FICO | Fair Isaac Earnings: Scores Segment Shines but Software Segment Slows

 

Fair Isaac Earnings: Scores Segment Shines but Software Segment Slows

Rajiv Bhatia

Apr 29, 2025

Fair Isaac reported revenue growth of 15% to $499 million with Scores revenue growing 25% and software revenue growing just 2% in its fiscal second quarter. Adjusted earnings grew by 25%. The firm maintained its guidance for fiscal 2025.

Why it matters: The software segment slowed despite management optimism that it would accelerate. Also, during each of the second fiscal quarter earnings of the prior three years, the firm raised its guidance so the lack of a raise sticks out. These factors may cause a negative market reaction.

• The firm’s revenue of $499 million in the quarter was in line with the FactSet consensus of $500 million while adjusted EBITDA of $288 million topped the consensus of $276 million.
• Relative to consensus expectations, we believe revenue was higher in the high margin scores business but lower in the lower margin software business.

The bottom line: After digesting fiscal second quarter results, we will maintain our wide moat rating and $1,500 fair value estimate. We regard shares as pricey at current levels.

• While the firm’s software revenues were below our expectations, the software segment is only about 20% of Fair Isaac’s profits and the firm’s non-mortgage score revenue came in slightly ahead of our model.

Key stats: Scores revenue grew 25% with business to business up 31% and business to consumer up 6%. Mortgage originations grew 48% driven by pricing as Equifax’s credit inquiries declined 10%. Auto revenue was up 16% though management declined the break-out the price versus volume mix.

• Software revenue was up just 2%, which compares to 8% growth in the first quarter. Dollar based net retention slowed to 102% from 105% and annualized recurring revenue decelerated to 3% from 6% sequentially.
• Amidst a volatile macroeconomic backdrop, Fair Isaac continues to see lower usage level impact some software revenue. While new bookings in the quarter were strong, management did acknowledge it can take longer to close deals in this environment.