Fair Isaac Corporation Aktie

All right. Good afternoon, everybody. Thank you for being here. We're happy to continue our session here with FICO. We have CEO, Will Lansing; and CFO, Steve Weber. So thank you both for being here.

Well, maybe -- I guess let's take a step back. I think there are some newer investors in the space now. Obviously, your stock has been under some pressure for a while. So maybe kind of from your perspective, what is the FICO pitch today from your perspective? Because you guys keep obviously buying back shares every opportunity you get.

Yes. Well, I guess just on that point, we're kind of a slow-moving LBO. We have been buying back our stock for a very long time. We started at 74 million shares. And when I joined the Board, we were at 36 million shares. When I became CEO in 2012, we were at 30 million shares. Today, we're at 23 million shares. So what we do is we take our cash flow and we buy back stock and lever up and our cash flow grows, and then we buy back some more stock and lever up a little bit more and trying to keep the leverage up in kind of a 2 to 3x range. So that's the capital side of the equation.

And then the business has just gotten stronger and stronger and stronger for -- well, certainly for the last 14 years. And we see a pretty bright future. We're a little surprised at where the stock price is, frankly. We're kind of trading at multiples that surprise us. And maybe it's just worth going back in time and giving you a little bit of the FICO story. So you kind of have a level set on where we are.

But I guess before I do that, I'd remind you, take a look at the charts. We had well over a decade of kind of rocketing to top decile performance on TSR. And then in the last 15 months, we've been pretty beat up, mostly because of fear about some political things going on in Washington and our mortgage business. So I'm sure we'll spend more time on that.

But again, by way of context, just maybe a few minutes on FICO history and how we got here. Well, actually, just a show of hands, how many of you guys know the story, the FICO story. You guys know nothing about us. That's fine. So it's a good place to start. The company was founded in 1956 by a mathematician and an engineer. And the idea was let's apply analytics to data and make better decisions. And so for 30 or 40 years, that was the business. It was a consulting business, a body business of doing that. We built scorecards, proprietary scorecards for banks because banks had big money decisions, it was worth taking the time to invest in a better decision. That went on.

In the 1970s, we got this idea that maybe we should try to build a software business, too, because if we have software, if we embody the analytics and software, we'll be able to get returns to scale, make money while we sleep, we won't just be a body business. So we started a software business.

We took the half dozen questions that banks asked us most frequently, and we built applications around them. So originations, should we or should we not make this loan? Customer management, line management, should we increase this person's credit card line? Should we decrease it? If we increase it, should we decrease something else, some other risk somewhere else, fraud, fraud detection, collections and recovery. So these were the big areas where we had applications. And we built a really substantial software business through the '80s, '90s, 2000 and on around these franchises.

I took over in 2012, and we made some changes. On the software side, we went to a cloud model from an on-premise model, and then we also put a lot of energy into building out the technology stack so that we're not just an applications business anymore. We are a decisioning platform. We're a true platform. And it took a lot of years to achieve that success, but that's kind of where we are now. We'll spend more time on it if we have time at the end.

On the score side, in 1987, we decided instead of building proprietary scorecards for each bank, what we would do is build a generic scorecard that could be used by any bank. They just show up. They don't have to give us any special parameters. We did that in partnership with Equifax, and it was wildly successful. We kind of made this thing that made it super easy for lenders to evaluate credit, low-cost evaluation of credit. And this is also in response to the fair lending laws that want you to demonstrate that there's no discrimination in the way you do your underwriting and scores are completely clean and science-based.

Then we had this idea that we should build the same kind of a score with the other bureaus. So in the U.S., there are 3 bureaus, Equifax, Experian and TransUnion are the big 3. And so we went and built scores with Experian and with TransUnion as well as with Equifax. And what we did was we aligned the odds to score ratio across all 3 bureaus the same.

So what that did was effectively say a FICO score is the FICO score regardless of where you get your data, regardless of which bureau you use. You can imagine how popular that was with the lenders. I mean it commoditized the data at some level, and it gave them a lot of leverage versus the data providers because they could easily switch from one bureau to another. So pretty popular. That went on.

And we had the lenders liking it. Regulators got into it. They thought that it was pretty useful for them because they could measure the risk of the banks that they're regulating, what's the average FICO score of the portfolio, how it will behave in a downturn. And then the securitization market evolved, and they needed a metric for pricing the risk and the most obvious one was FICO. And so pretty much all your asset-backed securities, your mortgage-backed securities all come with an average weighted FICO score so that people actually know what the paper is worth.

And so now you've got lenders, you've got regulators, you got the securities, the investors in the securities market. And then finally, we've got consumers on board. We give them their score for free. And so there's a lot of demand pull for FICO scores. So that's the -- that's how scores got to be the industry standard that they are and kind of positioned us where we are.

Another wrinkle starting in -- about a decade ago, we started raising prices for scores. Why did we do that? Well, for 30 years, we didn't raise prices for scores because our pricing was hardwired into our contracts with the bureaus. We distribute our scores through the bureaus, and so the prices were all fixed, and we never changed them. And you should just talk to my predecessors about why.

And I decided we should have the flexibility to change our pricing and 30 years is too long to go without a price increase. And so we started changing our prices about a decade ago. And so every year, we're in the business of trying to capture some of the value that's been left behind. I mean that's really -- the story of FICO is we have a mountain of IP that has been undermanaged and undermonetized for decades.

And we're in the process of figuring out how do you monetize that with the least amount of disruption to the markets with the -- in a steady and continuous way, march up the value -- march up the monetization of the value. And so that's what we've been doing.

In mortgage, in particular, we've raised prices. If you read the bad press, they focus on the percentage increases that we've raised prices, and it's true. We've raised prices from $0.05 years ago to $10 today. But remember, that's $10 out of $6,000 of closing costs. So it's still kind of a trivial number in the scheme of things.

But what's happened is it turned into a headline. Our mortgage price increases turned into a headline for the populists in Washington and in particular, for the Director of the FHFA, who's very pro-competition, very focused on how do I make housing more affordable in the U.S. One of the things he's looking at is closing costs. And so among other things, he's questioned our pricing. And I think that we've actually responded by coming out with some new pricing models, some innovation that I think he likes where we have an option to buy mortgage scores from FICO for $0.99.

So that's a big step in the direction that I think he was looking for. But I would say the noise in our stock is almost entirely tied to that. There might be a little bit of spillover from the AI software scare, but I think that's pretty minor. We never got much credit for software before. So I don't know how much we should get bashed for it now. We are very happy with the software business, grew 49% last quarter on our new platform. So strong business. So that's the background.

All right. Helpful. We'll get into some of the noise, but maybe, Steve, you can help here. But like with that history, with the current context around pricing and mortgage and so forth, is there a long-term algorithm -- financial algorithm that the audience should keep in mind, whether revenue, EPS?

Yes. I mean we don't have any issued numbers. But if you look at our past, you can kind of see that we've been pretty consistent. So we do target internally. We want to maintain the same pace that we've done in the past. So we try to get in at least into the teens of revenue growth, which could drive us into the 20-plus percent with margin expansion in -- of net income. And then a lot of times, that can be above 30% with EPS with the buyback. So just rough justice, that's how we've been looking at it. And that's -- as we make plans for the coming year, that's what we try to target going forward.

Got it. Okay. Well, let's jump into the mortgage market and the political noise you're referring to. So we just had MSCI before you. We had S&P in the morning. Those indices, there's a lot of competition, but once you're the benchmark you're the benchmark. The way you described it, FICO is the benchmark. Obviously, Director Pulte has implemented a lender's choice allowed or in the process of allowing VantageScore to come in. From your perspective, how do you see the potential shifts in the market if and when they are approved?

Well, we'll see if Vantage gets any share at all. I mean we've been competing with Vantage for over 20 years in every other market outside mortgage, and they have no share. They push a lot of scores and the way they do that is by sending them along for free. So if a lender asked for -- asks a bureau for a credit file and a FICO score, they'll often get the VantageScore sent along for free. And that's where the big numbers come from. But I'm not exactly sure that should be considered market share because nobody asked for it and nobody paid for it.

In mortgage, remains to be seen whether having an option for VantageScore gets you anywhere. I would say that the value proposition is still pretty thin. So why would someone buy a VantageScore? If they're buying it because they're interested in credit default risk and predictiveness and certainly, the entire nonconforming market cares about credit default risk.

And I would say that the conforming market also cares about credit default risk, because it comes back to haunt them, if the loans go bad, it does -- a lot of those loans are put back by the GSEs to the originators. So they also care about credit default risk. If that's what you care about, FICO 10T is 8% more predictive than Vantage 4 and FICO 10T qualifies 5% more borrowers than Vantage 4. So predictiveness is not going to get you there from a value proposition standpoint. So then you say, well, what about on price? Maybe somebody cares about price. And even though we're talking about a very small price in the scheme of things, is there someone who cares?

And on that, I'd say our new pricing model at $0.99 meets VantageScore pricing at $0.99. So I don't think there's a reason to move for price. So that leaves you with one and only one reason to buy VantageScore, and that's if you're trying to game the GSEs. And that's real. That's not hypothetical. I mean any time you have a 2 score system, one score is always better than the other. So when you -- typically, you would give a better price to the better score.

So if Fannie and Freddie are constantly being presented with the better of 2 scores, they're being gamed. And frankly, what will occur in the long run, if anybody does this gaming. What occurs in the long run is that the nonconforming market, the lenders in the nonconforming market will skim off the best credits out of the conforming market and leave the GSEs with the inferior credits, which will cost Fannie and Freddie quite a lot. That is the likely outcome of gaming.

But I would caution you just by saying that the addressable market for gaming is fairly limited. It's under 10%. So if you look at the rules that came out last week, which are you need less than 80% loan-to-value, meaning you have to put down 20% or you can't get the mortgage. So for Vantage, you need 80 -- less than 80% loan-to-value and you need -- there's not actually a separate Vantage LLPA grid. That's the pricing grid. There's not a separate one for Vantage. What they did was they said, take a Vantage score, subtract 20 points and jam it into a FICO LLPA grid, which is suspect science. But anyway, that's what they've done. And if you work through all the math on it, and I'll spare you guys the math today, it takes you to about a 9% addressable market.

And I guess just to be clear, that in the gaming, in order to gain, don't you just have to pull both scores all the time. So...

Well, yes, great point. So there's no volume loss. So if you have to pull both scores in order to compare them to do the gaming, our volume doesn't go down. You're still pulling a FICO score. But the overall market for scores volume went up a little bit. So yes, we could have -- technically, we could have share loss, but no volume loss. That's theoretically possible.

Got it. And then the $0.99, yes, you've matched kind of the upfront pull fee. But in the performance model, you do have the $65 closing fee per report. So how do you think the lenders originators market will address that when they're trying to compare whether they want to save money or not?

Well, that's money that's paid by the consumer. Now ultimately, of course, consumers pay for everything. We know that. So it's really about kind of what bucket you put it in. But the industry has always tried to push cost to the closing statement and out of their own P&Ls. And that's why we have RESPA laws. The RESPA laws are designed to keep that from happening really to ensure that the only cost that go into a closing are appropriate costs that have something to do with the closing.

And to that extent, what we've done is matched them perfectly because there's nothing that's closer to what the closing is all about than you've got your mortgage successful funding fee. So I think that we're actually helping the lenders with this. In terms of their true cost to themselves, it's identical, whether they're paying $0.99 to Vantage or $0.99 to FICO.

Got it. And in order to get that $0.99 to FICO, they have to go through the direct -- the DLP model.

That's correct.

Through you guys.

That's right.

It seems like it's been a case of going to be ready in the next month for a few months now. So what's the latest on when the DLP will be out there?

It's going to be ready in the next month. I mean, -- it shouldn't take that much longer. We're waiting on certification from the GSEs. They're supportive, the director is supportive. It's a matter of time.

Okay. And all that you described on the lenders want 10T, $0.99 takes care of the cost. Once DLP is live, how fast and how much adoption should we be looking out for?

Well, no one really knows, but I think that there's a lot of demand for the performance model, which will only be available through the tri-merge resellers through the DLP model. And our economic analysis says roughly half the market would prefer the performance model over the per score model. And the tri-merge resellers have the, by far, the lion's share of the market. Almost all the scores are purchased ultimately through the tri-merge resellers. So it could easily be half. It could get to half certainly within a year.

Got it. And I think it's probably worth spending a little bit time on the 10T independent study that was put out recently because I think VantageScore obviously claims should be better than the FICO Classic, which might make sense because it was developed so many years later. But can you just talk about -- this was a second iteration of the independent study, I believe. So what changed? And what are some of the stats again and why 10T is much better?

So I would encourage people to go to the FICO website and read our white paper on it, and you can go to Milliman, which is the independent third party that did the analysis and read there. It's quite technical. But they've done a scientifically rigorous assessment of 10T versus Vantage 4. And we are better on predictiveness. They actually go through the gaming issues with the 2 score system and identify the costs around that. So I mean it's worth a read, but it's quite technical. There's probably other things you'll read before you read that. Just take my word for it. FICO [indiscernible].

Okay. The FHFA had a press conference recently and actually 2 questions. The first one is, I think the Director Pulte had mentioned that he had a conversation with you around this $0.99 pricing model. And then he had also mentioned a few times, it sounds too good to be true, so I'm going to make sure there's nothing in there. But I guess I just want to confirm, he knows of the performance model and the closing, the $65, that's not going to be new to him?

Absolutely. No, no, no. He's a smart guy, and he's completely aware of the structure, and I think he supports them.

Okay. The other main thing for their conference is obviously the pilot. I guess they've selected 21 lenders to try and test out VantageScore. It's a little bit of a black box, gray box, whatever, for a lot of us. Anything your mortgage team and Julie may have shed any insights you can share with us?

There's not a lot to know there. I mean all those lenders, whoever they are, are under NDA, I can't talk about it and can't disclose. And so very little is known. We know some of the rules around accepting the VantageScore, the 20 points and the 80% loan-to-value. So -- but other than that, I can't tell you much. I don't know. I think it's a manual process. Not sure.

Okay. Maybe the other thing you might be able to tell us about is the 10T data has not yet been released. They said in the coming months, "summer." What is the holdback for when that gets released? Once that gets released, do you have to go -- do these 21 lenders have to go back and test that as well?

Don't know the answer to that. I know that the GSEs are working on it and intend to release. I mean, I think they mentioned the press conference early summer. So we're kind of waiting for them to do that. They have their own processes and procedures, and they're working their way through them, and we fully anticipate that it will be released, but we don't have a time line.

Got it. In terms of 10T, though, when it does come out, I think historically, you've talked about how even today, the mortgage market is using FICO version 4 and 5. So how quickly do you think 10T can be adopted or even the S4 like...

10T is being adopted fairly quickly in the nonconforming market. So it can be adopted. I do think there's a ton of inertia. I think if you ask the industry, do you want to change, they would say no. They would like to just stay with FICO Classic forever. But we are seeing adoption in the nonconforming market. And then once all of Classic Vantage 4 and FICO 10T are accepted in the conforming market, it's a little hard to say. I mean you could see a shift. I mean there's -- if you were going to shift, you should shift from Classic to 10T because you'd get more predictiveness out of it. But again, all the systems models, everything is designed around classic. So we'll see how long that takes.

Got it.

There's also an advantage we can run -- I mean you run 10T in parallel with Classic FICO, right? That's what's happening in the nonconforming market. So from that point of view, it's easier to run them both at the same time, compare the results and do some forecasting on that.

Got it. And in the past, you've talked about it's a heavy uplift to switch from scores, but -- or go from the classic to something totally different like a VantageScore. What is the lift like to go from Classic to 10T?

It's a little easier. So the reason -- FICO scores are designed to be backward compatible with prior generation FICO scores, and they always have been right up to FICO 10. FICO 10 is backward compatible with FICO 9. FICO 10T uses trended data. So it's not perfectly backward compatible. It's a little bit different. But I would say that 10T is architecturally very similar to prior FICO scores. It leverages the same kind of weighting, same attributes. And so the -- if you were going to make some assumptions about how 10T behaves relative to Classic, 10T will be a lot closer than Vantage 4 would be.

Got it. The $0.99 plus $65 for FICO 10T, I think, implies a modest price increase versus the $4.95 plus $33 you have for Classic. Some people think that's your 2027 pricing that you've introduced today. Is that the case? Or how should we think about?

No, no, I would say that 2027 pricing is not here yet. We haven't really decided what we're going to do there. Our process is in September -- August, September every year, we kind of review things, decide where it would be appropriate to make bigger pricing adjustments, and then we publish them to our partners so that they can be implemented on Jan 1. So none of that has occurred. Any pricing that you see in the market today is 2026 pricing.

Got it. And with all this noise, with all this change, how should we think about what your price value gap in mortgage is, let's say, it's roughly $10 a score today versus what you think it should be? Because I know you talked about this for years. Before this all began, I think people thought sure it's going to get there, but now I think they're a lot more skeptical. So is your approach changed? Are you going to balance the annual increases differently? Or...

What's a FICO mortgage score worth, right? That's the question. Nobody knows the answer to that. I mean, really no one knows the answer to it. All you can do is look at analog. So if you look at S&P and Moody's, they charge approximately 8 basis points to rate a mortgage-backed security [ each 2 ], so that's 16 basis points, okay? And that's typical. And those securities that they rate AAA rated, guaranteed by the government, they're all AAA rated. So I'm not sure how useful that is.

But they also supply the average weighted FICO score of those securities. And that's what the pricing is built on. The pricing is built on the FICO score, not actually the S&P rating. And I only share that by way of background because we don't charge anything for using our score in that context. We charge 0. They charge 16 basis points and we charge 0 and yet the value is all coming from the FICO score.

Another way to think about it is 16 basis points on an average $400,000 mortgage is a little over $600. We charge $10 for a score. So you guys will have to make up your own minds about what the value gap is, but I would submit that it's quite large and remains so.

Got it. Fair enough. Okay. Maybe one last opportunity on mortgage. Again, we've talked about a lot of noise. What do you think is the most underappreciated or misunderstood aspect of this debate that keeps pressuring your stock?

Look, I think that the FICO mortgage score is deeply, deeply embedded in the system, not just because it's used by the originators to get the mortgage, but everybody downstream uses it. The Fannie and Freddie use that score in their LLPA pricing grids. The mortgage insurers use it in their models for providing mortgage insurance. The credit risk transfer guys, CRT, they use it in their models. The mortgage-backed securities investors themselves use it when they're pricing the MBS. The prudential regulators use it.

So there are lots and lots of parties who are pretty deeply focused on FICO as the cornerstone of the system. So I think changing is very hard. It's just really hard. I mean you can create an option and say, sure, you have an option to use a VantageScore. Guess what? There's an option to use VantageScore in every other market that we have in auto and credit card, in account management and prequal prescreen, you name it. You want a VanatageScore, Vantage will be happy to provide you with one and yet nobody uses them. So how different is it going to be in the mortgage market? We'll have to see.

Got it. That's a good segue into the other parts of the market. So in auto for the last several years, I think you've done modest price increases. In card, it's been inflation type stuff. So maybe just talk on auto firstly, what -- like how do we think about the historical price increases? What's the opportunity going forward?

Yes. I mean we've been, I think, like you said, modestly increasing prices in auto. A lot of it's really understanding the market, understanding the dynamics. There's a lot of different players in that space. There's a lot of value derived from the score. A lot of times, it's the score that determines whether a car is bought or sold. So there's a lot of value there to the dealers, to the people that actually do the financing. So again, we just need to understand the market. And every year, we learn a little bit more and we look at the market and look for opportunities to raise prices there where we think that the value is much higher than what we charge.

Got it. And both in auto and maybe mortgage as well, right, does the forecasted volumes impact how much pricing is going to take?

Yes. I think a little bit. I mean, because in the sense that we don't rely on increases in volume to provide our guidance. So every year, what we do is we sit down, we look at all the data sources come up with kind of a consensus view of the volumes for mortgage or for auto or for whatever. And then we heavily haircut that because we don't believe that most of those are wrong. And because we're conservative. And if you followed us for any time, you know we have a reputation for sandbagging.

So that's kind of where we get to. We don't count on a lot of volume increase to make our numbers. And then what happens is if we really do get a good volume year, which someday we will have in mortgage for sure, we closed 5.8 million mortgages this past year, and the average over the last 5 years is over 8 million closed mortgages. So I mean, there's a lot of room to grow. Volumes will come back someday, but we don't count on that. Our guidance is not built on an expectation about volume increase.

We get questions a lot of times like if mortgage goes up next year, which that means you do less on the pricing side, well, we'll never know, right? So we can't count on that. So we tend to assume that the markets will remain relatively flat.

Got it. And then maybe to round it up, like the card strategy, is that just inflation because it's a high-volume market?

Yes, it's a high-volume market. It's probably -- there's probably more discretion. There's probably more elasticity because you really don't need to score in the same way, and there's not really the transaction that takes place that we have in the other markets. So it's more inflation. There are some pockets there where we will charge a little bit more than inflation, but it's closer to a CPI type price increase.

Got it. Even when and if the DLP program is introduced, the credit bureaus are still going to be your largest customer, whatever the disclosures you have in the 10-K. What are the relationships like with the bureaus now with -- after all this has happened?

Well, I think they improved a lot. I mean, look, it's not a secret that there was some friction. I mean we've gotten along very, very well for -- certainly for the last 14 years. And FICO surprised them with the direct license program. I mean I called the CEOs of the bureaus several hours before we announced it to the world and said, guess what, we're launching an alternate distribution channel, probably the most rattling thing in our industry in a decade.

And needless to say, they didn't appreciate the lack of a heads up, the fact that we just dropped it on them. And of course, it had big revenue implications for them, big profit implications for them. So we caught them off guard. We didn't treat them with the respect that they deserve given our relationship. I mean so I understand why they reacted the way they did.

As you know, they've all recovered, right? They figured out how to go get that revenue by increasing the data, the price of the data. So the hole that was anticipated has been kind of closed up. So I think that's resolved. And at the end of the day, we have symbiotic relationship with them. We need them as a channel. They need FICO scores or else their data is not worth very much. And so it's that combination that keeps us working closely together. And I'd say our relationships are pretty...

Got it. So no potential spillover effects into card and auto? Any plans there potentially?

No, we don't have any plans.

Okay. And how about on the direct-to-consumer side, Experian obviously is a big partner there. Is that a completely separate entity relationship?

They're a great partner there. No, it's not completely separate. It's part and parcel of the whole relationship. They are phenomenal consumer marketers. I would say that they have a very proud of myFICO in our own little consumer business. We give them every opportunity to take the business. We don't compete with them on search words. We -- I mean, we test things. And when they work, we tell them about it. And they've done just a phenomenal job building that consumer business. It's really impressive, and that will continue. We feel really good about it, so today.

Got it. Okay. We have about 9 minutes left. Let's turn to software. Maybe a little bit of a -- not background, but a mix, like what is software? It is a little bit kind of many different things all over the place. So how would you simplify software amongst your top few products or mixes that will help us more?

I think the easiest way to think about our software business is our new software business because the old one is the applications we talked about. The new software business is a decisioning platform and it's kind of next-generation CRM. So the idea is take data from a lot of different places and apply some analytics and with that, make a decision, which you can then feed into a workflow, and that workflow happens in real time. It gets in real time that decision to a point of interaction with the consumer.

So if you're a B2C company, whether you're a bank or a credit union or a retailer, anybody with a B2C relationship wants to optimize that interaction with the consumer to achieve some goal. And it's not always the same thing. It could be they're after revenue, you're close to the end of quarter, and so they're all about conversion, okay? Someone showed up on my website, I just need them to convert and buy something and put a few more dollars in the revenue line.

Or maybe revenue is fine, but profit is what matters. So let's emphasize for this customer, things that are more profitable for us or maybe those are fine and we want to focus on lifetime value. How do we get this customer from this category to a more valuable category, even though the conversion rates will be lower. The objective function can change. It can change at any time. And it should change. It should really change depending on what the management of the business wants it to do.

But what should be consistent is never interact with a customer without taking into account everything you know about the customer. So if you've had 25 transactions with a customer over the prior 24 months, how about we use that knowledge in what we do with that customer. So what we expect is when you show up, we know your brand proclivity, we know your price elasticity. We know what makes you tick. We know how to get you to respond to whatever it is we want you to do. That's what FICO software does. And it does it better than anybody else's. There's nothing that comes close.

A lot of B2C companies have tried to build this themselves. Usually, we don't compete with other software companies. We compete with homegrown because there really are no solutions quite like ours on the market. And then we are so much lower cost than them building it themselves. They'll go to do something that's halfway as good, they'll spend $100 million or they can buy ours for $15 million. And so that's kind of the dynamic. So it's very popular. We're growing really fast.

So maybe just to follow up there. Like you said, a lot of -- the way you described it is a lot of software companies, a lot of analytic companies try to say the same thing. What is the secret sauce? Like are there some key IP assets, brands within that, that help you keep growing at this rate?

Well, if you think about part of the reason that you don't see a lot of analytic software companies is it's really, really hard to put analytics into software. That's because what do analytics do? You ask a question, you're looking for an answer to a question, and then you have to figure out which data is the right data to answer that question. And then you have to figure out what's the right analytics technology to put on that data to get to the answer you want and do that all in real time. That's a very complex equation. I mean it's just really hard to do. And we've mastered it over 40 years. and no one else has.

Got it. And maybe to that point, AI, the new LLMs are they making life easier for you? Are they introducing more competitive threats? What's -- how do you evaluate that?

For us, it's good on all counts. So we get the same productivity benefits that any software company would get from no longer having to write code, right? So that's a labor saving. But more importantly, we think that all of the adjacency -- the core of our platform is decisioning. We think that all of the adjacencies lend themselves really well to AI-driven agentic behavior. So.

I don't know, let me give you an example. We try to detect fraud. And so we'll go in and look at millions and millions and millions of transactions and try to identify patterns and profiles and figure out what looks odd. And when we find those things, we either -- if it looks okay, within 17 milliseconds, we say, looks good. And then the rest of the time, it's an exception. It gets kicked out to a fraud analyst.

Well, the fraud analyst takes that exception and studies it and looks into your accounts and checks your -- checking account balance and other kinds of things and makes a determination, not in 17 milliseconds, but maybe in a half hour. In our view, an AI agent could do what that analyst does in another 30 seconds. So instead of 17 milliseconds, we get the exception, kicks it out and now we have an AI agent that does what the fraud analyst used to do. So I think that the banks are going to get tremendous savings out of applying agents to the outcome -- output of our software.

Got it. And maybe the last question in the last 2 minutes here. It sounds like a really neat decision platform. You've been accelerating growth recently, doing very well. What is the vision for software? How do you -- it's still relatively small in the scheme of software. So how do you scale it to the heights that you probably want to take this?

I think if we keep growing the new platform at over 40% a quarter, it will scale to new heights very quickly. It has been growing really fast. I mean it's now -- the new platform is 1/3 of our total software business and growing much faster than the rest. The rest of it is pretty much flat.

And so we've got the growth. And we'll see. I mean, I think -- and also our model is a land and expand model. So anything we land, we typically get a lot more revenue out beyond that. Our dollar-based net retention revenue on the platform is 136%. So you can see that the customers who buy it buy more. I mean that's kind of what that means.

We'll see. We don't have -- every time once a while, I get asked questions about you're going to sell it or spin it off. And of course, that's a question the Board asks once a year. But we have no intention of doing that anytime soon. Right now, software is not in favor. This wouldn't be a great time for us to spin it off anyway, but we really think it's undervalued and underrecognized.

Okay. Cool. All right. We'll leave it right there. Thank you. Appreciate your time.

Thank you.

Thank you.

Good day, and thank you for standing by. Welcome to the Second Quarter 2026 FICO Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Dave Singleton. Please go ahead, sir.

Good afternoon, and thank you for attending FICO's second quarter earnings call. I'm Dave Singleton, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing; 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 in comparison with the prior quarter to facilitate 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. Those statements involve many 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 portions of such filings. 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. Please refer to the company's earnings release and Regulation G schedule issued today for a reconciliation of these non-GAAP financial measures to the most comparable GAAP measure.

The earnings release and Regulation G schedule are available on the Investor Relations page of the company's website at fico.com or on the SEC's website at sec.gov. And a replay of this webcast will be available through April 28, 2026. We have refreshed our quarterly investor presentation with additional content, which is available on the Investor Relations section of our website. We will refer to this presentation during today's earnings announcement.

I will now turn the call over to our CEO, Will Lansing.

Thanks, Dave, and thank you, everyone, for joining us for our second quarter earnings call. We had a very strong quarter and a great start to the first half of our fiscal year. Based on our results and outlook, we are increasing our fiscal 2026 guidance. We reported Q2 revenues of $692 million, up 39% over last year, as shown on Page 5 of our investor presentation.

For the quarter, we reported $264 million in GAAP net income. in the quarter, up 63% and GAAP earnings of $11.14 per share, up 69% from the prior year. We reported $297 million in non-GAAP net income, up 54% and non-GAAP earnings of $12.50 per share, up 60% from the prior year. We delivered free cash flow of $214 million in our second quarter. Over the last 4 quarters, we delivered $867 million in free cash flow, an increase of 28% over the prior 4 quarter period.

In Q2, we continued returning capital to shareholders through share repurchases, buying back $605 million or 484,000 shares at an average price of $1,251 per share.

At the segment level, shown on Page 6, our second quarter score segment revenues were $475 million, up 60% versus the prior year. While B2B scores were the key driver of growth, we also experienced the sixth straight quarter of growth in B2C scores. In our Software segment, we delivered $217 million in Q2 revenues, up 7% over last year. Results included 54% platform revenue growth and a 12% decline in not platform revenue.

Steve will provide additional revenue details later in this call. Last week, we issued a statement on our website in response to the FHFA and FHA update on credit for modernization. We applaud the FHFA and FHA initiative to get FICO Score 10T into the market in the coming months. FICO Score 10T is the most predictive credit score for all borrowers, including first-time home borrowers. FICO Score 10T incorporates rental and utility payment history, enabling more consumers to qualify for mortgages.

To support the goal of increased homeownership and bring the benefits of increased competition to the marketplace, we updated our FICO Score 10T performance model pricing in the FICO mortgage direct licensing program from $4.95 per score plus $33 funding fee to $0.99 per score plus $65 funding fee. We anticipate the release of FICO Score 10T data and the time line provided by the FHFA and GSEs. In the last quarter, we added 11 more lenders to our FICO Score 10T early adopter program.

As a reminder, through this program, FICO Score 10T is made available for free with the purchase of classic FICO. The 55 lenders in the program account for more than $495 billion in annual serviceable originations when evaluated using 2025 HMDA data and more than $1.6 trillion ineligible servicing. We're moving closer to the go-live dates of our next-generation cash flow Ultra FICO score with our strategic partner plat. and the FIFO mortgage direct licensing reseller partners. We continue to actively work alongside participants to support testing on both initiatives.

As AI adoption accelerates, we recognize the need of stakeholders to weigh the associated opportunities and risks. At FICO, we view AI as a tremendous opportunity that we've committed significant resources to for several years. In the Scores business, AI is limited by strict regulatory requirements on credit underwriting outcome explainability and model governance. In addition, our scoring models are supported by proprietary data access, mainly with the credit bureaus and deep ecosystem integration. Across both businesses, FICO has been issued 137 AI-based patents, which include patents and blockchain technology that are helpful for traceable and explainable decision-making. the type of market-leading innovation that will be in high demand as businesses seek ways to safely deploy AI analytics in highly regulated industries.

In our software business, as shown on Page 13, FICO platform is architected from the ground up to be agentic by design. That foundation delivers decision grade analytics, deep domain expertise, and an enterprise platform that clients depend on for precision, consistency, explainability and trust. These principles are nonnegotiable for our primary target market, the highly regulated financial services industry.

FICO platform is the world's leading AI decisioning platform for financial services recognized as such as a leader by Gartner, Forrester and IDC. Its agentic architecture power is a real-time, always-on customer profile engine that delivers hyperpersonalized consumer experiences where every interaction can inform and improve the next. There are over 150 clients globally using the FICO platform across multiple connected use cases to power their customer experience, business critical operations, risk management and fraud monitoring and prevention.

FICO platform brings together multiple functions within an enterprise in a common operating environment and enables them to operationalize AI at scale to drive real business outcomes. Financially, a substantial majority of our nearly $315 million platform segment annual recurring revenue is driven from FICO platform. Financially, a substantial majority of our Platform segment annual recurring revenue, approaching $350 million and growing rapidly is driven by the FICO platform, reflecting years of proven commercialization.

FICO transformed 70 years of proven deep domain knowledge into validated expandable AI that powers the most consequential business decisions with that expertise embedded directly into the agents, models and guardrails that operate on the platform. FICO platform accelerates client innovation by providing clients with the ability to build, test, optimize and monitor decisioning across the enterprise. With FICO AI-guided operations, clients create a self-reinforcing cycle of value generation, reinvesting outcomes back into the platform by enabling additional use cases, driving further value for their businesses.

FICO platforms marketplace and FICO assistant unlock broader capabilities that compound with scale. Every new mode, agent and integration from the ecosystem strengthens the customer profile engine and accelerate consumption of proprietary capabilities across the platform. At FICO, AI is already driving meaningful results today while creating significant opportunities that we are well positioned to capture.

I'll now pass it back to Steve to provide further financial details.

Thanks, and good afternoon, everyone. As Will mentioned, our Scores segment revenues for the quarter were $475 million, up 60% from the prior year. As shown on Page 16 of our presentation, B2B revenues were up 72%, primarily attributable to higher mortgage origination scores unit price and a recent volume of mortgage rising. Our B2C revenues were up 5% versus the prior year, driven mainly by our indirect channel partners.

Second quarter mortgage originations revenues were up 127% versus the prior year. Mortgage originations revenues accounted for 72% of B2B revenue and 63% of total stores revenue. Auto originations revenues were up 13%, while credit card, personal loan and other originations revenues were up 6% versus the prior year.

For your reference, Page 17 of our presentation provides 5-quarter trending of our scores metrics. As in the past, our updated guidance assumes conservative score volumes. And to reiterate, we do not anticipate share loss to competition in any vertical.

Turning to our Software segment. Our software ACV bookings for the quarter were $28 million, as shown on Page 18 of our presentation. On a trailing 12-month basis, ACV bookings reached $126 million this quarter, an increase of 36% from the same period last year. With our strong pipeline, we expect bookings in the second half of the year to exceed the first half of the year. Our total software ARR, as shown on Page 19, was $789 million, a 10% increase over the prior year. Platform ARR was $349 million, representing 44% of our total Q2 '26 ARR.

Platform ARR grew 49% versus the prior year, while non-platform declined 8% to $440 million this quarter. Platform ARR growth was driven by both new customer wins as well as expanded use cases and volumes from existing customers. Platform ARR growth includes the onetime Q1 liquid credit solution migration and Q2 CCS migrations from non-platform to the platform. Excluding those migrations, our platform ARR growth was in the mid-30% range.

The non-platform year-over-year ARR decline was driven by migrations, end-of-life products and some usage declines. In our CCS business, which contains both platform and non-platform, ARR growth was relatively flat. Our dollar-based net retention rate in the quarter was 109%. Platform NRR was 136%, while our non-platform NRR was 90%. Platform NRR was driven by a combination of new use cases and increased usage of existing use cases.

Second quarter software segment revenue is detailed on Page 20 were $217 million, up 7% from the prior year. Within this segment, our SaaS revenues grew by 19%, driven by FICO platform. Our on-premises revenue declined 4%, year-over-year, our platform revenues grew 54%, driven mainly by the success of our land and expand strategy. nonplatform revenues declined 12%, driven mainly by migrations.

As a reminder, our FY '26 revenue guidance reflects an expectation of lower point in time revenue throughout FY '26 due to fewer nonplatform license renewal opportunities compared to the prior year. From a regional point of view, 90% of total company revenues this quarter were derived from our Americas region, which is a combination of both our North America and Latin American region. Our EMEA region generated 7% of revenues and the Asia Pacific region delivered 3%.

Operating expenses for the quarter, as shown on Page 21, were $289 million this quarter versus $278 million in the prior quarter, an increase of 4% quarter-over-quarter driven by personnel expenses. We expect operating expense dollars to trend modestly upward from the Q2 run rate into the back half of the fiscal year, driven mainly by personnel expenses and marketing for both FICO World and our Scores business.

Our non-GAAP operating margin, as shown on Page 22, was 65% for the quarter compared with 58% in the same quarter last year. We delivered year-over-year non-GAAP operating margin expansion of 712 basis points. The effective tax rate for the quarter was 25.7% and we expect a full year operating tax rate of 25% to 26% and an effective tax rate of around 24%. At the end of the quarter, we had $272 million in cash and marketable investments.

Our total debt at quarter end was $3.64 billion with a weighted average interest rate of 5.5%. This includes the March issuance of $1 billion in senior notes due 2034 which used some proceeds to fund the redemption of $400 million in senior notes that were due in May. As of March 31, 2026, 93% of our debt was held in senior notes. We had $265 million balance on our revolving line of credit, which is repayable at any time. We anticipate interest rate expense dollars to trend modestly upward from the Q2 run rate into the back half of the fiscal year.

As Will highlighted, we continue to return capital to our shareholders through buybacks as shown on Page 23. In Q2, we repurchased 484,000 shares for a total cost of $605 million, representing the single largest quarterly repurchase in dollars in FICO history. We continue to view share repurchases as an attractive use of cash. With our recent $1.5 billion Board authorization, strong free cash flow and unutilized revolver, since April 1, we have bought an additional $170 million or 164,000 shares at an average price of $1,040 per share.

And with that, I'll turn it back to Will for closing comments.

Thanks, Steve. As we approach the start of FICO World 2026, which is going to happen on May 19 through the 22nd in Orlando. We look forward to showcasing our continued innovations. The event brings together customers and partners from around the world to explore how real-time scalable decision-making is transforming consumer engagement. We remain focused on enabling deeper customer relationships through always on personalization that drives strong business outcomes.

The conference also provides a form to connect with industry experts, share best practices and advanced initiatives that drive financial inclusion. We had a great first half of our fiscal year, and I'm pleased to report that today, we are raising our full year guidance as we enter the third quarter.

As shown on Page 24 of our presentation, revenue guidance is now $2.45 billion, an increase of 23% versus prior year. GAAP net income guidance is now $825 million with GAAP earnings per share of $35.60, an increase of 27% and 34%, respectively. Non-GAAP net income guidance is now $946 million with non-GAAP earnings per share of $40.45, an increase of 29% and 35%, respectively.

With that, I'm going to turn it back to Dave, and we'll open up for Q&A.

Thanks, Will. This concludes our prepared remarks. We're now ready to take questions. Operator, please open the lines.

[Operator Instructions] Our first question is going to come from the line of Jason Hass with Wells Fargo.

I'm curious to start, Will, if you could talk about the philosophy behind adjusting your pricing model going to the $0.99 upfront. I appreciate some commentary.

Yes. Absolutely. So that's a step and direction we've been talking about now for several years. I mean, we have historically charged upfront for score. That's the historical way we've always charged for our IP, but what that does is it doesn't spread the cost across the rest of the value chain. And so a lot of the beneficiaries of the IP are not really paying for it. And so we have that cost concentrated upfront. The whole idea we had moving to the performance model is to give us more flexibility so that we could distribute the monetization of that IP over more players across the chain.

And so that's really what we've done. In this most recent move to $0.99, plus a $65 funding fee, the idea was to encourage adoption of FICO 10T because we think that the most powerful thing that we can do is really get FICO 10T established. And obviously, it's already established in the nonperforming market. But we'd really like to encourage wide use of 10T and so this kind of pricing is designed to encourage that.

Great. That certainly makes sense. And then now that Vantage score is available to be used on the conforming mortgage market, do you expect what percentage of lenders do you think would shift fully away from FICO to just using Vantage score? Or do you see most lenders if they are going to use Vantage scores, if you see them also pulling FICO during the mortgage process and then submitting the score ultimately that's most favorable to that into the GSEs?

I suppose we'll see how it turns out. But if you think about the decision process for those who purchase scores, if they're after the most predictive score 10T is the answer to that. If they're after price, then I think we have parity 10T at $0.99 is at parity with Vantage at $0.99. And so on both predictability and price, we think we're highly competitive and frankly, don't see good reasons to switch. Now depending on how the FHFA decides to handle the gaming problem, there may be opportunities for Vantage based on the gaming. And so we'll just have to see how that unfolds.

Although our analysis suggests that in a gaming scenario, if there's true consumer shopping for the best rate and the system is going to be gained in that way, that originators and lenders would wind up pulling both scores.

Our next question will come from the line of Manav Patni with Barclays.

Will, for the 10T adoption, obviously, that $0.99 is only available through the direct loan model that you have, TLT model. Can you give us an update on when that's going live, what the feedback right now is with lenders and kind of adoption that you expect there?

Yes, absolutely. So there's a few pieces to getting the direct license program live and they're mostly in place. We're working on the last kind of final details now. So we have 3 of the top 5 major resellers signed up, we are in deep discussion with the other 2 and fully anticipate that all 5 of the big resellers will be able to provide the direct license program. We also see a great deal of interest from the lender community for this performance-based pricing model.

So there's a pent-up demand, and we anticipate quite a lot of usage of this model once we get direct up and running. We do still need FHFA final sign-off on having the resellers calculate the score. But we don't anticipate any issues there because the math is identical and the score, we've tested and the score calculated by the resellers is the same score that calculated by the bureau. So it's on the same data, and it's the same methodology. So -- although I can't give you a date, I can tell you that we're closing in on it.

Okay. And then just in terms of the historical 10T data coming out sometime in the summer, maybe just some help on how that process works? Like will there be another pilot like they're doing now with Vantage Coal once 10T is out and we're only looking for something realistically in 2027 for both to be ready to go fully live, I guess?

Well, the FICO 10T data, as you know, is with the FHFA and the GSEs, and it's up to them to decide when to release it. There's certainly a lot of market sentiment for being able to evaluate 10T and AdVantage at the same time. And certainly, by the time the GSEs accept truly accept AdVantage I think the market would like to be available as well. So there's some market pressure to get this done, but I don't have the time line.

Our next question will come from the line of Simon Clinch with Rothschild and Redburn.

Will, I was wondering if you could just cycle back to the question of investment. I think it was Jason asked about the pricing of 10T and your comments that it's at parity at just. I was wondering if you could talk about the philosophy or like how you think lenders will treat the successfully in that kind of mutation and how we should think about that dynamic in that sort of comparison?

Well, I think the beauty of the way we've structured this is that mortgage originators and lenders have a choice. They can continue to buy the score, the way they always have on a per-square basis, or if they prefer they can move to the $0.99 plus funding fee. And the idea there is that it encourages very widespread use of the score in the prospecting phase, in the customer acquisition phase and figuring out who's qualified for a mortgage. And frankly, with the goal of trying to encourage more housing and more mortgages, making the upfront score cost very low is likely to support that.

And so it really is up to the lenders, which model they prefer, and we leave it to them. we are -- I've said before, we're largely indifferent as between the 2 models because it's about revenue neutral for us either way. But I think that each model meets the needs of different customers for the score in different ways.

Understood. And just as a follow-up to the reseller readiness right now. I mean I understand we're getting close to go live will come to place. The bit I would love to get a bit more color on is just, I guess, what has relative to initial sort of expectations, it feels like it's taking longer than expected. And I was wondering if you could talk about sort of what has been behind some of the prolonged process here?

I think that some of the expectations were a little on the optimistic side. We certainly didn't think it was going to happen in a couple of months. We thought that it would take a while to put this together. It's a pretty complicated program, not a complicated program, but it's -- there's enough moving parts that require validation and testing that we knew it was going to take some time. This much time, I would say, we actually believe that it would be up and running by now. I would say that we're close and as I said earlier, it's really up to the FHFA to sign off on the calculation of scored by the resellers and then we're pretty much there.

Our next question comes from the line of Surinder Thind with Jefferies..

Well, just following up on the timing of 10T. Just to understand, is there a sequence of dependencies before the FHFA kind of makes it available in the sense of like releasing the historical data. Obviously, you got to have the systems and everything ready. But are there other things that we should be aware of? Or is it just kind of once the systems are ready, they can release it, whether or not the historical data is available?

No. I would say that there are not a bunch of additional things that no 1 knows about. I think we have to get the 10T data out so that people can test it. and then the GSEs have to accept 10T, and that's it. That's all that's required.

Got it. And then in terms of just switching away. Can you maybe talk a little bit about the outlook for expenses here. I noticed you talked a little bit about incremental scores, marketing expense what should we expect there? And then other than kind of the step-up that's related to the annual FICO World Conference.

Yes. I mean it's not all that material. I mean, there will be some expense. I mean, it's that -- I think you can kind of back into it when you look at our guidance numbers, but it's not all immaterial. But we've got some additional personnel expense. We got expenses around Piper world, there's some other types of marketing we're doing. When you see more growth on the software side, that comes at a 100% margin either, right? There's cost of good solar. So you're going to see some expenses there. But none of it is all material.

Our next question comes from the line of Faiza Awa with Deutsche Bank.

So first, I wanted to ask about the very strong growth that you saw in mortgage revenue this quarter, up 127%. I think we know about your pricing but it implies pretty strong volume growth. So I'm just curious if you can talk a little bit more some of the factors there.

Yes. I mean we had decent volume growth. I think it was a pretty good quarter. There was a period of time that where interest rates dropped a little bit. We saw a little bit of an uptick here and I think it's consistent with what you hear from the bureaus as well. So it was a decent volume quarter, probably better than we expected when we gave our guidance. But again, we guide very conservatively because it's really difficult to know what those numbers might be.

Okay. Understood. And then just on the software side of the business, again, pretty strong bookings, really strong ARR growth on the platform side. So again, give us some context in terms of what you're seeing there? Are you seeing higher of notice that you alluded to growth or maybe focusing outside of the services. And I'm curious if you're sort of thinking your approach there at all?

I would not say that moving to other verticals is driving the growth. It's really primarily in financial services. And it's across a wide range of use cases, and we continue to have success and the model that we've been experiencing just continues to be strong, which is a financial institution will adopt the platform and make it the kind of the heart and soul of the way they interact with their consumer customers and then discover just how powerful it is and then get more utility out of it, the more use cases they put on it. And so it's the land and expand strategy, which we have for that business is working really nicely. And the customers have tremendous satisfaction, and that's driving the growth.

Our next question will come from the line of Jeff Mueller with Baird.

From an earlier question, it sounds like the answer may be TBD, depending upon what FHFA decides to do. And I don't know, do we have to wait for the selling guidelines. But the question is, what's your understanding? Because I think the language is the enterprises cannot accept scores from multiple models. But have they said anything about if an underwriter can pull scores for multiple models earlier in the process? Or is that waiting for the selling guidelines to know the answer?

I think that's waiting on the selling guidelines. I mean I can't speak for the GSEs on that.

Okay. And then do you have any sense of what went into the approval process of the '21 initially approved lenders for Vantage 4.0, were they asked to apply by FHFA? Is there any sort of like commitment, how intensive of a process it is? Just trying to figure out if that's a meaningful signal or not.

We don't really have a lot of detail around that program. Obviously, we weren't invited to be part of it. And so we just don't have the details. it's -- it remains to be seen what happens there. Our understanding is a fairly manual process.

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.

I know you just announced the FICO 10T pricing, but I just wanted to understand what's your pricing strategy over the midterm? Is there still a gap between price and value and as you think about it, how do you think about closing that gap? Would you also consider alternative pricing algorithms, including a percentage of the loan amount for the success fees. So any color there?

As you know, we've talked about a lot of different approaches to pricing for our IP. And those are under constant evaluation and study. And the balancing act is, we don't want to shock the market. We don't want to make precipitous changes. In fact, we don't love change. We -- if the market works really well the way it is today, and so we don't like change. That said, there is a case to be made for low pricing upfront. There's a case to be made for shifting around the monetization of the IP across more than just the first purchaser. And so we're always evaluating those kinds of things. Our philosophy has not changed. What you see is the first couple of steps in the direction of what we've been talking about for several years now.

That's very helpful color. And then maybe just on the Mantecorp grids, FHFA mentioned that they are taking into account proper credit risk accounting in order to make sure, and that's why those matrices are different compared to FICO. I was wondering based on your experience, what are the key credit risks that they would consider when they are designing these matrices? And why should FICO or FICO 10T get a preference?

Well, so again, I can't really speak for the way the GSEs are thinking about it. But what we believe is that in these LLPA grids, if you're going to account for risk, there's going to be price differential, there's going to be gaming that goes on. What kind of risks might be accounted for? I don't know how they account for them exactly, but certainly, you could have very different credit default risk for Vantage versus FICO. You could have very different prepayment risk for Vantage versus FICO.

As you know, Vantage only goes -- the Vantage data only goes back to 2013 has never been tested through a full cycle. And so there's a lack of understanding, not for want of trying, but there's -- the data is not there to understand how Vintage will operate through a full cycle. And so I'm not really sure -- what does that mean? It means that downstream investors are going to demand some kind of a premium for the lack of understanding around the prepayment risk and in default risk. How that gets translated into the LLPA grid, the GPEs, hard to say. And then because the pricing will be different for FICO and Vantage, and we guess that sometimes Vans will have better pricing for a consumer and sometimes FIO have better pricing for consumer. It's going to create some real headaches for the GSEs.

So we'll see. We'll just have to see how they solve that problem.

Next question will come from the line of George Tong with Goldman Sachs.

With the direct licensing program, it sounds like you're awaiting FHFA approval. Are there other implementation hurdles they have to overcome among the top 3 resellers that have signed up so far? And can you talk about why the remaining 2 out of the top 5 are taking a bit longer to sign up?

I would say that there are not other factors, nothing meaningful. So we're really just waiting on approval from the FHFA. And then in terms of the 2 that haven't signed, I can't get into the details, but we're very close.

Okay. Got it. And then with respect to your outlook, can you elaborate on what assumptions are baked into your full year guide with respect to Vantage score adoption, the timing of the direct licensing model going live and performance fee adoption?

Yes. We anticipate no loss of volume to Vantage in this fiscal year. That's in our -- that's assumed in our guide. We are -- we are -- as I said earlier, we're in roughly the same place financially, whether they go with the first core model or the performance model. So it's revenue neutral. There's a little bit of a timing difference because with the performance model, the funding fee would trail the initial fees. So I mean there's some minor differences. But I would say on balance, it's pretty close to a wash between the 2. So it doesn't really matter when the adoption occurs. I suppose you could argue that if the adoption of the direct license program is delayed that's beneficial to FICO in the very short term from a timing standpoint, but we don't think about it that way.

Yes. And we do have some lag built into the guidance based on the assumption that performance model will go live, and we'll have some revenue that's pushed from late this fiscal year and early next fiscal year because again, because the timing cost described.

Next question is going to come from the line of Alexander Hess with JPMorgan.

Could you start with the 127% year-on-year growth in mortgage. I understand that your rack rate is widely known, layer on top of that volume assumption is still a bit below. So maybe were there any prior year pricing adjustments have feathered into the present fiscal year. Just anything that might have given that an extra booster is this sort of the rate you guys think you can continue at these volume models?

Yes. I mean not really. I mean there might be some difference in the unit cost. I mean there's some without getting to a lot of detail that some people are on a little bit lighter rate last year, and we're up to the full wrap rate this quarter. But it's primarily just the new rate and then the additional volumes we saw.

Got it. And then maybe shifting to usage of the FICO score overall. I know there were some remarks about stepping up expenses for the Scores business, introducing the new version of Ultra FICO. If you could just talk about your investments in innovation in the Scores business and how that sort of benefits the franchise you guys have there? That would be super helpful.

In the scheme of things, the investments and incremental expense is not large, okay? I mean just to be really clear. That said, we are constantly investing in innovation, developing new scores. UltraFICO is -- although we've talked about it for several years, it is very much on our minds, and we have a plan which we're going to talk about at FICO World next month. But I can't go into the details now. But UltraFICO is likely to be a pretty significant factor in the sports business in the future.

Next question is going to come from the line of Kyle Peterson with Needham.

I want to just start off on software. The platform growth remains really impressive. Bookings are really good. I know the non-platform was kind of ran off maybe a little faster than we expected in the second quarter in a row. But I guess should we expect this trend to continue where the platform growth is accelerating, the nonplatform is running off? Or do you think it will kind of return to flattish nonplatform and historical platform growth? Just I guess, the moving pieces there would be helpful.

It's a good question, Kyle. And we've talked about this in the past. There's -- we have the platform growth, which comes from selling the platform often to customers, generally, the customers we already have, but not necessarily for the same things that they've been doing with us on the legacy side. And so there's new growth in platform, which look like new deals with customers that we know and occasionally with customers we've never met before.

And then there's a migration from our legacy applications to the platform. And I would tell you there that we are not forcing that migration. We're not even really encouraging that migration because we have our hands full with the growth in the new platform. And so we really leave it to the customer, the customer's choice. If the customer comes to us and wants to renew for 3 more years, legacy application that is working extremely well for them. We are all for it, and it's highly profitable business for us and it's good. If they're ready to make the move, we're happy to help them make the move, and so we work on that, too.

I think there is a balance there. I think there at some level, there's a bit of migration that happens from the legacy business to the platform business. And so that would explain higher growth on the 1 side means a little bit lower growth -- a loss of business on the legacy side. But I wouldn't say it's a huge factor. I just think that the 2 are kind of in balance at this level now. We're not pushing it with our thumb on the scale 1 way or the other. That may change in the future. But for now, we're very happy with the growth on the platform side.

Got it. That's helpful. And then as a follow-up, I wanted to switch over to auto origination Scores revenue. I guess, it did decelerate a little bit this quarter. Obviously, I think the comps are getting tougher, but I want to see at least directionally, if you guys could give a little bit more color on what drove the year-on-year detail between tougher comps, pricing changes in calendar year '26 or any changes in origination volumes or trends that you guys are seeing?

It's really the tough comps. The volumes are not growing as rapidly as they were. The pricing is relatively consistent. The '26 price increases is consistent with '25. I think what you see is that the comps are difficult, and there's probably a little bit of a mix shift there in terms of the pricing tiers that some of the lower -- the lower unit cost pricing tiers have gained the volume from those that are higher unit costs. So some of that happening in the auto industry in general.

Our next question comes from the line of Craig Huber with Huber Research Partners.

We've talked about this in the past, but can you just update us on your understanding, what the data show you in terms of -- the market share out there is for Vantage score in credit cards, autos, personal loans, and also nonconforming mortgage loans. What's their market share right now and we'll go from there.

I guess it all depends on how you measure it because if you ask them, they would tell you they have significant market share and all those things. near as we can tell, nobody is paying for Vantage scores and the bureau send along the Vantage score for free when someone buys a FICO score. So when you see the big Vantage score volumes that Vantage talks about, you should know that they're largely unpaid for. So are they -- is anyone using them? I don't know. Is anyone paying for them? Our sense is not much -- and so it's pretty hard to triangulate on what their market share is. I mean I think it's trivial is what I would say.

And I think you see that in our numbers, right? I mean if there were -- we were losing market share, you'd see it in our numbers, and you don't see any that. We have to report our results or audited. They don't have that same obligation, so there's a lot of sun in what we produce, and we back it up with actual numbers that are verified.

So just to be clear, if you had a ballpark, you think it might be 5%, 10% market share, maybe not even not ballpark.

I would call it 2%.

Okay. So then on the nonconforming part of mortgages, you're saying probably the same thing, right, roughly that...

To be really clear, in the nonconforming market, the lenders use FICO Classic and they use FICO 10T, and they don't use Manta.

So what -- all the worry out there about AI, put that aside for a second. All the worry out there that Vantage score is going to take significant share just because of the changes from the government standpoint -- the rest of the market here is -- you guys have been Vantage scores to go up against FICO for 20 years, right, in 2006. You tell me it's roughly 2% market share give or technique -- what's going to change though but what's going to change here on the conforming mortgage side of things here that they're going to get significant market share. I mean, that's the theory out there for a lot of people. What's the case there that you guys possibly see?

Look, I am not going to make the case for how Vantage takes market share because I think we're competitive on price, we are far more competitive on predictiveness. We have a better score than Vantage. There's not a good reason for them to take any share at all.

Okay. Let me just -- my final question is why did you lower the upfront fee down to $0.99 from $5 then?

Two reasons. One is to be competitive with Vantage and to have a low entry point and encourage widespread use of the score and second, to encourage adoption of FICO 10T. a pretty classic approach to launching a new product is to price it so that people use it.

But again, you're not worried at all that Vantage is going to take any meaningful share from you on the conforming mortgage side, right? That's what you're saying?

That is correct.

Our next question comes from the line of Ryan Griffin with BMO Capital Markets.

I'm just wondering if you have any feedback to share from the securitization market in terms of reference in light of...

Everyone has done their own market checks, and we have to -- and I would say that the securitization market is not ready to accept Vantage. It's -- there's some hurdles to be overcome. And so we'll see how that all unfolds. I don't have a lot of insight there. I mean the market is still all FICO. I think something like 20 mortgages have been securitized with Vantage for paper, which is obviously less than 1%, less than [indiscernible] of the most recent securitization. So it's not real yet. We'll have to see how the market reacts.

And I know we're getting some data released over the summer from the was wondering what you're expecting that relate the tail and how you think it might validate the predictive.

Well, I think that -- I can't give you a date for when the FHFA will lease the FICO 10T data to the marketplace. But we're certainly not standing in the way. We provided the data and we're ready to go. In terms of validating the predictiveness, we have white papers posted on our website that actually analyze FICO 10T versus Vantage and provide insights on print default risk and prepayment risk and the differences. We qualify 5% more borrowers. I mean there's a lot to see there. That's already been done. But then if you don't believe FICO because it's self-serving, I'd encourage you to look to third-party analyses as they come out because I'm sure they will. And you're going to see a lot of analytic work around this topic in the coming weeks and months.

Our next question comes from the line of Owen Lau with Clear Street.

So the AI disruption narrative hasn't gone away. Could you please talk about why it's very hard for whatever vantage or a third-party AI platform to come in and create a more predictive credit score which will be adopted by lenders and consumers if they can offer a lower price.

Okay. So there are 2 different things there. One is AI versus the current credit scoring system. And the second is within that more predictive. So first, I would say, with respect to AI displacing the FICO score, we have a really well-defined body of law fair lending laws, which are designed to protect consumers to ensure that there's not discrimination, ensure that consumers are treated fairly. And that requires compliance with all kinds of things that our scores take into account. I mean just 1 small example would be red lining, which is not allowed in the United States. Is it a predictive factor? Yes, it's predictive back here, but it's not allowed.

And so you can't use red lining as a factor in a credit score. Well, AI doesn't -- AI would find 100 other ways to get to the same result. And so the regulators are not going to be comfortable with AI making underwriting decisions when they're not explainable when it's a black box when they can't demonstrate that discrimination is not occurring. So that's kind of the core problem with using AI and underwriting. I mean, AI is great in a lot of things, but using it in underwriting, the biggest play is that it's going to get around the rules and escalations of the fair lending laws.

Now, you're probably aware that FICO scores carry with them 32 recent coast. So when consumers turn down for credit, they get a letter and -- or the line is not increased on the request or whatever they get a letter, the letter says, here's why. And that reaches into the FICO score and the recent codes and those recent codes are shared with the consumer. And so there's a level of comfort with the regulators and with the consumer that they understand what's going on. I would also point out that the experiment with AI in some of the black box underwriting that was undertaken several years ago by upstart ended with the CFPB shutting it down.

So I think there's some real challenges, not that it will be this way forever. And we are prepared for the day when AI is appropriate in underwriting. We have patents in the area of explainability and ethical AI. And so I think we're in an advantaged position, but I would not hold my breath. I think that's going to take a long time. And then on predictiveness of the score, I would tell you that our latest and greatest score is more predictive than Vantage and frankly, more predictive than any other score out there. The only asterisk I would put on that is there are lenders who build proprietary scores on top FICO and they leverage their first-party data. And so they have incremental data and they get incremental signal out of that. And so there are some proprietary scores that are really excellent that are most typically developed on top of FICO.

Got it. And then maybe quickly on LLPA, -- have you heard of any of these 21 lenders received the updated LLPA grid from FHFA for the pilot? And do you have any expectation that when the new grid will be made public?

No idea. I have heard nothing, I encourage you guys to keep asking the questions, what's going on there? I think it's a manual process.

Our next question comes from the line of Scott Wurtzel with Wolfe Research.

Just on the guidance, I understand you're still being -- it seems like being conservative on your assumptions regarding volume. Just wondering if there had been any sort of change to your volume assumptions after the last quarter end?

Not really. I mean, again, we tend to be pretty conservative because, obviously, there's a lot happening in the world. And if we get that number wrong, difficult to make that up someplace else, but not really. I think we had a better second quarter volume-wise than we had anticipated when we gave guidance. But we don't necessarily think that's going to continue. So we tend to take the same conservative approach for the rest of the year.

Got it. And then just on the buyback, I mean the number $600 million in the quarter was great to see along with the incremental buyback this quarter. Just wondering, I mean, how aggressive do you think or would you guys be with the stock at these current levels and given the capacity that you have?

What I can say is what we've said in the past. We're always interested in share repurchase, and we're in the market kind of all the time. And we tend not to be market timers, although we have mean in much more heavily on an opportunistic basis. I would certainly consider our stock at these levels to be an opportunistic time.

Our next question comes from the line of Kevin McVay with UBS.

I wonder if you had any thoughts on, given the current shift in the regulatory environment, do you feel like that's pretty much contained at this point? Or is there anything else you're kind of focused on as we think about whether it's FHFA or other parts, do you kind of continue to manage to from a regulatory perspective.

The mortgage market is $13 trillion market, and everyone takes it pretty seriously and no 1 wants to do things that are reckless there. And so everything that happens in that market, you see coming a mile away. And I think that's kind of where we are. I think we know everything there is to know about the way this is unfolding for now. And so no, I don't really see being blindsided by regulatory or other kinds of things in the market. I think we understand how the market is evolving. We understand what the choices are for evaluating credit in the 1 market.

Things will change if the GSEs get out? I mean anybody's guess when and if that happens and will things change. We actually don't think they'll change oat. We think that in in a world where the GSEs are private or if they were to lose the guarantee, the emphasis on credit default risk would go up, the interest in credit default risk goes up, and that's advantage FICO because we have the best score for evaluating that. But again, these are more theoretical and down the road kind of things. I don't think there's any surprises ahead.

Our next question comes from the line of Curtis Nagle with Bank of America.

Most of my questions been taken, but just maybe Well, I guess any fat or detail you could provide in terms of the uptake of 10T within the nonconforming market at this point mortgages?

Yes. I don't have an updated number for you, but it's -- we have underwritten brilliance. Yes. Most of them are running in parallel with plastics because they want to be able to use the latest score and so they run them in parallel with each other. I think the number is $1.2 trillion.

And our last question is going to come from the line of Sean Kennedy with Mizuho.

So with Vantage score, I was wondering if you could discuss a bit more about potential adverse selection, how lenders could pull both scores in the beginning of a process that could pick 1 or the other for the remaining initial result and the implications there for the mortgage market?

Yes, it's a good question. I think -- and of course, we don't know how this is going to unfold. I mean it's really in the interest of the GSEs and the FHFA to prevent gaming to not have a gaming situation. That said, in the 2 score system, it's almost inevitable. It's kind of structural that 1 score or the other is going to be more beneficial to the consumer at all times. And so in a world where the systems are in place to use both scores and barring other unforeseen things, there will be some people who pull both scores. And so it may unfold that way. I think to the extent that, that happens, that's not -- I mean, it is technically share loss for FICO, but it's not volume loss. What you're really doing is expanding the market by the second full. And so it's conceivable advantage could get some share that way if they don't solve the gaming problem.

But I don't -- again, I don't see volume loss for FICO.

Great. And then I was also wondering just with the auto in card loan growth. If you saw any volume weakness later in the corner -- and if you're asking any consumer weakness there?

Yes. I mean auto tends to be pretty stable unless there's like a really disruption in the economy. A lot of the volume on the card side is really the banks that are marketing. And if they want to market more, they'll find consumers that will take it off. So and that can vary quarter-to-quarter. But so far, we haven't really seen any significant weakness on the volumes. They've actually been pretty good. There's been a little bit of a falloff in the subprime but it's been picked up throughout the rest the prime and super prime. So we haven't really seen it.

This does conclude today's question-and-answer session. Ladies and gentlemen, this also does conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Good day, and thank you for standing by. Welcome to the First Quarter 2026 FICO Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand it over to your first speaker today, Dave Singleton. Please go ahead.

Good afternoon, and thank you for attending FICO's first quarter earnings call. I'm Dave Singleton, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing; 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 in comparison to 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. Those statements involve many 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 portions of such filings. 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. 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. The earnings release and Regulation G schedule are available on the Investor Relations page of the company's website at fico.com or on the SEC's website at sec.gov. A replay of this webcast will be available through January 28, 2027.

We have refreshed our quarterly investor presentation with additional content, which is available in the Investor Relations section of our website. We will refer to this presentation during today's earnings announcement.

I will now turn the call over to our CEO, Will Lansing.

Thanks, Dave, and thank you, everyone, for joining us for our first quarter earnings call. We had another strong quarter and are reiterating our fiscal 2026 guidance. We reported Q1 revenues of $512 million, up 16% over last year, as you can see on Page 5 of our investor presentation. For the quarter, we reported $158 million in GAAP net income in the quarter, up 4%; and GAAP earnings of $6.61 per share, up 8% from the prior year. We reported $176 million in non-GAAP net income, up 22%; and non-GAAP earnings of $7.33 per share, up 27% from the prior year.

We delivered free cash flow of $165 million in our first quarter. Over the last 4 quarters, we delivered $718 million in free cash flow, an increase of 7% year-over-year. We continue to return capital to our shareholders through buybacks by repurchasing 95,000 shares in Q1 at an average price of $1,707 per share. At the segment level, on Page 6, you can see our first quarter Scores segment revenues were $305 million, that's up 29% versus the prior year. While B2B scores were the key driver of growth, we also saw continued growth in B2C scores. In our Software segment, we delivered $207 million in Q1 revenues. That's up 2% over last year. Results included 37% platform revenue growth and a 13% decline in non-platform revenue. Steve will provide additional revenue details later in the call.

We had another strong execution quarter in our Scores business, which we highlight on Page 8. The FICO mortgage direct licensing program allows resellers the ability to streamline score access, enhanced price transparency and provide cost savings to lenders to reduce breakage fees. This quarter, we announced the addition of 4 new strategic reseller participants to the FICO mortgage direct licensing program, Xactus, Cotality, Ascend Companies and CIC credit. Additionally, we signed a DLP agreement to add another participant, MeridianLink, a key platform provider to the mortgage industry. We'll be releasing a press release on that soon.

With strong demand from lenders, FICO is actively working alongside participants to support testing. One large reseller is close to completing production and integration testing. Another large reseller has completed that testing and is now testing system integration downstream. While we expect to go live soon with the full partners, we also continue to work on finalizing agreements with additional reseller participants.

The direct license program currently supports classic FICO. While the conforming market is anticipating the general availability of FICO Score 10 T, we expect FICO Score 10 T to be available for direct licensing in both conforming and nonconforming in the first half of calendar '26. A high-level overview of the direct license program and FICO Score 10 T can be found on Page 9 and 10 of our presentation.

FICO Score 10 T is a meaningful step forward in credit risk assessment. FICO Score 10 T offers significant improvements in predictive accuracy combined with a focus on fairness and model stability, offering tremendous benefits for lenders, investors and borrowers compared to other alternatives on the market. In the last year, we have nearly doubled the number of lenders in our FICO Score 10 T adopter program. These lenders account for more than $377 billion in annual originations and more than $1.6 trillion in eligible servicing volume, most making multiyear commitments use the FICO Score for mortgage decisions on both the conforming and nonconforming markets.

This quarter, we also announced a strategic partnership with to deliver the next generation of Ultra FICO score. This score combines the proven reliability of the FICO score with real-time cash flow data from to provide lenders with a single enhanced credit score that delivers superior consumer risk assessment without operational complexity. The enhanced Ultra FICO score solution is credit bureau agnostic and will leverage cash flow data, historical and current information about the money flowing into and out of a consumer's transaction accounts, that's checking, savings, money market access through cloud's open finance network of consumer permission data. Plat powers nearly 1 million secure financial connections each day and has helped more than half of Americans with a bank account securely move more of their financial life online. We see growing demand for the score, which we'll launch for distribution with Plat in the first half of calendar 2026.

Within the quarter, we continued to expand adoption of FICO Score mortgage simulator by partnering with sharper lending solutions, credit Interlink and Ascend Partners, including Xactus and MeridianLink announced in fiscal 2025, five resellers have adopted the simulator, and we're expecting another large reseller to sign shortly. The FICO Score mortgage simulator is the only simulation tool available to mortgage professionals that use the FICO Score algorithm. It enables mortgage professionals to run credit event scenarios by applying mock changes in an applicant's credit report data to simulate potential changes to the applicants FICO score. The FICO Score simulator supports simulations on all three credit bureaus and models potential changes to several FICO Score versions used in mortgage lending. Mortgage professionals can leverage valuable insight from the simulator to help drive smarter decisions that can present more loan options and favorable interest rates for customers.

In our software business, we're thrilled to be recognized by Gartner as a leader in the January 2026 Gartner Magic Quadrant for Decision Intelligence platforms. We are positioned the highest for our ability to execute. We believe this recognition is a landmark moment for FICO. Further, we feel it reflects our commitments to empowering customers and delivering lasting impact worldwide. As a market leader in Decision Intelligence, FICO enables businesses to make real-time decisions at scale. The core of our strategy is to empower customers with always on real-time customer insights that deliver connected decisions and continuous learning throughout the entire customer life cycle.

Our innovations will be on display at FICO World 2026, which is going to happen May 19 through 22 in Orlando, Florida. FICO World brings together customers and partners from around the world, allowing participants to collaborate on how FICO platform makes real-time decisions at scale to optimize interactions with consumers. At FICO, we're obsessed with power and consumer connections and delivering always-on personalized experiences to drive outsized business outcomes. At FICO World '26, you can network the world's leading experts to learn how you can power your organization, apply best practices and advanced platform decisioning and drive financial inclusion.

We're going to now hand it over to Steve to provide further financial details.

Thanks, and good afternoon, everyone. As Will mentioned, our Scores segment revenues for the quarter were $305 million, up 29% from the prior year. As shown on Page 13 of our presentation, B2B revenues were up 36%, primarily attributable to higher mortgage origination scores unit price and an increase of volume in mortgage originations. Our B2C revenues were up 5% versus the prior year, driven mainly by our indirect channel partners.

First quarter mortgage originations revenues were up 60% versus the prior year. Mortgage originations revenues accounted for 51% of B2B revenue and 42% of total Scores revenue. Auto originations revenues were up 21%, while credit card, personal loan and other originations revenues were up 10% versus the prior year. For your reference, Page 14 of our presentation provides 5-quarter trending on all of our scores metrics.

Turning to our Software segment. Our software ACV bookings for the quarter were a record of $38 million, as shown on Page 15 of the presentation. This quarter included an above-average sized international multi-use case platform deal. On a trailing 12-month basis, ACV bookings reached $119 million this quarter, an increase of 36% from the same period last year. Our strong bookings in recent quarters gives us increased confidence that our ARR growth will continue to accelerate in FY '26.

Our total software ARR, as shown on Page 16, was $766 million, a 5% increase over the prior year. Platform ARR was $303 million, representing 40% of our total Q1 '26 ARR. Platform ARR grew 33% versus the prior year, while non-platform declined 8% to $463 million this quarter. Platform ARR was driven by both new customer wins as well as expanded use cases and volumes from existing customers. We also migrated our non-platform liquid credit solution to the platform. Excluding that liquid credit migration, our platform ARR growth was in the high 20% range. The non-platform year-over-year ARR decline was driven primarily by migrations, the end of life of a legacy authentication suite solution and some usage declines. In our CCS business, ARR growth was relatively flat.

Our dollar-based net retention rate in the quarter was 103%, Platform NRR was 122%, while our non-platform NRR was 91%. Platform NRR was driven by a combination of new use cases and increased usage of existing use cases. We now have over 150 customers on FICO platform with more than half leveraging FICO platform for multiple use cases.

First quarter software segment revenues detailed on Page 17 were $207 million, up 2% from the prior year. Within the segment, our SaaS revenues grew 12%, driven by FICO platform. Our on-premises revenues declined 12%, primarily driven by lower point-in-time revenues. Year-over-year, our platform revenues grew 37%, and our non-platform revenues declined 13%. As a reminder, our FY '26 revenue guidance reflects an expectation of lower point-in-time revenues throughout FY '26 due to fewer nonplatform license renewal opportunities compared to the prior year.

From a regional lens, 88% of total company revenues this quarter were derived from our Americas region, which is a combination of our North America and Latin America regions. Our EMEA region generated 8% of revenues and the Asia Pacific region delivered 4%. Operating expenses for the quarter, as shown on Page 18, were $278 million this quarter versus $279 million in the prior quarter, which included $10.9 million in restructuring charges.

Excluding restructuring, expenses grew 4% quarter-over-quarter, driven primarily by personnel expenses. We expect operating expense dollars to continue to trend upward modestly throughout the fiscal year. Our non-GAAP operating margin, as shown on Page 19, was 54% for the quarter compared with 50% in the same quarter last year, which means we delivered year-over-year non-GAAP operating margin expansion of 432 basis points.

The effective tax rate for the quarter was 17.5%, the operating tax rate was 25.7%. The primary difference between operating tax rate and net effective tax rate for the quarter is $15.7 million in excess tax benefit recognized upon the settlement or exercise of employee stock awards. We continue to expect a full year net effective tax rate of 24% and an operating tax rate of 25%.

At the end of the quarter, we had $218 million in cash and marketable investments. Our total debt at quarter end was $3.2 billion, with a weighted average interest rate of 5.22%. As of December 31, 2025, 87% of our debt was held in senior notes with no term loans. We had $415 million balance on our revolving line of credit, which is repayable at any time.

As Will highlighted, we continue to return capital to our shareholders through buybacks as shown on Page 20. In Q1, we repurchased 95,000 shares for a total cost of $163 million. And we continue to view share repurchases as an attractive use of cash.

And with that, I'll turn it back to Will for his closing comments.

Thanks, Steve. We had a great start to the year and are well positioned to exceed our fiscal year guidance. As in prior years, we will revisit our guidance on our Q2 earnings call. In our software business, we're seeing growth in bookings and ARR reflecting the value of our innovation in the market. Since FICO World 2025, we achieved general availability of FICO Marketplace and FICO focused foundation model. .

Our next-generation FICO platform and enterprise fraud solution on FICO platform will soon be generally available. I'm excited to see our innovation realized in the market and delighting our customers. In our Scores business, our innovations are driving increased engagement for market participants. There's continued participant adoption of our FICO mortgage direct licensing program. Outside of conforming mortgages, there's continued adoption for FICO Score 10 T. We see adoption of FICO Score mortgage simulator throughout the mortgage industry. The FICO score continues to be the trusted industry standard by 90% of top U.S. lenders as the standard measure of consumer credit risk in the U.S.

With that, let me turn this over to Dave to open up the Q&A session.

Thanks, Will. This concludes our prepared remarks, and we're now ready to take questions. Operator, please open the lines.

[Operator Instructions] Our first question will come from the line of Manav Patnaik from Barclays. .

I just wanted to touch on the 10 T. Again, that slide you had was really helpful. But right before earnings, you had this press release with Loan Pass and the data sharing and the back testing the stuff that can be done. I was just hoping you could help us appreciate the significance of that? And any sense of timing around when 10 T officially gets approved and used, et cetera?

Yes. Thanks, Manav. I think we're continuing to see a lot of adoption on the nonconforming side and on the conforming side with the agencies they're still doing a lot of testing. We don't really have a time line. They haven't published any kind of a time line yet. So at this point, we really don't know when it will be generally available.

Okay. Got it. And then maybe just on the performance model adoption. I was just wondering if you could give us any early signs of basic discussions, how you think that's going? Is that going to be available to the credit bureau channel as well?

The performance model right now is planned for the direct license program and it's going well. We have a lot of interest, and we're busy working towards bringing the direct channel live.

Okay. Fair enough. Maybe sorry, if I can squeeze one more in, Steve. Just -- it was a good quarter. You maintained the guide. I know that's practiced, but maybe you could just help us appreciate why there was no raise to the guide this time?

Yes. Thanks, Manav. It's a good question. We're pretty confident we're going to be able to beat our guidance. And I know we talked about it was pretty conservative last quarter. At this point, we're only 3 months in. There's just a lot of questions out in the macro environment. I mean, with the Fed today. It's just -- frankly, we probably know what numbers we would move to. So I think by next quarter, we'll have a much better idea of what the world looks like and what overall volumes are going to look like. So I think that was our thinking behind that.

And our next question will come from the line of Jason Haas from Wells Fargo.

I'm curious if you had any sense of what the time line looks like for the release of the LLPA grid, do you had any insight as to what those might look like?

Well, the short answer to that is no. I don't think anyone knows what the time line for the LLPA grid looks like. And as we've discussed in the past, there's tremendous challenges with figuring out how to make those work because of the gaming and adverse selection issues. And so no one knows what the time line really looks like. Certainly, we don't. But I think that we have some significant problems that have to be overcome before they can be released.

Got it. That's very helpful. And then as a follow-up, we've heard, I guess, two concerns around from lenders regarding FICO directing the performance model. One is that for FICO direct, there's a concern the resellers I guess, could improperly calculate the scores and aren't taking, I guess, legal responsibility for it. So I think there's been some hesitancy from lenders. So I was curious if you could address that. And then on the performance model, I believe some lenders are concerned about how the regulators might view passing on that performance fee to the end consumer. So curious if you could comment on those 2 hang-ups that may be out there.

Yes. I think that there -- that's misplaced, misguided concern. The score is calculated by the resellers in the direct license program will be the same scores that are calculated by the bureaus today. It's the same algorithm and the same technology to do it. Same data is being used. And so I think that the -- any kind of concern about miscalculation or differences and scores is misplaced. That said, I can tell you that we are in the midst of making sure that all the testing gives everyone every confidence that, that's not an issue. And then in terms of the regulators, they also are looking at it to get comfortable with that and that's proceeding our pace.

Our next question will come from the line of Ashish Sabadra from RBC.

It's good to see that momentum in the direct license program that 5 resellers signed. You talked about them being in advanced stages of implementation. I was just wondering if you had some time lines around when they would go live. And then at least when we've done checks with brokers, they are not aware of the performance models yet. So when do we start to see that gets communicated to the mortgage producers than the industry in general, much more -- much better complicated.

On time line, I wish I could help you. I wish that we knew what the time line was, but this is the mortgage market, and we don't do anything without having everything extremely buttoned up. And so we are working through all the integration testing and all the downstream impacts. And you can be assured that when it does go live, it will go live without a hiccup. But we're well on our way. I can't give you a time line.

Well, so the performance model -- first of all, the performance model is optional, okay? No one is being forced to take the performance model. So anyone who doesn't like it, doesn't have to use it. They can just pay per score per unit as they always have. So we introduced the performance model as an option to provide more flexibility for some originators, for some lenders who prefer that approach. And so people who don't like it, it's a little hard to understand what the problem is. They don't have to use it. They can just go with a per unit price.

That's helpful color. And maybe if I can just clarify that your revenue model is agnostic irrespective of whether the customers adopt performance or per school model, is that right?

It's relatively agnostic, yes. Nothing's ever truly agnostic, but it's set up to basically be relatively agnostic.

Next question will come from the line of Surinder Thind from Jefferies.

I'm going to switch over to the software business. Some interesting improvements there to think about. Can you maybe talk about the target of the 500 named accounts globally. You broke that into 350 in financial services and 150 outside. So how does this kind of compare to your prior strategy under the Gen 1 platform? And how aggressively do you think you can get reach those customers? And how much of this is a push to specifically go outside and expand beyond the financial institutions at this point? Are we kind of entering this Phase I approach with the Gen 2 platform?

I think we're in the beginning of that Phase 2. Look, we are very heavy in financial services, have been historically, will continue to be, let's be realistic about this. That said, the platform is very much designed to be horizontal and is highly appealing to other verticals. And so we're getting a lot of traction in telco and in other verticals. Further, we're really committed to our partner program and going -- taking our IP to market through systems integrators and other providers. And I think that's going to be the way we wind up expanding to other verticals. Our marketplace is designed to be able to do that. Our next-gen platform is designed to be able to do that. And so we're still very interested in broadening our reach, but our direct selling efforts are still primarily focused on financial services.

Got it. And just quickly, how many named accounts do you have right now in Financial Services?

No, we don't disclose it.

Okay. Sorry. But I mean it's an arbitrary number. We can name anyway and what not would you like it to be.

It was just an attempt to kind of better understand the new customers you haven't approached that. It was just ballpark, but that .

Understood. Understood. Look, I think there's -- I think the general answer to that is there's several hundred to go.

Got it. Okay. That's helpful. And then as a follow-up here, if we back out kind of the international multiyear deal here, still solid growth in the ARR but there's also a divergence. You guys did list of reasons why between platform ARR growth and non-platform. But is the idea that we're beginning to also see customers that ultimately want to move from non-platform to platform. And so we should begin to see a sustained discrepancy in the ARR numbers?

Yes. I mean, gradually, over time, we're looking to migrate everyone, right? It's a lot more efficient to be on the platform, and we've set it for a long time. So there will be a lot of efficiencies to be gained from that. We haven't done a lot of that in the past, but we're getting to the point now where we can, so you're going to see more and more of that. But you're also seeing just a lot more sales. I mean even the big deal we had this quarter had very little ARR impact this quarter, but will have a much bigger impact next quarter. So if you look at the rolling trend of ACV bookings, it's grown dramatically. And we think there's still a lot more of that to come this year, and that's going to drive more ARR growth. So we've got a lot of land activity happening, and we've got a lot more expand. So the -- if you look at the platform, the net retention rate goes up, they find new use cases, they expand into other areas. So there's just a lot of different areas we can grow in that business.

There's a classic software business problem. We, as a provider, would love to have everybody on a single code base. It would be really nice and easy to run it that way. And yet, we have more legacy code that's still highly profitable. We have customers who are really committed to using it and want to continue to use it. And so we wind up in this position where we have to make proactive decisions about what legacy solutions we're going to continue to support and which ones we're going to force migration on. And the biggest factor in thinking that through is, can we provide full features and functionality of the legacy solution on the new platform before we force a change through an end-of-life initiative. And so far, we've been pretty successful with that. I mean our classic business, our historical legacy business runs just fine and is profitable. And as the new platform, the NextGen platform has the features and functionality that frankly, is superior to what you find in the legacy solutions. We're going to see voluntary migration. We'll see some force migration, and then we'll see some end of life.

Our next question will come from the line of Jeff Meuler from Baird.

So everyone is obviously waiting the LLPAs, the market and investors. I just -- any education process or caveats you volunteer to kind of like help investors interpret how to compare the LLPAs under Vantage to FICO? I'm thinking things like for the same consumer, what's the delta between FICO and Vantage on average or anything like that? And then just -- I know it's a finger in the air assumption to say that the grids may be at parity. But just remind us if the grids do appear to be at parity, what do you view as the key barriers to potential switching?

I think it's unlikely that rise at parity. But let's hold that one. And just talk a little bit about your first -- the first part of your question, which is differences in the score. Our research suggests that the FICO Score and the Vantage score are more than 20 points different -- 30% of the time in both directions. It's not consistently in one direction, which means that it's very, very hard to just substitute one score for another, a Vantage score for a FICO score. You really have to have a completely independent, separate system to run a score that just has different on to score ratio for every 3-digit number. And so I think -- and I think that's one of the big challenges with developing the LLP acreage. How are you going to reconcile all that.

And then you kind of go beyond that to assuming you had separate LLPA grids and you somehow figured out how to do that, you still have all the gaming problems that go with that and the adverse selection problems that go with that. Those have to be resolved. And then you finally, you have whatever objections the securitization market might have to whatever penalties they might impose on Vantage scored paper versus FICO Score paper. So I think there's significant problems to be overcome.

Got it. And then just to reconcile something. I thought that you said in your prepared remarks that NT was going to be available for both the conforming and nonconforming market in the first half of calendar '26. And then in answering one of the earlier questions, I think Steve said you're not sure when 10 T is going to be available?

So one to guess and one, it is true that we're not sure. So the FICO 10 T data with the GSEs is with FHFA. And we can't give you a time line, but we're confident it will eventually be released.

Those are two different comments just to clarify, the non-confirming and confirming is around having FICO 10 T available on the direct licensing program. And the comment Steve talked about was having FICO 10 T available for the data for the market. Does that make sense, what I said?

Our next question comes from the line of Faiza Alwy from Deutsche Bank.

Yes. So -- sorry to beat the dead horse here. But I guess, just to clarify, do we need like an LLPA grid for 10 T? Or do you think the conforming market could accept the 10 t without that grid being out?

That's a great question, whether there be adjustment to the grid. 10 T is obviously much, much closer to FICO Classic than Vantage is. But my guess is when 10 T is made available that there'll be adjustment to the grid for that.

Okay. And just a quick follow. Do you think the timing -- I understand all of the issues that you've talked about, but are you expecting that the 10 T and Vantage grids would come out at the same time? And like the acceptability is good on the implementation is going to be around the same time? Or do you think it could happen in stages?

Certainly, the industry would like them to come out at the same time. There's a lot of efficiency in that and -- you probably saw the letter sent to the director at the FHFA this past week from 35 economists and think tanks and industry groups who all believe that it's critical that if and when any changes made away from FICO Classic that would be done simultaneously to both FICO 10 T and Vantage. So the industry has a preference for that, what the FHFA will ultimately do, no one knows. So we'll have to see.

To the earlier point about FICO 10 T and LLPA grid for FICO 10 T, I would point out that FICO 10 T is architecturally very similar to FICO Classic. It's built on the same kinds of attributes weighted in a similar way. That's very different from Vantage. Vantage has a different architecture and waits the factors differently. And so in terms of compatibility and closeness, FICO 10 T is much, much closer to FICO Classic.

And don't confuse that with predictability where FICO 10 T is significantly more predictive than FICO Classic.

Understood. That's very helpful. And then I wanted to ask about your mortgage revenue growth. We saw a nice acceleration this quarter relative to what we've been seeing. And I'm just curious, is that -- are you just benefiting from maybe higher refi activity? I know you don't disclose volumes, but just directionally, it was volume was it volume growth that was higher or

It's all of the above. It's price -- it's all of the above. So there's some price there, there's some value there. There's some refi volume there. So all of those are factors.

Our next question will come from the line of Kyle Peterson from Needham.

Great. I wanted to start out on the platform business. Obviously, a nice quarter there. I know some of that was the migration. I guess in some of that was the large deal. But I just wanted to see, are we at a point where 30%-plus ARR growth on the platform side should be sustainable again? Or I guess like how should we think about that in light of the really nice bounce back this quarter?

Well, so Kyle, we don't make promises, but we had 40% growth in platform for 16 quarters, then we were down a couple of quarters in the just under 20% range. Now here we are at 30%. It does move around. The total ARR is definitely going to go up. And so -- but -- so that's a short answer to your question is. The ARR will go up. I think current levels are sustainable. That's not a crazy thing to think. We've got a lot of appetite for our new platform.

And the total ARR is going to be driven by the platform because more and more, we're intruding acceleration in platform growth. And frankly, the platform ARR is a bigger portion of the overall number now. So as that grows faster, it helps the overall number as well. So we see continued sustained significant growth in ARR for the rest of the year, which is kind of what we've been talking about for a few quarters, and now you're starting to see it.

Okay. Okay. That is helpful and good to hear. And then switching over to the card business. The origination revenue in the credit cards seem be climbing in the right direction here in the last few quarters, which is good to see. Just -- I know it's still early, but have you guys seen any disruption or changes in activity? I know there's been some chatter around a potential 10% cap on card APR. So I guess -- anything you guys are seeing there? Or is it still too early to tell in terms of when you guys are delivered the usage reports?

We haven't seen anything. We haven't seen any changes in activity. There's been a lot of pre-qual activity in the card space and decent originations. We haven't seen any changes.

Next question will come from the line of George Tong from Goldman Sachs.

This is Sami on for George. In your discussions with the FHFA and GSEs, do you get the sense that a move from trimmers to Bimerge is gaining traction? We saw the MBA came out over a single score proposition and also the regulators' focus has recently shifted to the bureaus. So I just wanted to get your views on it.

Yes. There's certainly a lot of talk about it these days. The bureau position, I don't generally give the bureau position, but I think it's fair to say that the bureaus believe that Prime Merge makes a lot more sense because the bureau files are not identical to one another. And if you chose 2 out of 3 files, some consumers on the margin are going to be underserved. And I think that's a fair point. That's just a fair point. Set against that, Tri-Merge does give the bureau's a monopoly, and that's not a great thing. So that would be an offset. I think the real challenge is the real challenge with moving to IMerge. It's the same problem that we have with lender choice.

When you get to choose between 2 credit scores or when you get to choose your favorite 2 out of 3 credit bureaus, you're going to have gaming, you're going to have adverse selection. You're going to have all of these -- all these problems occur. And there's a cost to be paid for that. That cost ultimately gets paid by Fannie and Freddie and potentially the U.S. taxpayer. And so that is the biggest problem that has to be overcome. And frankly, I don't know what kind of a solution there is to that. It's structural.

Okay. And on software, can you talk about where you are in the investment cycle? How far along are you in the platform build out? And when should we expect the investments to normalize?

We continue to invest in our software business. We're really bullish on it. It's growing really nicely. We do anticipate margin expansion because our new platform is built for scaling profitably. And so the improvements to profitability of our software business will come more from additional volume and additional customers on the new platform versus reduced R&D spending, which, of course, is a lever and someday it will go down.

Our next question comes from the line of Alexander Hess from JPMorgan.

Just maybe to start with the Scores business and volumes there. I saw a call out on the new slide deck, which is by the way, excellent, that you guys saw positive volumes in all three of your underwriting lines. Can you maybe speak to sort of volume trends in the industry overall? Are they improving? And then when you sort of turn the lens inward, how much of the improvement that you've seen in the degree that there is any is really industry-wide versus FICO innovation land?

Yes, that's a good question. I mean I think it's hard to call a trend at this point. There's just a lot of uncertainty in the marketplace, again, which is one of the reasons why we've chosen not to update our guidance today. I don't think anybody really knows what's going to happen in mortgage. Just I think if rates continue to trend down, we'll probably see more volumes there. In Card, we already talked about this some potential noise in that market. We'll see how real that is. But we've seen decent volumes, decent volumes throughout. I mean, not like crazy growth not decline either. So at least some margin or some volume increases across the board. So that's encouraging, and we'll see if that continues. .

In terms of how much of that is driven by our innovation, maybe a little bit. In some cases, there are some different things that we're providing that provide some additional volumes. But most of this is the macro environment and what's happening in the auto lending industry or the mortgage or the card industry.

Tuning to software you did see a nice pickup in ACV bookings. Obviously, platform NRR growth is strong. Can you maybe provide a comment on what platform features, functions, use cases are really driving that recent momentum...

Yes. And I'm not sure that it's any particular use cases to be frank. So just a little bit of history here. For many, many years, for 10 for decades, FICO is an application software company focused on solutions to half a dozen critical bank problems having to do with the life cycle, right, risk-oriented solutions. When we move to the platform, we opened up a pretty vast set of solutions -- potential solutions for banks that adopt the platform. It's no longer just decisioning around originations and customer management and fraud. So just a much, much wider set. That said, customers are coming to the platform for the basics. They come for originations. They come for customer management. We're seeing those use cases as primary use cases. But what's interesting is, particularly on the expand side, if you think about land and expand, they put in the platform and then they come up with all kinds of innovations on things they should be decisioning around that they have never done before. So there's a lot of that. But I think it's fair to say that they come to the platform for the same kinds of risk management solutions they bought in the past.

Maybe I can squeeze a third in. Just on the predictive power of FICO 10 T, obviously, you guys have a white paper out that showed a pretty compelling predictive lift in those key cohorts. Can you -- but that was on sort of the basis of defaults, delinquencies. Can you maybe pivot that conversation to prepayments? And do you have a view on will 10 T being more predictive on prepayments than rival scores?

I think so. And I think it's important to note that credit default rates and prepayments are related. They're sides of the same coin in some ways. So for example, I've heard people say, well, credit -- improving credit default rates doesn't really matter in the conforming market because Fannie and Freddie stand behind it. And so who cares about the credit default rates. Well, when you have a credit default, it is functionally the same as a prepayment risk for those who hold the paper. So I think 10 T is going to help on both those sides.

Our next question will come from the line of Ryan Griffin from BMO Capital Markets.

Just had a software question. I think you said 75 of your largest customers are using multiple use cases now. I was just wondering how that has trended over the past year or so and what's driving the land and expand momentum?

I'm not sure I follow the question.

It's the land expand. So essentially, yes, I mean, what's driving it is that a lot of people bought in just to see how it would work, right? They need be shown that it would work. And once they get it installed. The next use case is a lot easier than the first use case. So they find more ways to use it, and they're pleased with the way it's working. So it's the expand pieces I shouldn't say easy, but it's a lot easier than the land because once it's and it's working, they look for more ways to use it.

The expand is running at roughly the same rate as land. They're kind of neck and neck on growth rate. The expand piece really has two kind -- there's two styles, right? One is expansion of the use cases that they started with and the second is bringing on new use cases. And our revenue goes up in both situations.

Great. And then just one more question on the volume side. I think we've all read some headlines about lenders struggling with their cost base this year. I was just wondering if you're seeing any of this from your perspective and any changes in the lender behavior that you can call out relating to your business?

We really haven't. I mean, you know how critical FICO scores are in the system, and we really have not seen any changes.

Our next question come from the line of Scott Wurtzel from Wolfe Research.

I just wanted to ask one question on the software business. I mean the trends on the book have been pretty positive, but you also had mentioned that the NextGen platform, and I think the enterprise fraud solution are, I guess, not yet generally available, but are they helping to drive some of the bookings growth right now, pending the general availability at all?

Not yet, not yet. All the growth you're seeing is predates the enterprise solution.

Next question will come from the line of Owen Lau from Clear Street.

I do want to go back to President Trump's 10% credit card interest rate cap policy question. If it is implemented, how would it potentially impact FICO? Do you think consumers will go to other form of loans, which will still need to use FICO score for underwriting? And also, could you please kind of like help us size the credit card exposure.

In terms of will consumers look for alternate credit, if the card providers provide pure cards to deeply subprime, your guess is good as mine but I would assume so. And I'm not sure I...

The second question was the size of our credit card originations revenue, but we don't provide that.

We don't break that out. Now who knows whether this actually ever happens. But -- if it does, I think it puts that much more pressure on lenders to understand those subprime credits really, really well. And my guess is that they would be doing extra work involving FICO scores and credit data to understand what happens on the margin.

And if it went to some other type of personal lending or something else that would not apply it, then obviously, use FICO scores in that area.

Does it involve a shift to BNPL? I mean, obviously, we'd be beneficiaries in all those scenarios.

Got it. That's helpful. And then going back to software, I noticed that, I mean, you mentioned that there was an above average size multi-use case platform deal in the first quarter. Is it really a one-off deal that we shouldn't expect this to recur? Or FICO platform begins to gain recognition and traction and more similar deals could come more frequently in the future?

It is the latter. There's no question that the deal size is going up the frequency of it and the amount...

Yes. And I would just add to that. We think the FY '26 ECD bookings are going to be significantly higher than the FY '25. So we've got a lot of deals. We've already signed. We've got a lot of deals in the pipeline. There's a lot of momentum here and we're seeing it even more and bigger deals.

Our next question will come from the line of Craig Huber from Huber Research Partners.

Great. My first question, you made a comment earlier on that you're well positioned to well exceed guidance for fiscal 2026. Can you just talk about that a little bit further? What in your mind were you overly conservative on specifically, if you're willing to talk about that? And maybe also touch on how things are going in the reseller market? Mortgage market ready for this new to pricing plans that we saw in particular, is that meaningfully ahead or behind or on schedule with what you originally were thinking when you first rolled this out?

So to take those in reverse order, the direct license program with the resellers is on track, roughly as expected. And frankly, whether it comes a little sooner or a little later, does not have a big revenue impact on us. It's really pretty close. As we said earlier, we're not completely agnostic, but it's pretty close. It's not enough to drive a change in guidance, for example. And then as to what might have us change our guidance, it presumably would be volume. I mean the price is extremely well understood. And it's we publish it and it's -- that price is here for the year. And so it's really much more around volume and what happens with interest rates and that no one knows. And so we'll -- that's why we want another quarter to see how it plays out.

Yes. I think there's just -- like I said, there's a lot of uncertainty in the marketplace. And I think 3 months from now, we're going to have a much better idea. If we were to take a guess now, we were probably -- you'd probably still think we were being too conservative. So at this point, in 3 months, we're going to know a lot more. We'll have one more quarter under our belts, and we'll have a much better idea of what it does. We really don't want to get into the situation where we're continually updating our guidance every quarter. We have annual guidance. We try to stick to that until it's pretty clear we can move to some more meaningful estimation of what it looks like, and that's what we're doing here.

And then my last question, if I could. Can you just talk about pricing for calendar '26 for auto and then credit card and personal loans? I mean is auto going to be up north of 10% again this year, for example?

Well, we don't disclose the specifics of it. There's -- it's a lot more complicated in auto and card because there's different price points depending on different tiers or different types of markets. So it's a lot more complicated than that, and we don't get into the detail of that basically for competitive reasons.

Our next question will come from the line of Kevin McVeigh from UBS.

I think you mentioned in the slide deck that there was some incremental headcount investment in FICO and increased marketing. Maybe help us understand, was that related to the reseller adoption? Or what drove those investments?

We are investing in go-to-market across the board, both in -- on the software side and on the score side. And after, I would say, many years of conservatism in growing headcount and direct sales and partner sales. We've been fairly aggressive this year in expanding that headcount. So I would say that's -- it's on both sides, software as well as scores.

Great. And then just in terms of goalposts for the resellers actually going live, do you have any sense -- would you expect the big 5 to go live simultaneously or one sequential. Any sense of just timing on that?

My guess is that it will not be a big bang with all of them going live at the same time. It will probably be staggered, but close in time. I mean all of the resellers we've signed with are well underway. And I think for their own benefit, they'll want to be able to offer the drug license program as quickly as possible. So I would expect convergence on time line there, but I couldn't say that it's all going to happen simultaneously.

And our next question will come from Rayna Kumar from Oppenheimer.

Congrats on the 5 resellers. I just had some more color on that. How much of the total resellers market would you say the 5 like establish some size on these wins?

How much of the market do those resellers represent?

Yes.

Somewhere in the 70%, 80% range.

Got it. Okay. And just as a follow-up. On your last earnings call, you discussed some operational hurdles and having resellers move to the direct model. Can you just talk about how you're addressing some of those hurdles?

We really don't have any operational hurdles. It's moving very smoothly. We're working our way through the details. And we're highly confident that the program will be live in the relatively near future.

Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to Dave for any closing remarks.

No, that's everything. We're good. Great quarter. Thank you.

Thanks all.

Thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 FICO Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Dave Singleton, please go ahead.

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; 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 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. Those statements involve many 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 portions of such filings.

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. 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.

If exclude and FY '26 guidance reconciliation of GAAP to non-GAAP earnings, which are adjusted for items such as stock-based compensation and excess tax benefit. This reconciliation as part of the earnings release included an Exhibit 99.1 to our 8-K, which we filed with the SEC under Item 2.02 called results of operations and financials.

The earnings release and Regulation G schedule are available on the Investor Relations page of the company's website at fico.com or on the SEC's website at sec.gov. A replay of this webcast will be available through November 5, 2026. I will now turn the call over to our CEO, Will Lansing.

Thanks, Dave, and thank you, everyone, for joining us for our fourth quarter earnings call. In the Investor Relations section of our website, we've posted some financial highlights slides that we'll be referring to during this earnings announcement.

Today, I'll talk about this quarter's results and our guidance for fiscal 2's6. We had another fantastic year. We exceeded fiscal '25 guidance on all metrics and delivered record annual free cash flow. As shown on Page 2 of the fourth quarter financial highlights, we reported Q4 revenues of $516 million, up 14% over last year. 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. 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.

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.

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, they enable smarter explainable outcomes, improved performance and improve speed of deployment and yield better customer ROI.

This quarter, we announced the general availability of FICO focused foundation model for financial services, what we call FICO FFM. FICO FFM consists of FICO focused language model, which is FICO FLM and FICO focused sequence model, which is FICO FSM. It's a domain, data and problem-specific gen AI model for financial services that delivers accurate and auditable outcomes.

FICO FFM enables enterprises to use small language models built for their specific business problems, significantly helping to mitigate hallucinations and provide transparency, auditability and adaptability. FICO FFM achieves improved accuracy and cost efficiencies compared to conventional gen AI models. For example, FICO FFM results in more than 35% left in world-class transaction analytic models in areas such as fraud detection, while requiring up to 1,000x fewer resources compared to conventional gen AI models.

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. As a reminder, analytic innovation and intellectual property at FICO are protected by our patent portfolio of over 230 issued patents and nearly 80 pending applications. Many of these issued and pending patents are AI-specific and reinforce FICO's position at the forefront of responsible AI development.

Turning to scores. In our Scores 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. For the full year, our revenues were $1.169 billion, up 27% versus last year, and that was materially driven by B2B scores.

The FICO score used by 90% of Tapio's lenders continues to be the standard measure of consumer credit risk in the U.S. Long-term model stability is a critical consideration for lenders determining, which credit scoring model to use for originations. 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.

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. FICO scores continue to be widely used and critically relied on throughout the consumer credit ecosystem. That includes cards, personal loans, auto lending and mortgages.

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. With no government guarantee outside of conforming mortgages, market participants seek out the most predictive score, which is often 1 of our recent innovations, like FICO 8, FICO Auto 10 and FICO 10T. In fact, bureaus have provided free [ Van ] scores for years outside of mortgage, yet FICO has continued to successfully compete and win business in those areas.

Our scores remain the standard for use in mortgage underwriting and pricing. In investor credit risk and prepayment models and capital requirements and by credit rating agencies for mortgage-backed securities ratings, classic FICO is critical to driving investor pricing of mortgage-back to another securities and ultimately, the cost consumers pay in the mortgage industry.

We recently announced our FICO Mortgage direct license program. With a view to driving competition, transparency and cost savings in mortgage, while aligning with calls from policymakers and industry leaders to modernize credit infrastructure and promote affordability, liquidity and access in the $12 trillion U.S. mortgage market.

In the short time since our announcement, we've seen overwhelming interest in the FICO mortgage direct license program. As we announced today, we entered into a multiyear direct license and distribution agreement with Zactus, the largest credit verification and tri-merge provider of FICO scores.

In addition, we're actively engaged with resellers representing about 90% of mortgage volume, including the largest tri-merge resellers as well as technology platform providers, who serve the smaller tri-merger sellers to enable our mortgage direct program as quickly and efficiently as possible. We've already provided our FICO -- our FICO score scoring software for the mortgage direct license program software to the top 4 resellers along with several key platform providers.

With our FICO mortgage direct license program, tri-merge resellers have the option to calculate and distribute FICO scores directly to their customers, eliminating reliance on the 3 nationwide credit bureaus. The calculation of the FICO score and the packaging to create a tri-merge bundle does not add incremental complexity or risk for tri-merge resellers.

The tri-merge trimer sellers have the infrastructure and processes to package data today as this is their core business. 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. 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 Tri-Merge resellers today 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 Tri-Merge resellers for the FICO Score mortgage simulator, which is in the market today. Our FICO mortgage direct license program provides optionality to the market. We offer 2 alternative pricing models. A historical per score pricing model and a new performance pricing model.

The performance pricing model was built on successful mortgage funding and answers the call of industry participants to provide optionality in our pricing models. 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. The bureaus market is priced 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 $4.95 per score plus a funding fee at closing or the per score model at $10 per score.

The performance model yielded 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. 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.

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. 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, a score developed 20 years ago to perform similarly or on a par with or at times to outperform they recently developed managed Score 4. Our latest score, FICO 10T is the most predictive and inclusive credit scoring model on the market.

We continue to see growing momentum and adoption of FICO score at 10T. There's a large industry efficiency benefit in testing FICO 10T and Vantage for simultaneously, and we expect FICO Score 10T to be made available for implementation at the GSEs. FICO 10T 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, the set data that we've used -- we've at FICO have used in our credit score model since 2015.

In addition to rental data, utility data and telco data by leveraging trended credit data, FICO Score 10T 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. Our latest score is a meaningful step forward in credit risk assessment.

FICO 10T offers significant improvements in predictive accuracy combined with a focus on fairness and model stability offering tremendous benefits for lenders, investors and borrowers alike. Earlier this year, our team at FICO published a comprehensive white paper demonstrating our FICO Score 10T offer significant improvement in predictive accuracy over our other models, including both [indiscernible] and classic FICO.

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 10T identified 18% more defaulters in the critical score decile commonly used for mortgage originations, while Vantage score identified only marginally more than classic FICO.

FICO Score 10T also enables a 5% increase in mortgage originations without taking on additional credit risk, Vantage 4 claims is far more consumers but do so using models that are statistically unsound for predicting risk. For example, scoring using 1 month of payment history. We by contrast, don't lower our standards.

In 2024, the GSE average credit profile included an average FICO score of 758. Vantage 4 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.

In fact, it can actually hinder those who have thin credit profiles from processes that are already in place that are designed to improve no file or thin-file applicants. Make no mistake, we have access to the same data as our competition. What matters is how the data is used to innovate scoring models to yield the best risk prediction.

FICO's decades of experience enable us to innovate better, as shown in the outstanding performance of FICO 10T versus Vantage 4, which can only keep pace, in some cases, can't even do that with the score that we created 2 decades ago. FICO Score 10T's better performance will drive benefit for not only mortgage insurers and investors but other market participants as well.

It will deliver improved mortgage pricing and lower monthly cost for borrowers is going to benefit millions of Americans. To further emphasize this point, the benefits of FICO Score 10T are not hypothetical. In the nonconforming mortgage industry, FICO Score 10T 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 multiyear commitments to use the FICO Score for mortgage decisions in both the conforming and nonconforming markets. We're proud of our innovations and ability to adapt to needs of our customers. We're excited about the reception and adoption of our latest offers. I'm going to pass it now over to Steve for further financial details.

Thanks, Will, and good afternoon, everyone. We had another good quarter with total quarterly revenues of $516 million, an increase of [ 14% ] over the prior year. As we discussed last quarter, sequential revenue was down due primarily to lower point in time revenues from scores and software licenses as well as seasonality and lower professional services revenues.

Software segment revenues for the quarter were $204 million, flat versus the prior year. From Page 5 of our presentation within that segment, you could see on-premise and SaaS software revenues were flat year-over-year, while professional services declined 5%. We delivered $822 million in fiscal year revenue, which was up 3% from the year -- on the prior year.

This quarter, 87% of total company revenues were derived from our Americas region, which is the combination of our North America and Latin America regions. Our EMEA region generated 8% of revenues in 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 6 of the presentation, 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 multiyear U.S. 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.

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. 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.

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 nonplatform license renewal opportunities and a similar level of annual professional services revenue. For our Scores business, 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. As a reminder, our last quarter contained 1 material nonrecurring multiyear U.S. license renewal on our insurance score product that we won't see in FY '26.

As shown on Page 7 of our investor presentation, our total software ARR was $747 million, a 4% increase over the prior year. Platform ARR was $263 million, representing 35% of our total Q4, '25 ARR. Platform ARR grew 16% versus the prior year, while non-platform declined 2% to $484 million this quarter.

Our platform ARR experienced lower performance due to usage reductions from select CCS customers non-platform ARR was consistent with the last few quarters. We expect total software ARR to increase in fiscal 2026, reflecting the benefit of recent FICO platform bookings going live. Our platform lend and expand strategy continues to be successful.

On Page 8, our dollar-based net retention rate in the quarter was 102%. Platform NRR was 112%, while our non-platform NRR was 97%. Platform NRR was driven by a combination of new use cases and increased usage of existing use cases. Our software ACV bookings for the quarter were $32.7 million compared to $22.1 million in the prior year, representing our best quarterly ACV performance in the 6 years, since we began disclosing this metric.

On a full year basis, ACV bookings reached $102 million, our strongest annual performance over that time frame. Expenses for the quarter as shown on Page 5 of the financial highlights presentation. Total expense -- operating expenses were $279 million this quarter versus $274 million in the prior quarter, a 2% increase.

In our prior quarter's prepared remarks, we outlined key factors we expect 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.

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, 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.

We maintain our focus on efficiencies and are committed to prioritizing resources to our most strategic initiatives. -- investments focused on head count for distribution and continued development of our FICO platform as well as increased head count for our scores business and marketing across both sides of the business. Our non-GAAP operating margin is shown in our Reg schedule, was 54% for the quarter compared with 52% in the same quarter last year.

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. 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.

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. 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.

And note, restructuring has added back to the non-GAAP net income, as shown on the Reg G 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. The 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%. 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 rate of 25%.

As shown on Page 10, we delivered free cash flow of $211 million in our fourth quarter -- over the last 4 quarters, we delivered $739 million in free cash flow, which represents an increase of 22% year-over-year. At the end of the quarter, we had $189 million in cash and marketable investments. Our total debt at quarter end was $3.06 billion with a weighted average interest rate of 5.27%.

As of September 30, 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. We continue to return capital to our shareholders through buybacks.

This quarter, we repurchased 358,000 shares at 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. Share repurchases totaled $536 million in the fourth quarter and $1.41 billion for fiscal 2025, the highest quarterly and annual repurchase levels in the company's history.

Going forward, our philosophy has not changed, and we continue to view share repurchases as an attractive use of cash. With that, I'll turn it back to Will for his closing comments.

Thanks, Steve. We continue to execute well in our strategy and we're well positioned for a strong fiscal '25. As we announce 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.

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. 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%, GAAP EPS of $33.47, an increase of 26% and non-GAAP net income of $907 million, an increase of 24% and non-GAAP earnings per share of $38.17, an increase of 28%.

With that, I'll turn the call back to Dave, and we'll open up the Q&A session.

Thanks, Will. This concludes our prepared remarks, and we're now ready to take questions. Operator, please open the lines.

Our first question comes from Manav Patnaik with Barclays.

I guess my 1 question is just a broader question around your recent discussions with the FHFA. Obviously, there's a lot going on and direct to be treated favorably about your recent actions. But then also, like, what's next? A lot of the talk on FICO 10T, do you think that gets approved soon? Just anything there you could provide that would be helpful.

Sure. Well, we've obviously been engaged in constructive conversation with the FHFA. The director has had a big push for increasing competition and our direct distribution program is a big step in that direction. It basically creates competition in the distribution of credit scores. So that was positively received. With respect to 10T, it is with the GSEs, and we're working with them to get it out. And I can't give you an exact date, but we're confident that eventually it will be released.

[Operator Instructions] Our next question comes from Simon Clinch with Rothschild & Co Redburn.

Just to clarify, that's Rothschild & Co Redburn. 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 the mix of whether it's the historic model or the performance model.

Yes, that's a really good question. And honestly, I think 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 a lot of uncertainties in the macro environment and the timing around some of this.

So with the performance model, for instance, there could be a time lag just because of the way it works if it's performance-based. After the mortgage process starts in December and it's built into January, we won't necessarily get paid on the performance piece of that yet. So -- and even at the end of the year, if the process starts in the August, September time frame and may not closed until out so that performance 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. And we just don't know for sure yet, who's going to take which model. So there's probably more conservatism built in than what we would generally have. And then within a couple of quarters, we'll be able to give you a lot more information on that and how that really shapes up and then we can all do a better job of understanding the time line of this.

[Operator Instructions] Our next question comes from Jason Haas with Wells Fargo.

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. So I was 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 now that you're going through this direct model?

Yes. I guess that everybody would love to know what the pricing is going to look like in '27, '28 and beyond. And as is our customer, we're not going to share any of that with you because we don't know ourselves. -- we read the market and we read the environment. And here's what you can take 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.

And so we've been on a mission over a number of years, and they'll 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 and not create any kind of big dislocations, but to make it very manageable for all industry participants.

But do we believe that the value gap continues to exist? It does. Are we going to address that in coming years? We will. And exactly the nature and form of that and the amount of that is all TBD because we don't know ourselves.

Our next question comes from Faiza Alwy with Deutsche Bank.

I wanted to ask about what type of feedback you've gotten from lenders on the 2 pricing models that you have? And if there's any hesitation around going by the resellers and essentially going direct? Because I believe the performance model is only available if they go direct? And if there are any complexities or additional costs that lenders might have to incur, if they're going direct and not to the bureaus?

So far, we're getting really positive reduction to the direct model. Now our goal is to make our IP, our FICO scores available through both the bureaus as we've done historically and through the direct channel through the tri-merge resellers. A lot of enthusiasm for the direct approach -- 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, the whole idea was to provide a choice to provide optionality to let those who consume the scores optimize for their own businesses the way that they consume the scores. And so we've done that with the 2 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 for those, who consume these cores are going to choose the model that's best for them.

And so that all went into the calculus. And we're very comfortable that, however, the mix shakes out between the per score model and the performance model will be fine and customers will be happier.

Our next question comes from Surinder Thind with Jefferies.

Will, given that we've seen 10T adoption in the nonconforming market, can you maybe walk us through those conversations the specifics of the evaluation and maybe how long it took those lenders to make that decision. I think that would be helpful in just kind of color to try and understand the timing around some of these upgrades and the complexity?

Well, so in the nonconforming market, more than anywhere else, they truly care about default risk and prepayment risk and the predictiveness of the score really matters. And I think that's what motivates and drives those who already have chosen FICO 10T to do that. We make the score available. We give them both classic and FICO 10T. We give them the data with which to do the analysis.

And so far, there's a lot of happiness over the introduction of our latest and greatest score. So I mean that's the dynamic. But in that market, like in all scoring markets, things move slowly. It takes a while to test and to adopt. And so there's still a lot of room for penetration in the nonconforming market, but we're very happy with our progress to date.

Our next question comes from Jeff Meuler with Baird.

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 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 in the conforming versus nonconforming market?

Well, I think it's -- there are 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. 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. 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 originator. They basically take a look at the documentation, and there's often problems of the documentation and the loans get put back. So the originators, even if they don't hold the loan and hold the risk associated with the loan, they still care about the credit risk.

And so, I think that in both the conforming market and the nonconforming market, you're going to see appetite for the most predictive score and the best understanding of prepayment and default rests.

Our next question comes from Ashish Sabadra with RBC Capital Markets.

I'll just ask a question on the software front. ARR 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 ARR as we head into '26?

Yes. We'll actually see as soon as Q1 acceleration of ARR. So that's something that we see coming in because as these deals go live, it helps us right away with ARR.

Our next question comes from George Tong with Goldman Sachs.

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 met with the credit bureaus charge? What are some of the conversations with these resellers suggested?

Well, 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. And so I think they're still putting together their pricing. We obviously don't really influence that. That they're running a business, and they do what they do. So I mean, that's entirely in their hands.

Our next question comes from Scott Wurtzel with Wolf Research.

I'm just wondering if you can talk about in the FY '26 guide, what you're contemplating in terms of pricing on other areas and scores such as auto and how you're thinking about the monetization opportunity there?

Yes. We -- it's a little more modest than mortgage. I mean what we do -- we've talked about this in the past. What we do is we look across all the different segments in which the scores are used. And we will typically put in place kind of a cost of living, inflation-oriented adjustment on price across the board.

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. 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.

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, but there are selective spots where we do a bit more than that.

Our next question comes from Alexander Hess with JPMorgan. Looks like they had a bit of phone issues or line disconnected. I'll move on to the next person in the queue 1 moment. Our next question comes from John Mazzoni with Seaport Seaport Research Partners.

Maybe just a follow-up on the strength in the ACV bookings. Could you just maybe give us some color in terms of what drove that kind of outsized quarterly performance? And is there any kind of budget flush or any other items we're seeing? I just want to make sure there wasn't a pull forward or any other things like that.

Yes, there was nothing. I mean, I think you've seen in the last several quarters kind of an acceleration in that number. It has -- we're just seeing momentum there, right? We've got a new sales leader that came in there. So there is some excitement around that, plus we just have there's momentum gaining with the products that we produce in the platform. 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 going into the next year as well.

Our next question comes from Ryan Griffin with BMO Capital Markets.

Just hoping to focus a little bit on the mortgage volume side of the equation. Just curious what is built into your guidance and what swing factors, whether it's trigger loans or rates could impact you?

Yes. I think this is where the conservatism comes, right? We don't really have a full understanding. trigger leads, we have a pretty big assumption in there for reduction because of trigger leads. So we're being really conservative. I mean we're looking at this and thinking until we know more, it's a lot easier to raise your guidance than it is to lower it.

So I think we're always conservative, but this year, probably more than other years where we're extra conservative.

Our next question comes from [ Ola ] with Clear Street.

So for the multiyear agreement with your resell ethic sector, could you please add more color on the pricing arrangement for this agreement longer term? Is the pricing lock in in this agreement or there's flexibility go to raise pricing because of the value you provided?

That's a good question. Our pricing is for 2026. And we have a multi agreement to work together but the pricing that's been published is for 2026. And as you know, we adjust our prices every year, and that will continue.

Our next question comes from Alexander Hess with JPMorgan.

Sorry about the rest hanging up instead of unmute. So on the guidance, you indicated to me this quarter 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. I know you just said you're being conservative with the assumptions. But like what could surprise to the upside in mortgage? Is it better volume, better market share retention?

Well, I mean I think it's -- the market share we're not very worried about to be frank. The volumes will vary mostly with interest rates. 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 our rates go.

And that -- we've been rewarded for that conservatism in years past because rates have had for the last several years not come down to the extent that people expected. And we've done more of the same this year. So although there's a good chance rates will come down, big volume increases associated with rate declines are not built into our guidance.

Yes. And just -- I mean, just to further expand on that, if you followed us, you realize that all we look at guidance is we build a model that we believe is what's likely to happen. And then we will take that and herecut that expectation. So we want to be able to exceed, right? We don't want to be sweating out to the fourth quarter, hoping that things are going to work well.

So that haircut gives us the ability to -- without things getting dramatically better to still be able to raise our guidance or beat our guidance. 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. So that's just kind of a background again, on how we actually prepare our guidance.

Our next question comes from Kevin McVeigh with UBS.

If you could give us a sense, are the resellers on pace for the 1/1 adoption? And if you're helping them with the implementation? And any thoughts as to what they've experienced it sounds like they were pretty far along anyway, but just any thoughts around that?

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.

Our next question comes from Craig Huber with Huber Research Partners.

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, 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?

Yes. I can't give you a definitive answer to that. We're in that discussion. And we frankly don't know what the split is going to be between the score, the per score and the performance model. We just don't know. We've obviously done a lot of modeling and sensitivity around it. And it's easy to come up with a hypothesis about how it will split based on the average number of scores pulled per closed loan for different kinds of lenders and different kinds of mortgage originators. And so that's 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, but it's not finalized.

Our next question comes from Rayna Kumar with Oppenheimer.

This is [ Guru ] on for Rayna. I was wondering if you could maybe just help us understand the usage of FICO scores in the downstream market. how material is it to total mortgage core volume? And what are the overall dynamics like there? This will be helpful in determining how we should be thinking about the potential uptake in the new [indiscernible] 533 performance pricing model. and the value of that 33%, right, which was previously the issue fee?

Yes. So obviously, there's a lot of score volume that happens downstream that we had historically not monetized. -- it ranges -- where does the score get used 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.

It gets used 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 [ Morgan base ] securities investors when they price those bonds. -- it gets used by the mortgage insurers. 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. And your point is well taken, which is a per closed loan pricing was designed to capture some of that IP value.

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. You may now disconnect, and have a wonderful day.

Good day, and thank you for standing by. Welcome to FICO's Third Quarter 2025 Earnings Conference Call.. [Operator Instructions]. Please note that today's conference may be recorded.

I will now hand the conference over to your speaker host, Dave Singleton. Please go ahead.

Good afternoon, and thank you for attending FICO's third quarter earnings call. I'm Dave Singleton, Vice President of Investor Relations, and I'm joined today by our CEO, Will Lansing; and our CFO, Steve Weber.

Today, we issued a press release that discuss financial results compared to the prior year -- on this call, management will also discuss results 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. Those statements involve many 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 portions of such filings. 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. Please refer to Liquidia'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. The earnings release and Regulation G schedule are available on the Investor age at the company's website, fico.com, or on the SEC's website at sec.gov. A replay of this webcast will be available through July 30, 2026. I will now turn the call over to our CEO, Will Lansing.

Thanks, Dave, and thank you, everyone, for joining us for our third quarter earnings call. In the Investor Relations section of our website, we see some financial highlights slides that we'll be referring to during this earnings announcement. We had 1 quarter and are increasing our fiscal year '25 guidance. As shown on page 3 the third quarter financial highlights, we reported Q3 revenues of $536 million, up 20% over last year. We reported $182 million in GAAP net income in the quarter, up 44% and GAAP earnings of $7.40 per share, up 47% from the prior year. We reported $211 million in non-GAAP net income in the quarter, up 35% and non-GAAP earnings of $8.50 per share, up 37% from the prior year.

As shown on Page 10, we delivered record-breaking free cash flow of $276 million in our third quarter. We continue to return capital to our shareholders through buybacks by repurchasing 284,000 shares in Q3. We repurchased over $0.5 billion of shares this quarter, the largest single quarter buyback in FICO history.

In our Scores segment, as shown on Page 6 of the presentation, our third quarter revenues were $324 million, up 34% versus the prior year. While B2B scores was the key driver of growth, we also saw encouraging growth in B2C scores. FICO Score 10 T is the most predictive broad-based credit scoring model in the U.S. industry today. Through our early adopter program, participating clients are already measurable benefits. Even since the recent FHFA announcement, we signed our latest lender deal just last week, and we've now secured adoption from institutions representing over $313 billion an annualized mortgage originations and approximately $1.52 trillion ineligible mortgages under servicing, all of which underscore the strong momentum in constant FICO Score 10 T.

Lens in the program have been able to validate the power of FICO Score 10 T in real-world mortgage underwriting in loan production in execution and in servicing. This quarter, we announced the launch of FICO Score 10 BNPL and FICO Score 10 T BNPL. These are the first credit scores from a leading credit scoring provider to incorporate Buy Now, Pay Later data. These scores will provide lenders with greater visibility into consumers' repayment behavior, enabling a more comprehensive view of their credit readiness, which ultimately improves the lending experience. and we'll expand financial inclusion by helping more consumers to gain access to credit. These scores will initially each be offered side-by-side with existing versions of the FICO Score at no additional fee from FICO, this approach allows lenders to evaluate the new BNPL enhanced credit scores while continuing to use FICO's industry-leading models that they use today, ensuring a seamless transition and added value.

Lastly, our FICO Score mortgage simulator penetration is gaining speed in the U.S. industry. We now have multiple resellers and mortgage technology platform providers, hundreds of active lenders and thousands of orders placed. In our Software segment, we delivered $212 million in Q3 revenue, up 3% from the prior year. The revenue increase was driven mainly by growth in platform SaaS. We continue to drive growth in ARR and NRR through our land and expand strategy with expand driven by increased customer usage.

Pages 7 and 8 of our investor deck highlight the total ARR increased by 4%, and with total NRR at 103%, both driven largely by the FICO platform. ACV bookings for the quarter were $26.7 million compared to $27.5 million in the prior year. With the help of product innovations announced at FICO World, our pipeline is stronger today than this time last year.

Before passing on to Steve, I'll highlight our strong innovation in the software business. The FICO platform revolutionizes how organizations make decisions and apply intelligence across their customer life cycle. Innovation is at the core of our ability to power an intelligent enterprise. This quarter, we hosted FICO World, bringing together customers and partners from around the world. Participants collaborated on how FICO platform makes real-time decisions at scale and optimize interactions with consumers.

On mainstage windvailed innovation, spotlighting advancements that will shape the future of decisioning and enterprise AI. We will bring next-generation FICO platform, enterprise fraud solutions part by FICO platform and FICO marketplace to general availability in the second half of calendar 2025. These innovations will bring new use cases to the market. They will enable smarter explainable outcomes, they'll improve performance. They'll improve the speed of deployment and yield better customer ROI.

On the AI frontier, we leveraged our AI principles pros worthy, ethical, explainable and responsible and provided a sneak peak of the upcoming FICO focused foundation model, the FICO focused language model and FICO focused sequence model built for financial services, delivering greater accuracy, explainability and control in high state domains. This will be released for general availability this calendar year. Our industry analysts are delighted with our innovation.

Forrester recently recognized FICO platform as the leader in AI decisioning platforms. This for the fourth time. AI decisioning platforms transform how organizations operationalize both human intelligence and AI at scale. Enabling faster, more accurate decisions across complex business processes. AI decisioning is an important enabler for agenetic AI, which is natively available in the next generation of FICO platform.

Our partners continue to value our innovation. In the quarter, we signed a new strategic collaboration agreement with Amazon Web Services. Under the new agreement, FIFO and AWS will amplify their work to bring more organizations worldwide the power of AI-driven automated decision workflows with FICO platform. In addition, FICO will broaden its portation and AWS partner programs to accelerate client adoption of FICO platform.

Let me now pass it over to Steve to provide further financial details.

Thanks, Will, and good afternoon, everyone. As Will mentioned, we had another good quarter with total revenue of $136 million, an increase of 20% over the prior year. Scores segment revenues for the quarter were $324 million, 34% from the prior year. B2B revenues were up 40%, primarily due to higher unit prices, an increase in volume of mortgage originations and a multiyear U.S. license renewal on our insurance score product.

Our B2C revenues were up 6% versus the prior year, partly due to increased revenue from our indirect channel partners. Third quarter mortgage revenue revenues were up 53% versus the prior year. Mortgage origination revenue 53% of B2B revenue and 44% of total scores of revenue. Auto Origins revenues were up 23% while credit card, personal loan and other originations revenues were up 3% versus the prior year. Software segment revenues for the quarter were $212 million, up 3% from the prior year. On-premises and SaaS revenue grew 2% year-over-year, while professional services grew 7%.

This quarter, 87% oil company revenues derived from our Americas region, which is the combination of our North America and Latin American regions. Our EMEA region -- 8% of revenues and the Asia Pacific region delivered 5%. The updated guidance we're releasing today -- fourth quarter revenues of $505 million. This is down sequentially due to lower point-in-time revenues within insurance scores licenses and software licenses. We also expect scores originations volumes to be slightly lower due to seasonality as well as the sequential decline in PS revenues.

Our total software ARR was $739 million, a 4% increase over the prior year. Platform ARR was $254 million, representing 34% of our total Q3 '25 ARR up from 30% of total Q3 '24 ARR. Platform ARR grew 18% versus the prior year, while non-platform declined 2% to $485 million this quarter. Our CCS business, which spans platform and non-platform, saw a slight uptick sequentially, but overall headwinds we highlighted last quarter continue to be putting pressure on year-over-year ARR growth. Our platform land-and-expand strategy continues to be successful. Our dollar-based net retention rate in the quarter was 103%, Platform NRR was 115%, while our non-platform was 97%. Platform NRR was driven by a combination of new use cases and increased usage of existing use cases. Our software ACV bookings for the quarter were $26.7 million compared to $27.5 million in the prior year.

Turning now to expenses for the quarter, as shown on Page 5 of the financial highlight presentation. Our total operating expenses were $274 million this quarter versus $53 million in the prior quarter, an increase of 8%. Quarterly growth was driven primarily by our FICO World event. Two other expense drivers were incremental head count as well as the marking to market of our supplemental retirement and savings plan which is offset in other income and expense and thus has no net impact to our net income.

In our fourth quarter, we expect increased interest expense -- we also expect to have increased marketing expenses as well as some onetime items that could exceed $10 million. These expenses are all embedded in our updated guidance. Our non-GAAP operating margin, as shown in our Reg G schedule, was 57% for the quarter compared with 52% in the same quarter last year. This means we were able to deliver non-GAAP margin expansion of 470 basis points year-over-year. GAAP net income was $182 million, up 44% from the prior year's quarter. Our non-GAAP net income was $211 million for the quarter, 35% from the prior year's quarter. GAAP earnings per share this quarter were $7.40, up 47% from the prior year. Our non-GAAP earnings per share were $8.57, up 37% from the prior year.

The effective tax rate for the quarter was 23.3%. The operating tax rate was 24.6%. We expect our full year net effective tax rate to be around 20% and our recurring tax rate to be around 25%. This quarter, we delivered very strong free cash flow, $276 million, a 34% increase from the prior year. Over the last 4 quarters, we've delivered $748 million of the free cash flow which represents an increase of 36% over the trailing 12-month period ending June 30, 2024.

At the end of the quarter, we had $240 million in cash and marketable investments. In May, we issued an 8-K detailing our debt refinancing. Our total debt at quarter end was $2.78 billion, with a weighted average interest rate 5.25%, as of June 30, 2025 -- was held in senior notes with no term loans and no balance on our revolving line of credit. So at that time, 100% of our total debt was fixed rate.

Turning to return of capital. We bought back 284,000 shares in the third quarter at an average price of $1,802 per share, and we continue to view share repurchases as an attractive use of cash.

With that, I'll turn it back to Will for his closing comments.

Thank you, Steve. Elevated interest rates and ongoing affordability challenges continue to weigh on the mortgage market, keeping loan originations below historical norms. While the macro environment remains fluid, our strategy, our innovation, our execution remain disciplined and consistent. I'm pleased to report that today, we're raising our full year guidance as we enter the fourth quarter of our fiscal year.

Revenue guidance will remain at $1.98 billion. GAAP net income guidance is $630 million, with GAAP earnings per share of $25.60. Non-GAAP net income guidance is $718 million with non-GAAP earnings per share of $29.15.

Before we take questions, I'd like to discuss the interim FHFA decision and how we are engaging with the industry. First, I'd like to emphasize that the FICO score is the in standard measure of consumer credits in the U.S. The FICO score is the backbone of safety and soundness in the mortgage industry. Over the last 2 years, the FICO Score has fundamentally transformed the mortgage industry, enhanced ability and liquidity in secondary markets, standardizing credit evaluation for investors, expanding fair and objective access to credit, empowering cost-effective and sustainable homeownership for America.

FICO scores are used across the U.S. and internationally for more than just mortgage. In the U.S., 99% of all FICO scores are freely chosen by market participants outside market. In the nonconforming mortgage market, FICO so widely used. Classic FICO was specified over 20 years ago for use by the GSEs, they were publicly to companies. And before the FHFA even existed. As the mortgage store standard, thousands of industry participants use models incorporating classic FICO. FICO scores are critically relied on throughout the mortgage credit ecosystem. In mortgage insurance. in underwriting and pricing models in investor credit risk and prepayment models in models used by the GSEs and those used by mortgage insurers, by investors and prudential regulators for capital requirements and by credit rating agencies for mortgage-backed securities ratings. Therefore, classic FICO is critical to driving investor pricing of mortgage-backed securities and ultimately, the cost consumers pay.

Our innovations are best-in-class, including our latest innovation, FICO 10 T, FICO 10 T BNPL and the FICO Score mortgage simulator. As you all know, FICO 10 T was approved by the FHFA and remains the most predictive general-purpose credit scoring model in the U.S. While previous FICO Score versions included rental, telco and utility data FICO 10 T also now includes trended data.

During the process required by the Credit Score Competition Act, the GSEs originally concluded based on predictiveness and accuracy, that FICO 10 T significantly outperforms Vantage Score 4.0. We joined a long-standing industry demand that FHFA released that analysis and the recommendation of each of the GSEs publicly as part of this process and the spirit of transparency and responsible policymaking. We recently posted a white paper that reached the same conclusion, which can be found on our website.

As for lender choice, the FHFA has long rejected the practice because it undermines the safety and soundness of the enterprises and their counterparties, damaging liquidity in the $12 trillion mortgage industry. Lender Choice encourages mortgage participants to shop for the most lax score, which drives unavoidable gaming and adverse selection for all risk holders. It creates a race to the bottom by incentivizing score providers to weaken their credit decision criteria to score more consumers and one more business with their score, which will lead to increased costs for consumers. Lender Choice will result in higher capital requirements from regulators that the holders of mortgage risk will have to bear and American taxpayers will bear significant additional risk.

Any initiative to promote competition and ultimately lower cost should include the best score, which is FICO Score 10 T. FICO Score 10 T superior predictiveness will drive significant loss avoidance savings for market participants and billions of dollars of savings for consumers. Lastly, so long as their tri-merge mandate, coupled with the Credit Bureau's common ownership of Vantage Score, Lender Choice will harm competition rather than foster it because it further entrenches the credit -- market power, in speaking to numerous market participants since the FHFA announcement, it's clear there are many significant outstanding questions by the industry. FICO will continue to remain engaged with market participants, the GSEs, the FHFA and other stakeholders.

With that, let me turn this call to Dave, and we'll open up the Q&A session.

Thanks, Will. This concludes our prepared remarks. We're now ready to take questions. Operator, please open the lines.

[Operator Instructions]. Our first question coming from the line of Manav Patnaik with Barclays.

Will, I just want to touch on FICO 10 T again. I think you said you had customers already using it adding to about [ 113 billion ], I think, is what you said. I was just wondering how many customers are using it what is the pipeline for that? And is it -- do they have to -- I guess what I'm getting at is do they have to upgrade their systems in one to use 5 to 10 T another side-by-side workflow at the moment? Just hoping for some color on the adoption it were to be pushed in the market again?

All good questions, Manav. I have to get back to you with the exact number of customers. But I would tell you that the pipeline is strong. There's customers testing it now. There's customers who are using it now. There's a certain amount of retooling required, but it is modest.

Okay. And then maybe just as a follow-up, for the insurance core product that had -- the renewal this quarter, can you just remind us what that is and if there's a bunch of these that could occur over time? Or is this a one-off? Just anything...

I think -- yes, Manav, this is Steve. I'd say that's a one-off. We have some insurers that use FICO scores in their underwriting processes, and this was just a license deal over a multiyear that we claim in the quarter that we side is kind of a one-off.

Our next question coming from the line of Jason Haas with Wells Fargo.

I'm curious following the announcement, if you've seen any lenders starting over to Vantage Score. Curious if you can describe maybe some of the technological challenges that they may face along the way if that something you've heard of...

We are not aware of anyone moving to Vantage Score since the announcement. There are significant challenges kind of at every step of the way. With the FICO score, which has been in place now for 20 years, virtually every participant in the industry has built models and infrastructure around score. It's the only score that has actually been in use and therefore, for which we have data going through a full economic cycle, including 2008, the downturn. And so any time you make any kind of a move away from that, you have to think what are the implications for rebelling.

And I'm talking about everything from consumers to originators to lenders, to the government entities to Fannie and Freddie. And on downstream to the securitization mortgage-backed securities, players and the mortgage insurers, CTI and ultimately, the prudential regulators. All of these participants are all of them have models that are built and have the risk assessment understood around FICO, the FICO score. And so it's not a simple thing to just swap 3 digits out, new 3 digits in. It really isn't that simple. So I would say there is significant obstacles. And I think that's why the industry is -- has a lot of concerns and is thinking through under what circumstances how work.

That's very helpful explanation. In light of that, is there any change in terms of how you're thinking about where you can take mortgage score prices over time given where the pricing of what you charge for the mortgage score is beneath the value that is providing to the ecosystem. So is there any change in the thought about how you can normalize that going forward?

I think probably everyone on this call is curious of what's FICO's pricing strategy going forward in light of some of the pronouncements from the FHFA. Here's what I would say to you. But first of all, no decisions have been made. We make our decisions about pricing towards the end of our fiscal year and they go effective Jan 1 of the subsequent year. So it's early days, Phil.

What I would say is that we continue to believe that there's a pretty big value gap between what we charge and the value that we provide. And so we're always looking at how we're going to close that gap, and we don't want to do it in a reckless way. We don't want to do it in a rapid way. We want to do it in a very understandable, predictable way so that the people affected can budget for it and see where it's going. And so we continue to be committed to that philosophy on price change. I would just say, sure how much different the world is today after these pronouncements because we have been competing with Vantage Score virtually everywhere for the last 15 years and we remain the industry standard for all kinds of good REITs. So obviously, mortgage is important for us and a lot of people focus on mortgage pricing. But we welcome competition. And at some level, we go about running our business is unchanged.

Next question coming from the line of Simon Clinch with Westell Company.

I was wondering maybe if you could expand a little bit more on Jason's last question actually, but more in terms of of your pro to engaging with regulators right now? And how you're thinking about what is the best pathway of that engagement for the benefit of FICO shareholders and the industry? And has any of that -- has that approach changed at all?

Well, so we have always been relatively close to the people at FHFA and at the GSEs at Fannie and Freddie because they rely on our data, they build models around the FICO score. They are interested in the innovations coming along. And frankly, we've just been through a multiyear process in which they were deeply involved in evaluating the benefit of FICO Score. And so those relationships are in place and the communication is there. And I would imagine that would continue.

With respect to other industry participants, I believe that there's a lot of industry input still to come on the latest commendations because we went through this multi process with a lot of industry input with all kinds of evaluation and analysis. And this is a fairly rapid reversal of the conclusions that, that process brought us to. And so I think quite a few members of the industry have been participants in the industry have been taken a little bit by surprise.

But I'm confident that given the importance of safety and soundness in the industry, and the importance of the mortgage market in the United States that rash things will not occur, but that careful, thoughtful, measured analysis and evaluation will occur. And so some of the problems that we've been pointing out around gaming and adverse selection and risk to safety and soundness. I don't imagine that those issues will be ignored. I imagine that they have to be wrestled with and evaluated. And so we participated in that. But frankly, it's not just a FICO thing. It's really the whole industry.

Yes. I appreciate that. That's very useful. Just as a follow-on question then. I mean, just theoretically, if -- how should we think about the value gap potential in your other categories outside of mortgages and the ability for those areas, those segments to take on the heavy lifting so if pricing and mortgages were to slow down compared to what we've been used to.

Every year, we look at everything. We do billions and billions and billions of scores per year. And each year, as we think through our growth strategy, we think about different parts of the market. And that continues this year as it has in every year over the last decade. So again, no real change in terms of do we look broadly across the portfolio just to see where the growth opportunities are. So I think that's largely the same.

Our next question coming from the line of Faiza Alwy with Deutsche Bank.

I wanted to ask about the software business. Maybe how is the feedback then on the next-generation launch of the platform. And how do you expect sort of bookings to trend from here and just what the general demand environment is like?

We continue to grow nicely. We continue to our customers very interested in the platform. We're bringing them on. I think that we are we're not completely immune to the care that goes into IT spend right now. But we feel pretty good. We're not growing at the rate we were over the last 40 quarters. We're more like the rate we had in the last several quarters. I continue to hope that, that will tick upward. I mean, I would love to see us growing in the 20s in the platform. And our bookings feel pretty good. And so from a visibility standpoint, we think that's potentially achievable. So we'll have to see.

Okay. Got it. And then just wanted to ask about the auto B2B origination revenue, which saw a nice acceleration from last quarter. And I'm curious if there was -- so if you saw higher volumes, maybe it was customer mix. I know you took some pricing. So maybe talk about some of the feedback that you've gotten on the pricing to that acceleration and growth.

Yes. I mean there's -- most of it related to pricing. Obviously, we had some pricing there. There was a little bit of growth on the volume side as well, but most related I don't think it was a significant shift in -- we have seen in the past, sometimes the mix shift between the different tiering levels have an impact? But there wasn't a lot of that. It's primarily just a combination of price and volume.

And our next question coming from the line of George Tong with Goldman Sachs.

Given the FAA's decision to move to a Lender's Choice for mortgages, how much of -- is it to drive industry migration to FICO 10 T, which could be facilitated by the release of historical benchmarking data? Or would you rather see the industry stay with classic FICO to minimize disruption?

I think that, that's going to be the decision made by the industry. FICO 10 T is available, it's been approved by the FAA. There are lenders using it today. and we imagine that will continue. It really is far and away the most predictive score. And so if you're in the risk business, if you actually retain any kind of risk you hear about these things. And so I think that leads us to a pretty bright and future for T. That said, there's a lot of reasons why in parts of the industry, we're in 10 T were in FICO cloud, what we call FICO Classic. And that's likely to continue for quite a line. I mean that is a highly tuned optimized score developed over 20 years with 20 years of models built around it with all the historical data that you could possibly need. And so I don't imagine the switch away from FICO Classic will be rapid. But to the extent that you have people who bear the risk who care of the risk, 10 T is a pretty good alternative.

Got it. full. And then switching to the software side. If you look at FICO platform ARR growth that accelerated a bit to 18% in the quarter, can you elaborate on some of the trends that you're seeing there with respect to client adoption -- new client adoption and client consumption trends that can drive further growth acceleration?

We have always believed what would happen with the platform adoption is we would initially penetrate a large number of top 300 global institutions. And then the growth would shift as a percent of the total, the growth would shift more to expand. So we are very much a land-and-expand strategy. And over the last several years, as you know, we've now penetrated roughly half of the top 300 financial institutions globally. And so it's not surprising to us. It's exactly per our plan that the shift is now coming more in the direction of a bit more expand business and not quite as much land business. That's not to say that we don't win new customers we are. But the customers who've been using it for a while, they very much expand their usage. And so we're seeing more revenue there.

And our next question coming from the line of Surinder Thind with Jefferies.

Just building upon some of the FICO 10 T questions. Will, can you talk about for the clients that have been willing to adopt the score. I assume it's mostly in the nonconforming market. Can you talk about the -- I guess, the decision in the sense that is all of the data out there that you need to make a decision given that obviously, you're asking for public release of some of the benchmarking data like why upgrade to 10 T now versus maybe waiting a little bit?

Well, we would like to see the FHFA and the GSEs release the data in the evaluation process that led to 10 T being identified as the most predictive score in the market. We've obviously done that analysis independently, and we've put it into a white paper, which you can find on our website. There are some pretty significant advantages to 10 T. It's more predictive. It has higher KS. What does that translate into? It translates into lower credit defaults than you would with classic FICO and lower credit deposit than you would get with Vantage Score. So there's a real benefit that comes with it. And yes, it's a new score, and so it takes time to adopt. And there's all the transition issues that go with that.

That's helpful. And then just following up in terms of the next generation of the cycle platform in GA in the second half here, can you talk about the update process. So if you're an existing FICO platform customer, what is the update process? And what is the benefit of moving to the new platform at this point?

I think that the transition for existing platform customers to the new FICO platform will be very straightforward. Seamless is probably an overstatement, but straightforward because we plan for it. And it's -- that will work nicely. I think that the benefits of the platform are more realized around the returns to scale that we get. If we have a lower cost structure in serving our customers, that will translate into lower pricing for them. And I think those are some of the benefits. There's definitely a cost benefit. And then the new platform has a lot of new features and ease of use. And so I think you'll see some of that. I think our customers' existing platform customers and new ones will be delighted with the new platform.

Next question coming from the line is Ashish Sabadra with RBC Capital Markets.

I just wanted to drill down on opportunities for using FICO scores at having more use cases for FICO scores or you enrolled places within the processes where it may currently not be used, like, for example, securitization market where they may not have access to real-time FICO score. So is that an opportunity? How should we think about that party presenting itself.

Well, thank you for that question. We're always looking for ways to provide more value and benefit to our customers and to potential customers. And an obvious place for us to do it is to give the securitization market, the downstream investors the ability to refresh the score. And so today, the pricing and models are typically built around the score that was used when the mortgage loan was originated. But over time, that becomes a stale score over time, that's -- it's frozen, it's not dynamic. And so we are very much looking at how we would be able to deliver to the securitization market later refresh those scores.

That's very helpful color. And then going back to the mortgage score question. the long conforming market doesn't really are not bounded by the GSE requirements. However, most of them continue to use FICO 10. And so I was just wondering what are the moats around the business and then an event that if there is a lender's choice for the GSE, could that like bent GSE market.

Well, it's funny to help people talk about moats around the FICO business. I mean what is the moat really -- the moat is that we have the most predictive scope. That's the mode. I mean, if you're in the business of measuring risk, and you benefit when you reduce the risk and you suffer when the risk comes home to roost, you want the most predictive score. You want to avoid as much credit default as possible. That's what you achieved with FICO 10 T. And with respect to FICO classic, I would say, it's also very, very good. And it's not very good for a 20-year-old score. It's very, very good in absolute terms. Not as good as FICO 10 T, but still very, very good and has the advantage of having been the backbone of the system for all this time. And so it's extremely well understood, all the models, everything is optics around it. And that's really the moat. It's not some government conferred monopoly. That's not what makes us successful.

Our next question coming from the line of Kyle Peterson with Needham.

I want to start off with your thoughts on capital allocation. It does seem like you guys have kind of stepped up the pace of the buyback, it seems like things are dislocated here. Given where the stock is and what your cash flow is like now? Do you guys instate you being able to kind of continue to buy back at an accelerated pace? Or how are you guys looking at capital allocation, specifically buyback versus debt pay down at these levels?

Thanks for that. We've always believed that we should run FICO with kind of an optimal capital structure and not have on hand more cash than we need and we've historically returned it through share buyback, and I would expect that will continue. We've obviously done a lot in the last quarter, but we've done a lot in the last 13 years, and that will continue. We say that we're not market timers. We target spending our free cash flow on stock buyback each year. But over a period of time, that results in the leverage dropping to levels that are unacceptably low. And so periodically, we dial up the amount we buy back to maintain kind of a healthy level of leverage somewhere between 2 and 3x.

We also are mindful of corrections in the stock price. So when you see things like what have -- what's occurred over the last couple of months, that represents a big opportunity. And so do we lean into that? Of course, we do. And you can see it in the buyback pace that we had over the last quarter. We have a lot of dry powder, a lot of capacity. And although we're not going to spend it all in 1 week, we're buyers at this level.

Yes. And Kyle, I would just add, if you look at what our leverage is today, it's still pretty modest by historical standards. It's even down a little bit from last quarter. So there's a lot of opportunity for us.

Okay. Okay. That is really helpful. And then I guess just a little bit on how you guys are kind of thinking about the environment right now. Are you guys still kind of thinking -- has anything changed, I guess, like I would say, whether it's in terms of...

Yes, I think we lost Kyle.

I think we lost Kyle. We lost the second half of that question.

Operator, we can just go to the next question, and we'll see if Kyle jumps back in the line.

Sure. Our next question in the queue coming from the line of Owen Lau with Oppenheimer.

So follow-up on that moat question, Will, could you please talk about other markets such as credit card, auto and personal loan when there's no requirement from anyone? Do you see any Vantage scores any market shares?

No, no. It's a good question, and we do not see any traction of Vantage Scores gaining share. As I mentioned earlier, we've been competing with Vantage Scores for a very long time, well over a decade. And we don't -- we have not experienced any kind of significant share loss advantage. And I would say that's because of the 2 that we talked about before. One is that we have the best score and then that there's a benefit to working with the industry standard, which is FICO.

That's helpful. Just if lenders move to Vantage Score, usually, how long does it take for lenders to switch over? Can I do it within 1 or 2 years? Or it will take longer than that.

That's a question no one can answer because it hasn't happened.

Our next question coming from the line of Jeff Meuler with Baird.

Well, what do you told us kind of the next steps for pant usage for conforming? Or what are you getting asked to do from your end to make that happen?

Well, I think it's up to the FHFA to decide to implement and I think from an industry standpoint, you don't want to -- I don't think you want to stagger implementations of multiple scores because it requires much more complicated retooling on the part of the industry. So I would imagine that we're going to get to a point where 10 T is not but implemented sooner rather than later. So we'll see. We're in a conversation with the FHFA about how to make that happen.

Our next question coming from the line of Ryan Griffin with BMO Capital Markets.

You made a comment on ACV bookings pipeline being stronger than last year. I was just wondering what's driving that and how we should expect that to flow through to bookings.

I think a lot of it's coming out of FICO World, we saw a lot -- we've developed a lot of new functionalities as we'll talk about, and there's a lot of excitement at FICO World. So it's -- with that coming on late to strengthen our pipeline we see a lot of people that see the advantage of the current plan and with the new burden coming online, they're excited about that. So we think there's just a lot of industry understanding it more and having more proof cases, with FICO role, we had a lot of companies get up and talk about how they've been successfully using the platform. So you end up at a point in time where you could start seeing some momentum, and that's what we're seeing now.

Great. And then just on the Amazon partnership. Wondering what the mechanics are for that and expect that to impact the distribution model and bookings going forward.

A little early to say. I mean, we're optimistic. Every one of these things helps us, but we'll just have to see what plays out.

Our next question coming from the line of Alexander Hess with JPMorgan.

Just want to piggyback off of Jeff. I think it was Jeff and George's question earlier. Where about a year moved from Vantage score providing the loan level data set to the banks? And my understanding was that was a prerequisite for setting their score approved. Are you guys for some reason hesitant to provide that data to a is the FHA is there some sort of negotiating with the FHFA on what that looks like. I'm just not quite clear as to why FICO 10 T doesn't have a data set like that in the market.

We are working with them to get the data out.

Got it. That's super helpful. And then just maybe as a maintenance question. I think you guys have said in the past that the more mortgage scores are less than 1% of scores -- GSE and non-GSE channels. Can you sort of give us a sense of how many scores are being generated on an annualized basis now? And where you've seen particularly strong adoption in volumes and over the last, say, 2, 3 years?

Are you talking about mortgage or across the board?

No, I'm talking across the board, excuse me.

Across the board. Mortgage volumes across the board are down from the peak, not down as much as in mortgage elsewhere, but down some, which gives us a lot of optimum about volume growth going forward, particularly in a declining rate environment if that ever happens. So I think there's upside there. I'm not sure exactly what you're getting at.

His question is about adoption of scores just in general, like credit card or personal like places and what have we seen over the last few years in terms of...

Our scores are being used more widely than ever. We introduced new scores. We have all kinds of new scores based on alternative data. We talked about the BNPL score. We have scores that are built around telco and utility payment data of the [ Equifax NCTUE ] plus database. So we're finding adoption of additional scores and scores are being used more frequently than they were in the past in things like account management. So it's not just like the scores volume goes up and down with GDP. I think that it's fair to say that we're finding new uses and expanding market for scores.

Our next question coming from the line of Scott Wurtzel with Wolfe of Research.

I just had one on the pricing side in light of this -- all the Vantage and FHFA stuff. I mean, is there a world where you would potentially consider having different pricing on conforming versus nonconforming mortgage given your share in the nonconforming market relative to Vantage right now and the potential uncertainty on what happens in the conforming market

Yes. I think that everything is always under review. I mean there are many, many other pricing models besides the ones that we've used historically. And so we look at everything. And there probably are models that we don't use that would be better for everybody. It would be better for the industry.

But again, because it's such a a big and important industry, you don't make any kind of changes rationally. You study them and you figure out whether it's going to work. And the last thing we want is unforeseen consequences. And so although we've evaluated many, many other pricing models, and obviously, that includes pricing differently in different markets, but it also goes structure of how we price and how the IP is used and how the value is monetized. We look at it all the time, but I think whatever we discovered some of the interesting things, we think about implementing with quite a big measure of caution.

Our next question comes the line of Matthew Onye with FT Partners.

I'll try to avoid subsequent pricing question here. So I was wondering, I don't think I missed it, but would you be willing to give us the numbers around the onetime license renewal just for modeling purposes going forward?

No. I mean we don't separate that out. But I mean you can look at our overall numbers in terms of how much point in time revenue we had in the Q. That's included in that number. so you can kind of look at it that way. I mean it's a significant number for this quarter.

Got it. And I guess just as a follow-up more broadly on guidance. what's implied for fourth quarter versus where consistent today, there's a little bit of a delta there. Obviously, I know you're not guiding to consensus. Just curious how you think about the opportunities to outperform in the last fiscal quarter. And what could go right or what degree of macro conservatism is built into the remainder of the FY guide here.

We only got 2 months to go. So there's not a whole lot of uncertainty. We guided what we guided. We're pretty confident in that. And if I were to say something else, then I wouldn't really be guidance anymore. So that's the number we put out there. And again, when we guide for the full year, there's a lot of things that can happen. But when you're only guiding the -- is not a certainty.

One question coming from the line Greg Huber with Huber Search Partners.

Great. Couple of questions if I could ask. In our Scores segment here, I just wanted to understand a little bit better about the expense growth here year-over-year about 39%, up about 23%, 24% sequentially. Is there any extra maybe internal investment spending going on there that you can talk about publicly? Just curious why it's up so much. I thought this was largely a pretty fixed cost model here, but...

You just ask that again, which you had about revenue or the expense?

The expenses within your Scores segment are up, as you know, roughly 39% year-over-year or 23%, 24% sequential.

The biggest -- the biggest piece of expense in our Scores business is in our B2C business, where we actually have a cost of goods -- a higher cost of goods sold, we have to pay for credit file data and so as that grows, you're going to see a little bit of movement on the expense side. Apart from that, I can tell you that we are -- we've hired more people, and we're doing a lot more innovation there than before. And so that also drives a bit of expense, but not enough to move the needle dramatically.

Yes. And I think one of the things you'll see there is that it's a relatively low cost model. So when you have some additional incremental cost, that can skew because, again, because the margins are so high. But it is a fairly fixed cost model, except for the EPS, which were mentioned.

But do you guys think, in general, this new expense level in scores here all else being equal in the environment and so forth that you might repeat that again in the subsequent quarters? Or was it dip down? It sounds like it's going to be the higher level here.

Yes, we're probably at a higher level. Again, it's not all that significant in the scheme of things. But I mean, it's got to say a little bit. We're bringing some more money into marketing, particularly on the B2C side. So we see some opportunities there that we're pursuing and that's what driving the biggest portion of it. again, because we think -- we did some testing on it. I think we talked about this in previous quarters. We did some testing on this last year, and we saw there's a pretty big payback on this. So we're willing to invest a little more heavily in this because it drives some pretty good growth on the B2C.

And then my unrelated question, please. Can you share with us what you think your market share is for FICO scores in auto, credit card, say, and personal loans and also nonconforming mortgages What do you think your market share?

Yes. I mean there's been internal third-party analysis on us. And it's -- it's in the mid-90s probably. If you look at securitizations that take place, it's very high. It's in the high 90% range. So it's hard to come up with exact numbers on this because it's not really reported anywhere. But from third-party that have done that on this. It's a pretty high number.

Our next question coming from the line of Kevin McVeigh with UBS.

Great. I wanted to just see if you could help us reconcile had a pretty good beat in the quarter and reaffirmed the guidance for the full year. Any puts and takes on kind of what the reform was as opposed to the beat in the quarter -- with the increase, I'm sorry. The amount of the raise on the guidance relative to the beat looks like you define more than you raised it conservatism or anything to kind of call out just based on where the quarter on versus how much the full year guidance was increased.

Yes. Well, I mean, we did have -- we talked about in the script, we've got some onetime expenses that we're going to have in the fourth quarter. And there's some of that, that probably wasn't in -- earlier in the year, there's some things -- as we get to the end of the year, we can take some charges and we've done it in the past. And I think we'll probably be doing some of that this year as well. So that's probably the delta.

That's super helpful. And then just with all the questions, I know the regulation is so hard to frame, but are there any goalposts in terms of timing or just events that you could kind of point us to? Or there may just be some clarification whether it's out of the FHFA order border organization just as we're thinking about expectations over the course of the year? I mean just given it feels like there's.

No, I think if we take where we are today as the status quo, which is what it is, I think you're looking at years to figure out how market share settles out because it's not easy to switch and because we have a better score. So BD under what circumstances and whether at all, there's share shift. But we'll see. But it won't happen fast. It will take time.

Thank you. And I'm showing no further questions at this time. I will now turn the call back to David for any final comments.

I just want to circle back on I've asked the question at the beginning around the number of FICO 10T lenders and attraction to -- important to remind the audience. lenders use FICO 10 T for a lot of use cases, underwriting, loan production, execution, servicing. We have over 30 or today using Score 10 T some of those lenders use it for securitization, they're securitizing with FICO 10 T already. and the MCT is a platform where the MBS market flows through and they also have adopted FICO 10 T. So we have in places where FICO 10 T exists in the ecosystem and the traction is very strong. So thanks, everyone, for the call. Appreciate it.

This concludes today's conference call. Thank you for your participation, and you may now disconnect. Goodbye. Thank you.