# Fair Isaac (FICO) Financial Model Free Excel 3-statement financial model and company analysis for Fair Isaac. - Canonical: https://finamodel.com/companies/fair-isaac - Industry: Software - Downloadable model: Yes - Excel download: https://finamodel.com/company-models/FICO.xlsx ## Model Purpose This model evaluates the equity valuation and cash flow generation of Fair Isaac Corporation to determine if the company's aggressive pricing power in its B2B Scores segment and its transition to a SaaS-based Software platform justify its premium market multiple. ## Company Overview Fair Isaac Corporation (FICO) is a leading applied analytics and data decisioning company, best known for the ubiquitous FICO Score used in consumer credit risk assessment. The company operates two primary segments: Scores, which accounts for approximately 59% of total revenue, and Software, which accounts for the remaining 41%. The Americas region dominates its geographic footprint, generating roughly 87% of total revenue. FICO operates an asset-light, high-margin business model where the Scores segment functions as a toll bridge for US credit originations, while the Software segment is transitioning from legacy on-premise licenses to a cloud-based Annual Recurring Revenue (ARR) subscription model. FICO holds a near-monopoly position in the US mortgage origination market, as government-sponsored enterprises mandate the use of FICO Scores. Recent major events include aggressive, tier-based price increases in the B2B mortgage scoring segment throughout 2024 and 2025, the rollout of FICO Score 10 T, and massive share repurchase programmes that have resulted in a negative book equity position. ## Revenue Deep Dive ### Scores Segment - **Segment name:** Scores - **Revenue driver formula:** (Mortgage Origination Volumes x Market Share x Price Per Pull) + Auto/Card Origination Revenues + B2C Subscription Revenues - **Historical growth rate:** 19% to 27% CAGR over the last three years, driven entirely by B2B pricing. - **Key growth levers and headwinds:** The primary lever is pricing power, as FICO has successfully implemented massive price hikes for mortgage scores. Headwinds include macroeconomic sensitivity, specifically high interest rates suppressing mortgage and auto loan origination volumes. - **Pricing dynamics:** Highly inelastic and monopolistic in the B2B space. FICO has shifted to tier-based pricing, charging significantly more for mortgage pulls. - **Revenue recognition notes:** B2B revenues are recognised at the point of transaction (per score pulled). - **Seasonality:** Mild seasonality tied to the spring and summer homebuying seasons, which typically boost fiscal Q3 and Q4 mortgage volumes. ### Software Segment - **Segment name:** Software - **Revenue driver formula:** Beginning ARR + Net New ARR (Platform vs Non-Platform) + Professional Services Revenue - **Historical growth rate:** 3% to 8% overall, but FICO Platform ARR is growing at 19% to 31% annually. - **Key growth levers and headwinds:** Growth is driven by the "land and expand" strategy for the FICO Platform, evidenced by a dollar-based net retention rate exceeding 110%. The headwind is the intentional run-down and flat growth of legacy Non-Platform software. - **Pricing dynamics:** Subscription-based SaaS pricing for the Platform, with usage-based overages. - **Revenue recognition notes:** SaaS revenues are recognised rateably over the contract term, creating a large deferred revenue balance. Professional services are recognised as work is performed. - **Seasonality:** Fiscal Q4 (September quarter) typically sees the highest bookings and ARR additions due to enterprise software buying cycles. ## Cost Structure ### Variable Costs / COGS - **Line-by-line breakdown:** Hosting and cloud infrastructure costs, data acquisition costs, royalties paid to credit bureaus, and amortisation of acquired technology. - **Gross margin range:** 80% to 82% over the last five years. - **Key input costs and commodity exposures:** Cloud computing costs (AWS) and data licensing fees. - **How COGS scales with revenue:** Highly scalable. The Scores segment has near-zero marginal cost, meaning price increases flow directly to gross profit. ### Operating Expenses - **R&D:** Typically 9% to 10% of revenue. It covers the development of the FICO Platform and new scoring algorithms like FICO Score 10 T. FICO capitalises a portion of internal-use software development costs. - **SG&A:** Typically 25% to 26% of revenue. This includes sales commissions, marketing for the myFICO B2C business, and corporate overhead. - **Depreciation & Amortisation:** Minimal, usually under 1% of revenue for depreciation, though amortisation of intangibles sits in operating expenses and COGS. - **Stock-Based Compensation:** Runs at approximately 4% to 5% of revenue, which is lower than many high-growth SaaS peers but material to GAAP margins. - **Restructuring / one-time charges:** Infrequent and generally immaterial in recent years. ### Margin Profile - **Gross margin:** 80% to 82%. - **Operating margin:** Non-GAAP operating margin has expanded from 52% to 58% recently. - **Net margin:** 30% to 32%. - **Margin trend:** Expanding rapidly. The B2B Scores segment operates at an estimated 85%+ operating margin, and as it grows faster than the Software segment due to price hikes, consolidated margins are expanding structurally. ## Balance Sheet Structure - **Total assets:** Approximately $2.0 billion to $2.5 billion. - **Key asset categories:** Goodwill and intangible assets make up the majority of assets, stemming from historical acquisitions. Cash and accounts receivable form the bulk of current assets. - **Goodwill & intangibles as % of total assets:** Roughly 40% to 50%. - **Working capital profile:** - **Days Sales Outstanding (DSO):** 45 to 55 days. - **Days Inventory Outstanding (DIO):** Not applicable. - **Days Payable Outstanding (DPO):** 30 to 40 days. - **Net working capital as % of revenue:** Consistently negative due to high deferred revenue from software subscriptions. - **Working capital funding:** The company operates with negative net working capital, meaning customer prepayments fund operations. - **PP&E:** Minimal, representing less than 5% of total assets. FICO is an asset-light software business. - **Right-of-use assets / operating leases:** Material but manageable, representing office space leases globally. ## Capital Expenditure & Investment - **Capex as % of revenue:** 1% to 2%. - **Maintenance capex vs. growth capex:** Almost entirely growth capex related to IT infrastructure and capitalised software development. - **Major capex programmes underway or planned:** Continued investment in FICO Platform cloud infrastructure. - **Capitalised software / development costs:** Material. FICO capitalises certain development costs which are then amortised over 3 to 5 years. - **M&A pattern:** Historically a bolt-on acquirer, but recent years have focused entirely on organic growth and share repurchases. - **Typical acquisition multiple paid:** Not applicable for the recent 3-year historical period. ## Debt & Capital Structure - **Total debt:** Approximately $2.0 billion to $2.5 billion. - **Debt/EBITDA ratio:** Currently sits around 2.0x to 2.5x. - **Credit rating:** Investment grade profile, though often unrated or BBB equivalent. - **Key debt instruments:** Senior unsecured notes and a revolving credit facility. - **Maturity profile:** Staggered maturities over the next 5 to 7 years. - **Interest rate profile:** Mostly fixed-rate senior notes with a weighted average interest rate of approximately 5%. - **Covenants:** Standard leverage and interest coverage ratios; FICO operates well within these limits. - **Share repurchase programme:** Extremely active. FICO repurchased $1.4 billion in shares in FY2025. This aggressive buyback strategy has resulted in a massive treasury stock balance and negative total shareholders' equity. - **Dividend policy:** FICO does not pay a dividend. All return of capital is executed via share repurchases. ## Cash Flow Characteristics - **Operating cash flow conversion:** Very high, typically 1.1x to 1.2x of GAAP Net Income. - **Free cash flow margin:** 35% to 37% (e.g., $739 million FCF on $1.99 billion revenue in FY2025). - **Major non-cash items:** Stock-based compensation, depreciation, and amortisation. - **Working capital cash flow impact:** Deferred revenue growth provides a consistent positive source of operating cash flow. - **Capex intensity:** Extremely low, contributing to the massive free cash flow conversion. - **Cash tax rate vs. GAAP effective tax rate:** The cash tax rate is often lower than the statutory rate due to excess tax benefits derived from the vesting of stock-based compensation. ## Sheet Structure 1. **Assumptions**: Hardcoded inputs for macroeconomic drivers, segment growth rates, pricing assumptions, margin profiles, and capital allocation targets. 2. **Revenue & ARR**: Detailed build of Scores (B2B, B2C) and Software (Platform ARR, Non-Platform ARR, Professional Services). 3. **Income Statement**: GAAP and Non-GAAP views, mirroring the 10-K format with COGS, R&D, and SG&A broken out. 4. **Balance Sheet**: Standard asset and liability line items, with specific attention to the Treasury Stock line which drives total equity negative. 5. **Cash Flow Statement**: Operating, Investing, and Financing sections. Must explicitly link free cash flow generation to the share repurchase line. 6. **Debt Schedule**: Tranche-by-tranche breakdown of senior notes and the revolving credit facility, calculating interest expense and tracking maturities. 7. **Shareholders' Equity**: Roll-forward of retained earnings, additional paid-in capital, and treasury stock to accurately model the negative equity position. 8. **DCF Valuation**: Unlevered free cash flow build, WACC calculation, terminal value, and implied share price output. ## Key Financial Relationships 1. `B2B Scores Revenue = Prior Year B2B Scores Revenue x (1 + Mortgage Volume Growth) x (1 + B2B Pricing Increase)` 2. `B2C Scores Revenue = Prior Year B2C Revenue x (1 + myFICO Subscriber Growth)` 3. `Total Scores Revenue = B2B Scores Revenue + B2C Scores Revenue` 4. `Platform ARR = Prior Year Platform ARR x Platform Dollar-Based Net Retention Rate + New Platform Logo ARR` 5. `Non-Platform ARR = Prior Year Non-Platform ARR x Non-Platform Retention Rate` 6. `Software Revenue = (Average Platform ARR + Average Non-Platform ARR) + Professional Services Revenue` 7. `Total Revenue = Total Scores Revenue + Software Revenue` 8. `Gross Profit = Total Revenue - (Hosting Costs + Data Royalties + Amortisation of Acquired Technology)` 9. `Non-GAAP Operating Income = Gross Profit - R&D Expense - SG&A Expense` 10. `GAAP Operating Income = Non-GAAP Operating Income - Stock Based Compensation - Restructuring Charges` 11. `Free Cash Flow = Cash from Operations - Capital Expenditures` 12. `Share Repurchases = Free Cash Flow - Debt Principal Repayments - Minimum Cash Balance Requirement` 13. `Ending Shares Outstanding = Beginning Shares Outstanding - (Share Repurchases / Average Share Price During Period)` ## Cross-Sheet Dependencies The **Assumptions** sheet feeds the **Revenue & ARR** sheet. The outputs of the Revenue sheet drive the top line of the **Income Statement**. The Income Statement generates Net Income, which flows into the **Cash Flow Statement** as the starting point for operating cash flow. The Cash Flow Statement calculates Free Cash Flow, which dictates the magnitude of Share Repurchases. Share Repurchases flow into the **Shareholders' Equity** sheet (increasing the negative Treasury Stock balance) and reduce the share count on the Income Statement for EPS calculations. The Cash Flow Statement also determines if the Revolver on the **Debt Schedule** needs to be drawn. The Debt Schedule calculates Interest Expense, which flows back to the Income Statement. This creates a circular reference between Interest Expense, Net Income, Cash Flow, Debt Balances, and Interest Expense. ## Sign Convention - Revenue, Assets, and ARR are modelled as positive numbers. - Expenses (COGS, Opex, Interest, Taxes) are modelled as positive numbers in their respective schedules but subtracted in the Income Statement calculations. - Liabilities and Equity balances are positive numbers. - Treasury Stock is modelled as a negative number within the Equity section. - On the Cash Flow Statement, cash inflows are positive and cash outflows (including Capex, Dividends, and Share Repurchases) are negative. ## Things Most Likely to Go Wrong - The builder might force Shareholders' Equity to be positive. FICO has deeply negative equity due to years of aggressive share repurchases exceeding retained earnings. The balance sheet must balance with negative equity. - Confusing ARR with GAAP Revenue. ARR is a point-in-time metric at the end of the period, whereas Software Revenue is recognised rateably over the year. The model must translate ending ARR into recognised revenue. - Overestimating B2B Scores volume growth. Recent 25%+ growth in B2B Scores is driven almost entirely by pricing power, not origination volume. The model must separate price increases from volume assumptions. - Mishandling the tax rate. FICO benefits from excess tax benefits related to stock-based compensation, which pushes the effective tax rate below the statutory 21% US rate. - Circularity errors in the share repurchase mechanism. Because repurchases depend on cash flow, and cash flow depends on interest expense, the model requires a circuit breaker or iterative calculation toggle. - Applying a generic gross margin to the whole business. The Scores segment has an 85%+ margin while Software is lower. A shift in revenue mix will structurally change the consolidated gross margin. - Modelling Professional Services as a growth driver. FICO is intentionally shrinking this revenue stream to focus on high-margin SaaS platform revenue. - Ignoring the impact of share price appreciation on buyback efficacy. As FICO's share price rises, the same dollar amount of free cash flow buys back fewer shares, slowing EPS accretion. ## Validation Checks - Total Assets must equal Total Liabilities plus Shareholders' Equity in every period. - Shareholders' Equity should remain negative and grow more negative over time as buybacks continue. - Consolidated Gross Margin should remain in the 80% to 83% range. - Non-GAAP Operating Margin should expand gradually from 55% towards 60% as the high-margin Scores segment outpaces Software growth. - Free Cash Flow conversion (FCF / Non-GAAP Net Income) should consistently exceed 1.0x. - Platform ARR growth should remain above 15%, while Non-Platform ARR growth should be flat or negative. - Debt to EBITDA should remain below 3.0x to align with management's historical risk tolerance. - The effective tax rate should remain between 18% and 22%. ## Key Assumptions (Default Values) | Assumption | Default Value | Unit | Rationale | |---|---|---|---| | B2B Scores Revenue Growth | 25.0 | % | Driven by continued tier-based pricing power in mortgage originations. | | B2C Scores Revenue Growth | -1.0 | % | myFICO consumer business has seen slight volume declines. | | Platform ARR Growth | 20.0 | % | Reflects strong land-and-expand momentum and 110%+ net retention. | | Non-Platform ARR Growth | -2.0 | % | Intentional run-down of legacy on-premise software. | | Professional Services Growth | -5.0 | % | Strategic shift away from low-margin services toward SaaS. | | Consolidated Gross Margin | 82.0 | % | Historical average, supported by high-margin Scores mix. | | R&D as % of Revenue | 9.5 | % | Required to maintain FICO Platform and develop new scoring models. | | SG&A as % of Revenue | 25.5 | % | Historical average, scaling slightly with revenue growth. | | Effective Tax Rate | 19.0 | % | Blended rate accounting for SBC excess tax benefits. | | Capex as % of Revenue | 1.5 | % | Asset-light software business model. | | Average Interest Rate on Debt | 5.0 | % | Based on current outstanding senior notes. | | Annual Share Repurchases | 1,200 | $ Millions | Management allocates nearly all free cash flow to buybacks. | | WACC | 8.5 | % | Reflects low beta, high cash flow visibility, and current risk-free rates. | | Terminal Growth Rate | 3.0 | % | Pricing power ensures long-term growth above standard inflation. | ## Data Sources & Benchmarks - **Filings:** SEC EDGAR for FICO's 10-K, 10-Q, and 8-K filings. The Investor Relations page on fico.com provides the Reg G non-GAAP reconciliations. - **Peers for Benchmarking:** Equifax (EFX), TransUnion (TRU), Experian (EXPN) for the Scores segment. For the Software segment, standard enterprise SaaS metrics apply. - **Industry Data Sources:** Mortgage Bankers Association (MBA) for mortgage origination volume forecasts; Experian/Equifax macro data for auto and card origination trends. - **Consensus Estimates:** Standard financial data providers (Bloomberg, FactSet) for near-term revenue and EPS consensus. ## Sources - Fair Isaac Corporation FY2024 and FY2025 Annual Reports (Form 10-K). - Fair Isaac Corporation Q4 2024 and Q3/Q4 2025 Earnings Releases and Investor Presentations. - Seeking Alpha transcripts for FICO earnings calls (FY2024 and FY2025). - Investing.com and AlphaSpread summaries of FICO financial performance and guidance. - Simply Wall St and Stock Analysis historical financial data for FICO. --- ## Frequently asked questions ### What does Fair Isaac Corporation (FICO) do? Fair Isaac Corporation (FICO) is a leading applied analytics and data decisioning company, best known for its ubiquitous FICO Score used in consumer credit risk assessment. It operates two primary segments: Scores, which acts as a toll bridge for US credit originations, and Software, which is transitioning to a cloud-based subscription model. ### What are the main drivers of Fair Isaac's (FICO) revenue growth? Fair Isaac's revenue is primarily driven by its Scores segment, benefiting from aggressive, tier-based price increases in B2B mortgage scoring and its near-monopoly position. The Software segment's growth is fueled by its transition from legacy on-premise licenses to a cloud-based Annual Recurring Revenue (ARR) subscription model. ### What is the projected revenue growth rate for Fair Isaac (FICO) in the financial model? The financial model forecasts Fair Isaac's revenue to grow at approximately 6.88% annually. This growth rate reflects the company's aggressive pricing power in its Scores segment and the ongoing transition of its Software segment to a SaaS-based platform. ### How does Fair Isaac's (FICO) working capital profile impact its operations? Fair Isaac operates with consistently negative net working capital, primarily due to high deferred revenue from software subscriptions. This structure means that customer prepayments effectively fund the company's operations, indicating a strong cash flow characteristic. ### What is the primary objective of the Fair Isaac (FICO) financial model? The financial model's main purpose is to evaluate Fair Isaac Corporation's equity valuation and its capacity for cash flow generation. It aims to determine if the company's aggressive pricing power and transition to a SaaS-based Software platform justify its premium market multiple. ### What is the forecast horizon covered by the downloadable Fair Isaac (FICO) financial model? The downloadable Excel financial model for Fair Isaac (FICO) provides forecasts spanning from Fiscal Year 2026 through Fiscal Year 2030. This allows for a comprehensive long-term analysis of the company's projected financial performance. [Interactive forecast calculator](https://finamodel.com/companies/fair-isaac/forecast)