FICO 10-Q: Smart Summary

• Business description: Fair Isaac Corporation (NYSE: FICO) is a global analytics software company founded in 1956, serving thousands of businesses in more than 80 countries — including leading banks, credit card issuers, insurers, retailers, telecommunications providers, automotive lenders, consumer reporting agencies, and public agencies — as well as consumers through online services tied to the FICO® Score, which is described as the standard measure of consumer credit risk in the U.S.
• Pending standard — income tax disclosures: ASU 2023-09 (issued December 2023) requires disaggregated effective tax rate reconciliation and income tax paid disclosures; effective for FICO beginning with the fiscal year ending September 30, 2026. The company is currently evaluating its impact.
• Pending standard — expense disaggregation: ASU 2024-03 (issued November 2024) requires footnote-level disaggregation of certain income statement expenses (employee compensation, depreciation, intangible asset amortization, and others); effective for FICO annual periods beginning October 1, 2027, and interim periods beginning October 1, 2028. The company is currently evaluating its impact.
• Pending standard — internal-use software: ASU 2025-06 (issued September 2025) replaces prescriptive sequential-stage capitalization guidance with a principles-based approach tied to management authorization and probability of completion; effective for FICO beginning October 1, 2028. The company is currently evaluating its impact.

• Hierarchy coverage: All measured assets and liabilities fall under Level 1 (unadjusted quoted prices in active markets); no assets or liabilities were valued under Level 2 or Level 3 as of December 31, 2025 and September 30, 2025.
• Marketable securities: Level 1 assets consisted of marketable securities of $55.9M at December 31, 2025 and $54.6M at September 30, 2025, representing securities held under a supplemental retirement and savings plan for certain officers and senior management employees, distributed upon termination or retirement.
• Level 1 liabilities: Senior notes are classified as Level 1 liabilities as of both period ends; their fair value is disclosed in Note 6.
• No transfers: There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the quarters ended December 31, 2025 and 2024.

Hedging strategy: The company uses foreign currency forward contracts — not designated as hedges — to economically offset remeasurement volatility on foreign-currency-denominated receivables and cash balances in British pounds, euros, and Singapore dollars; contracts are short-term with average maturities at inception of less than three months and are marked to market through other income (expense), net.

• Fair value at period-end: All outstanding forward contracts were entered into on December 31, 2025 and September 30, 2025 respectively, resulting in a fair value of $0 on each of those dates; notional USD equivalents at December 31, 2025 were $8.1M (EUR sell), $13.9M (GBP buy), and $6.4M (SGD buy).
• Realized losses: Losses on foreign currency forward contracts were $166,000 for the quarter ended December 31, 2025, compared to $1.4M for the quarter ended December 31, 2024.

Impairment status: As of December 31, 2025, there was no accumulated goodwill impairment loss.

Segment allocation: Goodwill of $783.5M as of December 31, 2025 was allocated between the Scores segment ($146.6M, unchanged from September 30, 2025) and the Software segment ($636.9M, up from $636.7M due to a $180,000 foreign currency translation adjustment).

• 2018 Senior Notes maturity: The $400M 2018 Senior Notes bear interest at 5.25% per annum and mature on May 15, 2026, and are classified as current maturities on the balance sheet at both December 31, 2025 and September 30, 2025.
• Revolving credit facility: The $1B unsecured revolving line of credit matures May 13, 2030; as of December 31, 2025, $415M was outstanding at a weighted-average interest rate of 5.000%, up from $275M at September 30, 2025. SOFR borrowing margins range from 1% to 1.75% per annum depending on consolidated leverage ratio, and the facility contains a maximum consolidated leverage ratio covenant of 3.5 to 1.0 (with a step-up to 4.0 to 1.0 following certain permitted acquisitions).
• 2019/2021 Senior Notes: The $350M 2019 Senior Notes and $550M 2021 Senior Notes (combined $900M) both bear interest at 4.00% per annum and mature June 15, 2028.
• 2025 Senior Notes: The $1.5B 2025 Senior Notes, issued May 13, 2025, bear interest at 6.00% per annum and mature May 15, 2033; their fair value was $1.5B at December 31, 2025 versus $1.5B at September 30, 2025. The company was in compliance with all Senior Notes indenture covenants as of December 31, 2025.

• Concentration risk: Revenues from TransUnion, Equifax, and Experian collectively accounted for 51% and 44% of total revenues in the quarters ended December 31, 2025 and 2024, respectively, with all three each contributing more than 10% of total revenues in both periods; at each of December 31, 2025 and September 30, 2025, two customers accounted for 10% or more of total consolidated receivables.
• Receivables: Net receivables were $526.6M at December 31, 2025 (billed $312.6M, unbilled $221.4M, less allowance of $7.5M), down from $566.4M at September 30, 2025; long-term receivables were $31.5M and $37.2M at those respective dates.
• Deferred revenue: The balance declined from $189.2M at the start of the quarter to $175.2M at December 31, 2025, driven by $86.6M of revenue recognized from the beginning balance, partially offset by $72.6M of new billings; the ending balance comprised a current portion of $173.4M and a long-term portion of $1.8M.
• Remaining performance obligations: Revenue allocated to remaining performance obligations was $682.2M as of December 31, 2025 (up from $655.7M as of September 30, 2025), with approximately 50% expected to be recognized over the next 15 months; excludes usage-based, consumption-based variable, and 'right-to-invoice' practical expedient revenues.

• Effective tax rate: The effective income tax rate was 17.5% for the quarter ended December 31, 2025, compared to (1.6)% for the quarter ended December 31, 2024; the prior-year quarter's negative rate reflects the variability that can arise from quarter-specific adjustments required to be reported in the period of resolution.
• OBBBA impact: The One Big Beautiful Bill Act (OBBBA) of 2025, signed into law on July 4, 2025, allows immediate expensing of domestic research and experimental (R&E) expenditures and an election to accelerate unamortized domestic R&E expenditures over a one- or two-year period; both provisions are effective for FICO in fiscal 2026 and their impacts were reflected in results for the quarter ended December 31, 2025.
• Uncertain tax positions: The total unrecognized tax benefit was $20.3M at December 31, 2025, up from $19.5M at September 30, 2025; accrued interest related to these positions was $2.2M at December 31, 2025, versus $1.9M at September 30, 2025.

• 2021 Plan structure: Awards under the 2021 Long-Term Incentive Plan (the '2021 Plan') include stock options, stock appreciation rights, restricted stock awards, stock unit awards, and other share-based awards; options have a maximum term of ten years, and unvested awards without market/performance conditions vest annually over four years, while market/performance-conditioned stock unit awards vest annually over three years based on specified criteria.
• 2019 Purchase Plan: Authorized for up to 1,000,000 shares, eligible employees may withhold up to 15% of eligible pay via payroll deductions during semi-annual offering periods, with purchase price set at the lower of 85% of the closing price on the first or last trading day of each offering period; no shares were purchased under the 2019 Purchase Plan during the quarter ended December 31, 2025.
• RSU activity: Restricted stock units outstanding decreased from 214 thousand at September 30, 2025 to 184 thousand at December 31, 2025, with 63 thousand granted at a weighted-average grant-date fair value of $1,749.60, 91 thousand released at $874.56, and 2 thousand forfeited at $1,213.77; period-end weighted-average grant-date fair value was $1,451.60.
• PSU and MSU activity: Performance share units declined from 46 thousand to 30 thousand outstanding (28 thousand released at $1,055.18, 12 thousand granted at $1,751.69; period-end fair value $1,668.89); market share units held flat at 45 thousand (22 thousand released at $1,260.44, 22 thousand granted at $1,878.31; period-end fair value $1,920.75).
• Stock option activity: Options outstanding decreased from 129 thousand to 121 thousand (4 thousand granted at $1,748.49 exercise price, 12 thousand exercised at $203.62); at December 31, 2025, outstanding options carried a weighted-average exercise price of $755.79, remaining contractual term of 3.63 years, and aggregate intrinsic value of $115M; exercisable options totaled 57 thousand at $545.03 with intrinsic value of $65.9M.

Anti-dilutive exclusions: Anti-dilutive share-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

• Segment structure: The company operates 2 reportable segments — Scores and Software. The Scores segment includes B2B scoring solutions and services and B2C scoring solutions (including myFICO.com subscriptions). The Software segment includes pre-configured analytic and decision management solutions, FICO Platform, stand-alone analytic and decisioning software, and associated professional services, available as SaaS or on-premises software.
• CODM evaluation basis: The Chief Executive Officer, as CODM, evaluates segment performance based on segment revenues, segment operating expenses in total, and segment operating income. Indirect costs are allocated generally based on relative segment revenues, fixed rates established by management, and other assumptions. The CODM does not evaluate segments based on assets or capital expenditures.
• Unallocated items: Broad-based incentive expense, share-based compensation expense, restructuring and acquisition-related expense, amortization expense, various corporate charges, interest expense, and certain other income/expense items are not allocated to segments. For the quarter ended December 31, 2025, unallocated corporate expenses were $48.1M, unallocated share-based compensation expense was $44.3M, and unallocated interest expense, net was $42M. Comparable prior-year figures were $44.3M, $40.7M, and $29.5M, respectively.

Business segments: FICO operates 2 segments — Scores and Software — serving thousands of businesses in more than 80 countries, with most leading banks and credit card issuers among its clients, as well as insurers, retailers, telecommunications providers, automotive lenders, consumer reporting agencies, and public agencies.

• Scores segment: Covers B2B scoring solutions and services (predictive credit and other scores integrated into client transaction streams and decision-making processes) and B2C scoring solutions including myFICO.com subscription offerings; the FICO® Score is described as the standard measure of consumer credit risk in the U.S.
• Software segment: Includes pre-configured analytic and decision management solutions for account origination, customer management, customer engagement, fraud detection, and marketing, plus associated professional services; also includes FICO® Platform (a modular SaaS offering for advanced analytic and decision use cases) and stand-alone analytic and decisioning software available as SaaS or on-premises.

• Total revenues: $512M during the quarter ended December 31, 2025, a 16% increase from the quarter ended December 31, 2024, with Scores segment revenues of $304.5M representing a 29% increase over the same prior-year period.
• Software segment metrics: Annual Recurring Revenue was $766M as of December 31, 2025, a 5% increase from December 31, 2024; Dollar-Based Net Retention Rate was 103% as of December 31, 2025.
• Profitability: Operating income was $234M (up 30%), net income was $158.4M (up 4%), and diluted EPS was $6.61 (up 8%), all for the quarter ended December 31, 2025 versus the quarter ended December 31, 2024.
• Balance sheet and capital allocation: Cash flows from operating activities were $174.1M (vs. $194M in the prior-year quarter); cash and cash equivalents were $162M and total debt was $3.2B as of December 31, 2025 (vs. $134.1M cash and $3.1B debt as of September 30, 2025); total share repurchases were $162.7M during the quarter ended December 31, 2025, compared with $159.7M during the quarter ended December 31, 2024.

• Definition: ACV Bookings represents the average annualized value of software contracts signed in the current period that generate current and future on-premises and SaaS software revenue; only contracts with an initial term of at least 24 months are included, perpetual licenses and non-recurring revenues are excluded, and renewals count only incremental annual revenue over the current contract.
• Usage-based fee component: Approximately 30% of total ACV Bookings on an annualized basis consists of estimates of future usage-based fees, with historical differences between initial estimates and actual results described as not material.
• Period-over-period growth: Total on-premises and SaaS software ACV Bookings were $37.8M for the quarter ended December 31, 2025, up from $21.2M for the quarter ended December 31, 2024.

• ARR definition: ARR is defined as the annualized revenue run-rate of on-premises and SaaS software agreements within a quarterly reporting period, calculated as quarterly recurring revenue run-rate multiplied by four; perpetual licenses and other non-recurring components are excluded. It is used to mitigate variability caused by ASC 606's point-in-time recognition of a portion of on-premises software subscription revenue.
• Total ARR trend: Total ARR grew 5% year-over-year to $766M as of December 31, 2025, up from $729.3M at December 31, 2024, continuing a deceleration from the 14% YoY growth posted at March 31, 2024.
• Platform mix shift: Platform ARR reached $302.6M at December 31, 2025 (33% YoY growth), representing 40% of total ARR, up from 31% a year earlier; Non-platform ARR declined 8% YoY to $463.4M, shrinking from 69% to 60% of the mix over the same period.

• Methodology: DBNRR compares ARR from a fixed cohort of customers at the end of the prior comparable quarter (base ARR) to ARR from that same cohort at the end of the current quarter (retained ARR); it captures upsell, price changes, and usage-based fee movements as positives, and attrition, price decreases, and usage declines as negatives, but excludes new customer additions.
• Platform DBNRR trend: Platform DBNRR declined from 126% at March 31, 2024 to a trough of 110% at March 31, 2025, then recovered to 122% at December 31, 2025, remaining well above 100% throughout the period.
• Non-platform DBNRR trend: Non-platform DBNRR deteriorated steadily from 106% at March 31, 2024 to 91% at December 31, 2025, falling below 100% (indicating net contraction) from September 30, 2024 onward.
• Total DBNRR: Total DBNRR compressed from 112% at March 31, 2024 to 102% at March 31, 2025 and remained at 103% at December 31, 2025, reflecting the drag from non-platform offset by platform strength.

• Scores segment drivers: Scores revenues grew $68.9M (29%) to $304.5M, with business-to-business scores up $66.2M driven by higher unit prices and increased mortgage origination volume, and business-to-consumer scores up $2.7M from higher royalties on scores sold indirectly through credit reporting agencies.
• Software segment: Software revenues were roughly flat, rising $3.1M (2%) to $207.4M, with its share of total revenues declining from 46% to 41% as Scores outpaced it.
• Mix shift: Scores grew from 54% to 59% of total revenues, while Software fell from 46% to 41%, reflecting the faster growth in the higher-margin Scores segment.

• Revenue drivers: Software segment revenues increased $3.1M (2%) quarter-over-quarter, with on-premises and SaaS software up $2.2M (1%) to $188.2M and professional services up $900,000 (5%) to $19.2M.
• SaaS growth: The increase in on-premises and SaaS software revenue was primarily attributable to an increase in revenue recognized over time largely driven by SaaS growth for Platform products.

• Revenue growth: Revenues grew 16% to $512M in the quarter ended December 31, 2025 from $440M in the prior-year quarter, with operating income expanding 30% to $234M (46% of revenues vs. 41% prior year).
• Operating expense efficiency: Total operating expenses rose only 7% to $277.9M (54% of revenues) from $260.4M (59% of revenues), with cost of revenues essentially flat at $87.3M vs. $87.3M (a decline of $84,000, —%), while R&D increased 11% to $49.9M and SG&A increased 10% to $140.7M.
• Interest expense: Interest expense, net increased 42% to $42M from $29.5M, representing (8)% of revenues vs. (7)% in the prior year.
• Net income and tax: Net income grew only 4% to $158.4M from $152.5M, as the income tax provision swung from a benefit of ($2.4M) to a provision of $33.6M — a period-to-period change of $36M — largely offsetting the 28% improvement in income before income taxes to $191.9M. Headcount grew 4% to 3,762 employees at quarter end from 3,604.

• Composition: Cost of revenues consists primarily of employee salaries, incentives, and benefits for personnel directly involved in delivering software products, operating SaaS infrastructure, and providing support, implementation and consulting services; overhead, facilities and data center costs; software royalty fees; consumer reporting agency data and processing services; third-party hosting fees related to SaaS services; travel costs; and outside services.
• Year-over-year trend: Cost of revenues remained consistent quarter-over-prior year quarter, while as a % of revenues it decreased to 17% during the quarter ended December 31, 2025 from 20% during the quarter ended December 31, 2024, primarily due to increased sales of higher-margin Scores products.

• R&D expense composition: Research and development expenses include personnel and related overhead costs incurred in the development of new products and services, including research of mathematical and statistical models and development of new versions of Software products.
• Quarter-over-quarter drivers: The quarter-over-prior year quarter increase of $4.8M was primarily driven by a $4.1M increase in infrastructure and facilities costs (attributable to increased third-party data center hosting costs) and a $2.4M increase in personnel and labor costs (attributable to increased headcount and increased share-based compensation costs), partially offset by a $1.7M decrease in outside services and other costs (attributable to decreased third-party contractor costs).
• R&D as % of revenue: Research and development expenses as a percentage of revenues remained consistent at 10% during each of the quarters ended December 31, 2025 and 2024.

• Cost composition: Selling, general and administrative expenses consist principally of employee salaries, incentives, commissions and benefits; travel costs; overhead costs; advertising and other promotional expenses; corporate facilities expenses; legal expenses; and business development expenses.
• Quarter-over-quarter drivers: The $12.8M increase versus the prior year quarter was primarily attributable to a $9M increase in personnel and labor costs (driven by increased headcount, share-based compensation costs, market base-pay adjustments, and fringe benefit costs related to the supplemental retirement and savings plan), a $2.3M increase in outside services costs (primarily increased legal costs), and a $1.5M increase in marketing and other costs (primarily increased advertising costs, partially offset by decreased non-income tax costs and decreased bad debt costs).
• As a % of revenue: Selling, general and administrative expenses as a percentage of revenues decreased to 27% during the quarter ended December 31, 2025 from 29% during the quarter ended December 31, 2024.

• Components: Interest expense includes interest on senior notes issued in May 2025, December 2021, December 2019, and May 2018, as well as interest and credit agreement fees on the revolving line of credit and, for the prior year quarter, term loans; interest expense is netted with interest income derived primarily from investment of funds in excess of immediate operating requirements.
• Quarter-over-quarter change: Net interest expense increased $12.5M versus the prior year quarter, primarily attributable to the $1.5B of 2025 Senior Notes, partially offset by a lower average outstanding balance and a lower average interest rate on borrowings under the credit agreement during the quarter ended December 31, 2025.

• Composition: Other income (expense), net consists primarily of unrealized and realized gains/losses on trading marketable securities, foreign-currency remeasurement gains/losses on foreign-currency-denominated receivable and cash balances (net of offsetting foreign currency forward contracts), and other non-operating items.
• Quarter-over-prior year quarter change: The $200,000 change in other income (expense), net was primarily attributable to an increase in foreign exchange rate losses from remeasurement of foreign-currency-denominated receivable and cash balances into their respective functional currencies at period-end market rates.

• Effective tax rate: The effective income tax rate was 17.5% for the quarter ended December 31, 2025, compared to (1.6)% for the quarter ended December 31, 2024; the income tax provision (benefit) during interim periods is based on estimates of the effective tax rate for the full fiscal year.
• Stock award tax benefits: Both periods were favorably impacted by excess tax benefits relating to stock awards, but the decrease in stock price for awards that vested in December 2025 resulted in a decreased net excess tax benefit for the quarter ended December 31, 2025.

• Overall operating income: Total operating income grew 30% to $234M in the quarter ended December 31, 2025 from $179.5M in the prior-year quarter, driven primarily by a $72M increase in segment revenues, partially offset by a $10M increase in segment operating expenses, a $3.8M increase in corporate expenses, and a $3.6M increase in share-based compensation expense.
• Scores segment: Operating income rose 31% to $267.9M (88% of segment revenue) from $203.8M (86% of segment revenue), driven by a $68.9M increase in segment revenue from higher business-to-business scores revenue due to increased unit pricing and greater mortgage origination volumes, partially offset by a $4.8M increase in segment operating expenses.
• Software segment: Operating income declined 4% to $58.6M (28% of segment revenue) from $60.7M (30% of segment revenue), as a $5.2M increase in segment operating expenses — attributable to higher third-party data center hosting costs and a decrease in sales of higher-margin software recognized at a point in time — was only partially offset by a $3.1M increase in segment revenue.
• Unallocated items: Unallocated corporate expenses increased 9% to $48.1M and unallocated share-based compensation increased 9% to $44.3M, each representing incremental drags on reported operating income relative to segment operating income of $326.5M.

• Liquidity adequacy: As of December 31, 2025, the company held $162M in cash and cash equivalents (including $109.1M held by foreign subsidiaries) and had access to a $1B revolving line of credit; management believes these resources, together with anticipated operating cash flows, will be sufficient to fund working and other capital requirements for at least the next 12 months and for the foreseeable future thereafter, including the $400M principal payment on the 2018 Senior Notes due within the next 12 months.
• Debt maturities: Under current financing arrangements, no other significant debt obligations mature over the next 12 months; for foreign cash repatriations, the company expects any net tax impact to be immaterial to its overall tax liability.
• Capital allocation optionality: The company may use available cash to acquire technology or businesses or establish strategic investments; if additional capital needs arise or existing debt is refinanced, management may raise funds through debt or equity issuances, though it cautions that additional financing might not be available on favorable terms or at all.

• Operating cash flow: Net cash provided by operating activities decreased to $174.1M during the quarter ended December 31, 2025 from $194M during the quarter ended December 31, 2024, a decline of $19.9M.
• Drivers of decrease: The $19.9M decline was driven by a $43.9M decrease due to the timing of receipts and payments in the ordinary course of business, partially offset by an $18.1M increase in non-cash items and a $5.9M increase in net income.
• Funding model: The company's primary method for funding operations and growth is through cash flows generated from operating activities.

• Investing cash outflows: Net cash used in investing activities increased to $12.7M for the quarter ended December 31, 2025 from $8.9M for the quarter ended December 31, 2024, a $3.8M year-over-year increase.
• Drivers of increase: The $3.8M increase was primarily attributable to a $2.2M increase in purchases, net of proceeds, of marketable securities and a $2.2M increase in capitalized internal-use software costs.

• Financing cash outflows: Net cash used in financing activities decreased to $133.5M for the quarter ended December 31, 2025 from $144.2M for the quarter ended December 31, 2024, a $10.7M year-over-year improvement.
• Key drivers: The decrease was primarily attributable to a $91.7M decrease in taxes paid related to net share settlement of equity awards, partially offset by a $71.3M decrease in proceeds, net of payments, from the revolving line of credit and term loans and an $8.6M increase in repurchases of common stock.

• June 2025 program: The Board approved a new open-ended stock repurchase program in June 2025, authorizing repurchases of common stock up to an aggregate cost of $1B in the open market or in negotiated transactions, replacing the July 2024 program, which was terminated prior to its expiration.
• Repurchase activity: $162.7M was expended under the June 2025 program during the quarter ended December 31, 2025, compared to $159.7M expended under previously authorized programs during the quarter ended December 31, 2024; $180.9M remained under the June 2025 program as of December 31, 2025.

• Facility terms: $1B unsecured revolving line of credit with a syndicate of banks, maturing May 13, 2030; permitted uses include working capital, general corporate purposes, refinancing of existing debt, acquisitions, and repurchase of common stock.
• Interest rate structure: Borrowings priced at the greater of (a) prime rate, (b) Federal Funds rate plus 0.5%, or (c) Daily Simple SOFR plus 1%, each plus an applicable margin, or alternatively at Daily Simple SOFR or term SOFR (without credit spread adjustment) plus an applicable margin; the applicable margin varies with the consolidated leverage ratio and ranges from 0% to 0.75% per annum for base rate borrowings and 1% to 1.75% per annum for SOFR borrowings.
• Covenants: Credit agreement requires a maximum consolidated leverage ratio of 3.5 to 1.0, subject to a step-up to 4.0 to 1.0 following certain permitted acquisitions.
• Outstanding balance: As of December 31, 2025, $415M was outstanding under the revolving line of credit at a weighted-average interest rate of 5.000%, with full compliance with all financial covenants.

• 2018 Senior Notes: $400M issued May 8, 2018 at 5.25% per annum, maturing May 15, 2026.
• 2019 and 2021 Senior Notes: $350M issued December 6, 2019 and $550M of the same class issued December 17, 2021, both at 4.00% per annum and maturing June 15, 2028.
• 2025 Senior Notes: $1.5B issued May 13, 2025 at 6.00% per annum, maturing May 15, 2033.
• Carrying value and covenant compliance: As of December 31, 2025, the aggregate carrying value of the Senior Notes was $2.8B and the company was in compliance with all financial covenants under these obligations.