Episode Details

Fair Isaac Corporation (FICO) Q3 FY2026 — Revenue $674.2M (+25.7%) but ~$692M expected. Non-GAAP EPS $12.18 vs $8.57 (+42.1%) vs ~$11.97 est. GAAP operating margin 53.8% from 48.9%; 62% non-GAAP. Free cash flow $370.3M (+34.1%). Full-year guidance RAISED to $2.53B revenue and $42.43 non-GAAP EPS. And the stock fell 17.0% the next session, to $1,139.54. Fair Isaac beat, raised full-year guidance, printed a 62% non-GAAP operating margin and $370M of free cash flow — and lost 17% in one session. Two numbers explain it. First, from the call: mortgage-origination revenue grew 97% while mortgage-origination score VOLUMES grew low single digits — the wholesale score price went from $4.95 to $10.00, and that line is ~42% of the company. Second, subtract the nine months already reported from the raised full-year guide and Q4 implies revenue DOWN 3.3% and non-GAAP EPS down 13.6% sequentially — despite roughly two million fewer shares. THE CALL: SELL (2/5, GREAT MONOPOLY, RENTED GROWTH) — base-case value ~$870 vs ~$1122.97 today. KEY METRICS: - Revenue $674.188M vs $536.415M (+25.7%) — but the Street wanted ~$692M, so revenue MISSED. Scores $458.897M (+41%; B2B +49%, B2C +5%). Software $215.3M (+1.5%). GAAP operating income $362.628M = a 53.8% margin, from 48.9%; 62% non-GAAP vs 57%. Net income $237.172M (+30%), GAAP EPS $10.45 vs $7.40, non-GAAP EPS $12.18 vs $8.57 - THE DISCLOSURE: mortgage-origination revenue +97% while mortgage-origination score volumes rose only low single digits. Management put mortgage at 71% of B2B Scores and 62% of total Scores revenue — roughly $284M, about 42% of the whole company. The wholesale score price went from $4.95 (2025) to $10.00 (2026). Excluding mortgage, FICO grew revenue in the mid-single digits - THE GUIDE: full-year revenue $2.53B less the $1,877.8M already reported leaves an implied Q4 of $652M, DOWN 3.3% sequentially. Non-GAAP EPS $42.43 less $31.91 leaves $10.52 vs $12.18 (-13.6%); GAAP $8.74 vs $10.45 (-16%). FICO retired 1.75M shares in Q3, so Q4 carries ~2M fewer shares and EPS still falls - CAPITAL ALLOCATION: 9-month buybacks $3,046.0M against 9-month free cash flow of $750.0M — 4x the cash generated. Net new debt of $2,535M took total debt from $3,056M to $5,582M; cash and securities $305M, so net debt is $5,278M (~4.2x trailing operating profit). Q3 alone: 1.75M shares for $1.96B at an average $1,149 — above Friday's $1,122.97 close. Stockholders' equity is NEGATIVE $4,097M, from -$1,746M nine months ago, which is why P/B and ROE are meaningless here - SOFTWARE, BOTH SIDES: platform ARR $413M (+62%) passed non-platform ARR ($403M) for the first time, platform net retention 148%, TTM ACV bookings $128M (+39%). But non-platform ARR fell 17% at 82% net retention and non-platform revenue fell 25%, so total Software ARR grew 10% and total Software REVENUE grew 1.5%. Context: on April 22, 2026 the FHFA opened Fannie and Freddie to VantageScore 4.0 (tri-merge retained); Lansing says no volume loss yet What to watch: Bullish: a calendar-2027 mortgage score price increase that sticks without volume loss (the price has gone $2.75 to $3.50 to $4.95 to $10.00), the Mortgage Direct License Program going live once a GSE certifies it, or 10T adoption past the current ~55% of top-50 originator volume. Bearish: FY27 mortgage revenue growth under ~15%, Software ARR growth below 8%, or the first evidence of actual volume loss to VantageScore 4.0. Real buyer nearer ~$700. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.