10-Q: Fair Isaac Reports Strong Q2 2026 Results, Revenue Surges 39%

Fair Isaac Corporation announced a significant increase in total revenues for the second quarter of fiscal year 2026, driven by robust performance in its Scores segment.

Summary

• Fair Isaac Corporation (FICO) reported strong financial results for the quarter and six months ended March 31, 2026.
• Total revenues increased by 39% to $691.7 million for the quarter and by 28% to $1.2 billion for the six-month period compared to the prior year.
• The Scores segment saw substantial growth, with revenues up 60% to $475.0 million for the quarter and 46% to $779.5 million for the six months.
• The Software segment's Annual Recurring Revenue (ARR) reached $788.8 million as of March 31, 2026, a 10% increase year-over-year, with a Dollar-Based Net Retention Rate (DBNRR) of 109%.
• Operating income rose by 64% to $402.5 million for the quarter and by 50% to $636.5 million for the six months.
• Net income increased by 63% to $264.5 million for the quarter and by 34% to $422.8 million for the six months.
• Diluted Earnings Per Share (EPS) grew significantly, reaching $11.14 for the quarter and $17.73 for the six months.
• Cash flow from operations was strong, with $397.4 million generated in the first six months of fiscal year 2026.
• The company repaid its $400 million senior notes due in May 2026 and issued $1.0 billion in new senior notes.
• Share repurchases were substantial, totaling $611.3 million for the quarter and $773.9 million for the six months.

Sentiment

Score: 9

Explanation: StockSavvy.ai views this as a very positive filing, with strong revenue growth, significant increases in profitability, and robust cash flow generation, indicating excellent operational performance and market position.

Positives

• Total revenues increased by 39% to $691.7 million in Q2 FY2026 compared to Q2 FY2025.
• Scores segment revenue grew by 60% to $475.0 million in Q2 FY2026.
• Software segment ARR increased by 10% to $788.8 million as of March 31, 2026.
• Software segment DBNRR was strong at 109% as of March 31, 2026.
• Operating income increased by 64% to $402.5 million in Q2 FY2026.
• Net income increased by 63% to $264.5 million in Q2 FY2026.
• Diluted EPS increased by 69% to $11.14 in Q2 FY2026.
• Cash flow from operating activities increased by $128.5 million to $397.4 million for the six months ended March 31, 2026.
• Cash and cash equivalents increased to $219.4 million as of March 31, 2026.
• The company repaid $400 million in senior notes.
• Significant share repurchases totaling $611.3 million in the quarter and $773.9 million year-to-date demonstrate capital return to shareholders.

Negatives

• Interest expense, net increased by 42% to $44.6 million for the quarter and $86.6 million for the six months, primarily due to new debt issuances.
• Other expense, net increased by 48% to $1.9 million for the quarter and 69% to $2.0 million for the six months, largely due to foreign exchange rate fluctuations.
• Software segment operating income decreased by 1% to $62.6 million for the quarter and by 2% to $121.2 million for the six months, despite revenue growth.
• Software segment operating income as a percentage of segment revenue decreased to 29% from 31% due to increased hosting costs and lower-margin software sales.

Risks

• Antitrust claims related to the distribution of FICO Scores are ongoing, with some claims allowed to proceed through discovery.
• The company's business, financial condition, and future results could be materially and adversely affected by risks disclosed in its Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
• Additional risks and uncertainties not currently known or deemed insignificant could also materially and adversely affect the business.

Future Outlook

The company believes its current cash and cash equivalents, available borrowings under its revolving line of credit, and anticipated cash flows from operations will be sufficient to fund its working and capital requirements for at least the next 12 months and thereafter for the foreseeable future. No significant debt obligations mature within the next 12 months. The company may raise additional funds through debt or equity issuance if needed for acquisitions or refinancing, but additional financing may not be available on favorable terms.

Management Comments

• Total revenues were $691.7 million during the quarter ended March 31, 2026, a 39% increase from the quarter ended March 31, 2025, and $1.2 billion during the six months ended March 31, 2026, a 28% increase from the six months ended March 31, 2025.
• Revenues for our Scores segment were $475.0 million during the quarter ended March 31, 2026, a 60% increase from the quarter ended March 31, 2025, and $779.5 million during the six months ended March 31, 2026, a 46% increase from the six months ended March 31, 2025.
• Annual Recurring Revenue for our Software segment as of March 31, 2026 was $788.8 million, a 10% increase from March 31, 2025.
• Dollar-Based Net Retention Rate for our Software segment was 109% as of March 31, 2026.
• Operating income was $402.5 million during the quarter ended March 31, 2026, a 64% increase from the quarter ended March 31, 2025, and $636.5 million during the six months ended March 31, 2026, a 50% increase from the six months ended March 31, 2025.
• Net income was $264.5 million during the quarter ended March 31, 2026, a 63% increase from the quarter ended March 31, 2025, and $422.8 million during the six months ended March 31, 2026, a 34% increase from the six months ended March 31, 2025.
• Diluted EPS was $11.14 during the quarter ended March 31, 2026, a 69% increase from the quarter ended March 31, 2025, and $17.73 during the six months ended March 31, 2026, a 39% increase from the six months ended March 31, 2025.

Industry Context

StockSavvy.ai notes that FICO's strong performance, particularly in its Scores segment, aligns with the increasing demand for data-driven decision-making in the financial services industry. The growth in B2B scores revenue, driven by mortgage origination volumes and credit reporting agencies, highlights FICO's critical role in the credit ecosystem. The Software segment's steady ARR growth and high DBNRR indicate successful customer retention and expansion strategies in a competitive SaaS market.

Comparison to Industry Standards

• FICO's revenue growth of 39% for the quarter significantly outpaces the average growth rates seen in the broader software and analytics industry, which typically ranges from 10-20% for established players.
• The Scores segment's 60% revenue growth is exceptional, especially considering the maturity of the credit scoring market. This suggests FICO is capturing increased market share or benefiting from favorable market conditions like higher mortgage origination volumes.
• A Dollar-Based Net Retention Rate (DBNRR) of 109% for the Software segment is considered very strong, indicating that FICO is not only retaining its existing customers but also successfully upselling and cross-selling to them, exceeding industry benchmarks which often hover around 100-105%.
• The operating margin for the Scores segment at 91% is exceptionally high, reflecting a dominant market position and efficient operations. This is significantly higher than typical margins for software companies, which often range from 20-40%.

Legal Proceedings

• FICO is a defendant in consolidated class action lawsuits alleging antitrust claims related to the distribution of FICO Scores. The court dismissed most claims, but a Sherman Act Section 2 claim and accompanying state law claims against FICO are proceeding through discovery.

Stakeholder Impact

• Shareholders are likely to benefit from the strong financial performance, increased EPS, and substantial share repurchase program.
• Customers, particularly in the Scores segment, are benefiting from FICO's critical role in credit decisioning, with increased volumes and pricing contributing to revenue growth.
• Creditors are impacted by the company's increased debt levels following the issuance of new senior notes, though covenants appear to be met.

Next Steps

• Continue to monitor the ongoing antitrust litigation.
• Evaluate opportunities for acquiring technology or businesses, or establishing strategic relationships.
• Potentially raise additional funds through debt or equity if needed for future growth or refinancing.

Key Dates

Recommendation

The filing demonstrates exceptionally strong financial performance with significant revenue and profit growth, driven by core business segments. The company's market leadership in credit scoring, coupled with robust software segment metrics and a commitment to shareholder returns via buybacks, presents a compelling investment case. While increased debt and ongoing litigation are noted, the overall financial health and growth trajectory strongly support a positive outlook.

Keywords

Fair Isaac, FICO, SEC Filing, 10-Q, Quarterly Report, Financial Results, Scores Segment, Software Segment, Revenue Growth, Earnings Per Share, Debt, Share Repurchase, Credit Scoring