investor Relations, FICO0: Hi, thanks. Good afternoon. Given the FHFA’s decision to move to a lender’s choice for mortgages, how much of a priority is it to drive industry migration to FICO 10T, which could be facilitated by the release of historical benchmarking data, or would you rather see the industry stay with classic FICO to minimize disruption?

Will Lansing, CEO, FICO: I think that that’s going to be a decision made by the industry. FICO 10 T is available. It’s been approved by the FHFA. There are lenders using it today. And we imagine that will continue.

It really is far and away the most predictive score. So if you’re in the risk business, if you actually retain any kind of risk, you care about these things. And so I think that leads us to a pretty bright and rosy future for 10T. That said, there’s a lot of reasons why in parts of the industry where in what we call FICO classic. And that’s likely to continue for quite a long time.

It’s I mean, that is a highly tuned optimized score developed over twenty years with twenty years of models built around it with all the historical data that you could possibly need. And so I don’t imagine the switch away from PIPO Classic will be rapid. But but, you know, to the extent that you have people who bear the risk, care about the risk, 10 t is a pretty good alternative.

Dave Singleton, Vice President of Investor Relations, FICO0: Got it. That’s helpful. And then switching to the to the software side, if you look at FICO platform ARR growth that accelerated a bit to 18% in the quarter. Can you elaborate on some of the trends that you’re seeing there with respect to client adoption, new client adoption and client consumption trends that can drive further growth acceleration?

Will Lansing, CEO, FICO: We have always believed that what would happen with the platform adoption is we would initially penetrate a large number of the top 300 global financial institutions. And then the growth would shift as a percent of the total, the growth would shift more to expand. So we have very much a land and expand strategy. And over the last several years, as you know, we’ve now penetrated roughly half of the top 300 financial institutions globally. And so it’s not surprising to us, it’s exactly per our plan that the shift is now coming more in the direction of a bit more expand business and not quite as much land business.

That’s not to say that we don’t win new customers, we are. But the customers who’ve been using it for a while, they very much expand their usage. And so we’re seeing more revenue there.

Dave Singleton, Vice President of Investor Relations, FICO1: Very helpful. Thank you.

Conference Operator: Thank you. And our next question coming from the line of Surinder Thind with Jefferies. Your line is now open.

Dave Singleton, Vice President of Investor Relations, FICO2: Thank you. Just building upon some of the FICO 10T questions, Will, can you talk about for the clients that have been willing to adopt the score, I assume it’s mostly in the nonconforming market, can you talk about the, I guess, the decision in the sense that is all of the data out there that you need to make a decision given that obviously you’re asking for public release of some of the benchmarking data of like, why upgrade to 10T now versus maybe waiting a little bit?

Will Lansing, CEO, FICO: Well, we would like to see the FHFA and the GSEs release the data in the evaluation process that led to 10T being identified as the most predictive score in the market. We’ve obviously done that analysis independently and we’ve put it into a white paper, which you can find on our website. There are some pretty significant advantages to 10T. It’s more predictive, it has higher KS. What does that translate into?

It translates into lower credit defaults than you would get with classic FICO and lower credit defaults than you would get with VantageScore. So there’s a real benefit that comes with it. And yet, it’s a new score and so it takes time to adopt and there’s all the transition issues that go with that.

Dave Singleton, Vice President of Investor Relations, FICO2: That’s helpful. And then just following up in terms of the next generation of the FICO platform going GA in the second half here. Can you talk about the update process? So, if you’re an existing FICO platform customer, what is the update process and what is the benefit of moving to the new platform at this point?

Will Lansing, CEO, FICO: I think that the transition for existing platform customers to the new FICO platform will be very straightforward. Seamless is probably an overstatement, but straightforward because we plan for it. And that will work nicely. I think that the benefits of the platform are more realized around the returns to scale that we get. If we have a lower cost structure in serving our customers, that’ll translate into lower pricing for them.

And I think those are some of the benefits. There’s definitely a cost benefit. And then the new platform has a lot of new features and ease of use. And so I think you’ll see some of that. I think our customers, existing platform customers and new ones will be delighted with the new platform.

Dave Singleton, Vice President of Investor Relations, FICO2: Thank you.

Conference Operator: Thank you. Our next question coming from the line of Ashish Sabadra with RBC Capital Markets. Your line is now open.

Analyst: Thanks for taking my question. I just wanted to drill down on opportunities for using FICO scores at, having more use cases of FICO scores or using it and more, places within the processes where it may currently not be used. Like, for example, securitization market, where they may not have access to real time FICO score. So is that an opportunity? How should we think about that opportunity presenting itself?

Thanks.

Will Lansing, CEO, FICO: Well, thank you for that question. We’re always looking for ways to provide more value and benefit to our customers and to potential new customers. And an obvious place for us to do it is to give the securitization market, the downstream investors, the ability to refresh the score. And so today, the pricing and models are typically built around the score that was used when the mortgage loan was originated. But over time, that becomes a stale score.

Over time, it’s frozen. It’s not dynamic. And so we are very much looking at how we would be able to deliver to the securitization market, the ability to refresh those scores.

Analyst: That’s very helpful color. And then just, going back to the mortgage score question, the nonconforming market doesn’t really, are are near are not bounded by the GSE requirements. However, most of them continue to use FICO or FICO ten t. And so I was just wondering what are the moats around the business? And then in an in in the event that if there is a lender’s choice for the GSE, could that affect the non GSE market?

Thanks.

Will Lansing, CEO, FICO: Well, so it’s funny how people talk about moats around the FICO business. I mean, what is the moat really? The moat is that we have the most predictive score. That’s the moat. I mean, if you’re in the business of measuring risk, and you benefit when you reduce the risk, and you suffer when the risk comes home to roost, you want the most predictive score.

You want to avoid as much credit default as possible. That’s what you achieve with FICO 10T. And with respect to FICO classic, I would say it’s also very, very good. And it’s not just very good for a twenty year old score, it’s very, very good in absolute terms. Not as good as FICO 10T, but still very, very good.

And has the advantage of having been the backbone of the system for all this time. And so it’s extremely well understood all the models, everything’s optimized around it. And that’s truly the mode. It’s some government conferred monopoly. That’s what makes us successful.

Analyst: That’s great color. Thanks. Thanks, Will.

Conference Operator: Thank you. Our next question coming from the line of Kyle Peterson with Needham. Your line is now open.

Dave Singleton, Vice President of Investor Relations, FICO3: Great. Good afternoon, guys. Appreciate taking the question. I want to start off with your thoughts on capital allocation. It does seem like you guys have kind of stepped up the pace of the buyback.

It seems like things are dislocated here. Given where the stock is and what your cash flow is like now, do you guys anticipate you being able to kind of continue to buy back at an accelerated pace? Or how are you guys looking at capital allocation, specifically buyback versus debt pay down at these levels?

Will Lansing, CEO, FICO: Kyle, thanks for that. We’ve always believed that we should run FICO with kind of an optimal capital structure and not have on hand more cash than we need. And we’ve historically returned it through share buyback, and I would expect that will continue. We’ve obviously done a lot in the last quarter, but we’ve done a lot in the last thirteen years. And that’ll continue.

We say that we’re not market timers. We target spending our free cash flow on stock buyback each year. But over a period of time, that results in the leverage dropping to levels that are unacceptably low. And so periodically, we dial up the amount we buy back to maintain kind of a healthy level of leverage somewhere between two and three times. We also are mindful of corrections in the stock price.

So when you see things like what’s occurred over the last couple of months, that represents a big opportunity. And so do we lean into that? Of course, we do. And you can see it in the buyback phase that we had over the last quarter. We have a lot of dry powder, lot of capacity.

And although we’re not going to spend it all in one week, we’re buyers at this level.

Steve Weber, CFO, FICO: Yeah, and Kyle, I would just add, if you look at what our leverage is today, it’s still pretty modest by historical standards. It’s even down a little bit from last quarter. So there’s a lot of opportunity for us.

Dave Singleton, Vice President of Investor Relations, FICO3: Okay. Okay. Yeah, that is really helpful. And I guess just a little bit on how you guys are kind of thinking about the environment right now. Are you guys still kind of thinking has anything changed, I guess, like, would say whether it’s in terms of

Steve Weber, CFO, FICO: Kyle, we lost you. Yeah, I think we lost Kyle. I think we lost Kyle.

Will Lansing, CEO, FICO: We lost the second half of that question.

Dave Singleton, Vice President of Investor Relations, FICO: Was going say, I operator, we can just go to the next question, and we’ll see if Kyle jumps back in the line. Sure.

Conference Operator: Our next question in queue coming from the line of On Lau with Oppenheimer. Your line is now open.

On Lau, Analyst, Oppenheimer: Good afternoon, and thank you for taking my question. So follow-up on that moat question, Will, could you please talk about other markets such as credit card, auto, and personal loan when there’s no requirement from anyone? Do you see any traction that VantageScore VantageScore is gaining any market shares?

Will Lansing, CEO, FICO: No, no, it’s a good question. And we do not see any traction of VantageScore gaining market share. As I mentioned earlier, we’ve been competing with VantageScore for a very long time, well over a decade. And we have not experienced any kind of significant share loss to Vantage. And I would say that’s because of the two things that we talked about before.

One is that we have the best score. And second, that there’s a lot of benefit to working with the industry standard, is FICO.

On Lau, Analyst, Oppenheimer: Got it, that’s helpful. Just if lenders were to move to VantageScore, usually how long does it take for lenders to switch over? Can I do it within one or two years or it will take longer than that? Thanks.

Will Lansing, CEO, FICO: That’s a question no one can answer because it hasn’t happened.

Steve Weber, CFO, FICO: All right, good. Thanks a lot.

Conference Operator: Thank you. Our next question coming from the line of Jeff Meuler with Baird. Your line is now open.

Steve Weber, CFO, FICO: Yeah, thank you. Hey, Will, what are you being told is kind of the next steps for Penn T usage for conforming? Or what are you getting asked to do from your end to make that happen?

Will Lansing, CEO, FICO: Well, I think it’s up to the FHFA to decide to implement. And I think from an industry standpoint, I don’t think you want to stagger implementations of multiple scores because it requires much more complicated retooling on the part of the industry. So I would imagine that we’re going to get to a point where 10T is not just approved but implemented sooner rather than later. So we’ll see. We’re in a conversation with the FHFA about how to make that happen.

Steve Weber, CFO, FICO: Okay. Thank you.

Conference Operator: Thank you. Our next question coming from the line of Ryan Griffin with BMO Capital Markets. Your line is now open.

Dave Singleton, Vice President of Investor Relations, FICO1: Hey, thanks a lot. You made a comment on ACV bookings pipeline being stronger than last year. I was just wondering what’s driving that and how we should expect that to flow through to bookings. Thank you.

Steve Weber, CFO, FICO: I think a lot of it’s coming We’ve developed a lot of new functionality, as we’ll talk about, and there’s a lot of excitement at FICO World. So with that coming online, it strengthened our pipeline. We see a lot of people that see the advantage of the current platform. And with the new version coming online, they’re excited about that.

So we think there’s just a lot of industry understanding it more and having more proof cases. At FIPER rule, we had a lot of companies get up and talk about how they’ve been successful using the platform. So you end up at a point in time where you could start to gain some momentum, and that’s what we’re seeing now.

Dave Singleton, Vice President of Investor Relations, FICO1: Great, thank you. And then just on the Amazon partnership, wondering what the mechanics are for that and how you expect that to impact the distribution model and bookings going forward? Thank you.

Will Lansing, CEO, FICO: A little early to say. I mean, you know, we’re optimistic. Every one of these things helps us, but we’ll just have to see how that plays out.

Conference Operator: Thank you. And our next question coming from the line of Alexander Hess with JPMorgan. Your line is now open.

Dave Singleton, Vice President of Investor Relations, FICO4: Hey, guys. Just wanna piggyback off of, I think it was Jeff and George’s questions from earlier. We’re about a year removed from VantageScore providing the loan level data set to the banks. And my understanding was that was a prerequisite for them getting their score approved. Are you guys, for some reason, hesitant to provide that data to the banks?

Or is the FHFA is there some sort of negotiating with the FHFA on what that looks like? I’m just not quite clear as to why FICO 10D doesn’t have a dataset like that in the market.

Will Lansing, CEO, FICO: We are working with them to get the data out.

Dave Singleton, Vice President of Investor Relations, FICO4: Got it. That’s super helpful. And then just maybe as a maintenance question, I think you guys have said in the past that the mortgage scores are less than 1% of scores and that’s presumably GSE and non GSE channels. Can you sort of give us a sense of how many scores are being generated on an annualized basis now? And where you’ve seen particularly strong adoption in volumes and over the last, say, two, three years?

Will Lansing, CEO, FICO: Are you talking about mortgage or across the board?

Dave Singleton, Vice President of Investor Relations, FICO4: No, I’m talking across the board. Excuse me.

Will Lansing, CEO, FICO: Across the board. Mortgage volumes across the board are down from the peak. Not down as much as in mortgage elsewhere, but down some, which gives us a lot of optimism about volume growth going forward, particularly in a declining rate environment if that ever happens. So think there’s upside there. I’m not sure exactly what you’re getting at.

Dave Singleton, Vice President of Investor Relations, FICO: No, his question is about adoption of scores just in general, like credit card, personal loan, all the different places? And what have we seen over the last few years in terms of adoption and So

Will Lansing, CEO, FICO: our scores are being used more widely than ever. We introduced new scores. We have all kinds of new scores based on alternative data. We talked about the BNPL score. We have scores that are built around telco and utility payment data off the Equifax NCTUE plus database.

So we’re finding adoption of additional scores. And scores are being used more frequently than they were in the past in things like account management. So it’s it’s not just like the scores volume goes up and down with GDP. I think that it’s fair to say that, you know, we’re finding new uses and expanding market for scores.

Dave Singleton, Vice President of Investor Relations, FICO4: Great. That’s super helpful. Thank you so much.

Conference Operator: Thank you. Our next question coming from the line of Scott Wernsell with Wolfe Research. Your line is now open.

Dave Singleton, Vice President of Investor Relations, FICO0: Hey. Good afternoon, guys, and thank you for taking my question. I just had one on the on the pricing side in light of this all the Vantage and FHFA stuff. I mean, is there a world where you would potentially consider having different pricing conforming versus non conforming mortgage, given your share in the non conforming market relative to Vantage right now and the potential uncertainty on what happens in the conforming market? Thanks.

Will Lansing, CEO, FICO: Yeah. I think that everything is always under review. I mean, are many, many other pricing models besides the ones that we’ve used historically. And so we look at everything. And, you know, there probably are models that we don’t use that would be better for everybody, that’d be better for the industry.

But again, because it’s such a big and important industry, you don’t make any kind of changes rashly. You know, you study them and you figure out whether it’s gonna work. And the last thing we want is unforeseen consequences. And so although we’ve evaluated many, many other pricing models, and obviously that includes pricing differently in different markets, but but it also goes to structure of how we price and how the IP is used and how the IP is monetized. We look at it all the time, but I think whatever we discover, and we discover some pretty interesting things, we think about implementing with quite a big measure of caution.

Dave Singleton, Vice President of Investor Relations, FICO0: Great, thanks guys.

Conference Operator: Thank you. Our next question coming from the line of Matthew O’Neill with Feet Partners. Your line is now open.

Dave Singleton, Vice President of Investor Relations, FICO1: Yes. Hi. Thanks so much. I’ll try to avoid a subsequent pricing question here. So I was just wondering, I don’t think I missed it, but would you be willing to give us the numbers around the one time license renewal just for modeling purposes going forward?

Steve Weber, CFO, FICO: No. We don’t separate that out, but you can take a look at our overall numbers in terms of how much point in time revenue we had that’s in the queue. That’s included in that number. So you can kind of look at it that way. I mean, it’s a pretty significant number for this quarter.

Dave Singleton, Vice President of Investor Relations, FICO1: Got it. Thanks. And I guess just as a follow-up more broadly on guidance, what’s implied for fourth quarter versus where consensus sits today. There’s a little bit of a delta there. Obviously, I know you’re not guiding to consensus.

Just curious how you think about the opportunities to outperform in the last fiscal quarter and what could go right or what degree of macro conservatism is built into the remainder of the FY guide here? Thank you.

Dave Singleton, Vice President of Investor Relations, FICO: We only got two months

Steve Weber, CFO, FICO: to go, so there’s not a whole lot of uncertainty. We guide what we guide. We’re pretty confident in that. And if I was to say something else, then it wouldn’t really be guidance anymore. So that’s the number we put out there.

And again, when we guide for the full year, there’s a lot of things that can happen. But when you’re only guiding with a couple months left, there’s not nearly as much uncertainty.

Dave Singleton, Vice President of Investor Relations, FICO1: Totally fair. Thanks a lot.

Conference Operator: Thank you. And our next question coming from the line of Greg Huber with Huber Research Partners. Your line is now open.

Dave Singleton, Vice President of Investor Relations, FICO5: Great, thank you. A couple of questions I could ask. In your Scores segment here, I just wanted to understand a little bit better about the expense growth here year over year, about 39%, up about 23%, 24% sequentially. Is there any extra maybe internal investment spending going on there that you can talk about publicly? Just curious why it’s up so much.

I thought this was largely a pretty fixed cost model here, but any elaboration

Steve Weber, CFO, FICO: on terms?

Will Lansing, CEO, FICO: You just

Steve Weber, CFO, FICO: ask that again? You’re talking about revenue or the expense?

Dave Singleton, Vice President of Investor Relations, FICO5: The expenses within your scores segment are up, as you know, roughly 39% year over year or 23, 24% sequentially. Why is that?

Will Lansing, CEO, FICO: The biggest piece biggest piece of expense in our scores business is in our b to c business where we actually have a cost of goods sold higher cost of goods sold. You know, we have to pay for credit file and data. And so as that grows, you know, you’re gonna see a little bit of of movement on the expense side. Apart from that, I can tell you that we are we’ve hired more people, and we’re doing a lot more innovation there than ever before. And so that also drives a bit of expense, but not enough to move the needle dramatically.

Steve Weber, CFO, FICO: Yeah. I think one of the things you’ll see there is that it’s a relatively low cost model. So when you have some additional incremental cost, it can skew the numbers because, again, because the margins are so high.

Dave Singleton, Vice President of Investor Relations, FICO4: But it is a fairly

Steve Weber, CFO, FICO: fixed cost model except for the B2C piece, which

Dave Singleton, Vice President of Investor Relations, FICO5: But do you guys think in general this new expense level in scores here, all else being equal in the environment and so forth, that you might repeat that again in the subsequent quarters, or is it dip back down? Sounds like it’s going to be at the higher level here.

Steve Weber, CFO, FICO: Yeah, we’re probably at a higher level. Again, it’s not all that significant in the scheme of things, but it’s going to fluctuate a little bit. We’re putting some more money into marketing, particularly on the B2C side. We see some opportunities there that we’re pursuing, and that’s what’s driving the biggest portion of it. Again, because we think we did some testing I think we talked about this in previous quarters.

We did some testing on this last year, and we saw there’s a pretty big payback on this. So we’re willing to invest a little more heavily in this because it drives some pretty good growth on the B2C side.

Dave Singleton, Vice President of Investor Relations, FICO5: And to my unrelated question, please, can you share with us what you think your market share is for FICO scores in auto credit cards, say, and personal loans, and also non conforming mortgages? What do you think your market share is?

Steve Weber, CFO, FICO: Yeah, I mean, there’s been external third party analysis down on this. And it’s in the mid-90s probably.

Will Lansing, CEO, FICO: If you look at securitizations that take place, it’s very high.

Steve Weber, CFO, FICO: It’s in the high 90% range. It’s hard to come up with exact numbers on this because it’s not really reported anywhere. But from third parties that have done the actual work on this, it’s a pretty high number.

Dave Singleton, Vice President of Investor Relations, FICO5: Great. Thank you both.

Conference Operator: Thank you. Our next question coming from the line of Kevin McVeigh with UBS. Your line is now open.

Dave Singleton, Vice President of Investor Relations, FICO6: Great. Thanks so much. I just wanted to see if you could help us reconcile, you had a pretty good beat in the quarter and reaffirm the guidance for the full year. Any puts and takes on kind of what the reaffirm was as opposed to the beat in the quarter?

Steve Weber, CFO, FICO: That again, With the

Dave Singleton, Vice President of Investor Relations, FICO6: increase, I’m sorry. The amount of the raise on the guidance relative to the beat looks like you beat by more than you raised. Was conservatism or anything to kind of call out just based on where the quarter versus how much the full year guidance was increased?

Dave Singleton, Vice President of Investor Relations, FICO: Yeah, well, I mean, we did have what

Steve Weber, CFO, FICO: we talked about in the script, we’ve got some one time expenses that we’re going to have in the fourth quarter, and there’s some of that that probably wasn’t in earlier in the year. There’s some things as we get to the end of the year, we can take some charges. And we’ve done it in

Will Lansing, CEO, FICO: the past. And I think we’ll probably be doing some of that this year as well.

Steve Weber, CFO, FICO: So that’s probably the delta.

Dave Singleton, Vice President of Investor Relations, FICO6: That’s super helpful. And then just with all the questions, I know the regulation is so hard to frame, but are there any goalposts in terms of timing or just events that you could kind of point us to where there may just be some clarification, whether it’s out of the FHFA or the broader organization, just as we’re thinking about expectations over the course of the year? I mean, just given it feels like there’s

Steve Weber, CFO, FICO: No,

Will Lansing, CEO, FICO: I think if we take I think if we take where we are today as, you know, the status quo, which is what it is, I think you’re looking at years to figure out, you know, how market share settles out because it’s not easy to switch and because we have a better score. So, you know, TBD under what circumstances and whether at all, you know, there’s share shift. But we’ll see. But it won’t happen fast. It, you know, it will take time.

Dave Singleton, Vice President of Investor Relations, FICO6: Thank you. Thank

Conference Operator: you. And I’m showing no further questions at this time. I will now turn the call back to David for any final comments.

Dave Singleton, Vice President of Investor Relations, FICO: Yeah, thanks very much. I just wanted to circle back. Manav asked a question at the beginning around the number of FICO 10T lenders and attraction in market. So I think it’s just important to remind the audience, lenders use FICO 10T for a lot of use cases, underwriting, loan production, execution servicing. We have over 30 forest lenders today using FICO 10T.

Some of those lenders use it for securitizations. They’re securitizing with FICO 10T already. And the MCT is a platform where the MBS market flows through and they also have adopted FICO 10T. So we have a lot of places where FICO 10T exists in the ecosystem and the traction is very strong. So thanks everyone for the call.

Appreciate it.

Conference Operator: This concludes today’s conference call. Thank you for your participation and you may now disconnect. Goodbye.

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