FICO (NYSE: FICO), formerly Fair Isaac Corporation, is a data analytics company that specializes in credit scoring and software services. Founded in 1956 by engineer Bill Fair and mathematician Earl Isaac, the FICO score is now the de facto standard for measuring consumer credit risk, which is widely used by lenders to assess the financial worthiness of potential borrowers. The company’s groundbreaking use of mathematical algorithms on large data bases to predict consumer behavior has transformed entire industries.
FICO went public in July 1987, and in addition to its anchor financial institution business where half of the top 100 global banks are customers, the company has made close to 20 acquisitions, which jump started FICOs entry into other industries, such as: healthcare, insurance, automotive, public sector, retail, pharmaceuticals, telecommunications, travel and hospitality, media and entertainment, high tech, and utilities. Globally, FICO’s business has benefited from widespread consumer access to, and use of, the internet, resulting in a staggering increase in analyzable data. What’s more, this trend renews each year and continues to expand.
Today, FICO segments their business into three categories: Scores, the biggest and most profitable division, primarily includes all traditional credit scores and related services; On Premises and SaaS software, second largest division, enables customers with advanced tools for decision management, fraud detection, and customer engagement, mostly cloud based, utilizing Amazon Web Services (AWS), and may incorporate AI functionality; Professional Services, a distant third in terms of financial contribution, manages the implementation of incrementally cross-sold FICO services so the customer can utilize more than one solution, and the company can maximize revenue per client. All in, FICO processes 10 billion transactions annually across all three segments.
One of the primary uses of a FICO score is in mortgage applications. When individuals apply for a home loan, lenders use the FICO score to determine the likelihood that the borrower will repay the loan on time. A higher FICO score indicates a lower risk to the lender, often resulting in more favorable loan terms, such as lower interest rates and reduced down payment requirements. Conversely, a lower FICO score may lead to higher interest rates and more stringent borrowing conditions, reflecting the increased risk. Other popular FICO use cases incorporate auto loans, credit card approvals, personal loans, insurance premiums, rental applications, employment screening, business loans, utility services, telecommunication and peer-to-peer lending.
FICO’s revenue for the fiscal year 2024 was $1.72 billion, up 13% Y/Y and 2025 guidance of $1.98 billion suggests a slower 10% cadence. Profitability and free cash flow metrics are robust with last year recording a 52% Adjusted EBITDA Margin and a revenue to FCF conversion rate of 35%. Days Sales Outstanding (DSOs) have come down but have room for improvement at 95 days, $200 million cash, and $2.3 billion in debt. This equates to a safe and comfortable interest coverage of 8.24x (vs. 3 min) and a leverage covenant of 2.38 (vs. max 3.5).
In summary, FICO is a vital and leading analytics software company whose services are utilized across multiple sectors to manage risk, fight fraud, build more profitable customer relationships, optimize operations, and meet strict government regulations.
