FICO's Q4 2025 Earnings Call: Contradictions on FICO 10T Adoption, Revenue Model, and Market Conditions

Date of Call: November 5, 2025

Financials Results

• Revenue: Q4 $516M, up 14% YOY; FY '25 $1.991B, up 16% YOY
• EPS: Q4 GAAP EPS $6.42, up 18% YOY; Q4 non-GAAP EPS $7.74, up 18% YOY; FY GAAP EPS $26.54, up 30% YOY; FY non-GAAP EPS $29.88, up 26% YOY
• Operating Margin: Q4 non-GAAP operating margin 54%, compared with 52% prior year; FY non-GAAP operating margin 55%, up 340 bps YOY

Guidance:

• FY '26 revenue guidance $2.35B (+18% vs FY '25)
• FY '26 GAAP net income $795M (+22%), GAAP EPS $33.47 (+26%); non-GAAP net income $907M (+24%), non-GAAP EPS $38.17 (+28%)
• Assumes software SaaS growth driven by FICO platform, fewer point-in-time license renewals, similar professional services
• Scores guidance assumes no material macro improvement and no loss of market share in auto, card and personal loan originations
• FY '26 net effective tax rate ~24%, operating tax rate 25%; operating expense growth assumed similar YOY

Business Commentary:

* Strong Financial Performance: - FICO reported Q4 revenues of $516 million, up 14% over the prior year, and $1.991 billion for the full fiscal year, up 16% from the previous year. - This growth was driven by the delivery of record annual free cash flow and strong performance in both software and scores segments.

• Software Segment Momentum:
• The software segment delivered $204 million in Q4 revenues, with 17% platform revenue growth driven by the FICO platform.

• This momentum is attributed to customer adoption of the FICO platform, new use cases, and increased customer ROI, as well as R&D investments in AI.

• Scores Segment Growth:

• The scores segment saw revenues of $312 million in Q4, up 25% year-on-year, with full year revenues at $1.169 billion, up 27%.

• The growth was primarily driven by increased demand in B2B scores, particularly in mortgage originations, and strong performance in B2C scores.

• Guidance for Fiscal 2026:

• FICO provided guidance for fiscal 2026, expecting revenue to reach $2.35 billion, up 18% over fiscal 2025.
• Despite macroeconomic uncertainties, this guidance reflects confidence in continued growth due to strategic initiatives and market opportunities.

Sentiment Analysis:

Overall Tone: Positive

• Management called it "another fantastic year," reported Q4 revenue of $516M (+14% YOY), record annual free cash flow, and guided FY '26 to stronger growth (revenue $2.35B, +18%); CFO highlighted margin expansion (Q4 non-GAAP operating margin 54% vs 52% prior year) and continued share repurchases, supporting a positive tone.

Q&A:

• Question from Manav Patnaik (Barclays Bank PLC): Broader question around recent discussions with the FHFA and timing/likelihood of FICO 10T approval?
  Response: FHFA has been constructive and received the direct distribution program positively; FICO 10T is with the GSEs and expected to be released eventually, but no timeline provided.

• Question from Simon Alistair Clinch (Rothschild & Co Redburn): Clarify assumptions around the direct licensing model built into guidance and cadence (historic vs performance model mix)?
  Response: Guidance is conservative — performance-model revenue may lag (payments tied to funding) and could spill into FY '27; FICO doesn't know mix yet and has built conservatism into guidance.

• Question from Jason Haas (Wells Fargo Securities, LLC): How are you thinking about price increases in FY '27 and beyond given the direct model?
  Response: FICO intends to close a perceived value gap methodically over time but will not disclose specific future price plans; magnitude and timing are TBD.

• Question from Faiza Alwy (Deutsche Bank AG): Feedback from lenders on the two pricing models and any operational/implementation costs of going direct vs bureaus?
  Response: Reception has been very positive; minimal operational complexities anticipated, and the two-model approach provides optionality for lenders.

• Question from Surinder Thind (Jefferies LLC): Can you walk through nonconforming 10T adoption conversations, evaluation specifics and timing?
  Response: Nonconforming lenders value predictiveness; adoption requires testing and moves slowly, but FICO 10T has seen meaningful early adoption and positive feedback.

• Question from Jeffrey Meuler (Robert W. Baird & Co.): Compare value proposition of staying on FICO in conforming vs nonconforming markets?
  Response: Predictiveness matters in both markets; originators care about default and prepayment risk even with GSE guarantees, so demand for the most predictive score persists across both.

• Question from Ashish Sabadra (RBC Capital Markets): ARR moderated while ACV bookings were strong—how will ACV convert to ARR in '26?
  Response: Booked ACV will begin converting to ARR as deals go live starting in Q1, driving ARR acceleration.

• Question from Keen Fai Tong (Goldman Sachs Group, Inc.): Will resellers raise their fees to match bureau charges under direct licensing?
  Response: Reseller pricing is their decision and still being determined by resellers; FICO does not control reseller pricing.

• Question from Scott Wurtzel (Wolfe Research, LLC): What are plans for pricing/monetization in other score areas like auto?
  Response: Expect modest, inflation-plus adjustments across segments and selective higher increases where a value gap exists; no dramatic, sector-specific changes planned.

• Question from John Peter Mazzoni (Seaport Research Partners): What drove the outsized ACV bookings quarter; any pull-forward or budget flush?
  Response: ACV strength driven by sales momentum, a new sales leader and platform product traction; management said there's no pull-forward or one-time budget flush.

• Question from Ryan Griffin (BMO Capital Markets Equity Research): What mortgage volume assumptions are built into guidance and what could swing outcomes?
  Response: Guidance is conservatively modeled on mortgage volumes (including assumed reductions from trigger leads); major upside would require rate-driven volume improvements not included in guidance.

• Question from Owen Lau (Clear Street LLC): For the Xactus multiyear agreement, is pricing locked long-term or flexible for FICO raises?
  Response: Published pricing covers 2026; the parties have a multiyear agreement to work together but FICO adjusts prices annually.

• Question from Alexander EM Hess (JPMorgan Chase & Co): What could surprise to the upside in mortgage—better volumes or market share retention?
  Response: Management expects market share to remain stable; upside would mainly come from rate-driven volume increases, but they intentionally excluded large rate-driven volume gains from guidance.

• Question from Kevin McVeigh (UBS Investment Bank): Are resellers on pace for 1/1 adoption and are you assisting implementation?
  Response: Resellers are tracking well and on pace; management sees few operational hurdles and is supporting implementation as needed.

• Question from Craig Huber (Huber Research Partners, LLC): Do you expect bureaus to offer the performance model and what will the split between models be?
  Response: Uncertain — discussions are ongoing; FICO has modeled sensitivities but does not yet know whether bureaus will offer the performance model or the eventual mix.

• Question from Unknown Analyst (Oppenheimer): How material is downstream usage of FICO scores in mortgage core volume and implications for the $4.95+$33 performance pricing?
  Response: FICO scores are used widely downstream (originators, GSEs, rating agencies, investors, insurers) and per-closed-loan pricing is intended to capture previously unmonetized downstream value.

Contradiction Point 1

FICO 10T Adoption and Industry Migration

It involves differing perspectives on the adoption of FICO 10T and the potential for industry migration to alternative scoring models, which could impact market dynamics and FICO's position as a leading scoring provider.

How do you plan to approach long-term pricing increases given the direct model? - Jason Haas (Wells Fargo Securities)

2025Q4: And when FHFA ultimately makes that decision, I would expect that we would ultimately see FICO 10T become the standard in the conforming market as well. - William Lansing(CEO)

Considering the FHFA's decision, is the priority to shift the industry to FICO 10 T, or should the industry remain with classic FICO to reduce disruption? - Keen Fai Tong (Goldman Sachs)

2025Q3: It's up to the industry to decide on migration. FICO 10 T is more predictive and better for risk management, but classic FICO has historical data and optimization. The switch won't be rapid. - William J. Lansing(CEO)

Contradiction Point 2

Impact of FHFA Decision on Revenue Model

It involves differing opinions on the potential impact of the FHFA's decision on FICO's revenue model, which is crucial for investor expectations and financial planning.

Can you explain the underlying assumptions of the direct licensing model and the adoption rate over the year? - Simon Clinch (Rothschild & Co Redburn)

2025Q4: We expect to see some pull-forward of our revenue as a result of these new sales additions to our direct model, and we don't expect any significant pull-forward of revenue from any of the existing pricing model. - Steven Weber(CFO)

Can FICO scores be used more in securitization where real-time access isn't available? - Ashish Sabadra (RBC Capital Markets)

2025Q3: We believe this new pricing model will widen the gap between the value we provide to the lenders and the price they pay for that value. We believe that as we continue to close this gap over time, that we will be able to achieve higher pricing over the long term. - William J. Lansing(CEO)

Contradiction Point 3

FICO 10T Approval and Release Timeline

It involves the timeline and expectations surrounding the approval and release of FICO 10T, which directly impacts product offerings and potential revenue streams.

What are the next steps following recent discussions with the FHFA on your direct distribution program, and are there any insights regarding FICO 10T approval? - Manav Patnaik (Barclays Bank PLC)

2025Q4: FICO 10T is with GSEs, and its release is expected, though a specific timeline cannot be provided. - William Lansing(CEO)

What drove the increase in B2B non-origination revenue in Scores? - Faiza Alwy (Deutsche Bank)

2025Q2: We continue to make progress with our customers and the GSEs around FICO 10T as well as some of the newer models. We still expect to be able to offer 10T in the middle of the year. - Will Lansing(CEO)

Contradiction Point 4

Mortgage Origination Volume and Market Conditions

It involves the expectations and projections for mortgage origination volumes, which are crucial for assessing the company's financial performance.

How should we model ACV bookings to ARR conversion for FY2026? - Ashish Sabadra (RBC Capital Markets)

2025Q4: We expect to generate revenue growth in fiscal '26 driven by growth in software bookings, increased pricing across the scores segment, and increased adoption of the FICO performance model. - Steven Weber(CFO)

How did the results compare to expectations, and are you considering holding guidance due to current uncertainties? - Manav Patnaik (Barclays)

2025Q2: We remain very comfortable with what we know today. However, with more uncertainty, we may have to refine that as we go forward, but we're not going to revise that today. - Will Lansing(CEO)

Contradiction Point 5

Interest Rate Expectations and Mortgage Volume Guidance

It involves changes in financial forecasting, particularly regarding interest rates and mortgage volumes, which are critical for revenue projections.

What feedback have you received from lenders regarding pricing models and direct lending hesitations? - Faiza Alwy(Deutsche Bank)

2025Q4: We do believe that if you were to see interest rates come down, that would also probably help us. - Steven Weber(CFO)

Why did fiscal Q1 results meet expectations, and is the guidance still conservative? - Jason Haas(Wells Fargo)

2025Q1: The guidance was built with a conservative view on interest rates. - Will Lansing(CEO)