10-Q: FICO Reports Strong Q1 Growth, Scores Drive Revenue Surge

Fair Isaac Corporation (FICO) announced a robust first fiscal quarter, with total revenues up 16% and a significant 29% increase in its Scores segment revenue.

Summary

• Total revenues for the quarter ended December 31, 2025, increased by 16% to $512.0 million, up from $439.9 million in the prior year quarter.
• Scores segment revenues grew by 29% to $304.5 million, primarily driven by higher unit prices and increased mortgage origination volumes in business-to-business scores, and increased royalties from business-to-consumer scores.
• Software segment revenues saw a modest 2% increase to $207.4 million, mainly due to growth in SaaS revenue for Platform products.
• Operating income rose by 30% to $234.0 million, compared to $179.5 million in the same period last year.
• Net income for the quarter was $158.4 million, an increase of 4% from $152.5 million in the prior year quarter.
• Diluted earnings per share (EPS) increased by 8% to $6.61, up from $6.14.
• Cash flows from operating activities decreased by $19.9 million to $174.1 million, primarily due to timing of receipts and payments.
• The company repurchased $162.7 million of common stock during the quarter under its June 2025 stock repurchase program, with $180.9 million remaining under the authorization.
• Total debt increased to $3.2 billion as of December 31, 2025, from $3.1 billion as of September 30, 2025, primarily due to increased borrowings on the revolving line of credit.

Sentiment

Score: 8

Explanation: The filing indicates strong financial performance with significant revenue and operating income growth, particularly in the high-margin Scores segment. While cash flow from operations decreased and debt increased, the company maintains a strong liquidity position and positive outlook for its core business. The growth in Platform software ARR and ACV bookings are positive indicators for future performance, despite some weakness in non-platform software.

Positives

• Total revenues increased by 16% to $512.0 million for the quarter ended December 31, 2025.
• Scores segment revenue surged by 29% to $304.5 million, driven by higher unit prices and increased mortgage origination volumes.
• Operating income grew by 30% to $234.0 million, demonstrating strong operational leverage.
• Net income increased by 4% to $158.4 million.
• Diluted EPS rose by 8% to $6.61.
• Software segment Annual Recurring Revenue (ARR) increased by 5% year-over-year to $766.0 million as of December 31, 2025.
• Platform software ARR showed strong growth of 33% year-over-year to $302.6 million.
• Dollar-Based Net Retention Rate (DBNRR) for the Software segment was 103%, indicating customer retention and expansion.
• Platform DBNRR was particularly strong at 122%, reflecting significant growth from existing Platform customers.
• ACV Bookings for on-premises and SaaS software increased by 78% to $37.8 million for the quarter.
• Cost of revenues as a percentage of revenues decreased to 17% from 20%, primarily due to increased sales of higher-margin Scores products.
• Selling, general and administrative expenses as a percentage of revenues decreased to 27% from 29%.

Negatives

• Cash flows from operating activities decreased by $19.9 million to $174.1 million for the quarter ended December 31, 2025, compared to $194.0 million in the prior year.
• Non-platform software ARR decreased by 8% year-over-year to $463.4 million.
• Non-platform DBNRR decreased to 91% from 100% in the prior year, indicating some churn or reduced expansion in this area.
• Software segment operating income decreased by 4% to $58.6 million, primarily due to increased third-party data center hosting costs and decreased sales of higher-margin software recognized at a point in time.
• Interest expense, net, increased by 42% to $42.0 million, primarily due to the issuance of $1.5 billion in 2025 Senior Notes.
• Other income (expense), net, saw a negative change of $0.2 million, primarily due to increased foreign exchange rate losses.

Risks

• Ongoing antitrust claims in consolidated putative class action lawsuits in the Northern District of Illinois against FICO and credit bureaus (Equifax, Experian, TransUnion) regarding the distribution of FICO Scores.
• Exposure to market risk related to changes in interest rates and foreign exchange rates.
• The potential for additional financing not being available on favorable terms or at all, which could limit the ability to take advantage of unanticipated opportunities or respond to competitive pressures.

Future Outlook

Management believes current cash and cash equivalents, including those held by foreign subsidiaries, available borrowings from the $1.0 billion revolving line of credit, and anticipated cash flows from operating activities will be sufficient to fund working capital and other capital requirements for at least the next 12 months and the foreseeable future, including the $400.0 million principal payment on the 2018 Senior Notes due over the next 12 months. The company expects the net impact of any future repatriations of foreign cash to be immaterial to its overall tax liability. FICO may use available cash to fund future acquisitions of technology or businesses, or to establish strategic relationships.

Management Comments

• "We believe our cash and cash equivalents balances, including those held by our foreign subsidiaries, as well as available borrowings from our $1.0 billion revolving line of credit and anticipated cash flows from operating activities, will be sufficient to fund our working and other capital requirements for at least the next 12 months and thereafter for the foreseeable future, including the $400.0 million principal payment on the 2018 Senior Notes due over the next 12 months."
• "For jurisdictions outside the U.S. where cash may be repatriated in the future, the Company expects the net impact of any repatriations to be immaterial to the Company's overall tax liability."
• "In the normal course of business, we evaluate the merits of acquiring technology or businesses, or establishing strategic relationships with or investing in these businesses. We may elect to use available cash and cash equivalents to fund such activities in the future."

Industry Context

FICO, a leader in analytics software and credit scoring, continues to benefit from the essential nature of its FICO Score in the U.S. consumer credit market. The strong growth in its Scores segment, particularly in business-to-business, suggests robust demand for credit risk assessment tools, potentially reflecting increased lending activity or market share gains. The mixed performance in the Software segment, with strong Platform growth offsetting Non-platform declines, indicates a strategic shift or market preference towards integrated, advanced analytic and decision use cases, aligning with broader industry trends of digital transformation and platform-based solutions in financial services. The increase in interest expense reflects the current higher interest rate environment and the company's debt structure.

Comparison to Industry Standards

• NA

Legal Proceedings

• FICO is a defendant in consolidated putative class action lawsuits in the Northern District of Illinois, alongside credit bureaus Equifax, Experian, and TransUnion, alleging antitrust claims related to the distribution of FICO Scores.
• On November 24, 2024, the court dismissed all claims except a Sherman Act Section 2 claim and accompanying state law claims against FICO, which are proceeding through discovery.

Related Party Transactions

• William Lansing, CEO, entered into a pre-arranged trading plan on November 20, 2025, to sell up to 47,904 shares of common stock plus shares from vesting, terminating by December 18, 2026.

Stakeholder Impact

• Shareholders: Benefit from increased diluted EPS, ongoing share repurchase program ($162.7 million in Q1), and strong revenue growth, but face potential dilution from future capital raises and risks from ongoing litigation.
• Employees: Increased headcount and personnel costs (including share-based compensation and market base-pay adjustments) indicate continued investment in the workforce.
• Customers: Benefit from FICO's continued investment in new products and services (R&D up 11%) and the growth of Platform software, but may be impacted by potential price increases.
• Creditors: The company's total debt increased, but it remains in compliance with all financial covenants under its credit agreement and senior notes indentures, indicating continued financial stability.
• Regulatory Authorities: The company is subject to ongoing legal proceedings related to antitrust claims, which could have future implications.

Next Steps

• Continue to vigorously defend against the remaining antitrust claims in the Northern District of Illinois lawsuit.
• Evaluate the impact of new accounting pronouncements (ASU 2023-09, ASU 2024-03, ASU 2025-06) on future disclosures and financial statements.
• Fund the $400.0 million principal payment on the 2018 Senior Notes due by May 15, 2026.
• Potentially acquire technology or businesses, or establish strategic relationships, using available cash and cash equivalents.
• Potentially raise additional funds through debt or equity issuance if needed for cash requirements or debt refinancing.

Key Dates

Recommendation

FICO's Q1 2026 results demonstrate strong underlying business momentum, particularly in its high-margin Scores segment, which saw a 29% revenue increase. The Software segment, while growing slower overall, shows robust 33% year-over-year growth in its strategic Platform ARR and a strong 122% Platform DBNRR, indicating successful execution of its platform strategy. Despite a decrease in cash flow from operations and increased debt, the company maintains ample liquidity and is actively returning capital to shareholders through a significant share repurchase program. The 30% increase in operating income and 8% diluted EPS growth are compelling. While legal proceedings and non-platform software declines present some headwinds, the core business strength and strategic shifts position FICO for continued growth, making it an attractive investment.

Keywords

FICO, Credit Scores, Software, Analytics, Financial Technology, SaaS, Credit Risk, SEC Filing, Quarterly Report, Earnings, Revenue, Operating Income, EPS, Debt, Share Repurchase