Earnings Call Transcript - FICO Q2 2026

Operator, Operator

Good day, and thank you for standing by. Welcome to the Second Quarter 2026 FICO Earnings Conference Call. Operator provided 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.

Dave Singleton, Vice President, Investor Relations

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.

William Lansing, Chief Executive Officer

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 fourth 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 non-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 score 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 timeline 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 in eligible servicing. We're moving closer to the go-live dates of our next-generation Cash Flow UltraFICO Score with our strategic partner, Plaid and the FICO mortgage direct licensing and our 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 powers 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 Platform's marketplace and FICO Assistant unlock broader capabilities that compound with scale. Every new model, agent and integration from the ecosystem strengthens the customer profile engine and accelerates 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.

Steven Weber, Chief Financial Officer

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 an increase in volume of mortgage origination. 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 Scores 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 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 one-time 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 revenues 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. Non-platform 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 non-platform 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.

William Lansing, Chief Executive Officer

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 forum to connect with industry experts, share best practices and advance 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.

Dave Singleton, Vice President, Investor Relations

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

Operator, Operator

Operator provided instructions. Our first question is going to come from the line of Jason Haas with Wells Fargo.

Jason Haas, Analyst, 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.

William Lansing, Chief Executive Officer

Yes, absolutely. That's a step in the direction we've been heading for several years. Historically we've charged upfront for score; that's how we've always charged for our IP. But that concentrates the cost and doesn't spread it across the rest of the value chain, so many of the beneficiaries of the IP aren't really paying for it. Moving to a performance model gives us more flexibility to distribute the monetization of that IP across more players in the chain. That's what we've done. With the recent move to $0.99 plus a $65 funding fee, the goal was to encourage adoption of FICO 10T because the most powerful thing we can do is establish FICO 10T. It's already established in the nonconforming market, but we'd like to promote wider use. This pricing is designed to encourage that.

Jason Haas, Analyst, Wells Fargo

Great. That certainly makes sense. Now that VantageScore is available for use in the conforming mortgage market, do you expect that many lenders will shift entirely away from FICO to using only VantageScore? What percentage of lenders do you think would make that shift? Or do you see most lenders who adopt VantageScore continuing to pull FICO during the mortgage process and then submitting the score that is most favorable to them to the GSEs?

William Lansing, Chief Executive Officer

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 gamed in that way, that originators and lenders would wind up pulling both scores.

Operator, Operator

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

Manav Patnaik, Analyst, Barclays

Will, for the 10T adoption, obviously, that $0.99 is only available through the direct license model that you have, DLP 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?

William Lansing, Chief Executive Officer

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 as that calculated by the bureau. It's on the same data. 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.

Manav Patnaik, Analyst, Barclays

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 VantageScore 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?

William Lansing, Chief Executive Officer

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 is certainly strong market interest in being able to evaluate 10T and Vantage at the same time. By the time the GSEs truly accept Vantage, I think the market will want 10T to be available as well. There is some market pressure to get this done, but I don't have a timeline.

Operator, Operator

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

Simon Alistair Clinch, Analyst, Rothschild & Co Redburn

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

William Lansing, Chief Executive Officer

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-score basis, or if they prefer they can move to the $0.99 plus funding fee. The idea is that it encourages widespread use of the score in the prospecting and customer acquisition phases and helps determine who's qualified for a mortgage. Frankly, with the goal of encouraging more housing and more mortgages, making the upfront score cost very low is likely to support that. So it's really up to the lenders which model they prefer, and we leave it to them. As I've said before, we're largely indifferent between the two models because it is revenue neutral for us either way. Each model meets the needs of different customers for the score in different ways.

Simon Alistair Clinch, Analyst, Rothschild & Co Redburn

Understood. As a follow-up on reseller readiness, I know we are getting close to going live. I would like a bit more color on why, relative to initial expectations, this is taking longer than expected. Could you explain what has been behind the prolonged process?

William Lansing, Chief Executive Officer

I think some expectations were a little optimistic. We certainly didn't think it would happen in a couple of months; we thought it would take a while to put this together. It's a pretty complicated program — not overly complicated, but there are enough moving parts that require validation and testing, so we knew it would take time. This much time, I would say, is more than we expected; we actually believed it would be up and running by now. I would say we're close, and as I said earlier, it's really up to the FHFA to sign off on the resellers' calculation of scores, and once they do we're pretty much there.

Operator, Operator

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

Surinder Thind, Analyst, 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?

William Lansing, Chief Executive Officer

No. I would say that there are not a bunch of additional things that no one 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.

Surinder Thind, Analyst, Jefferies

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.

Steven Weber, Chief Financial Officer

Yes. It's not hugely material, but there will be some expense. You can kind of back into it when you look at our guidance numbers, but it's not immaterial. We have some additional personnel expense, expenses around FICO World, and other types of marketing. As software grows, it doesn't come at 100 percent margin because there is cost of goods sold, so you'll see some expenses there as well. None of it is immaterial.

Operator, Operator

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

Faiza Alwy, Analyst, 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 about some of the factors there.

Steven Weber, Chief Financial Officer

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.

Faiza Alwy, Analyst, Deutsche Bank

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 adoption and I have noticed that you alluded to growth or maybe focusing outside of financial services. And I'm curious if you're sort of thinking your approach there at all?

William Lansing, Chief Executive Officer

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.

Operator, Operator

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

Jeffrey Meuler, Analyst, 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 from multiple models earlier in the process? Or is that waiting for the selling guidelines to know the answer?

William Lansing, Chief Executive Officer

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

Jeffrey Meuler, Analyst, Baird

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.

William Lansing, Chief Executive Officer

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 remains to be seen what happens there. Our understanding is a fairly manual process.

Operator, Operator

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

Ashish Sabadra, Analyst, 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?

William Lansing, Chief Executive Officer

As you know, we've discussed many different approaches to pricing our IP, and those are under constant evaluation and study. The balancing act is that we don't want to shock the market or make precipitous changes. In fact, we don't love change; the market works very well the way it is today, so we are cautious about change. That said, there is a case to be made for low pricing upfront and for shifting the monetization of the IP beyond just the first purchaser. We're always evaluating those kinds of options. Our philosophy has not changed. What you see are the first couple of steps in the direction we've been talking about for several years now.

Ashish Sabadra, Analyst, RBC Capital Markets

That's very helpful color. And then maybe just on the VantageScore LLPA 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?

William Lansing, Chief Executive Officer

I can't really speak for how the GSEs are thinking about it, but we believe that in these LLPA grids, if you're going to account for risk there will be price differentials and gaming. What kinds of risks might be accounted for? I don't know exactly how they will be accounted for, but you could have very different credit default risk for Vantage versus FICO and very different prepayment risk for Vantage versus FICO. Vantage only goes back to 2013 and has never been tested through a full cycle, so there's a lack of understanding — not for want of trying, but the data isn't there to know how Vantage will operate through a full cycle. That means downstream investors are going to demand some kind of premium for the uncertainty around prepayment and default risk. How that translates into the LLPA grid and G fees is hard to say. Because pricing will differ between FICO and Vantage, with Vantage sometimes giving better pricing for consumers and sometimes FICO doing so, it will create headaches for the GSEs. We'll have to see how they solve that problem.

Operator, Operator

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

Keen Fai Tong, Analyst, 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?

William Lansing, Chief Executive Officer

I would say that there are not other factors, nothing meaningful. So we're really just waiting on approval from the PSCs and 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.

Keen Fai Tong, Analyst, Goldman Sachs

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 VantageScore adoption, the timing of the direct licensing model going live and performance fee adoption?

William Lansing, Chief Executive Officer

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

Steven Weber, Chief Financial Officer

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, the timing costs described earlier.

Operator, Operator

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

Alexander E.M. Hess, Analyst, 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 levels?

Steven Weber, Chief Financial Officer

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.

Alexander E.M. Hess, Analyst, JPMorgan

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 UltraFICO. 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.

William Lansing, Chief Executive Officer

In the scheme of things, the investments and incremental expense are not large. To be really clear, we are constantly investing in innovation and developing new scores. UltraFICO, although we've talked about it for several years, is very much on our minds and we have a plan we will discuss at FICO World next month. I can't go into the details now, but UltraFICO is likely to be a significant factor in the Scores business in the future.

Operator, Operator

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

Kyle Peterson, Analyst, Needham

I wanted 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 non-platform is running off? Or do you think it will kind of return to flattish non-platform and historical platform growth? Just I guess, the moving pieces there would be helpful.

William Lansing, Chief Executive Officer

It's a good question, Kyle. And we've talked about this in the past. There is platform growth, which comes from selling the platform often to customers we already have, but not necessarily for the same things they've been doing with us on the legacy side. So there's new growth in platform, which looks like new deals with customers we know and occasionally with customers we've never met before. And then there's migration from our legacy applications to the platform. We are not forcing that migration. We're not even really encouraging it because we have our hands full with the growth in the new platform. We really leave it to the customer. It's the customer's choice. If the customer comes to us and wants to renew for three more years a legacy application that is working extremely well for them, we are all for it. It's a highly profitable business for us. If they're ready to make the move, we're happy to help them make the move, and we work on that too. I think there is a balance: at some level there's a bit of migration that happens from the legacy business to the platform business, and that would explain why higher growth on the one side can mean a little lower growth or loss of business on the legacy side. But I wouldn't say it's a huge factor. I just think the two are kind of in balance at this level now. We're not pushing it one way or the other. That may change in the future, but for now we're very happy with the growth on the platform side.

Kyle Peterson, Analyst, Needham

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?

Steven Weber, Chief Financial Officer

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

Operator, Operator

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

Craig Huber, Analyst, Huber Research Partners

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

William Lansing, Chief Executive Officer

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

Steven Weber, Chief Financial Officer

And I think you see that in our numbers. If we were losing market share, you'd see it in our numbers, and you don't see any evidence of that. We have to report our results; they're audited. They don't have that same obligation, so there's a lot of scrutiny on what we produce, and we back it up with actual numbers that are verified.

Craig Huber, Analyst, Huber Research Partners

So just to be clear, if you had a ballpark, you think it might be 5%, 10% market share? Maybe it sounds like not even that...

William Lansing, Chief Executive Officer

Ballpark, I would call it 2%.

Craig Huber, Analyst, Huber Research Partners

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

William Lansing, Chief Executive Officer

No. On the nonconforming part of mortgages, they don't particularly any care at all. Just to be really clear, in the nonconforming market, the lenders use FICO Classic and they use FICO 10T, and they don't use Vantage.

Craig Huber, Analyst, Huber Research Partners

So what's all the worry out there about AI? Put that aside for a second. What about the concern that VantageScore is going to take significant share just because of government changes? In the rest of the market, VantageScores have been going up against FICO for 20 years, since 2006. You're telling me it's roughly 2% market share, give or take.

William Lansing, Chief Executive Officer

We don't know. No one know.

Craig Huber, Analyst, Huber Research Partners

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 can possibly see?

William Lansing, Chief Executive Officer

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.

Craig Huber, Analyst, Huber Research Partners

Okay, let me ask my final question: why did you lower the upfront fee to $0.99 from $5?

William Lansing, Chief Executive Officer

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.

Craig Huber, Analyst, Huber Research Partners

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?

William Lansing, Chief Executive Officer

That is correct.

Operator, Operator

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

Ryan Griffin, Analyst, 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...

William Lansing, Chief Executive Officer

Everyone has done their own market checks, and we have to. I would say the securitization market is not ready to accept Vantage; there are some hurdles to be overcome. We'll see how that all unfolds. I don't have a lot of insight there. The market is still all FICO. I think something like 20 mortgages have been securitized with VantageScore paper, which is obviously less than 1%, less than 0.1% of the most recent securitization. So it's not real yet. We'll have to see how the market reacts.

Ryan Griffin, Analyst, BMO Capital Markets

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

William Lansing, Chief Executive Officer

Well, I think that I can't give you a date for when the FHFA will release the FICO 10T data to the marketplace. But we're certainly not standing in the way. We provide 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 credit 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 analysis 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.

Operator, Operator

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

Owen Lau, Analyst, 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?

William Lansing, Chief Executive Officer

Okay. So there are two different things there. One is AI versus the current credit scoring system, and the second is within that, predictiveness. First, with respect to AI displacing the FICO score, we have a well-defined body of law and the fair lending laws, which are designed to protect consumers and ensure there is no discrimination and that consumers are treated fairly. That requires compliance with many constraints that our scores take into account. One small example is redlining, which is not allowed in the United States. Is it a predictive factor? Yes, but it is not allowed, so you cannot use redlining as a factor in a credit score. AI would find many other ways to get to the same result, and regulators will not be comfortable with AI making underwriting decisions when those decisions are not explainable, when they are a black box, and when it cannot be demonstrated that discrimination is not occurring. That is the core problem with using AI in underwriting. AI is great for many things, but in underwriting the biggest concern is that it will circumvent the rules and regulations of the fair lending laws. You are probably aware that FICO scores come with 32 reason codes. When a consumer is turned down for credit, or a line is not increased, they receive a letter explaining why. Those reason codes are shared with the consumer, which gives regulators and consumers comfort that they understand what is happening. I would also point out that an experiment with AI and black box underwriting undertaken several years ago by Upstart ended with the CFPB shutting it down. There are real challenges, not that this will stay this way forever. We are prepared for the day when AI is appropriate in underwriting. We have patents in explainability and ethical AI, so we are in an advantaged position, but I would not hold my breath. I think that will take a long time. On predictiveness of the score, our latest and greatest score is more predictive than Vantage and, frankly, more predictive than any other score out there. The only caveat is that some lenders build proprietary scores on top of FICO and leverage their first-party data, so they get incremental signal from that. Those proprietary scores can be excellent and are most typically developed on top of FICO.

Owen Lau, Analyst, Clear Street

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?

William Lansing, Chief Executive Officer

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.

Operator, Operator

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

Scott Wurtzel, Analyst, Wolfe Research

Just on the guidance, I understand you're still being conservative in your assumptions regarding volume. I was wondering if there has been any change to your volume assumptions since the last quarter.

Steven Weber, Chief Financial Officer

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, it's difficult to make that up someplace else, but not really. I mean 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.

Scott Wurtzel, Analyst, Wolfe Research

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?

William Lansing, Chief Executive Officer

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 leaned in much more heavily on an opportunistic basis. I would certainly consider our stock at these levels to be an opportunistic time.

Operator, Operator

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

Kevin McVeigh, Analyst, UBS

I wonder if you had any thoughts on, given the current shifts 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 that you kind of continue to manage through from a regulatory perspective?

William Lansing, Chief Executive Officer

The mortgage market is a $13 trillion market, and everyone takes it pretty seriously, and no one 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 modern market. Will things 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 that much. And we think that 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 advantaged FICO because we have the best score for evaluating that. But again, these are more theoretical and down the road kinds of things. I don't think there's any surprises ahead.

Operator, Operator

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

Curtis Nagle, Analyst, Bank of America

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

William Lansing, Chief Executive Officer

Yes. I don't have an updated number for you, but we have underwritten approximately $1.2 trillion.

Steven Weber, Chief Financial Officer

Yes. Most of them are running in parallel with Classics because they want to be able to use the latest score and so they run in parallel with each other.

Curtis Nagle, Analyst, Bank of America

Got it. I was just wondering, are there any running tests?

Operator, Operator

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

Sean Kennedy, Analyst, Mizuho

So with VantageScore, 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 one or the other for the remaining initial results and the implications there for the mortgage market.

William Lansing, Chief Executive Officer

Yes, it's a good question. I think, and of course we don't know how this is going to unfold, it is strong. It's really in the interest of the GSEs and the FHFA to prevent gaming and not have a gaming situation. That said, in a two-score system it's almost inevitable. It's structural that one score or the other will be more beneficial to the consumer at any given time. In a world where systems are in place to use both scores, and barring other unforeseen things, some people will pull both scores, so it may unfold that way. To the extent that happens, 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 pull. It's conceivable that Vantage could get some share that way if they don't solve the gaming problem. But again, I don't see volume loss for FICO.

Sean Kennedy, Analyst, Mizuho

Great. And then I was also wondering just with the auto and card key loan growth, if you saw any volume weakness later in the quarter due to the macro, and if you were seeing any consumer weakness there?

Steven Weber, Chief Financial Officer

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

Operator, Operator

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.