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Fair Isaac Corporation (FICO) is a leading applied analytics company that specializes in providing software and scoring solutions to enhance business decision-making processes. The company operates through two primary segments: Scores and Software, offering a range of products that cater to both business-to-business (B2B) and business-to-consumer (B2C) markets . FICO's solutions are widely utilized in industries such as financial services, insurance, telecommunications, and retail, and the company has a global presence in over 100 countries .
- Scores - Offers scoring solutions that are integral to credit decision-making processes.
- B2B Scoring Solutions - Widely used by banks and financial institutions for credit decisions.
- B2C Scoring Solutions - Includes consumer-focused offerings like myFICO.com subscriptions.
- Software - Provides pre-configured analytic and decision management solutions for various business needs, including account origination, customer management, fraud detection, and marketing.
- Non-Platform Software - Encompasses a range of decision management solutions tailored to specific business needs.
- FICO® Platform - A modular software offering that supports advanced analytics and decision use cases.
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You mentioned that there was a few million dollars of additional one-time revenue in the Scores revenue this quarter that isn't necessarily in your run rate; can you clarify the nature of these one-time items and how they might affect future revenue expectations?
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Despite significant investment in your software platform and expectations of margin improvement through scalability, with high R&D spending likely to continue, when can we expect to see meaningful margin expansion in the software segment, and what specific milestones will indicate progress?
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With your aggressive share repurchase program continuing even as the stock reaches all-time highs and a PE ratio north of 100, how do you justify this capital allocation strategy over other uses such as strategic investments or dividends?
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Regarding your partnership with TCS, could you provide more details on how you are managing IP sharing and potential risks, especially as they develop proprietary solutions based on your decisioning IP in verticals where you don't currently participate?
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Given the macroeconomic uncertainty and higher interest rates potentially affecting mortgage volumes, how confident are you in implementing planned price increases for mortgage scores in 2025 without impacting demand, and what are your strategies to mitigate potential pushback from customers?
Competitors mentioned in the company's latest 10K filing.
- In-house analytic and systems developers
- Neural network developers and artificial intelligence system builders
- Fraud solution providers
- Scoring model builders
- Providers of credit reports and credit scores
- Software companies supplying predictive analytic modeling, rules, or analytic development tools
- Entity resolution and social network analysis solutions providers
- Providers of customer engagement and risk management solutions
- Providers of account workflow management software
- Business process management and decision rules management providers
- Enterprise resource planning and customer relationship management solutions providers
- Business intelligence solutions providers
- Providers of automated application processing services
- Third-party professional services and consulting organizations
- Three major consumer reporting agencies in the U.S. and Canada (partners and competitors in scoring solutions)
- VantageScore (joint venture by the three major U.S. consumer reporting agencies)
- CRIF Ratings (operates in the European Union)
- LexisNexis and ChoicePoint (data providers)
- Credit Karma, Credit Sesame, Experian, and TransUnion (direct to consumer credit and identity services)
- Nice Actimize, Experian, Pegasystems, BAE Systems Applied Intelligence, SAS, ACI Worldwide, IBM, Feedzai, and Featurespace (fraud market for banking)
- Experian, Equifax, Moody’s, Meridian Link, and CGI (customer origination market)
- Experian and SAS (customer management market)
- Pegasystems, Equifax, Experian, SAS, Adobe, and Salesforce (marketing services market)
- Pegasystems, IBM, and SAS (decision platform market)
| Customer | Relationship | Segment | Details |
|---|---|---|---|
Experian | Distributes FICO® credit scores | All | Contributed >10% of total revenues in fiscal 2024.Part of the 45% collectively from the three agencies in fiscal 2024. |
TransUnion | Distributes FICO® credit scores | All | Contributed >10% of total revenues in fiscal 2024.Part of the 45% collectively from the three agencies in fiscal 2024. |
Equifax | Distributes FICO® credit scores | All | Contributed >10% of total revenues in fiscal 2024.Part of the 45% collectively from the three agencies in fiscal 2024. |
Recent developments and announcements about FICO.
Financial Reporting
- Revenue: Total revenue for Q1 2025 was $440 million, a 15% increase year-over-year. The Scores segment contributed $236 million (up 23%), while the Software segment generated $204 million (up 8%).
- Profitability: GAAP net income was $153 million, up 26% year-over-year, with GAAP earnings per share at $6.14 (up 28%). Non-GAAP net income was $144 million, up 19%, with non-GAAP earnings per share at $5.79 (up 20%).
- Cash Flow: Free cash flow for the quarter was $187 million, contributing to $673 million over the last four quarters, a 36% increase.
- FICO reiterated its fiscal 2025 guidance, emphasizing confidence in achieving its targets despite potential macroeconomic uncertainties, such as interest rate fluctuations.
- Management highlighted a strong pipeline for bookings and expects annual recurring revenue (ARR) to accelerate in the latter half of the year, despite some volatility in quarterly bookings.
- Mortgage Market: Mortgage originations revenue grew 110% year-over-year, driven by both pricing and volume increases. Mortgage originations accounted for 44% of B2B revenue and 34% of total Scores revenue.
- Buy Now Pay Later (BNPL): FICO conducted a study with Affirm, showing that including BNPL loan data could improve FICO Scores for consumers and enhance risk modeling for lenders. FICO is working on introducing its proprietary treatment of BNPL data to the credit scoring market.
- FICO Score 10T: Adoption of FICO Score 10T continues to grow, with significant progress in the mortgage-backed securities market. Loans utilizing FICO Score 10T began trading on the MCT Marketplace, and Cardinal Financial issued the first government-backed security featuring these loans.
- Foreign Exchange Impact: The Software segment faced a $4 million revenue impact due to foreign exchange fluctuations, particularly in Brazil.
- Demand Environment: Management noted stable demand for FICO’s products, emphasizing the strategic importance of its platform, which has helped mitigate budget pressures among customers.
- B2B Revenue Trends: While B2B revenue grew 30% year-over-year, some subsegments, such as prescreening and account management, experienced slower growth compared to originations.
- Usage Variability: Lower platform usage in Q1 was attributed to seasonality and customer cost-saving measures, but management expects usage to normalize in future quarters.
- FICO repurchased 79,000 shares in Q1 and an additional 47,000 shares in January, continuing its commitment to returning capital to shareholders.
Earnings Call
FICO recently released its Q1 2025 earnings call transcript, highlighting several key financial and operational updates:
Financial Performance:
Management’s Forward Guidance:
Market Conditions and Strategic Initiatives:
Analyst Questions and Management Responses:
Shareholder Returns:
Key Takeaways:
FICO delivered strong financial results in Q1 2025, driven by robust growth in its Scores segment and strategic initiatives like FICO Score 10T and BNPL data integration. Management remains confident in its fiscal 2025 guidance, supported by a strong bookings pipeline and anticipated ARR acceleration in the latter half of the year. However, challenges such as foreign exchange impacts and variability in platform usage were noted.
For further details, the full earnings call transcript and financial highlights are available on FICO’s Investor Relations website.