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    FICO
    Earnings call· Mar 2025(Q2 FY25)

    FAIR ISAAC CORP FICO

    Apr 29, 2025 Source

    Executive summary

    Fair Isaac Corporation Q2 FY25 — Strong Scores Growth and Reaffirmed Guidance

    Fair Isaac Corporation delivered a strong Q2 FY25, marked by robust Scores segment performance, particularly in mortgage originations, and solid non-GAAP profitability. Despite macroeconomic uncertainties leading to decelerated growth in the Software segment, especially in non-platform areas and usage-based components, the company reaffirmed its full-year guidance, citing a healthy pipeline and strategic importance of its platform offerings to customers. FICO continues to invest in innovation, strategic partnerships, and its indirect sales channel to drive future growth.

    Highlights

    5

    • Total revenues increased 15% year-over-year to $499 million.

    • Scores segment revenues grew 25% year-over-year to $297 million, driven by a 48% increase in mortgage origination revenues.

    • Non-GAAP net income rose 25% to $193 million, with non-GAAP EPS up 27% to $7.81 per share.

    • Free cash flow over the last four quarters increased 45% to $677 million.

    • Software ACV bookings grew 29.8% to $21.8 million compared to $16.8 million in the prior year.

    Concerns

    4

    • Software segment revenue growth was modest at 2% year-over-year, impacted by a decline in professional services and macro volatility.

    • Non-platform ARR declined 3% to $480 million, and non-platform NRR was 96%, reflecting customer conservatism and reduced CCS usage.

    • Platform ARR growth decelerated to 17% year-over-year, with total ARR up 3%, due to macro volatility and customers delaying or downsizing outreach programs.

    • Accounts receivable balance was up due to timing of large payments, impacting free cash flow for the quarter ($65 million, up 6% YoY).

    Guidance & targets

    6
    CategoryTargetConfidence
    Fiscal Year 2025 Outlook
    Reiterated
    high materiality
    High
    Net effective tax rate
    around 22%
    medium materiality
    High
    Recurring tax rate
    around 26%
    medium materiality
    High
    Q3 Professional Services revenue
    increase
    low materiality
    High
    Expenses in back half of year
    moderately higher
    medium materiality
    Medium
    Free cash flow
    accelerate
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Scores
    Strong growth driven primarily by mortgage originations and indirect channel partners. FICO Score 10 T adoption is gaining traction with significant annualized mortgage originations and eligible mortgage portfolio servicing signed up.
    B2B revenue growth YoY: 31%B2C revenue growth YoY: 6%Mortgage origination revenue growth YoY: 48%Mortgage origination revenue as % of B2B revenue: 54%Mortgage origination revenue as % of total Scores revenue: 44%Auto origination revenue growth YoY: 16%Credit card, personal loan and other originations revenue growth YoY: flat
    		$297 million25%——
    Software
    Revenue increase mainly from license revenue, partially offset by professional services decline. Expect Q3 professional services revenue to increase. Growth in ARR and NRR driven by land-and-expand strategy and increased customer usage.
    On-premises and SaaS software revenue growth YoY: 4%Professional services revenue decline YoY: 9%
    		$202 million2%——
    Americas
    Combination of North American and Latin America regions.
    % of total company revenues: 86%
    		————
    EMEA
    % of total company revenues: 9%
    		————
    Asia Pacific
    % of total company revenues: 5%
    		————

    Operational metrics

    21
    Non-GAAP net income
    $193 millionup 25% from prior year
    Q2 FY25
    Non-GAAP EPS
    $7.81up 27% from prior year
    Q2 FY25
    Non-GAAP operating margin
    58%vs 53% in same quarter last year
    Q2 FY25
    Effective tax rate
    23.7%
    Q2 FY25
    Operating tax rate
    24.9%
    Q2 FY25
    Cash and investments balance
    $192 million
    Q2 FY25 end
    Total debt
    $2.53 billion
    Q2 FY25 end

    Floating rate debt is prepayable at any time.

    Total operating expenses
    $253 millionvs $260 million in prior quarter, a decrease of 3%
    Q2 FY25

    Expected to be moderately higher in H2 FY25 due to FICO World and marketing activities.

    Personnel expense
    —moderated
    Q2 FY25

    Moderation not due to headcount, but rather fringe costs and truing up supplemental retirement plan. Benefit this quarter not expected next quarter.

    Total revenue
    $499 millionup 15% over last year
    Q2 FY25
    Total ARR
    $715 million3% increase over prior year
    Q2 FY25
    Platform ARR
    $235 milliongrew 17% versus prior year
    Q2 FY25

    Up from 29% of total Q2 FY24 ARR. Driven by new use cases and increased usage.

    Non-platform ARR
    $480 milliondeclined 3%
    Q2 FY25

    Impacted by CCS usage headwinds as customers delayed or downsized outreach programs due to macro volatility.

    Total NRR
    102%
    Q2 FY25
    Platform NRR
    110%
    Q2 FY25

    Driven by a combination of new use cases and increased usage of existing use cases.

    Non-platform NRR
    96%
    Q2 FY25

    Impacted by CCS usage headwinds.

    ACV bookings
    $21.8 millioncompared to $16.8 million in prior year
    Q2 FY25

    Healthy pipeline for the back half of the fiscal year.

    Shares repurchased
    112,000
    Q2 FY25

    Share repurchases viewed as an attractive use of cash.

    FICO Score 10 T signed up clients
    $284 billion
    as of Q2 FY25

    Clients signed up for FICO Score 10 T.

    FICO Score 10 T eligible mortgage portfolio servicing
    $1.43 trillion
    as of Q2 FY25

    Eligible mortgage portfolio servicing signed up for FICO Score 10 T.

    myFICO free score users
    nearly 70%increase
    last year

    Increase in users accessing free FICO Scores via myFICO.

    Industry KPIs

    5
    MetricValueDetails
    Revenue growth$499 millionUSD
    Arr net new arr$715 millionUSD
    Bookings billings$21.8 millionUSD
    Operating FCF margin rule of 4058%%
    Net revenue net dollar retention102%%

    Orderbook & backlog

    1
    ACV bookings$21.8 millionQ2 FY25

    compared to $16.8 million in the prior year

    Expected to convert to ARR in 6-9 months, fully ramped in 9-12 months.

    Product announcements

    5
    ProductTypeDetails
    Kenya-specific FICO Scorelaunch
    FICO Score Mortgage Simulatorlaunch
    FICO Score 10 Tupdate
    FICO 11roadmap
    AI capabilities on FICO Platformroadmap

    Deals & partnerships

    4
    TransUnionCollaboration for Kenya-specific FICO Score

    Partnership to launch a Kenya-specific FICO Score as part of a credit risk solution.

    XactusDistribution of FICO Score Mortgage Simulator

    Xactus, the largest credit reseller in the mortgage industry, is now offering the FICO Score Mortgage Simulator to lenders.

    FujitsuAccelerating digital transformation for Japanese financial institutions

    Partnership with Fujitsu, a top digital servicing company in Japan, to support financial institutions.

    dacadooIntegrating FICO Platform with health risk quantification engine for life insurance

    Partnership to bring AI-powered precision to the life insurance industry by integrating FICO Platform with dacadoo's health risk quantification risk engine.

    Risks & headwinds

    4
    Macroeconomic uncertaintyOngoing

    Fluid macroeconomic environment

    Mitigation: Maintaining consistent strategy and execution, conservative guidance approach, platform's strategic importance to customers.

    CCS usage headwindsQ2 FY25, potentially ongoing

    Some customers chose to either delay or downsize some of their customer outreach programs due to macro volatility.

    Mitigation: Focus on land-and-expand strategy, driving new use cases and increased usage for platform NRR.

    Software segment growth decelerationQ2 FY25

    Software segment revenues up 2% from prior year; Platform ARR grew 17% vs prior year (decelerated); Non-platform ARR declined 3%; Non-platform NRR was 96%.

    Mitigation: Confidence in reacceleration of platform growth, healthy pipeline, strategic importance of platform to customers.

    Accounts receivable timing impact on FCFQ2 FY25

    Accounts receivable balance was up this quarter due to the timing of some large payments that were not received until early April.

    Mitigation: Anticipate free cash flow will accelerate in the second half of this fiscal year.

    What to watch in Q3 FY25

    5

    Platform ARR reacceleration

    Next quarter and beyond
    Current17% YoY growth
    TargetIncreased growth rate

    Why it matters

    Platform ARR growth is a key indicator of the Software segment's health and future revenue trajectory, especially given current deceleration due to macro factors.

    Our visibility says our business is healthy and should reaccelerate.

    Q&A highlights

    6

    Why did FICO hold guidance despite a strong quarter, which is typically a "beat and raise" quarter?

    Management stated that the macroeconomic environment has more uncertainty than expected, leading to a conservative stance. They prefer to raise guidance when more confident and are comfortable with the current position.

    “I think we're in an environment with a little more uncertainty than expected. And as usual, we remain conservative though. There's ample time to raise guidance when we're more confident about it, and we're comfortable with where we are.”

    asked by Manav Patnaik · answered by William Lansing

    2 min read6 chapters

    Detailed Narrative

    01

    FICO Score Innovation and Adoption

    FICO continues to innovate with new score offerings and simulators. The FICO Score Mortgage Simulator is now available through Xactus, providing valuable insights for lenders. FICO Score 10 T is seeing strong adoption in its early adopter program, with clients representing over $284 billion in annualized mortgage originations and $1.43 trillion in eligible mortgage portfolio servicing having signed up, validating its power in real-world underwriting.

    02

    Global Financial Inclusion and Literacy

    FICO is expanding financial inclusion globally, exemplified by the announcement of a Kenya-specific FICO Score in partnership with TransUnion, empowering lenders to serve previously underserved consumers and SMEs. The company also promotes financial literacy, noting a nearly 70% increase in users accessing free FICO Scores via myFICO over the last year.

    03

    Software Segment Strategy and Partnerships

    The Software segment is driving growth in ARR and NRR through a land-and-expand strategy, with expansion driven by increased customer usage. FICO is actively expanding its partner channels, including a partnership with Fujitsu in Japan to accelerate digital transformation for financial institutions and a collaboration with dacadoo to bring AI-powered precision to the life insurance industry by integrating FICO Platform with dacadoo's health risk quantification engine.

    04

    Macroeconomic Impact and Business Resilience

    Despite a fluid macroeconomic environment, FICO's strategy and execution remain consistent, leading to reaffirmed fiscal year guidance. While some customers are delaying or downsizing customer outreach programs due to macro volatility🌐, impacting CCS usage and non-platform ARR, the platform business is seen as a strategic purchase for customers, making it resilient to immediate macro shifts.

    05

    FICO World Conference as a Strategic Event

    The upcoming FICO World Conference is highlighted as a critical event for customer engagement and pipeline building. It brings together customers and prospects to discuss real-time decision-making at scale through FICO Platform, showcasing success stories, demonstrations, and new innovations, including a preview of FICO 11 and AI capabilities. The event facilitates knowledge transfer and personalized engagement, serving as a significant channel for future sales.

    06

    Capital Allocation Philosophy

    FICO maintains a consistent philosophy on capital allocation, prioritizing share repurchases as an attractive use of cash. The company is not a market timer and aims to buy back stock regularly, aligning with its view of the company's future value. While typically matching free cash flow to purchases, FICO has historically exceeded this during periods where it perceived its stock to be undervalued, indicating a willingness to "heavy up" when opportunities arise.

    AI-generated summary of the company’s earnings call. Not investment advice.