Fair Isaac Earnings: Solid Performance With Results Strong in Both Segments

Fair Isaac FICO reported a solid fiscal third quarter. Revenue grew 14% to $399 million, which came in 4% ahead of the FactSet consensus of $382 million. Adjusted EBITDA and adjusted EPS also beat the consensus estimates by 6% and 8%, respectively. Despite the strong quarter, Fair Isaac only modestly increased its full-year guidance which we attribute to management conservatism.

We maintain our wide moat rating and $660 per share fair value estimate for Fair Isaac. While there are many positive attributes in Fair Isaac’s business model, we view the company’s shares as pricey at current levels.

Revenue for Fair Isaac’s scores segment of $202 million came in about 2% ahead of our expectations, and increased 13% from the year-ago period, with pricing being the largest driver. Notably, mortgage originations revenue was up 135% as pricing was more than able to offset a 33% volume decline (as measured by the year-over-year change in mortgage credit inquiries). Auto revenue were up 5% and card and other revenue was up 2% (largely by near Consumer Price Index-level pricing increases). The firm’s consumer scores business decreased 11% as a common use case for the Fair Isaac’s myFICO offering tends to be consumers monitoring their credit prior to getting a mortgage.

The firm’s software business performed well in our view, with 16% growth year over year. Total annualized recurring revenue grew 20%, which was an acceleration from the 17% experienced during Fair Isaac’s fiscal second quarter. Growth was broad-based across product areas such as fraud and customer communications. Notably, the firm’s nonplatform business, which is the bulk of its ARR, grew 11% largely driven by volume and to a lesser extent new sales.