Fair Isaac (FICO) Q2 2026 Earnings Call Transcript

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DATE

Tuesday, April 28, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

- Chief Executive Officer — William Lansing

- Chief Financial Officer — Steven Weber

- Vice President, Investor Relations — Dave Singleton

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Full Conference Call Transcript

Will Lansing; our CFO, Steve Weber. Today, we issued a press release that describes financial results compared to the prior year. On this call, management will also discuss results in comparison with the prior quarter to facilitate 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 these non-GAAP financial measures to the most comparable GAAP measure. The earnings release and Regulation G schedule are available on the Investor Relations page of the company's website at fico.com or on the SEC's website at sec.gov. And a replay of this webcast will be available through April 28, 2026. We have refreshed our quarterly investor presentation with additional content, which is available on the Investor Relations section of our website. We will refer to this presentation during today's earnings announcement.

I will now turn the call over to our CEO, Will Lansing.

William Lansing: Thanks, Dave, and thank you, everyone, for joining us for our second quarter earnings call. We had a very strong quarter and a great start to the first half of our fiscal year. Based on our results and outlook, we are increasing our fiscal 2026 guidance. We reported Q2 revenues of $692 million, up 39% over last year, as shown on Page 5 of our investor presentation. For the quarter, we reported $264 million in GAAP net income in the quarter, up 63% and GAAP earnings of $11.14 per share, up 69% from the prior year. We reported $297 million in non-GAAP net income, up 54% and non-GAAP earnings of $12.50 per share, up 60% from the prior year.

We delivered free cash flow of $214 million in our second quarter. Over the last 4 quarters, we delivered $867 million in free cash flow, an increase of 28% over the prior fourth quarter period. In Q2, we continued returning capital to shareholders through share repurchases, buying back $605 million or 484,000 shares at an average price of $1,251 per share. At the segment level, shown on Page 6, our second quarter score segment revenues were $475 million, up 60% versus the prior year. While B2B scores were the key driver of growth, we also experienced the sixth straight quarter of growth in B2C scores.

In our Software segment, we delivered $217 million in Q2 revenues, up 7% over last year. Results included 54% platform revenue growth and a 12% decline in non-platform revenue. Steve will provide additional revenue details later in this call. Last week, we issued a statement on our website in response to the FHFA and FHA update on credit score modernization. We applaud the FHFA and FHA initiative to get FICO Score 10T into the market in the coming months. FICO Score 10T is the most predictive credit score for all borrowers, including first-time home borrowers. FICO Score 10T incorporates rental and utility payment history, enabling more consumers to qualify for mortgages.

To support the goal of increased homeownership and bring the benefits of increased competition to the marketplace, we updated our FICO Score 10T performance model pricing in the FICO mortgage direct licensing program from $4.95 per score plus $33 funding fee to $0.99 per score plus $65 funding fee. We anticipate the release of FICO Score 10T data and the time line provided by the FHFA and GSEs. In the last quarter, we added 11 more lenders to our FICO Score 10T early adopter program. As a reminder, through this program, FICO Score 10T is made available for free with the purchase of classic FICO.

The 55 lenders in the program account for more than $495 billion in annual serviceable originations when evaluated using 2025 HMDA data and more than $1.6 trillion in eligible servicing. We're moving closer to the go-live dates of our next-generation Cash Flow UltraFICO Score with our strategic partner, Plaid and the FICO mortgage direct licensing our reseller partners. We continue to actively work alongside participants to support testing on both initiatives. As AI adoption accelerates, we recognize the need of stakeholders to weigh the associated opportunities and risks. At FICO, we view AI as a tremendous opportunity that we've committed significant resources to for several years.

In the Scores business, AI is limited by strict regulatory requirements on credit underwriting outcome explainability and model governance. In addition, our scoring models are supported by proprietary data access, mainly with the credit bureaus and deep ecosystem integration. Across both businesses, FICO has been issued 137 AI-based patents, which include patents and blockchain technology that are helpful for traceable and explainable decision-making, the type of market-leading innovation that will be in high demand as businesses seek ways to safely deploy AI analytics in highly regulated industries. In our software business, as shown on Page 13, FICO Platform is architected from the ground up to be agentic-by-design.

That foundation delivers decision grade analytics, deep domain expertise, and an enterprise platform that clients depend on for precision, consistency, explainability and trust. These principles are nonnegotiable for our primary target market, the highly regulated financial services industry. FICO Platform is the world's leading AI decisioning platform for financial services recognized as such as a leader by Gartner, Forrester and IDC. Its agentic architecture power is a real-time, always-on customer profile engine that delivers hyperpersonalized consumer experiences where every interaction can inform and improve the next. There are over 150 clients globally using the FICO Platform across multiple connected use cases to power their customer experience, business critical operations, risk management and fraud monitoring and prevention.

FICO Platform brings together multiple functions within an enterprise in a common operating environment and enables them to operationalize AI at scale to drive real business outcomes. Financially, a substantial majority of our nearly $315 million platform segment annual recurring revenue is driven from FICO Platform. Financially, a substantial majority of our Platform segment annual recurring revenue, approaching $350 million and growing rapidly is driven by the FICO Platform, reflecting years of proven commercialization. FICO transformed 70 years of proven deep domain knowledge into validated expandable AI that powers the most consequential business decisions with that expertise embedded directly into the agents, models and guardrails that operate on the platform.

Fico Platform accelerates client innovation by providing clients with the ability to build, test, optimize and monitor decisioning across the enterprise. With FICO AI-guided operations, clients create a self-reinforcing cycle of value generation, reinvesting outcomes back into the platform by enabling additional use cases, driving further value for their businesses. FICO Platform's marketplace and FICO Assistant unlock broader capabilities that compound with scale. Every new model, agent and integration from the ecosystem strengthens the customer profile engine and accelerate consumption of proprietary capabilities across the platform. At FICO, AI is already driving meaningful results today while creating significant opportunities that we are well positioned to capture. I'll now pass it back to Steve to provide further financial details.

Steven Weber: Thanks, and good afternoon, everyone. As Will mentioned, our Scores segment revenues for the quarter were $475 million, up 60% from the prior year. As shown on Page 16 of our presentation, B2B revenues were up 72%, primarily attributable to higher mortgage origination scores unit price and an increase in volume of mortgage origination. Our B2C revenues were up 5% versus the prior year, driven mainly by our indirect channel partners. Second quarter mortgage originations revenues were up 127% versus the prior year. Mortgage originations revenues accounted for 72% of B2B revenue and 63% of total Scores revenue. Auto originations revenues were up 13%, while credit card, personal loan and other originations revenues were up 6% versus the prior year.

For your reference, Page 17 of our presentation provides 5-quarter trending of our scores metrics. As in the past, our updated guidance assumes conservative score volumes. And to reiterate, we do not anticipate share loss competition in any vertical. Turning to our software segment. Our software ACV bookings for the quarter were $28 million, as shown on Page 18 of our presentation. On a trailing 12-month basis, ACV bookings reached $126 million this quarter, an increase of 36% from the same period last year. With our strong pipeline, we expect bookings in the second half of the year to exceed the first half of the year.

Our total software ARR, as shown on Page 19, was $789 million, a 10% increase over the prior year. Platform ARR was $349 million, representing 44% of our total Q2 '26 ARR. Platform ARR grew 49% versus the prior year, while nonplatform declined 8% to $440 million this quarter. Platform ARR growth was driven by both new customer wins as well as expanded use cases and volumes from existing customers. Platform ARR growth includes the onetime Q1 liquid credit solution migration and Q2 CCS migrations from non-platform to the platform. Excluding those migrations, our platform ARR growth was in the mid-30% range. The non-platform year-over-year ARR decline was driven by migrations, end-of-life products and some usage declines.

In our CCS business, which contains both platform and non-platform, ARR growth was relatively flat. Our dollar-based net retention rate in the quarter was 109%. Platform NRR was 136%, while our non-platform NRR was 90%. Platform NRR was driven by a combination of new use cases and increased usage of existing use cases. Second quarter software segment revenues detailed on Page 20 were $217 million, up 7% from the prior year. Within this segment, our SaaS revenues grew by 19%, driven by FICO Platform. Our on-premises revenue declined 4%. Year-over-year, our platform revenues grew 54%, driven mainly by the success of our land and expand strategy. Non-platform revenues declined 12%, driven mainly by migrations.

As a reminder, our FY '26 revenue guidance reflects an expectation of lower point-in-time revenue throughout FY '26 due to fewer non-platform license renewal opportunities compared to the prior year. From a regional point of view, 90% of total company revenues this quarter were derived from our Americas region, which is a combination of both our North America and Latin American region. Our EMEA region generated 7% of revenues and the Asia Pacific region delivered 3%. Operating expenses for the quarter, as shown on Page 21, were $289 million this quarter versus $278 million in the prior quarter, an increase of 4% quarter-over-quarter, driven by personnel expenses.

We expect operating expense dollars to trend modestly upward from the Q2 run rate into the back half of the fiscal year, driven mainly by personnel expenses and marketing for both FICO World and our Scores business. Our non-GAAP operating margin, as shown on Page 22, was 65% for the quarter compared with 58% in the same quarter last year. We delivered year-over-year non-GAAP operating margin expansion of 712 basis points. The effective tax rate for the quarter was 25.7%, and we expect a full year operating tax rate of 25% to 26% and an effective tax rate of around 24%. At the end of the quarter, we had $272 million in cash and marketable investments.

Our total debt at quarter end was $3.64 billion with a weighted average interest rate of 5.5%. This includes the March issuance of $1 billion in senior notes due 2034, which used some proceeds to fund the redemption of $400 million in senior notes that were due in May. As of March 31, 2026, 93% of our debt was held in senior notes. We had $265 million balance on our revolving line of credit, which is repayable at any time. We anticipate interest rate expense dollars to trend modestly upward from the Q2 run rate into the back half of the fiscal year.

As Will highlighted, we continue to return capital to our shareholders through buybacks, as shown on Page 23. In Q2, we repurchased 484,000 shares for a total cost of $605 million, representing the single largest quarterly repurchase in dollars in FICO history. We continue to view share repurchases as an attractive use of cash. With our recent $1.5 billion Board authorization, strong free cash flow and unutilized revolver, since April 1, we have bought an additional $170 million or 164,000 shares at an average price of $1,040 per share. And with that, I'll turn it back to Will for closing comments.

William Lansing: Thanks, Steve. As we approach the start of FICO World 2026, which is going to happen on May 19 through the 22nd in Orlando, we look forward to showcasing our continued innovations. The event brings together customers and partners from around the world to explore how real-time scalable decision-making is transforming consumer engagement. We remain focused on enabling deeper customer relationships through always-on personalization that drives strong business outcomes. The conference also provides a forum to connect with industry experts, share best practices and advance initiatives that drive financial inclusion. We had a great first half of our fiscal year, and I'm pleased to report that today, we are raising our full year guidance as we enter the third quarter.

As shown on Page 24 of our presentation, revenue guidance is now $2.45 billion, an increase of 23% versus prior year. GAAP net income guidance is now $825 million with GAAP earnings per share of $35.60, an increase of 27% and 34%, respectively. Non-GAAP net income guidance is now $946 million with non-GAAP earnings per share of $40.45, an increase of 29% and 35%, respectively. With that, I'm going to turn it back to Dave, and we'll open up for Q&A.

**Dave Sin