Q4 2025 Fair Isaac Corp Earnings Call
Speaker #1: Good day and thank you for standing by . Welcome to the fourth quarter of 2025 . Fico Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #1: After the speaker's presentation , there will be a question and answer session . To ask a question during the session , you need to press star one on your telephone .
Speaker #1: You will then hear an automated message advising your hand is raised to withdraw your question , please press star one one again . Please be advised today's conference is being recorded .
Speaker #1: I would now to hand the conference over to your speaker today . Dave Singleton , please go ahead .
Speaker #2: Good afternoon and thank you for attending Fico's fourth quarter earnings call . I'm Dave Singleton , vice president of investor relations , and I'm joined today by our CEO , Will Lansing .
Speaker #2: And our CFO , Steve Weber . Today we issued a press release that describes financial results compared to the prior year . On this call , management will also discuss results .
Speaker #2: In comparison with the prior quarter to facilitate an understanding of the run rate of the business . Certain statements made in this presentation are forward looking under the Private Securities Litigation Reform Act of 1995 .
Speaker #2: Those statements involve risks and uncertainties that could cause actual results to differ materially . Information concerning these risks and uncertainties is contained in the company's filings with the SEC , particularly in the risk factors and forward looking statements portion of such filings .
Speaker #2: Copies are available from the SEC , from the Fico website or from our Investor relations team . This call will also include statements regarding certain non-GAAP financial measures .
Speaker #2: Please refer to the company's earnings release and regulation G . Schedule issued today for a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure .
Speaker #2: This includes an FY 26 guidance , reconciliation of GAAP to non-GAAP earnings , which are adjusted for items such as stock based compensation and excess tax benefits .
Speaker #2: This reconciliation is part of the earnings release included in exhibit 99.1 to our 8-K , which we filed with the SEC under item 2.02 , called Results of Operations and Financials .
Speaker #2: Earnings Release and Regulation G , schedule are available on the Investor Relations page of the company's website at geico.com or on the SEC's website at sec.gov .
Speaker #2: A replay of this webcast will be available through November 5th , 2026 . I will now turn the call over to our CEO , Will Lansing .
Speaker #3: Thanks , Dave , and thank you , everyone for joining us for our fourth quarter earnings call in the Investor Relations section of our website .
Speaker #3: We've posted some financial highlights , slides that will be referring to during this earnings announcement . Today I'll talk about this quarter's results and our guidance for fiscal 26 .
Speaker #3: We had another fantastic year . We exceeded fiscal 25 guidance on all metrics and delivered record annual free cash flow . As shown on page two of the fourth quarter financial highlights , we reported Q4 revenues of 516 million , up 14% over last year .
Speaker #3: For the full fiscal year , we delivered 1.991 billion , up 16% versus the prior year in our software segment , we delivered 204 million in Q4 revenues .
Speaker #3: While performance at the segment level was flat year over year , results included 17% platform revenue growth driven by Fico platform and 7% decline in non platform revenue due to the end of life legacy products and timing of recurring revenue within the quarter .
Speaker #3: For the fiscal year , we delivered 822 million in revenue , up 3% from last year . We have strong momentum in our software business , driven by customer adoption of Fico platform at Fico world , we announced upcoming general availability of next generation Fico platform enterprise fraud solution natively on Fico platform and the groundbreaking Fico marketplace .
Speaker #3: Our R&D investments are directly tied to driving real value for our customers . These innovations bring connected end to end customer experience , including new use cases to the market .
Speaker #3: They enable smarter , explainable outcomes , improve performance , and improved speed of deployment , and yield better customer ROI . This quarter , we announced the general availability of Fico focused foundation model for financial services .
Speaker #3: What we call Fico FM , Fico FM consists of Fico focused language model , which is Fico and Fico focus sequence model , which is Fico , FSM .
Speaker #3: It's a domain data and problem specific genai model for financial services that delivers accurate and auditable outcomes . Fico FM enables enterprises to use small language models built for their specific business problems , significantly helping to mitigate hallucinations and provide transparency .
Speaker #3: Auditability and adaptability . Fico FM achieves improved accuracy and cost efficiencies compared to conventional gen AI models . For example , Fico FM results in more than 35% lift in world class transaction analytic models in areas such as fraud detection , while requiring up to 1000 times fewer resources compared to conventional gen AI models .
Speaker #3: In fiscal 26 , we plan to advance our direct and indirect distribution strategy and invest to capture market opportunities . Emerging from these innovations , Steve will discuss that further later on .
Speaker #3: As a reminder , our analytic innovations and intellectual property at Fico are protected by our patent portfolio of over 230 issued patents and nearly 80 pending applications .
Speaker #3: Many of these issued and pending patents are AI specific and reinforce Fico position at the forefront of responsible AI development . Turning to scores in our score segment , our fourth quarter revenues were 312 million , up 25% versus the prior year , while B2B scores were the key driver of growth , we also saw continued encouraging growth in B2C scores .
Speaker #3: For the full year , our revenues were 1.169 billion , up 27% versus last year . And that was materially driven by B2B scores .
Speaker #3: The Fico score used by 90% of top U.S. lenders continues to be the standard measure of consumer credit risk in the US . Long term model , stability is a critical consideration for lender determining which credit scoring model to use for originations .
Speaker #3: Fico scores are used by lenders across consumer credit sectors because they're time tested , trusted , reliable and they are the independent standard around the world .
Speaker #3: In fact , Fico remains the only independent analytics provider and the only score with known predictable performance through a complete economic cycle , including the stressful period of the Great Recession .
Speaker #3: Fico scores continue to be widely used in critically relied on throughout the consumer credit ecosystem . That includes cards , personal loans , auto lending , and mortgages .
Speaker #3: The Fico score was established as an industry standard and was freely chosen by mortgage market participants . Long before the GSE selected classic Fico as the credit score for guaranteeing conforming mortgages .
Speaker #3: With no government guarantee outside of conforming mortgages , market participants seek out the most predictive score , which is often one of our recent innovations like Fico eight , Fico auto ten , and Fico 20 .
Speaker #3: In fact , bureaus have provided free Vantagescore for years outside of mortgage . Yet Fico has continued to successfully compete and win business in those areas .
Speaker #3: Our scores remain the standard for use in mortgage underwriting and pricing , investor credit risk and prepayment models in capital requirements and by credit rating agencies for mortgage backed securities ratings .
Speaker #3: Classic Fico is critical to driving investor pricing of mortgage backed and other securities , and ultimately the cost consumers paying the mortgage industry .
Speaker #3: We recently announced our Fico Mortgage Direct license program with a view to driving competition , transparency and cost savings , and mortgage while aligning with calls from policymakers and industry leaders to modernize credit infrastructure and promote affordability , liquidity and access .
Speaker #3: In the $12 trillion US mortgage market . In the short time since our announcement , we've seen overwhelming interest in the Fico mortgage direct License program .
Speaker #3: As we announced today , we entered into a multi-year direct license and distribution agreement with Zacchaeus , the largest credit verification and primary provider of Fico scores .
Speaker #3: In addition , we're actively engaged with resellers representing about 90% of mortgage volume , including the largest resellers , as well as technology platform providers who serve the smaller resellers .
Speaker #3: To enable our Mortgage Direct program as quickly and efficiently as possible . We've already provided our Fico score , our Fico score , scoring software for the Mortgage Direct license program , software to the top four resellers , along with several key platform providers with our Fico Mortgage Direct license program , Trimers resellers have the option to calculate and distribute Fico scores directly to their customers , eliminating reliance on the three nationwide credit bureaus .
Speaker #3: The calculation of Fico score and the packaging to create a mortgage bundle does not add incremental complexity or risk for trimers resellers , the Trimers resellers have the infrastructure and processes to package data today , as this is their core business .
Speaker #3: The Fico score algorithm that will now be used by the resellers under our direct program is the same model as what is currently installed at the bureaus today .
Speaker #3: The underlying data used by resellers and bureaus in the Fico score models is the very same data . The data format for the Fico Direct License program is the very same data format processed by Trimers resellers today .
Speaker #3: That lenders use today , and that's required in the conforming mortgage market by Freddie and Fannie today . In fact , it's the same format we use in our partnership with the Trimers resellers for Fico Score Mortgage Simulator , which is in the market today .
Speaker #3: Our Fico Mortgage Direct license program provides optionality to the market . We offer two alternative pricing models a historical per score pricing model and a new performance pricing model .
Speaker #3: The performance pricing model is built on successful mortgage funding and answers the call of industry participants to provide optionality in our pricing models .
Speaker #3: We anticipate resellers evaluating lenders throughput rates to determine which Fico score pricing models provides lenders with the most savings from a pricing perspective , the Fico score for mortgage originations was $4.95 per score in 2025 .
Speaker #3: The bureau's market as price up on average to $10 per score in 2026 under the Fico Direct License program , lenders have a choice of either the performance model at 495 per score , plus a funding fee at closing , or the per score model at $10 per score .
Speaker #3: The performance model yields a 50% reduction in average per score fees to what resellers paid for Fico scores in 2025 , and the per score model is , on average , the same price as the resellers paid for Fico scores in 2025 .
Speaker #3: Lenders obviously have a lot to consider when evaluating which credit scores to adopt , and that decision considers factors well beyond the upfront cost of the credit scores .
Speaker #3: Classic Fico is still the only score used for conforming mortgages guaranteed by the GSE . It is the only score that has performance data through the Great Recession in 2008 , 2009 .
Speaker #3: It's the only score that's leveraged throughout our secondary mortgage markets , regardless of GSE guarantees . Predictiveness of the score matters . Recent independent studies by Milliman Urban Institute , AEI Housing Center , and others have found classic Fico score developed 20 years ago to perform similarly or on a par with , or at times to outperform the recently developed managed score for our latest score , Fico 20 is the most predictive and inclusive credit scoring model on the market .
Speaker #3: We continue to see growing momentum and adoption of Fico score 20 . There's a large industry efficiency benefit in testing Fico and Vantagescore simultaneously , and we expect Fico score 20 to be made available for implementation at the GSEs .
Speaker #3: Fico 20 builds upon Fico's decades as a trusted pillar of the mortgage ecosystem , using advanced modeling techniques and comprehensive consumer financial data , including rental payments , assorted data that we've used , we , Fico , have used in our credit score model since 2015 .
Speaker #3: In addition to rental data , utility data , and telco data , by leveraging trended credit data , Fico score 20 analyzes borrower behavior over time , which allows lenders using the score to gain deeper insights into prospective borrowers , helping them to make more precise lending decisions .
Speaker #3: Our latest score is a meaningful step forward in credit risk assessment . Fico 20 offers significant improvements in predictive accuracy combined with a focus on fairness and model stability .
Speaker #3: Offering tremendous benefits for lenders , investors and borrowers alike . Earlier this year , our team at Fico published a comprehensive white paper demonstrating how Fico score 20 offers significant improvement in predictive accuracy over other models , including both vantage four and classic Fico .
Speaker #3: The link to that white paper and other studies mentioned in today's earnings call can be found in our Investor Relations presentation . Specifically , Fico score 20 identified 18% more defaulters in the critical score decile commonly used for mortgage originations , while Vantagescore identified only marginally more than classic Fico .
Speaker #3: Fico score 20 also enables a 5% increase in mortgage originations without taking on additional credit risk . Vantage four claims to score more consumers , but does so using models that are statistically unsound for predicting risk .
Speaker #3: For example , scoring using one month of payment history . We , by contrast , don't lower our standards in 2020 for the GSE average credit profile included an average Fico score of 758 .
Speaker #3: Vantage four claims they can score more consumers , but with less than 10% of GSE guaranteed loans below Fico score , 680 , this does not result in a material increase in loan qualifications that are guaranteed by the GSEs .
Speaker #3: In fact , it can actually hinder those who have thin credit profiles from processes that are already in place that are designed to to approve no file or thin file applicants .
Speaker #3: Make no mistake , we have access to the same data as our competition . What matters is how the data is used to innovate .
Speaker #3: Scoring models to yield the best risk prediction . Fico decades of experience enable us to innovate better , as shown in the outstanding performance of Fico 20 versus vantage four , which can only keep pace in some cases .
Speaker #3: Can't even do that with a score that we created two decades ago . Fico score 20 is better . Performance will drive benefit for not only mortgage insurers and investors , but other market participants as well .
Speaker #3: It will deliver improved mortgage pricing and lower monthly costs for borrowers . It's going to benefit millions of Americans to further emphasize this point , the benefits of Fico score 20 are not hypothetical in the non-conforming mortgage industry .
Speaker #3: Fico score 20 has already been adopted by nearly 40 lenders , accounting for more than $316 billion in annual originations and more than 1.5 trillion in eligible servicing volume , most making multi-year commitments to use the Fico score for mortgage decisions in both the conforming and non-conforming markets .
Speaker #3: We're proud of our innovations and ability to adapt to needs of our customers . We're excited about the perception and adoption of our latest offers .
Speaker #3: I'm going to pass it now over to Steve for further financial details . Thanks , Bill , and good afternoon , everyone . We had another good quarter with total quarterly revenues of $516 million , an increase of 14% over the prior year .
Speaker #3: As we discussed last quarter , sequential revenue is down due primarily to lower point in time revenues from scores and software licenses , as well as seasonality and lower professional services revenues .
Speaker #3: Software segment revenues for the quarter were $204 million flat versus the prior year . From page five of our presentation . Within that segment , you can see on premise and SaaS software revenues were flat year over year .
Speaker #3: While professional services declined 5% . We delivered $822 million in fiscal year revenue , which was up 3% from the year prior year .
Speaker #3: This quarter , 87% of total company revenues were derived from our Americas region , which is a combination of our North America and Latin America regions .
Speaker #3: Our EMEA region generated 8% of revenues , and the Asia Pacific region delivered 5% . Score segment revenues for the quarter were $312 million , up 25% from the prior year , as shown on page six of the presentation .
Speaker #3: B2B revenues were up 29% , primarily attributable to a higher mortgage origination scores . Unit price sequentially , B2B revenue slightly improved when excluding our prior quarter .
Speaker #3: Multi-year US license renewal on our insurance score product last quarter . Our B2C revenues were up 8% versus the prior year , driven both by our myfico.com business and our indirect channel partners .
Speaker #3: Total scores revenues were $1.169 billion , up 27% despite lower than historical mortgage originations . Volumes driven by persistently high interest rates . Fourth quarter mortgage originations revenues were up 52% versus the prior year .
Speaker #3: Mortgage origination revenues accounted for 55% of B2B revenue and 45% of total scores . Revenue . Auto originations revenues were up 24% , while credit card , personal loan and other originations revenues were up 7% versus the prior year .
Speaker #3: Turning to guidance for 26 , our FY 26 revenue guidance assumes software SaaS growth , driven mainly by Fico platform and offset by less point in time revenue due to fewer non platform license renewal opportunities and a similar level of annual professional services revenue for our scores business .
Speaker #3: Our guidance doesn't anticipate any significant improvement in the macro environment . We also don't expect any loss of market share or any significant volume changes in auto , card and personal loan originations .
Speaker #3: As a reminder , our last quarter contained one material non-recurring , multi-year US license renewal on our insurance score product that we won't see in FY 26 , as shown on page seven of our investor presentation .
Speaker #3: Our total software IRR was $747 million , a 4% increase over the prior year . Platform IRR was $263 million , representing 35% of our total Q4 25 IRR platform .
Speaker #3: RR grew 16% versus the prior year , while Non-platform declined 2% to $484 million this quarter . Our platform IRR experienced lower performance due to usage reductions from select customers .
Speaker #3: Non-platform IRR was consistent with the last few quarters . We expect total software IRR to increase in fiscal 2026 , reflecting the benefit of recent Fico platform bookings going live .
Speaker #3: Our platform and expand strategy continues to be successful . On page eight , our dollar based net retention rate in the quarter was 102% .
Speaker #3: Platform and IRR was 112% . While our non platform Gnrh-r was 97% . Platform IRR was driven by a combination of new use cases and increased usage of existing use cases .
Speaker #3: Our software ACV bookings for the quarter were $32.7 million , compared to $22.1 million in the prior year , representing our best quarterly performance in the six years since we began disclosing this metric on a full year basis , ACV bookings reached $102 million .
Speaker #3: Our strongest annual performance over that time frame . Expenses for the quarter , as shown on page five of the financial highlight presentation .
Speaker #3: Total expense operating expenses were $279 million this quarter , versus $274 million in the prior quarter . 2% increase in our prior quarters .
Speaker #3: Prepared remarks . We outlined key factors we expect to continue to contribute to a sequential increase in total expenses . Those factors largely materialized as expected , and included $10.9 million for restructuring , increased interest expense , and increased marketing expenses .
Speaker #3: Partially offsetting these factors , stock based compensation declined in Q4 due to forfeitures . The restructuring , I noted , was the result of reallocating resources to align with our strategy for the full year .
Speaker #3: Our expenses were $1.066 billion versus $984 million in the prior year , an increase of 8% . Our FY 26 guidance assumes a similar year over year operating expense growth compared to the prior year .
Speaker #3: We maintain our focus on efficiencies and are committed to prioritizing resources to our most strategic initiatives . Investments focused on headcount for distribution and continued development of our Fico platform , as well as increased headcount for our scores , business and marketing across both sides of the business .
Speaker #3: Our non-GAAP operating margin is shown in our Reg G schedule was 54% for the quarter , compared with 52% in the same quarter last year .
Speaker #3: We delivered year over year non-GAAP operating margin expansion of 210 basis points . Our full year non-GAAP operating margin was 55% , an improvement of 340 basis points year over year .
Speaker #3: We reported $155 million in GAAP net income in the quarter , up 14% , and GAAP earnings of $6.42 per share , up 18% from the prior year .
Speaker #3: Excluding restructuring , GAAP net income would have been $166 million with earnings of $6.76 as reported . For the full fiscal year . We delivered $652 million in GAAP net income , equating to $26.54 of earnings per share , up 27% and 30% , respectively .
Speaker #3: For the quarter , we reported $187 million in non-GAAP net income , up 15% , and non-GAAP earnings per share of $7.74 per share , up 18% from the prior year .
Speaker #3: And note restructuring is added back to the non-GAAP net income , as shown on the schedule for the full fiscal year . We delivered $734 million in non-GAAP net income , equating to $29.88 of earnings per share , up 23% and 26% , respectively .
Speaker #3: Effective tax rate for the quarter was 23.4% , and the operating tax rate was 25% . Our full year net effective tax rate was 18.8% , while the operating rate was 25% .
Speaker #3: As a reminder , the key difference between operating tax rate and net effective tax rate was the $44 million excess tax benefit . Our FY 26 guidance assumes a net effective tax rate of 24% , with an operating tax of , tax rate of 25% .
Speaker #3: As shown on page ten . We delivered free cash flow of $211 million in our fourth quarter . Over the last four quarters , we delivered $739 million in free cash flow , which represents an increase of 22% year over year .
Speaker #3: At the end of the quarter , we had $189 million in cash and marketable investments . Our total debt at quarter end was $3.6 billion , with a weighted average interest rate of 5.27% .
Speaker #3: As of September 30th , 2025 , 91% of our debt was held in senior notes , with no term loans . We had $275 million balance on our revolving line of credit , which is repayable at any time .
Speaker #3: We continue to return capital to our shareholders through buybacks . This quarter , we repurchased 358,000 shares in an average price of $1,499 per share for the fiscal year , we repurchased 833,000 shares at an average price of $1,693 per share .
Speaker #3: Share repurchases totaled $536 million in the fourth quarter and $1.41 billion for fiscal 2025, marking the highest quarterly and annual repurchase levels in the company's history.
Speaker #3: Going forward , our philosophy has not changed , and we continue to view , share . View , share repurchases as an attractive use of cash .
Speaker #3: And with that , I'll turn it back to Will for his closing comments . Thanks , Steve . We continue to execute well on our strategy , and we're well positioned for a strong fiscal 2026 as we announced our guidance , I'll remind everyone that consistent with prior years , we expect some of the pricing initiatives in 26 to have an additional impact beyond our guided numbers .
Speaker #3: And because of uncertainty in volumes , it's difficult to estimate the timing and magnitude of that impact . I'm pleased to report that today we're guiding even stronger growth than we achieved in fiscal 25 .
Speaker #3: As you can see on page 13 , we are guiding the following revenue of 2.35 billion , an increase of 18% over fiscal 25 GAAP net income of 795 million , an increase of 22% .
Speaker #3: GAAP EPs of $33.47 , an increase of 26% . non-GAAP net income of 907 million , an increase of 24% . And non-GAAP earnings per share of $38.17 , an increase of 28% .
Speaker #3: With that , I'll turn the call back to Dave and we'll open up the Q&A session .
Speaker #2: Thanks , well , this concludes our prepared remarks , and we're now ready to take questions . Operator . Please open the lines .
Speaker #1: Thank you . Ladies and gentlemen , if you have a question or a comment at this time , please press star one one on your telephone .
Speaker #1: If your question has been answered, you wish to move yourself from the queue. Please press star, one, one again in the interest of time, and allow everyone the opportunity to participate in the Q&A session.
Speaker #1: We ask that you limit yourself to one question . We will pause for a moment while we compile our Q&A roster . Our first question comes from an Patnaik with Barclays .
Speaker #1: Your line is open .
Speaker #4: Thank you . Good evening gentlemen . I guess my one question is just a broader question around your recent discussions with the four .
Speaker #4: Obviously , there's a lot going on , and Director Pulte is treated favorably about your recent actions , but then also , like , you know , what's next ?
Speaker #4: You know, a lot of the talk on FICO. Do you think that gets approved soon? Just anything there you could provide that would be helpful?
Speaker #3: Sure . Well , you know , we've obviously been engaged in constructive conversation with the for a the director has had a big push for increasing competition .
Speaker #3: And our direct distribution program is is a big step in that direction . It basically creates competition in the distribution of credit scores .
Speaker #3: So so that was positively received with respect to 20 . It is with the the GSEs . And we're working with them to get it out .
Speaker #3: And I can't give you an exact date , but we're confident that eventually it will be released .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Simon Clinch with Rosenblatt , Roosevelt and Company . Redburn , your line is open .
Speaker #5: Hi . Thanks for taking my question . Just to clarify , that's Rothschilds and co . Redburn . Apologies . Rosenblatt . I was wondering , maybe , Steve , if you could talk about the some of the assumptions around the actual direct licensing model that you built into the guidance for the year and how we should think about the cadence of that through the year , because I know quite a lot is really sensitive to to the mix of whether it's the historic model or the performance model .
Speaker #3: Yeah , that's a really good question . And honestly , you know , I think if you follow us for several years , I mean , you realize that we're pretty conservative with the way we guide generally , but we're probably more conservative this year because there's there's a lot of uncertainties in the macro environment and the timing around some of this .
Speaker #3: So with the performance model , for instance , there could be a time lag just because the way it works , if it's performance based , if if the mortgage process starts in December and it spills into January , we won't necessarily get paid on the performance piece of that yet .
Speaker #3: So and then even at the end of the year , if the process starts , you know , in the August September time frame , it might not close until October .
Speaker #3: So that that performance fee might spill into 27 . So there's a lot of complexity to all that . So frankly , we're being very conservative with the way we look at this .
Speaker #3: And we just don't know for sure yet . You know who's going to take which model . So there's there's probably more conservatism built in than what we generally have .
Speaker #3: And you know , within a couple quarters we'll be able to give you a lot more information on that and how that really shapes up .
Speaker #3: And then we can all do a better job of understanding the timeline of this .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Jason Haas with Wells Fargo . Your line is open .
Speaker #6: Hey . Good afternoon and thanks for taking my question . I know we've just recently gotten the price information for fiscal 2026 , but we're already starting to think about what pricing could look like in fiscal 2027 and beyond .
Speaker #6: So curious if you could talk about how you're thinking about price increases over the long run . And if there's any change to the pricing runway ?
Speaker #6: Now that you're going through this direct model ? Thank you .
Speaker #3: Well , yeah , I guess that's everybody would love to know what the pricing is going to look like in 27 , 28 and beyond .
Speaker #3: And as is our custom , we're not going to share any of that with you because we don't know ourselves . You know , we read the market and we read the environment .
Speaker #3: And here's here's what you can take . Take as as kind of our baseline . We believe that there continues to be a very large value gap between what we charge and the value that the score provides to those who use it .
Speaker #3: And so we've been on a mission over a number of years and will continue into the future to close that value gap . As we've said in the past , our goal is to do it in a predictable , methodical way .
Speaker #3: And and not create , you know , any kind of big dislocations . But to make it very manageable for all industry participants .
Speaker #3: But do we believe that the value gap continues to exist? It does. Are we going to address that in the coming years?
Speaker #3: We will . And exactly the nature and form of that and the amount of that is all TBD , because we don't know ourselves .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Pfizer with Deutsche Bank . Your line is open .
Speaker #7: Yes . Hi . Thank you . I wanted to ask about what type of feedback you've gotten from lenders on the two pricing models that you have , and if there's any hesitation around going via the resellers and essentially going direct , because I believe the performance model is only available if they go direct .
Speaker #7: And if there are any complexities or additional costs that lenders might have to incur if they're going direct and not to the Bureau's .
Speaker #3: So far , we're getting really positive reception to the direct model . Now , our goal is to make our IP , our Fico scores available through both the bureaus .
Speaker #3: As we've done historically and through the direct channel, through the Trimers resellers, there is a lot of enthusiasm for the direct approach.
Speaker #3: There are not a lot of operational complexities . We'll work through the details . And so it's going to be available in terms of the reaction from lenders .
Speaker #3: The whole idea was to provide a choice to provide optionality , to let those who consume the scores optimize for their own businesses .
Speaker #3: The way that they consume the scores . And so we've done that with the two models . You can imagine that we spent a lot of time thinking about how to construct them so that we wouldn't be we Fico wouldn't be terribly hurt through adverse selection , because you can expect that those who consume the scores are going to choose the model that's best for them .
Speaker #3: And so that all went into the calculus . And we're very comfortable that however , the the mix shakes out between the per model and the performance model will be fine and customers will be happier .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Surinder Thind with Jefferies . Your line is open .
Speaker #8: Thank you . Well , given that we've seen 20 adoption in the non-conforming market , can you maybe walk us through those conversations ?
Speaker #8: The specifics of the evaluation and maybe how long it took those lenders to make that decision ? I think that would be helpful .
Speaker #8: Just kind of color to try and understand the timing around some of these upgrades and the complexity .
Speaker #3: Well , so in the non-conforming market , more than anywhere else , they truly care about default risk and prepayment risk . And the predictiveness of the score really matters .
Speaker #3: And I think that's what motivates and drives those who already have chosen Fico to do that . We , you know , we make the score available .
Speaker #3: We give them both classic and Fico . We give them the data with which to to do the analysis . And so far , there's a lot of happiness over the introduction of our latest and greatest score .
Speaker #3: So I mean , that's that's the dynamic . But you know , in , in , in that market , like in all scoring markets , things move slowly .
Speaker #3: It takes a while to test and to adopt . And so , you know , there's there's still a lot of room for penetration in the non-conforming market .
Speaker #3: But we're very happy with our progress to date .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Jeff Mueller with Baird . Your line is open .
Speaker #3: Yeah .
Speaker #9: Thank you . Let me invert the answer you just gave to that question . So in the conforming market where it's more about residual credit risk and .
Speaker #9: There's less default risk to the security holder , just help us understand kind of the value prop or compare and contrast the value prop of staying on Fico .
Speaker #9: And the conforming versus non-conforming market . Thank you .
Speaker #3: Well , I think it's you know , there's some people who believe that because the GSEs have a guarantee that suddenly credit risk doesn't matter and that we default to a much lower importance criteria like the price per score .
Speaker #3: And I would just challenge that . I would tell you it's not true . The reality is that mortgage originators who passed the loans to Fannie and Freddie still care about credit risk .
Speaker #3: They still care about prepayment risk . They still care about default risk . And as many of you know , when things go wrong with the mortgage , the GSEs are able to put these loans back to the originators .
Speaker #3: You know , they they basically take a look at the documentation . And there's often problems with the documentation and , and the loans get put back .
Speaker #3: So the originators, even if they don't hold the loan and hold the risk associated with the loan, still care about the credit risk.
Speaker #3: And so I think that in both the conforming market and the non-conforming market , you're going to see appetite for the most predictive score and the best understanding of prepayment and default risks .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Ashish with RBC Capital Markets . Your line is open .
Speaker #10: Hi . Thanks for taking my question . I'll just ask a question on the software front . RR moderated there , but you obviously had a very strong ACV bookings quarter , but as well as the year , how should we think about this ACV starting to convert into IRR as we head into 26 ?
Speaker #3: Yeah , we'll actually see as soon as Q1 acceleration of IRR . So that's something that we see coming in because as these deals go live , it helps us right away with IRR .
Speaker #1: Thank you . One moment for our next question . Our next question comes from George Tong with Goldman Sachs . Your line is open .
Speaker #11: Hi . Thanks . Good afternoon . Now that mortgage resellers will be undertaking more responsibilities , calculating the score under the direct licensing program , what are your thoughts on whether they may raise their fees to match what the credit bureaus charge ?
Speaker #11: What if some of the conversations with these resellers suggested ?
Speaker #3: Well , you know , that's up to the resellers . What they're going to charge . And I think that's all TBD . I don't think that their pricing is completely understood from the bureaus on the data side .
Speaker #3: And and so I think there's still putting together their pricing . We obviously don't really influence that . They're running a business and they do what they do .
Speaker #3: So I mean , that's that's entirely in their hands .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Scott Wurtzel with Wolfe Research . Your line is open .
Speaker #12: Hey , good afternoon guys . Thank you for taking my question . Just wondering if you can talk about , you know , in the FY 26 guide , what you're contemplating in terms of pricing on , you know , other areas and scores such as auto and how you're thinking about the monetization opportunity .
Speaker #12: There . Thanks .
Speaker #3: Yeah , we it's it's a little more modest than mortgage . I mean , what we do , you know , we've talked about this in the past .
Speaker #3: What we do is we look across all the different segments in which the scores are used . And , you know , we will typically put in place kind of a cost of living , inflation oriented adjustment on price across the board .
Speaker #3: And then we go after selective areas where we think that there's the big value gap and there's an opportunity for a little bit more price .
Speaker #3: And so we've done that this year in areas outside of mortgage , as we always do . I wouldn't point to any particular segment for dramatic change .
Speaker #3: I don't think you'll see that. So, it's more like years past where it's a little bit more than inflation and cost of living.
Speaker #3: But but there are selective spots where we , we do a bit more than that .
Speaker #1: Thank you. One moment for our next question. Our next question comes from Alexander Hess with J.P. Morgan. Your line is open.
Speaker #1: Looks like they had a bit of phone issues there, lying on disconnected. I'll move on to the next person in the queue.
Speaker #1: One moment . Our next question comes from John Mazzoni with seaport . Sorry , seaport . Research partners , your line is open .
Speaker #9: Hey , thanks for taking my question . Maybe just a follow up on the strength of the ACV bookings . Could you just maybe give us some color in terms of what drove that kind of outsized quarterly performance ?
Speaker #9: And is there any kind of budget flush or any other items we're seeing ? I just wanted to make sure there wasn't a pull forward or any other things like that .
Speaker #9: Thanks . Yeah .
Speaker #3: There was nothing . I mean , I think you've seen in the last several quarters kind of an acceleration in that number . You know , it has the we're just seeing momentum there , right ?
Speaker #3: We've got a new sales leader that came in . There's there's some some excitement around that . Plus we just have those momentum gaining with the products that we that we've produced and the platform .
Speaker #3: So it just takes time for that to gain traction . And we're seeing the results of that . And we hope to see that continue .
Speaker #3: You know , going into the next year as well .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Ryan Griffin with BMO Capital Markets . Your line is open .
Speaker #9: Thanks so much .
Speaker #13: Just hoping to focus a little bit on the mortgage volume side of the equation . I was curious what is built into your guidance and what swing factors , whether to trigger loans or rates could impact the view .
Speaker #13: Thank you .
Speaker #3: Yeah, I think this is where the conservatism comes in, right? We don't really have a full understanding of the trigger leads.
Speaker #3: We have a pretty big , assumption in there for reduction because the trigger leads . So we're being really conservative . I mean , we're looking at this and thinking , you know , until we know more , you know , it's a lot easier to raise your guidance than it is to lower it .
Speaker #3: So I think we're always conservative . But this year , probably more than other years , we're we're extra conservative .
Speaker #1: Thank you . One moment for our next question . Our next question comes from online with Clear Street . Your line is open .
Speaker #14: Hi . Thank you for taking my question . So for the multi-year agreement with your resale , I think sectors . Could you please add more color on the pricing arrangement for this agreement longer term ?
Speaker #14: Is the pricing lock in in this agreement or there is flexibility for Fico to raise pricing because of the value you provided ? Thanks .
Speaker #3: So that's a good question . Our pricing is for 2026 . And we have a multi-year agreement to work together . But the pricing that's been published is for 2026 .
Speaker #3: And as you know , we adjust our prices every year . And that will continue .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Alexander Hess with J.P. Morgan . Your line is open .
Speaker #15: Hey , sorry about that . I accidentally pressed the hang up instead of unmute . So on the the the guidance , you indicated , tell me if this quote is wrong , that your guidance that you don't expect any loss of market share or any significant volume changes in auto card and personal loan originations , that was sort of from the prepared remarks , mortgage wasn't touched on that .
Speaker #15: I know you just said you're being conservative with the assumptions , but like , what could surprise to the upside in mortgage ? Is it , you know , better volume , better market share retention ?
Speaker #3: Well , I mean , I think it's it's the market share are not very worried about to be frank , the the volumes will vary mostly with interest rates .
Speaker #3: And your guess on that is as good as ours . And as we have for many years . We're very conservative on forecasting increases in volume based on expectations about where rates go and that we've been rewarded for that conservatism in years past because rates have have for the last several years , not come down to the extent that people expected .
Speaker #3: And we've done more of the same this year. So although there's a good chance rates will come down, you know, big volume increases associated with rate declines are not built into our guidance.
Speaker #3: Yeah . And just I mean , just to further expand on that , if you follow us , you realize that how we look at guidance is we build a model that we believe is what's likely to happen .
Speaker #3: And then we will take that and haircut , that expectation . So we want to be able to exceed . Right . We don't want to be sweating out to the fourth quarter hoping , you know , that things are going to work well .
Speaker #3: So that that haircut gives us the ability to without things getting dramatically better , to still be able to raise our guidance or beat our guidance .
Speaker #3: So we've done that again this year . And like I said before , it's probably a little bit more of a haircut that went into that because there's so much uncertainty .
Speaker #3: So that's just kind of a background , again , on how we actually prepare our guidance .
Speaker #1: Thank you. One moment for our next question. Our next question comes from Kevin McVeigh with UBS. Your line is open.
Speaker #8: Great . Thanks so much . Hey , if you .
Speaker #16: Could give us a sense , are the resellers on pace for the one one adoption ? And , you know , you're helping them with the implementation ?
Speaker #16: Any thoughts as to what they've experienced? You know, sounds like they were pretty far along anyway. But just any thoughts around that?
Speaker #3: We're on pace . I mean , I can't give you an exact date , but things are tracking very nicely . And as I said , there's not a lot of operational hurdles to be overcome .
Speaker #1: Thank you . One moment for our next question . Our next question comes from Craig Huber , Huber Research Partners . Your line is open .
Speaker #17: Thank you . There just is . Your position right now that you think the credit bureaus are not going to have the option for the performance model that you guys are offering , that the resellers will .
Speaker #17: You're just not sure what percentage yet of the resellers will offer . Both models and not sure what percentage of the lenders will go with the performance model .
Speaker #17: Thank you .
Speaker #3: Yeah . I can't give you a definitive answer to that . We're we're in that discussion . And we we frankly don't know what the split is going to be between the score , the per score and the performance model .
Speaker #3: We just don't know . We've obviously done a lot of modeling and sensitivity around it . And , you know , it's it's easy to come up with a hypothesis about how it'll split based on the average number of scores pulled per closed loan for different kinds of lenders and different kinds of mortgage originators .
Speaker #3: And so that's what kind of what's gone into our calculus on what winds up in which model . So I mean , those are the things that inform the decision .
Speaker #3: But it's not finalized .
Speaker #1: Thank you. One moment for our next question. Our next question comes from Rayna Kumar with Oppenheimer. Your line is open.
Speaker #18: Hi . This is Q2 on for Rayna . And thanks a lot for taking our question . I was wondering if you could maybe just help us understand the usage of Fico scores in the downstream market and how material is it to total mortgage score volume , and what are the overall dynamics like there ?
Speaker #18: You know , this would be helpful in determining how we should be thinking about the potential uptake in the new 45 plus 33 performance pricing model and the value of that 33 , which was previously the reissue fee .
Speaker #18: Thanks .
Speaker #3: Yes . So obviously there's a lot of score volume that happens downstream that that we have historically not monetized . It ranges from , you know , where does the score get used ?
Speaker #3: You know , without focusing on who pays for it . The score gets used by the mortgage originators . It gets used by lenders , it gets used by the GSEs in terms of their screening , of whether they're prepared to accept the loan or not .
Speaker #3: It gets used by the by the rating agencies . S&P and Moody's , when they rate the bonds , the mortgage backed securities that go out to the marketplace , it gets used by the mortgage backed securities investors when they price those bonds , it gets used by the mortgage insurers .
Speaker #3: And it also gets used by some of the prudential regulators in their capital adequacy models . So it's used in many , many , many places downstream and historically we haven't charged for that .
Speaker #3: And your point is well taken , which is the per closed loan pricing was designed to to capture some of that , that it value .
Speaker #1: Thank you . I'm not showing any further questions at this time . And as such this does conclude today's presentation . We thank you for your participation .