Financial Data and Key Metrics Changes - The company reported Q4 revenues of $516 million, up 14% year-over-year, and full fiscal year revenues of $1.991 billion, up 16% compared to the prior year [6][22] - GAAP net income for the quarter was $155 million, an increase of 14%, with GAAP earnings of $6.42 per share, up 18% from the prior year [29] - For the full fiscal year, GAAP net income was $652 million, equating to $26.54 of earnings per share, up 27% and 30% respectively [29] Business Line Data and Key Metrics Changes - In the software segment, Q4 revenues were $204 million, flat year-over-year, while for the full year, revenues were $822 million, up 3% from last year [7][22] - The scores segment saw Q4 revenues of $312 million, up 25% year-over-year, driven primarily by B2B scores, which were up 29% [9][23] - Total scores revenues for the full year were $1.169 billion, up 27%, with mortgage origination revenues up 52% year-over-year [23] Market Data and Key Metrics Changes - The Americas region accounted for 87% of total company revenues, while EMEA generated 8% and Asia-Pacific delivered 5% [22] - The company noted that mortgage origination revenues accounted for 55% of B2B revenue and 45% of total scores revenue [23] Company Strategy and Development Direction - The company plans to advance its direct and indirect distribution strategy and invest to capture market opportunities from innovations like the FICO Platform [9] - The FICO Mortgage Direct License Program aims to drive competition and transparency in the mortgage market, allowing trimerge resellers to calculate and distribute FICO scores directly [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving stronger growth in fiscal 2026, guiding for revenues of $2.35 billion, an increase of 18% over fiscal 2025 [33] - The company remains conservative in its guidance due to uncertainties in the macro environment, particularly regarding mortgage volumes and interest rates [72][78] Other Important Information - The company reported free cash flow of $211 million in Q4, with total free cash flow of $739 million over the last four quarters, representing a 22% increase year-over-year [30] - The company has a patent portfolio of over 230 issued patents, reinforcing its position in responsible AI development [9] Q&A Session Summary Question: Broader discussions with the FHFA and approval timeline for FICO 10T - Management confirmed constructive conversations with the FHFA and expressed confidence in the eventual release of FICO 10T [37] Question: Assumptions around the direct licensing model and its impact - Management indicated a conservative approach to guidance due to uncertainties in the macro environment and potential timing lags in performance-based fees [40][41] Question: Long-term pricing strategy and adjustments - Management stated that while they see a value gap in pricing, specific future pricing strategies remain uncertain [45][46] Question: Feedback from lenders on pricing models - Positive reception to the direct model was noted, with lenders appreciating the optionality provided by the two pricing models [50] Question: Adoption of FICO 10T in the non-conforming market - Management highlighted the importance of predictiveness in the non-conforming market and noted ongoing positive feedback from lenders [53] Question: Mortgage volume assumptions and potential upside - Management emphasized conservatism in volume assumptions, particularly regarding interest rates and market share retention [78] Question: Implementation progress with resellers - Management confirmed that resellers are on pace for adoption and that operational hurdles are minimal [82] Question: Performance model availability and pricing flexibility - Management clarified that pricing for the multi-year agreement with Zactus is set for 2026, with annual adjustments expected thereafter [75]

Financial Data and Key Metrics Changes - The company reported Q4 revenues of $516 million, up 14% year-over-year, and for the full fiscal year, revenues reached $1.991 billion, an increase of 16% compared to the prior year [6][22] - GAAP net income for the quarter was $155 million, up 14%, with GAAP earnings of $6.42 per share, an 18% increase from the prior year [28][29] - Non-GAAP net income for the quarter was $187 million, up 15%, with non-GAAP earnings per share of $7.74, an 18% increase year-over-year [29] - Free cash flow for the quarter was $211 million, with a total of $739 million over the last four quarters, representing a 22% year-over-year increase [30] Business Line Data and Key Metrics Changes - In the software segment, Q4 revenues were $204 million, flat year-over-year, while for the fiscal year, revenues were $822 million, up 3% from last year [7][22] - The scores segment saw Q4 revenues of $312 million, up 25% year-over-year, driven primarily by B2B scores, which increased by 29% [9][23] - Total scores revenues for the fiscal year were $1.169 billion, up 27%, with mortgage origination revenues up 52% year-over-year [23] Market Data and Key Metrics Changes - The Americas region accounted for 87% of total company revenues, while EMEA generated 8% and Asia-Pacific delivered 5% [22] - The company anticipates no significant improvement in the macro environment for its Scores business, with expectations of stable market share and volume in auto, card, and personal loan originations [24] Company Strategy and Development Direction - The company plans to advance its direct and indirect distribution strategy and invest to capture market opportunities emerging from innovations like the FICO Platform and FICO FFM [9][24] - The FICO Mortgage Direct License Program aims to drive competition and transparency in the mortgage market, with significant interest from resellers and lenders [12][13] - The company maintains a focus on efficiencies and prioritizes resources for strategic initiatives, including headcount for distribution and development of the FICO Platform [28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving stronger growth in fiscal 2026, guiding for revenues of $2.35 billion, a 18% increase over fiscal 2025 [33] - The company is being conservative in its guidance due to uncertainties in the macro environment, particularly regarding mortgage volumes and interest rates [72] - Management highlighted the importance of maintaining a competitive edge through innovations and the value provided by FICO scores [45][56] Other Important Information - The company has a patent portfolio of over 230 issued patents and nearly 80 pending applications, reinforcing its position in responsible AI development [9] - The effective tax rate for the quarter was 23.4%, with a full-year net effective tax rate of 18.8% [29][30] Q&A Session Summary Question: Feedback from FHFA and FICO 10T approval timeline - Management confirmed constructive conversations with the FHFA and expressed confidence in the eventual release of FICO 10T [36] Question: Assumptions around direct licensing model in guidance - Management indicated a conservative approach in guidance due to uncertainties in the macro environment and potential timing issues with the performance model [39][40] Question: Long-term pricing strategy - Management stated that while they recognize a value gap, specific pricing strategies for 2027 and beyond are not yet determined [44][45] Question: Feedback from lenders on pricing models - Positive reception to the direct model was reported, with lenders appreciating the optionality provided by the two pricing models [49] Question: Adoption of FICO 10T in the non-conforming market - Management noted that lenders in the non-conforming market prioritize default risk and are satisfied with the performance of FICO 10T [53] Question: Mortgage volume assumptions in guidance - Management acknowledged conservatism in guidance due to uncertainties around interest rates and trigger leads [72] Question: Reseller adoption of the direct model - Management confirmed that resellers are on pace for adoption, with no significant operational hurdles anticipated [82] Question: Credit bureaus and performance model availability - Management indicated uncertainty regarding the split between the per-score and performance models among lenders [85]

Financial Data and Key Metrics Changes - In Q4 2025, the company reported revenues of $516 million, a 14% increase year-over-year, and for the full fiscal year, revenues reached $1.991 billion, up 16% compared to the prior year [4][21] - The company achieved record annual free cash flow, with Q4 free cash flow of $211 million and total free cash flow of $739 million over the last four quarters, representing a 22% year-over-year increase [28][29] - GAAP net income for Q4 was $155 million, up 14%, with GAAP earnings per share of $6.42, an 18% increase from the prior year [26][27] Business Line Data and Key Metrics Changes - In the software segment, Q4 revenues were $204 million, flat year-over-year, while for the full fiscal year, revenues were $822 million, up 3% [5][21] - The scores segment saw Q4 revenues of $312 million, a 25% increase year-over-year, driven primarily by B2B scores, which were up 29% [8][22] - For the full year, scores revenues totaled $1.169 billion, up 27%, with mortgage origination revenues up 52% in Q4 [22] Market Data and Key Metrics Changes - The Americas region accounted for 87% of total company revenues, while EMEA generated 8% and Asia-Pacific delivered 5% [21] - The company reported a dollar-based net retention rate of 102% for the quarter, with platform NRR at 112% and non-platform NRR at 97% [24] Company Strategy and Development Direction - The company plans to advance its direct and indirect distribution strategy and invest to capture market opportunities emerging from innovations like the FICO Platform and FICO FFM [8][30] - The FICO Mortgage Direct License Program aims to drive competition and transparency in the mortgage market, with significant interest from resellers and lenders [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving stronger growth in fiscal 2026, guiding for revenues of $2.35 billion, a projected 18% increase over fiscal 2025 [30] - The company remains conservative in its guidance due to uncertainties in the macro environment, particularly regarding mortgage volumes and interest rates [50][51] Other Important Information - The company has a patent portfolio of over 230 issued patents, with many related to AI, reinforcing its position in responsible AI development [8] - Total debt at the end of the quarter was $3.06 billion, with a weighted average interest rate of 5.27% [28] Q&A Session Summary Question: What are the recent discussions with the FHFA regarding FICO 10T? - Management confirmed constructive conversations with the FHFA and expressed confidence in the eventual release of FICO 10T [31] Question: Can you clarify the assumptions around the direct licensing model in the guidance? - Management indicated a conservative approach due to uncertainties in the macro environment and potential timing issues with the performance model [32][34] Question: What feedback have you received from lenders regarding the pricing models? - Positive reception to the direct model was reported, with lenders appreciating the optionality provided by the two pricing models [37][38] Question: How do you view the adoption of FICO 10T in the non-conforming market? - Management noted strong interest and satisfaction among lenders regarding the predictiveness of FICO 10T, although adoption processes can be slow [39][40] Question: What is the outlook for mortgage volume in your guidance? - The company remains conservative in its assumptions, with mortgage volumes expected to vary primarily with interest rates [50][51]

Core Thesis - Fair Isaac Corporation (FICO) is viewed positively due to its entrenched position in the U.S. financial system, driven by decades of innovation and strategic partnerships, particularly with major credit bureaus [2][3] Company Overview - FICO, founded in 1956, revolutionized credit scoring by introducing data-driven models, which replaced subjective lending judgments [2] - The company solidified its dominance in the mid-1990s when FICO scores became mandatory for mortgage purchases by Fannie Mae and Freddie Mac, creating a durable moat in the market [3] Financial Performance - In fiscal 2024, FICO reported revenues of $1.72 billion, with the Scores segment generating $920 million and the Software segment contributing $798 million [4] - The Scores business benefits from significant pricing power, with fees projected to increase from $0.50–$0.60 in 2022 to $4.95 in 2025 [4] - The Software segment, particularly the cloud-based FICO Platform, saw a 31% growth in Annual Recurring Revenue (ARR), indicating strong adoption of its analytics and decision-making tools [4] Market Position and Challenges - Despite strong fundamentals, FICO shares have declined by 37% from their all-time high due to increased competition from VantageScore, fee increases, and high valuation pressures [5] - The current market sentiment raises questions about valuation and near-term investment risks, positioning FICO as a high-quality business facing temporary headwinds [6] Investment Perspective - The bullish thesis on FICO remains intact, emphasizing its dominant market position and strong pricing power, despite a 22.41% depreciation in stock price since previous coverage [7]

Core Insights - Fair Isaac Corporation (FICO) is leveraging an innovative portfolio to maintain its leadership in the financial services industry, recently introducing the FICO Foundation Model for Financial Services, which includes the FICO Focused Language Model (FLM) and the FICO Focused Sequence Model (FSM) aimed at reducing errors and improving accuracy [1][2] Product Innovation - The new models are designed to be smaller, cost-effective, and auditable, trained on curated financial data, enhancing task-specific transparency and improving fraud detection and risk assessment [2] - Both models incorporate patented Trust Scores, facilitating responsible AI adoption with configurable risk thresholds, showcasing FICO's commitment to practical and trustworthy GenAI solutions for financial institutions [2][3] AI Platform Leadership - The FICO Platform serves as the cornerstone of the company's AI expansion, enabling real-time decision-making at scale and transforming operational processes by optimizing consumer interactions and improving efficiency [4] - Forrester has recognized the FICO Platform as the leader in AI decisioning platforms for the fourth consecutive time, highlighting its innovation and value delivery to clients [5] Strategic Partnerships - FICO's collaboration with Amazon Web Services (AWS) enhances its AI capabilities, with a new agreement to expand global access to AI-driven decision workflows via the FICO Platform, starting with the FICO Decision Modeler in AWS Marketplace [6] - The partnership with Cognizant aims to launch a cloud-based real-time payment fraud prevention solution powered by FICO Falcon Fraud Manager, enhancing security and fraud detection for clients across various industries [7] - FICO's partnership with Fujitsu focuses on bringing Omni-Channel Engagement Capabilities to Japan, facilitating digital transformation for Japanese financial services firms through comprehensive service implementation [8][9] Financial Outlook - For fiscal 2025, FICO anticipates revenues of $1.98 billion, with non-GAAP earnings projected at $29.15 per share, driven by a strong portfolio and expanding clientele [10]

Core Business Strength - Fair Isaac's primary business, credit scoring, remains highly profitable, with over 90% of top U.S. lenders utilizing the FICO score, giving it near-monopoly status [4][6] - In Q3 2025, revenue from the scoring business grew by 34% year over year, with an impressive operating margin of 88%, indicating a strong business model [5][6] - The company benefits from significant pricing power, as lenders rely on FICO scores for risk assessments, making it difficult to switch to alternatives without facing compliance issues [6][7] Software Business Expansion - Fair Isaac is diversifying into software solutions, particularly through its cloud-based FICO Platform, which automates various financial decision-making processes [9][10] - The platform opportunity is still in early stages, with less than half of the top 300 global financial institutions currently engaged, suggesting substantial growth potential [10] - Traditional non-platform software continues to generate solid cash flow, with a gradual transition expected towards platform-based solutions as customer needs evolve [11] Global Market Opportunities - Fair Isaac is looking to expand its presence in emerging markets, where demand for credit analytics is increasing as consumer lending systems mature [12][13] - The company's scoring system can be quickly implemented in countries with incomplete credit data, allowing for expansion beyond mature markets [13] - With a long-term presence in 40 countries, Fair Isaac's global push could diversify revenue streams and reduce reliance on the U.S. credit cycle [14] Investment Implications - Fair Isaac is at a pivotal point, with its legacy FICO Score driving significant revenue while new analytics platforms and global expansion present additional growth opportunities [15] - Long-term investors may view Fair Isaac as a reliable earnings engine and an evolving growth business, making it a stock worth monitoring [15]