Banks have relied on Fair Isaac's FICO credit scoring system for over 30 years to help determine the creditworthiness of loan applicants. It considers five factors, including their repayment history and their existing debts. However, Upstart Holdings (NASDAQ: UPST) believes the FICO score is far too simplistic, causing banks to potentially pass over some high-quality customers. Upstart has developed an algorithm that uses artificial intelligence (AI) to rapidly analyze over 2,500 data points for each app ...

Financial Data and Key Metrics Changes - The company reported Q1 revenues of $512 million, up 16% year-over-year [6] - GAAP net income was $158 million, an increase of 4%, with GAAP earnings of $6.61 per share, up 8% from the prior year [6] - Non-GAAP net income reached $176 million, up 22%, and non-GAAP earnings were $7.33 per share, up 27% [6] - Free cash flow for Q1 was $165 million, with a total of $718 million in free cash flow over the last four quarters, a 7% increase year-over-year [7] Business Line Data and Key Metrics Changes - Scores segment revenues were $305 million, up 29% year-over-year, driven by B2B scores growth [7][16] - B2B revenues increased by 36%, primarily due to higher mortgage origination scores unit price and increased volume [16] - Software segment revenues were $207 million, up 2% year-over-year, with platform revenue growth of 37% and a 13% decline in non-platform revenue [7][19] Market Data and Key Metrics Changes - 88% of total company revenues came from the Americas region, while EMEA generated 8% and Asia Pacific delivered 4% [20] - Mortgage originations revenues were up 60% year-over-year, accounting for 51% of B2B revenue and 42% of total scores revenue [16] Company Strategy and Development Direction - The company is focused on expanding its FICO Mortgage Direct Licensing Program and enhancing the FICO Score 10 T for better credit risk assessment [9][10] - The strategy includes broadening reach beyond financial services into other verticals, leveraging partnerships and the new platform [52] - The company aims to empower customers with real-time insights and decision-making capabilities through its next-generation platform [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in exceeding fiscal year guidance, citing strong execution in the scores business and software bookings growth [24] - The macroeconomic environment remains uncertain, influencing the decision not to raise guidance at this time [32] - The company anticipates continued growth in mortgage revenues driven by price, volume, and refinancing activity [85] Other Important Information - The company repurchased 95,000 shares for a total cost of $163 million in Q1, viewing share repurchases as an attractive use of cash [23] - The effective tax rate for the quarter was 17.5%, with an expected full-year net effective tax rate of 24% [22] Q&A Session Summary Question: Significance of LoanPass and timing for Ten T approval - Management noted ongoing adoption on the non-conforming side but could not provide a specific timeline for Ten T's general availability [30] Question: Timeline for LLPA grids - Management indicated that no one knows the timeline for LLPA grids due to challenges in implementation [35] Question: Concerns regarding FICO Direct and performance model - Management addressed concerns about score calculation accuracy, stating that resellers will use the same algorithm as bureaus [38] Question: Timeline for direct license program resellers going live - Management could not provide a specific timeline but assured that integration testing is ongoing [42] Question: Revenue model for performance model vs. per score model - Management clarified that the performance model is optional, allowing flexibility for lenders [45] Question: Trends in software business and investment cycle - Management confirmed ongoing investments in the software business, anticipating margin expansion from increased volume and customer adoption [99]

Core Industry Insights - Investors are increasingly recognizing the potential of AI capabilities in various companies, with notable stock gains in the AI sector, such as Palantir's increase of over 32-fold from its 2022 low [1] - The AI market is projected to grow at a compound annual growth rate (CAGR) of 31% through 2033, indicating that the current AI investment trend is just beginning [1] Company Highlights 1. Advanced Micro Devices (AMD) - AMD has seen a remarkable increase of over 13,000% from its 2015 lows and is positioned to potentially catch up to Nvidia in the AI accelerator market with its upcoming MI450 accelerator [4] - The company forecasts a long-term revenue CAGR of 30%, with a 60% CAGR specifically for its data center segment that designs AI accelerators [5] - AMD's stock has risen over 70% in the past year, with a current forward P/E ratio of 53, making it an attractive option for investors despite a high P/E ratio of 105 [7] 2. CoreWeave - CoreWeave is emerging as a leading AI cloud platform, specifically tailored for AI workloads, and has built a competitive advantage by working with Nvidia's GPUs [8] - The company reported a 204% year-over-year revenue increase to nearly $3.6 billion in the first nine months of 2025, although costs surged by 263% during the same period [9] - Despite a net loss of $771 million in the first three quarters of 2025, down from $857 million the previous year, the stock is currently trading at a significant discount, with a price-to-sales (P/S) ratio just above 7 [10][12] 3. Upstart Holdings - Upstart is leveraging AI for loan evaluations, presenting a disruptive opportunity in a market dominated by Fair Isaac's FICO score since 1989, with a potential market opportunity of $1 trillion [13] - The company's AI model utilizes over 2,500 variables and can make 91% of assessments without human intervention, potentially approving 101% more applicants than traditional methods in 2024 [14] - Upstart's revenue for the first nine months of 2025 was $685 million, a 57% increase from the previous year, and it returned to profitability with earnings of $35 million during the same period [15][17]

Core Insights - Fair Isaac Corporation (FICO) reported fourth-quarter fiscal 2025 non-GAAP earnings of $7.74 per share, exceeding the Zacks Consensus Estimate by 5.45% and reflecting an 18.3% year-over-year increase [1] - Revenues reached $515.8 million, surpassing the consensus mark by 0.78% and increasing 13.6% year over year, with contributions from the Americas (87%), EMEA (8%), and Asia Pacific (5%) [1] - Scores, which account for 60.4% of total revenues, rose 25% year over year to $311.6 million [1] Revenue Breakdown - Software revenues, including analytics and digital decisioning technology, declined 0.2% year over year to $204.2 million [2] - Software Annual Recurring Revenues (ARR) increased 4% year over year, driven by a 16% growth in platform ARR, while non-platform ARR declined by 2% [3] - On-premises and SaaS Software, making up 35.4% of revenues, increased 0.4% year over year to $182.4 million [3] - Professional services revenues, accounting for 4.2% of total revenues, decreased 4.8% year over year to $21.8 million [3] Scoring Solutions Performance - Business-to-business (B2B) scoring solutions revenues increased 29% year over year, primarily due to higher unit prices and increased mortgage originations [4] - Business-to-consumer (B2C) scoring solutions revenues rose 8% year over year, driven by growth in myFICO.com and indirect channel partners [4] - Mortgage originations revenues surged 55% year over year, while auto originations revenues increased by 24% [5] Operating Metrics - Research and development expenses as a percentage of revenues increased by 10 basis points year over year to 9.9% [6] - Selling, general, and administrative expenses as a percentage of revenues decreased by 270 basis points year over year to 24.3% [6] - Non-GAAP Operating margin improved to 54% in the fourth quarter of fiscal 2025, compared to 52% in the same quarter of the previous year [6] Financial Performance - Adjusted EBITDA rose 18.3% year over year to $286.6 million, with an adjusted EBITDA margin of 55.6% compared to 53.4% in the prior year [7] - As of September 30, 2025, FICO had $134 million in cash and cash equivalents, with total debt at $3.06 billion [8] - Cash flow from operations was $223.6 million in the fourth quarter, down from $286.2 million in the prior quarter, while free cash flow was $210.8 million compared to $276.2 million previously [8] Future Guidance - FICO anticipates fiscal 2026 revenues of $2.35 billion and non-GAAP earnings of $38.17 per share [9][10]

Core Insights - Fair Isaac, the producer of the FICO Score, has altered its pricing model to secure a larger share of the overall credit-scoring revenue [1] Company Summary - Fair Isaac is now positioned to benefit more significantly from the credit-scoring market due to its revised pricing strategy [1]

Group 1 - The S&P 500 index reached a record high of 6,715.35 despite the U.S. government shutdown [1] - Western Digital (WDC) experienced a significant increase of nearly 23% for the week, contributing to the index's gains [1] - Other companies that led the gains include Bio-Techne, Coinbase, Charles River Labs, and Fair Isaac [1] Group 2 - Bitcoin and cryptocurrency prices are on the rise, maintaining a two-month high above $120,000 amid the government shutdown [2] - Bakkt is undergoing transformation and streamlining efforts, which may impact its market position [2]

Industry Dynamics - Fair Isaac will directly provide FICO credit scores to firms providing credit reports to lenders [1]

Core Insights - Fair Isaac, the creator of the FICO score, experienced a stock rally of over 20% following the announcement of a new pricing model that allows mortgage lenders to bypass credit bureaus for credit scores [1][2] - The new model enables mortgage resellers to license FICO scores directly from Fair Isaac, which can then be distributed to borrowers, potentially impacting the traditional role of credit bureaus [2][4] Company Developments - Fair Isaac's new pricing plan offers lenders a choice between two models, aimed at reducing unnecessary mark-ups on FICO Scores and providing more control to those making mortgage decisions [3] - The stock surge represents Fair Isaac's largest percentage increase since November 22, although shares are still down approximately 9% year-to-date [2] Industry Impact - Following Fair Isaac's announcement, shares of major credit bureaus—Experian, TransUnion, and Equifax—declined between 4% and 10%, indicating investor concerns about the diminished importance of these companies in the mortgage lending process [4] - Fair Isaac intends to offer its new mortgage score pricing models to the three credit bureaus under the same terms, which may further disrupt the existing market dynamics [4]

Market Dynamics - FICO's shares are surging, while credit bureaus are experiencing pressure [1] - FICO is now licensing its scores directly to lenders, bypassing credit bureaus [2] - Credit bureaus like TransUnion, Equifax, and Experian are facing stock hits due to disintermediation [2] - 90% of lenders use FICO scores [2] Pricing and Fees - FICO will charge $4.95 per credit score, a 50% reduction compared to the credit bureaus' merged system [3] - FICO charges $33 when the loan closes [3] Regulatory Response - FHFA Director Bill Py expressed dissatisfaction with FICO and credit bureau pricing [3] - Bill Py initiated a full-scale review of the credit bureaus [4] - Bill Py acknowledged FICO's decision as a positive first step and encouraged similar actions from credit bureaus [4]

Industry Dynamics - Fair Isaac will sell credit scores directly to mortgage resellers [1] - This move will eliminate the industry's dependence on third-party credit bureaus [1]