Fair Isaac Corporation (FICO) Earnings

Management highlights

### Overall Financial Performance - Q3 2026 total revenues hit $674 million, up 26% year-over-year. GAAP net income was $237 million (+30% YoY), with GAAP EPS of $10.45 (+41% YoY). Non-GAAP net income was $277 million (+31% YoY), with non-GAAP EPS of $12.18 (+42% YoY). - Q3 free cash flow was $370 million; cumulative free cash flow over the last four quarters reached $961 million, up 28% from the prior four-quarter period. - FICO completed a record $1.96 billion accelerated share repurchase, buying back 1.705 million shares at an average price of $1,149 per share. Near-term capital allocation will prioritize debt paydown after this transaction. ### Credit Score Innovation and Adoption - FICO Score 10T gained expanded GSE-released historical datasets for independent industry validation. Third-party analysis by Milliman confirmed FICO Score 10T outperforms Vantage 4 on all key predictiveness metrics, delivering a 10% predictive advantage for first-time homebuyers and 8% for recent origination cohorts. - The FICO Score 10T Adopter Program has grown to 70 lenders, representing ~55% of volume from the top 50 mortgage originators, $587 billion in eligible annual originations, and over $1.87 trillion in eligible annual servicing. 10T is now integrated into leading mortgage third-party platforms to streamline adoption. - The next-generation Ultra FICO Score, developed with Plaid, reached general availability. It combines traditional FICO scores with consumer-permissioned cash flow data to better assess risk for non-prime and thin-file borrowers. 79% of non-prime applicants with positive cash flow history receive higher scores under Ultra FICO, with a 7% increase in approvals at no incremental risk and 15% performance improvement for thin-file prime applicants. ### FICO Platform and AI Strategy - FICO Platform is positioned to address growing enterprise demand for scalable, auditable, explainable AI deployment in financial services. Key differentiators include 70 years of financial services domain expertise, proprietary fraud consortium data, a compounding customer profile feedback loop, responsible AI governance capabilities, and low-latency high-scale real-time decisioning. - FICO expanded a strategic partnership with Accenture to accelerate go-to-market for FICO Platform, pairing FICO's technology with Accenture's risk, AI, and industry implementation experience, with a phased geographic rollout planned. - General availability of the next-generation FICO Platform, including the enterprise fraud solution, is expected later in 2026, which will drive deeper penetration into FICO's 500 named target accounts and expand the total addressable market. ### FICO Mortgage Direct Licensing Program (DLP) - The DLP program remains under GSE review waiting for final certification to go live. FICO has signed direct license agreements with partners/resellers representing ~60% of U.S. mortgage volume, and is close to finalizing agreements for additional large resellers that would bring coverage to ~90% of total mortgage volume. Lender and reseller interest in the DLP's performance fee pricing model remains strong.

Guidance

- Management raised full-year fiscal 2026 guidance, with total revenue now guided to $2.53 billion, representing 20% year-over-year growth. - GAAP net income guidance is now $850 million (+30% YoY), with GAAP EPS of $36.86 (+39% YoY). - Non-GAAP net income guidance is now $979 million (+33% YoY), with non-GAAP EPS of $42.43 (+42% YoY). - Fourth quarter operating expenses are expected to be modestly higher than Q3, driven by front-loaded marketing expenses for the new Accenture partnership and a one-time restructuring charge. Fourth quarter interest expense will also be higher than Q3 following the $1.5 billion term loan issuance to fund the accelerated share repurchase.

Segment performance

1. Scores Segment: Q3 2026 revenues were $459 million, up 41% year-over-year, accounting for 68.1% of total company revenue. B2B revenues grew 49% year-over-year (59% after normalizing for a $16 million multi-year license renewal in the prior year quarter), while B2C revenues grew 5% year-over-year. Mortgage origination revenues grew 97% year-over-year, accounting for 71% of B2B revenues and 62% of total Scores segment revenues. Auto originations revenues rose 15% year-over-year, and credit card, personal loan, and other originations revenues grew 9% year-over-year. Mortgage origination volumes grew low single digits year-over-year. 2. Software Segment: Q3 2026 revenues were $215 million, up 2% year-over-year, accounting for 31.9% of total company revenue. Platform revenues grew 66% year-over-year (high 30% range excluding migrations), while non-platform revenues declined 25% year-over-year. For the first time, platform revenues exceeded non-platform revenues within the segment. Total software ARR reached $816 million, up 10% year-over-year. Platform ARR grew 62% year-over-year to $413 million, representing 51% of total software ARR, while non-platform ARR declined 17% year-over-year to $403 million. Trailing 12-month ACV bookings grew 39% year-over-year to $128 million. Overall dollar-based net retention rate was 109%, with platform NRR at 148% and non-platform NRR at 82%. SAS revenues grew 21% year-over-year, on-premises revenues declined 16% year-over-year, and professional services revenues declined 24% year-over-year. 3. Regional Breakdown: 91% of total revenue came from the Americas, 6% from EMEA, and 3% from Asia Pacific.

Risks & headwinds

- The Lender Choice policy for GSE conforming mortgages creates structural incentives for score shopping/gaming, where lenders pull multiple scores to select the highest one for a consumer, increasing market competition from alternative scores like VantageScore. - The DLP and GSE approval of FICO Score 10T remain delayed pending final GSE certification, creating uncertainty around the timing of program launch and associated revenue recognition. - Continued elevated interest rates and housing affordability challenges keep mortgage origination volumes below historical norms, contributing to revenue volatility quarter-over-quarter. - Transitioning from legacy non-platform software to the new FICO platform creates near-term downward pressure on non-platform revenue, though this is a deliberate strategic shift.

Analyst Q&A

• Q: The DLP program is under GSE review with one GSE already signed off. What are the next steps for the remaining GSE, and do resellers actually want the performance fee model? /

  A: FICO is waiting on final certification from the remaining GSE, with all operational setup completed. Agreements are already in place for 60% of reseller volume, and two additional large resellers are close to being signed. There is strong reseller interest in the performance pricing model, and all parties are anxious to launch the program.

• Q: VantageScore is gaining share in the MBS market. Are FICO seeing volume loss from lenders dropping FICO pulls, or is VantageScore just additive? /

  A: The current "lender choice" policy encourages score gaming: lenders need to pull both FICO and VantageScore to find the score that gives a consumer the best rate. FICO is not seeing any material volume loss, confirming VantageScore is currently additive rather than a replacement for FICO scores. The theoretical maximum steady-state Vantage share is in the 20s, based on how often VantageScore produces a higher score than FICO.

• Q: Now that platform ARR exceeds non-platform ARR, will FICO accelerate end-of-life for legacy non-platform products? /

  A: FICO continues to not force migrations or cannibalize legacy revenue to drive platform growth, but the company is now actively executing an end-of-life strategy for older, mature legacy products. Customers are migrated to the FICO platform, where they get more functionality at lower cost, and simplifying the product portfolio benefits FICO's operational efficiency.

• Q: What drove the upward revision to full-year guidance? /

  A: The upward revision primarily reflects two factors: DLP launch has been delayed, so planned revenue that would have been pushed out to future periods remains in fiscal 2026, and mortgage origination volumes have held up better than originally expected, despite elevated interest rates.