Fair Isaac (FICO): Investment Flash Update | FQ2-25 Earnings (29 Apr 25)
MARGIN SURGE OVERSHADOWS SOFT PLATFORM ARR—WE HOLD BUT KEEP DRY POWDER FOR POST-FICO-WORLD SIGNALS.
Link to Historical FICO Investment Flash Updates - Link
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WHAT’S NEW — CHANGE LOG
FQ2 topline +15 % y/y with non-GAAP EBIT margin +450 bps; mortgage-score ASP lift and B2C uptick offset CCS usage drag. Platform ARR growth slowed to 17 % (FX + macro usage), but Q2 ACV bookings +30 % y/y and pipeline “healthy” reaffirm FY-25 guide.
KEY DELTAS BOX
∆ Platform ARR +17 % y/y (vs +20 % FQ1); CCS usage headwind, FX neutral.
∆ Total NRR 102 % (platform 110 %, non-platform 96 %); trough since FY-22.
∆ Software segment margin 31 % (non-GAAP) vs 33 % LY; license mix + cost discipline.
∆ Scores revenue +25 %; mortgage origination +48 % y/y despite flat volumes—pricing compounding.
∆ Free cash flow TTM $677 m (+45 %); Q2 seasonally light on AR timing, mgmt sees 2H catch-up.
∆ FY-25 guide reiterated ($1.98 bn rev, $712 m non-GAAP NI). No macro-driven haircut.
QUICK MODEL REVISIONS
Operating-line tweaks are limited but material to the FY-25 exit run-rate. Platform ARR now flows through at ≈21 % y/y (was 24 %) after we haircut CCS-usage growth for the balance of the year; the bookings backlog still underwrites a return to >20 % by Q4, but we no longer expect a mid-20s print. Conversely, we lift the Scores B2C revenue assumption to ≈5 % y/y (from 2 %) on evidence that targeted MyFICO marketing and indirect-channel traffic are sticking. Within software, the one-off license mix in Q2 and the cloud-cost refactoring visible in Q3 drive our gross-margin view to 85.3 % (prior 85.0 %).
Pricing & macro: mortgage-unit volume stays flat y/y, but the January ASP step-up is feathering in faster than modelled; we therefore hold mortgage revenue growth at low-40s even with a ten-year stuck near 4½ %. Auto-score ASP uplift appears on schedule—no further change. We keep credit-card and personal-loan originations flat (big banks remain cautious) and roll forward 3 % CPI pass-through on legacy software contracts.
Cost structure: opex growth for FY-25 eased to ~5½ % (was 6 %) as fringe-benefit normalisation offsets a planned +4 % head-count add; partner off-load ratios and AWS savings are unchanged. The one-time FICO World spend hits Q3 but is already in the guide.
Capital framework: keeping leverage inside the 2-3 × comfort band as FCF accelerates in 2H. Effective tax-rate stays at 22 % net / 26 % recurring.
TAPE CHECK
FICO’s 15 % y/y top-line again outran Experian (+6 %), Equifax (+5 %) and TransUnion (+8% on a constant currency basis), but the ARR growth gap narrowed: +3 % at FICO vs mid-single digits at peers as CCS usage cooled. The margin picture flipped the other way—FICO expanded segment EBIT by +450 bp, while Equifax bled 30 bp and EFX/TRU held flat; license mix and disciplined hiring were the drivers. Net-retention of 102 % still tops bureau peers’ sub-100 % prints and dwarfs SaaS analytics (117 %), yet the platform’s 110 % is its softest since FY-22—investors will watch H2 for a rebound.
On leverage, FICO’s 1.9 × net-debt/EBITDA sits between Experian (1.7 ×) and the two heavier peers (>2.5 ×) while its 3.2 % FCF yield now edges Experian and all analytics SaaS names. Street EPS estimates barely moved post-print, but buy-side whisper numbers shifted higher on the margin-runway narrative. No volatility anomalies: stock down <2 % on print day versus S&P –1 %, in line with the tape.
COMPETITIVE EDGE ASSESSMENT
Mortgage score pricing cadence—now 54 % of B2B Scores revenue—continues to compound; seven-year repricing runway intact. Early-adopter data confirm FICO 10T lifts approve-rate & execution; 284 bn $ origination volume committed. CCS usage wobble is cyclical, not share loss; no defections cited. Platform’s indirect-channel push (Fujitsu, Swiss-based Docadude) extends reach beyond core FS, while patents in explainable-AI keep regulators comfortable—key as new alt-data BNPL cohort launches. Barrier to switch remains tri-party: regulatory mandate, investor confidence, and thirty-year backward compatibility.
CATALYST MAP (🆕 first)
FICO World (6–9 May 25)—watch for platform AI modules, partner marketplace, FICO 11 teaser.
BNPL-enhanced score pilot go-live (Q4-25) with Affirm & bureaus.
Platform ARR print (Aug-25)—guide implies ≥20 % y/y exit; sub-20 % would test thesis.
GSE privatisation hearings (H2-25)—confirmation of FICO single-score regime.
Software architecture migration milestones (FY-26)—margin unlock update.
BEAR COUNTERPOINTS & REBUTTAL
Usage Drop Signals Structural CCS Pressure.
Pushback: Mgmt attributes to temporary pull-backs in customer outreach; bookings +30 % y/y show forward intent. No client churn.Platform ARR Decel = Saturation Risk.
Pushback: FX-clean + organic bookings convert in 2H-25; partner channel (processors, GSIs) just coming online.Reg-change Could Mandate Dual-Score, Diluting ASP.
Pushback: CEO: FHFA focus on housing supply; credit-score agenda dormant; even privatised GSEs “would still demand FICO.”
ACTIONABLE TAKEAWAY
We maintain 3.35 % active weight but defer add until post-FICO-World visibility on platform upsell. Stop-loss unchanged at 20 % below $1,890 close, or if Platform ARR growth <20 % for two successive quarters.
Disclaimer
This commentary is for informational purposes only and reflects the author’s views as of the publication date. It does not constitute investment advice or an offer to buy or sell any security. Information is believed reliable but accuracy is not guaranteed. Forward-looking statements involve risks and uncertainties. The author or affiliates may hold positions in securities mentioned. Conduct your own due diligence or consult a professional before investing.