Part I [Business](index=6&type=section&id=Item%201.%20Business) FICO, a leading applied analytics company, provides credit risk scores and decision management software through its Scores and Software segments [General Overview](index=6&type=section&id=Item%201.%20Business-GENERAL) FICO, a leading applied analytics company, provides data-driven insights and the FICO® Score to global businesses and consumers - FICO is a leading applied analytics company serving thousands of businesses in over 100 countries, with a primary focus on enabling intelligent business decisions through software and analytics[18](index=18&type=chunk) - The company operates through two main segments: Scores and Software[19](index=19&type=chunk) [Products and Services](index=6&type=section&id=Item%201.%20Business-PRODUCTS%20AND%20SERVICES) FICO offers Scores (B2B FICO® Score, B2C myFICO.com) and Software (pre-configured solutions, FICO® Platform), with strategic migration to the platform - The Scores segment includes B2B scoring solutions, primarily the **FICO® Score** distributed through consumer reporting agencies, and B2C scoring solutions sold directly to consumers via myFICO.com[37](index=37&type=chunk)[20](index=20&type=chunk) - The Software segment includes pre-configured solutions and the **FICO® Platform**, a modular software offering for advanced analytics. The company is investing significantly to migrate its software portfolio onto this platform[20](index=20&type=chunk)[43](index=43&type=chunk) FICO® Platform Performance | Metric | Value (as of Sep 30, 2023) | | :--- | :--- | | Annual Recurring Revenue (ARR) | $173.2 million | | Share of Total Software ARR | 26% | - FICO offers professional services including implementation, custom analytics, and strategic advisory to help customers effectively use its software and solutions[66](index=66&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) [Markets and Customers](index=11&type=section&id=Item%201.%20Business-MARKETS%20AND%20CUSTOMERS) FICO primarily serves the financial services industry (91% of 2023 revenue) and the Americas (85%), with major credit bureaus contributing significantly to Scores revenue Fiscal 2023 Revenue Breakdown | Category | Percentage of Total Revenue | | :--- | :--- | | Financial Services Market | 91% | | Americas Geographic Market | 85% | - Revenues from agreements with Experian, TransUnion, and Equifax collectively accounted for **41% of total revenues in fiscal 2023**, up from 39% in 2022 and 38% in 2021[79](index=79&type=chunk) - FICO's client base includes **three-quarters of the 100 largest U.S. financial institutions**, nine of the top ten U.S. property and casualty insurers, and eight of the top ten Fortune 500 companies of 2023[73](index=73&type=chunk) [Competition](index=11&type=section&id=Item%201.%20Business-COMPETITION) FICO faces intense competition in Scores (credit bureaus, VantageScore) and Software (Nice Actimize, Experian, Pegasystems, SAS, IBM), and direct-to-consumer services - In the Scores segment, FICO competes with the three major U.S. consumer reporting agencies (Experian, TransUnion, Equifax), their joint venture VantageScore, and other data providers[92](index=92&type=chunk) - In the Software segment, key competitors vary by market and include Nice Actimize, Experian, Pegasystems, BAE Systems, SAS, ACI Worldwide, IBM, Adobe, and Salesforce[93](index=93&type=chunk) - For direct-to-consumer services, competitors include Credit Karma, Credit Sesame, Experian, and TransUnion[87](index=87&type=chunk) - Principal competitive factors include technical performance, access to proprietary models, product attributes (scalability, functionality), price, and reputation[86](index=86&type=chunk) [Product Protection and Trademarks](index=12&type=section&id=Item%201.%20Business-PRODUCT%20PROTECTION%20AND%20TRADEMARKS) FICO protects its proprietary rights through patents, copyrights, trademarks, and trade secrets, holding 196 U.S. patents and 24 trademarks as of September 30, 2023 Intellectual Property Portfolio (as of Sep 30, 2023) | IP Type | Count | | :--- | :--- | | U.S. Patents Held | 196 | | Foreign Patents Held | 23 | | Pending Patent Applications | 69 | | Registered Trademarks (U.S. & Foreign) | 24 | - The company relies on a combination of patents, copyrights, trade secrets, and contractual agreements to protect its intellectual property[88](index=88&type=chunk)[89](index=89&type=chunk) - The U.S. government retains ownership rights and licenses in technologies developed by FICO under government contracts and can make research results public[5](index=5&type=chunk) [Human Capital Resources](index=15&type=section&id=Item%201.%20Business-HUMAN%20CAPITAL%20RESOURCES) As of September 30, 2023, FICO employed 3,455 people globally, with significant presence in the U.S. and India, focusing on engagement, diversity, and competitive compensation Employee Headcount (as of Sep 30, 2023) | Region | Employee Count | Percentage | | :--- | :--- | :--- | | United States | 1,283 | 37% | | India | 1,259 | 36% | | United Kingdom | 270 | 8% | | **Total** | **3,455** | **100%** | - The Board's Leadership Development and Compensation Committee (LDCC) oversees all human capital management policies, including talent, culture, diversity, and compensation[467](index=467&type=chunk) - FICO uses quarterly surveys to measure employee engagement, with results driving organizational changes such as expanded benefits (parental leave, well-being programs) and enhanced professional development[447](index=447&type=chunk)[448](index=448&type=chunk) - The company promotes diversity and inclusion through ERGs, targeted recruiting with partners like MLT.org, and mandatory training on unconscious bias and anti-harassment[469](index=469&type=chunk)[470](index=470&type=chunk)[471](index=471&type=chunk) - Nearly **33% of the workforce** participates in the annual performance-based equity program, and an Employee Stock Purchase Plan is offered to promote broader equity ownership[482](index=482&type=chunk) [Governmental Regulation](index=13&type=section&id=Item%201.%20Business-GOVERNMENTAL%20REGULATION) FICO is subject to complex U.S. and foreign regulations covering data privacy (GDPR, CCPA), consumer credit (FCRA), financial data (GLBA), and increasing scrutiny on AI and algorithms - The company is subject to numerous U.S. and foreign laws concerning consumer protection, data privacy, and cybersecurity, which affect business conduct and product demand[1](index=1&type=chunk)[2](index=2&type=chunk) - Key U.S. regulations include the California Consumer Privacy Act (CCPA) and California Privacy Rights Act (CPRA), which grant consumers privacy rights and established a new enforcement agency. Several other states have enacted similar laws[3](index=3&type=chunk) - International regulations like the **GDPR** in the E.U. and U.K. impose strict obligations on the use of personal data and cross-border data transfers[2](index=2&type=chunk) - FICO is also governed by industry-specific laws such as the Fair Credit Reporting Act (FCRA), the Gramm-Leach-Bliley Act (GLBA), and HIPAA, for which it acts as a "business associate" for certain customers[48](index=48&type=chunk)[54](index=54&type=chunk)[4](index=4&type=chunk) - There is heightened regulatory scrutiny on algorithms and AI, with the European Commission's draft **EU AI Act** expected to establish new requirements for technologies like credit scoring[97](index=97&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) FICO faces strategic risks from platform adoption and customer concentration, operational risks from cybersecurity and IT failures, and legal/regulatory risks from evolving data privacy and AI laws [Business, Market and Strategy Risks](index=17&type=section&id=Item%201A.%20Risk%20Factors-Business%2C%20Market%20and%20Strategy%20Risks) FICO faces strategic risks from FICO® Platform market acceptance, heavy reliance on key customers (credit bureaus, banking), U.S. mortgage market dependence, intense competition, and technology protection challenges - The company's strategy to migrate software to the **FICO® Platform** is a key risk; market unacceptance or volatility in revenue during the transition could harm growth prospects[168](index=168&type=chunk)[304](index=304&type=chunk) - A substantial portion of revenue comes from a few key customers, including the three major U.S. consumer reporting agencies (Experian, TransUnion, Equifax), and the banking industry (**91% of FY23 revenue**). Loss or change in these relationships could materially harm results[306](index=306&type=chunk)[290](index=290&type=chunk)[507](index=507&type=chunk) - A significant portion of Scores revenue depends on the use of the **FICO® Score by Fannie Mae and Freddie Mac** in the U.S. mortgage market. If other scores are approved or FICO's is not, it could have a material adverse effect[521](index=521&type=chunk) - The company faces intense competition from in-house developers, other scoring model builders (like VantageScore), and large software companies, many of whom have greater resources[510](index=510&type=chunk)[520](index=520&type=chunk) - Failure to protect proprietary technology through patents, copyrights, and trade secrets could harm the business, and litigation to enforce these rights could be costly[531](index=531&type=chunk)[533](index=533&type=chunk) [Operational Risks](index=23&type=section&id=Item%201A.%20Risk%20Factors-Operational%20Risks) FICO faces operational risks from cybersecurity threats, IT system failures, challenges in recruiting and retaining skilled personnel, and dependence on obtaining reliable data from partners - The company is a routine target of sophisticated cybersecurity threats. A compromise of its systems could lead to unauthorized data access, reputational damage, and significant liabilities[536](index=536&type=chunk)[541](index=541&type=chunk) - Business interruptions or failures of IT and communication systems, including those of external service providers, could interrupt product availability and adversely affect business and financial condition[543](index=543&type=chunk)[544](index=544&type=chunk) - The failure to recruit and retain qualified personnel, particularly in competitive technical fields like data science and software engineering, could hinder business management and growth[545](index=545&type=chunk)[556](index=556&type=chunk) - The business depends on obtaining reliable and statistically relevant data from customers and partners. A failure to maintain these data sourcing relationships could harm product development and effectiveness[557](index=557&type=chunk) [Legal, Regulatory and Compliance Risks](index=25&type=section&id=Item%201A.%20Risk%20Factors-Legal%2C%20Regulatory%20and%20Compliance%20Risks) FICO faces significant legal and regulatory risks from evolving data privacy (GDPR, CCPA), consumer protection (FCRA), and AI/algorithm laws, leading to high compliance costs and potential infringement claims - The company and its customers are subject to numerous complex laws and regulations globally, including those related to data privacy (GDPR, CCPA), consumer protection (FCRA, UDAAP), and fair lending[558](index=558&type=chunk)[547](index=547&type=chunk) - There is an increased regulatory focus on the use of AI, machine learning, and algorithms, with the draft **EU AI Act** expected to impose new requirements on products like credit scoring[551](index=551&type=chunk)[552](index=552&type=chunk) - The costs of compliance with these regulations are significant, and any failure to comply could lead to fines, penalties, and reduced demand for FICO's solutions[553](index=553&type=chunk) - FICO may be subject to intellectual property infringement claims, which could result in significant defense costs, substantial damages, or the need to license or redevelop technology[584](index=584&type=chunk)[585](index=585&type=chunk)[562](index=562&type=chunk) [Financial Risks](index=29&type=section&id=Item%201A.%20Risk%20Factors-Financial%20Risks) FICO faces financial risks from long and variable sales cycles in Software, making revenue forecasting difficult, and Scores revenue dependence on macroeconomic conditions, leading to fluctuating quarterly results - The Software segment has long and variable sales cycles (sometimes over a year), making it difficult to predict the timing of sales and leading to fluctuations in quarterly revenue[566](index=566&type=chunk) - Scores segment revenue depends heavily on macroeconomic conditions, especially transaction volumes in the U.S. mortgage and credit card markets, which are hard to forecast[116](index=116&type=chunk) - Quarterly financial results and key metrics fluctuate, making period-to-period comparisons unreliable and future results difficult to predict, which could cause the stock price to decline[567](index=567&type=chunk) [General Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors-General%20Risk%20Factors) General risks include adverse tax law changes, stock price fluctuations due to market conditions, and anti-takeover provisions that could deter acquisitions - Changes in tax laws or adverse outcomes from income tax examinations could negatively affect results of operations[119](index=119&type=chunk) - The company's stock price has been and will likely continue to be subject to fluctuations, which may be unrelated to operating performance[592](index=592&type=chunk) - Anti-takeover defenses, such as the ability to issue preferred stock without stockholder approval, could make it difficult for another company to acquire control of FICO[569](index=569&type=chunk) [Unresolved Staff Comments](index=30&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - Not applicable[570](index=570&type=chunk) [Properties](index=30&type=section&id=Item%202.%20Properties) FICO's headquarters are in Bozeman, Montana, with various leased office facilities globally for corporate, sales, R&D, and data center operations - The Company's headquarters are in Bozeman, Montana, and it leases office facilities in various locations for its operational needs[593](index=593&type=chunk) [Legal Proceedings](index=31&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no material legal proceedings - Not applicable[572](index=572&type=chunk) [Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[595](index=595&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) FICO's common stock trades on the NYSE, with no cash dividends since 2017, and a $500 million share repurchase program with $120.5 million remaining as of September 30, 2023 - The company's common stock trades on the NYSE under the symbol **FICO**[597](index=597&type=chunk) - FICO has not paid cash dividends since May 2017 and does not plan to in the foreseeable future[123](index=123&type=chunk) Issuer Purchases of Equity Securities (Q4 FY2023) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Publicly Announced Program | Max Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | :--- | | Jul 2023 | 48,412 | $821.21 | 47,500 | $197,895,136 | | Aug 2023 | 52,563 | $864.13 | 52,000 | $152,950,805 | | Sep 2023 | 36,000 | $900.13 | 36,000 | $120,546,951 | | **Total** | **136,975** | **$858.42** | **135,500** | **$120,546,951** | [Reserved](index=33&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved - Item 6 is reserved and contains no information[578](index=578&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=34&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In FY2023, FICO's revenue grew 10% to $1.5 billion, with operating income up 19% to $642.8 million, driven by Scores and Software segment growth and platform strategy success [Business Overview](index=34&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-BUSINESS%20OVERVIEW) In FY2023, FICO focused on FICO® Score 10 adoption and cloud-first software strategy, achieving 10% revenue growth, 19% operating income increase, and $407.3 million in share repurchases - Strategic focus in fiscal 2023 included promoting adoption of **FICO® Score 10 and 10 T**, and advancing the platform-first, cloud-delivered strategy for the Software segment[580](index=580&type=chunk)[631](index=631&type=chunk) Fiscal 2023 Financial Highlights | Metric | FY 2023 | % Change vs FY 2022 | | :--- | :--- | :--- | | Total Revenue | $1.5 billion | +10% | | Operating Income | $642.8 million | +19% | | Net Income | $429.4 million | +15% | | Diluted EPS | $16.93 | +19% | | Software Segment ARR | $669.4 million | +22% | | Software Segment DBNRR | 120% | N/A | - The company returned **$407.3 million** to stockholders through share repurchases during fiscal 2023[604](index=604&type=chunk) [Results of Operations](index=37&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-RESULTS%20OF%20OPERATIONS) In FY2023, total revenues grew 10% to $1.51 billion, with both Scores and Software segments contributing, leading to a 19% increase in operating income to $642.8 million and a 42% operating margin Consolidated Revenue by Segment (in thousands) | Segment | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Scores | $773,828 | $706,643 | 10% | | Software | $739,729 | $670,627 | 10% | | **Total** | **$1,513,557** | **$1,377,270** | **10%** | - Scores segment revenue growth was driven by a **$85.6 million increase in B2B revenue** due to higher unit prices, partially offset by an $18.4 million decrease in B2C revenue[639](index=639&type=chunk) - Software segment revenue growth was due to a **$75.4 million increase in on-premises and SaaS revenue**, primarily from SaaS growth, partially offset by a $6.3 million decrease in services revenue[140](index=140&type=chunk) Consolidated Operating Results (in thousands) | Line Item | FY 2023 | FY 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1,513,557 | $1,377,270 | 10% | | Total Operating Expenses | $870,727 | $834,856 | 4% | | Operating Income | $642,830 | $542,414 | 19% | | Net Income | $429,375 | $373,541 | 15% | - Scores segment operating income increased by **$61.7 million (10%)**, while Software segment operating income increased by **$58.1 million (32%)**[150](index=150&type=chunk)[657](index=657&type=chunk) [Capital Resources and Liquidity](index=43&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-CAPITAL%20RESOURCES%20AND%20LIQUIDITY) As of September 30, 2023, FICO had $136.8 million in cash. Operating cash flow was $468.9 million, a decrease from prior year, mainly due to non-cash items and working capital. Financing cash outflow decreased due to lower stock repurchases. The company's debt includes a revolving line of credit, a term loan, and $1.3 billion in Senior Notes. Management believes current cash, available credit, and operating cash flows are sufficient to fund needs for the foreseeable future Summary of Cash Flows (in millions) | Activity | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $468.9 | $509.5 | | Net Cash used in Investing Activities | ($16.0) | ($5.7) | | Net Cash used in Financing Activities | ($455.0) | ($547.2) | - The decrease in operating cash flow was mainly due to a **$68.9 million decrease in non-cash items** and a **$27.5 million decrease from working capital timing**, partially offset by a $55.8 million increase in net income[153](index=153&type=chunk) - The decrease in financing cash outflow was primarily due to a **$698.7 million reduction in common stock repurchases**[155](index=155&type=chunk) - As of September 30, 2023, the company had **$300.0 million outstanding on its revolving line of credit** and a **$273.8 million balance on its term loan**[694](index=694&type=chunk) [Critical Accounting Policies and Estimates](index=45&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) FICO's critical accounting policies involve significant judgment in revenue recognition, goodwill impairment, income taxes, share-based compensation, and contingencies, relying on complex estimations and forecasts - Revenue recognition requires significant judgment in identifying distinct performance obligations, allocating transaction prices based on standalone selling prices (SSPs), and estimating variable consideration in SaaS contracts[698](index=698&type=chunk)[161](index=161&type=chunk)[700](index=700&type=chunk) - Goodwill is assessed for impairment annually at the reporting unit level (Scores and Software). For fiscal 2022 and 2023, a qualitative analysis concluded that it was not more likely than not that the fair value of either reporting unit was less than its carrying amount[163](index=163&type=chunk)[177](index=177&type=chunk) - Income tax accounting involves significant judgment in estimating tax provisions, assessing deferred tax assets, and evaluating uncertain tax positions[179](index=179&type=chunk)[673](index=673&type=chunk)[705](index=705&type=chunk) - Share-based compensation is measured at fair value on the grant date using models like Black-Scholes and Monte Carlo, which require assumptions about stock volatility, employee turnover, and other factors[165](index=165&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) FICO is exposed to market risk from interest rate changes on its variable-rate debt ($573.8 million as of Sep 30, 2023) and foreign exchange rate fluctuations, managed with short-term forward contracts - The company is exposed to market risk from changes in interest rates and foreign exchange rates and does not use derivative instruments for speculative purposes[181](index=181&type=chunk) - Interest rate risk affects the company's variable-rate debt, which includes the revolving line of credit and term loan. As of September 30, 2023, borrowings of **$300.0 million** under the revolver and **$273.8 million** under the term loan were subject to variable interest rates[742](index=742&type=chunk) - FICO uses short-term foreign currency forward contracts (maturities < 3 months) to manage exchange rate risk on foreign-currency-denominated receivables and cash balances[709](index=709&type=chunk)[241](index=241&type=chunk) [Financial Statements and Supplementary Data](index=51&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents FICO's audited consolidated financial statements for FY2021-2023, with an unqualified auditor's opinion, highlighting revenue recognition as a Critical Audit Matter, and detailed notes on accounting policies and financial data [Report of Independent Registered Public Accounting Firm](index=51&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data-Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued an unqualified opinion on FICO's financial statements and internal controls, identifying Revenue Recognition as a Critical Audit Matter due to its complexity - The auditor, Deloitte & Touche LLP, issued an **unqualified opinion** on the financial statements and the effectiveness of internal control over financial reporting[680](index=680&type=chunk) - A **Critical Audit Matter (CAM)** was identified concerning Revenue Recognition for Contracts with Customers. This was due to the complexity and significant auditor judgment required to audit the identification of performance obligations and the estimation of variable consideration[187](index=187&type=chunk)[716](index=716&type=chunk) [Consolidated Financial Statements](index=54&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data-Consolidated%20Financial%20Statements) FICO's consolidated financial statements show total assets of $1.58 billion, total liabilities of $2.26 billion, and a stockholders' deficit of $688.0 million as of Sep 30, 2023, with FY2023 net income of $429.4 million Consolidated Balance Sheet Highlights (as of Sep 30, 2023, in thousands) | Account | Value | | :--- | :--- | | Cash and cash equivalents | $136,778 | | Total Assets | $1,575,281 | | Long-term debt | $1,811,658 | | Total Liabilities | $2,263,271 | | Total stockholders' deficit | ($687,990) | Consolidated Income Statement Highlights (FY 2023, in thousands) | Account | Value | | :--- | :--- | | Total Revenues | $1,513,557 | | Operating Income | $642,830 | | Net Income | $429,375 | | Diluted EPS | $16.93 | Consolidated Cash Flow Highlights (FY 2023, in thousands) | Activity | Value | | :--- | :--- | | Net cash provided by operating activities | $468,915 | | Net cash used in investing activities | ($15,954) | | Net cash used in financing activities | ($455,001) | [Notes to Consolidated Financial Statements](index=58&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data-Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of accounting policies and financial data, covering revenue recognition, segment information, debt instruments, and share-based compensation [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=85&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable as there were no changes in or disagreements with accountants on accounting and financial disclosure - Not applicable[430](index=430&type=chunk) [Controls and Procedures](index=85&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of September 30, 2023, with no material changes identified - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[449](index=449&type=chunk) - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of September 30, 2023[431](index=431&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, these controls[402](index=402&type=chunk) [Other Information](index=86&type=section&id=Item%209B.%20Other%20Information) No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during Q4 FY2023 - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans or other trading arrangements during the fourth quarter of fiscal 2023[491](index=491&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=86&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[452](index=452&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=87&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section provides information on FICO's directors and executive officers, including CEO William J. Lansing and CFO Steven P. Weber, and details on the company's Code of Ethics and Code of Conduct - Information regarding directors, executive officers, the audit committee, and compliance with Section 16(a) is incorporated by reference from the company's 2024 Proxy Statement[434](index=434&type=chunk)[408](index=408&type=chunk)[505](index=505&type=chunk) - FICO has adopted a Code of Ethics for Senior Financial Management and a Code of Conduct and Business Ethics for all employees, which are available on its website[456](index=456&type=chunk) [Executive Compensation](index=89&type=section&id=Item%2011.%20Executive%20Compensation) The required information on executive compensation is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the information under the captions "Director Compensation for Fiscal 2023" and "Executive Compensation" in the 2024 Proxy Statement[492](index=492&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=89&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) The required information on security ownership by certain beneficial owners and management is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the information under the caption "Security Ownership of Certain Beneficial Owners and Management" and "Executive Compensation Plan Information" in the 2024 Proxy Statement[437](index=437&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=89&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The required information on certain relationships, related party transactions, and director independence is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the information under the caption "Certain Relationships and Related Persons Transactions" in the 2024 Proxy Statement[516](index=516&type=chunk) [Principal Accountant Fees and Services](index=89&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The required information on principal accountant fees and services is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the information under the caption "Ratification of Independent Registered Public Accounting Firm" in the 2024 Proxy Statement[457](index=457&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=90&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed with the Annual Report on Form 10-K, including consolidated financial statements and various agreements - This item lists the consolidated financial statements and all exhibits filed with the 10-K[506](index=506&type=chunk) - All financial statement schedules have been omitted because the required information is not applicable or is included in the consolidated financial statements and related notes[458](index=458&type=chunk) [Form 10-K Summary](index=94&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided in this section of the report - None provided[759](index=759&type=chunk)

Financial Data and Key Metrics Changes - The company reported record revenues of $399 million, an increase of 14% year-over-year [51] - GAAP net income was $129 million, growing 38% compared to the prior year, with GAAP earnings per share at $5.08, up 41% [51] - Non-GAAP net income was $143 million, with earnings per share of $5.66, representing year-over-year growth of 24% and 27% respectively [60] - The overall net retention rate (NRR) increased to 117%, with platform NRR at 142% [43][81] Business Line Data and Key Metrics Changes - In the Scores segment, revenues reached $202 million, up 13% from the same period last year, with B2B Scores revenues increasing by 24% driven by higher originations [56] - Software segment revenues were $197 million, a 16% increase year-over-year, with software recognized over time accounting for 74% of total software revenues [57] - The annual recurring revenue (ARR) for software was $646 million, a 20% increase, while platform ARR grew by 53% [58][52] Market Data and Key Metrics Changes - 87% of total revenues were derived from the Americas region, with EMEA contributing 8% and Asia Pacific 5% [58] - Mortgage originations revenues surged by 135% compared to last year, while auto originations increased by 5% and credit card and personal loan revenues rose by 2% [75][80] Company Strategy and Development Direction - The company is focused on innovation in both the Scores and Software segments, leveraging analytics and AI technology to enhance customer interactions [85] - The management emphasized a cautious approach to pricing changes, indicating that any adjustments would be gradual and based on market behavior [33][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's performance, citing reduced uncertainty as a factor in raising full-year guidance to $1.5 billion [63][17] - The company noted that while growth rates may not sustain at 50% forever, the current uptake and market potential remain strong [21] Other Important Information - The company continues to invest in R&D for its legacy software, which remains a solid business despite not being a primary growth driver [30] - Free cash flow for the quarter was $122 million, with a trailing 12-month total of $446 million [61] Q&A Session Summary Question: How did the company approach guidance changes? - The company raised guidance conservatively, considering onetime license revenue variability and not wanting to rely on it for future quarters [66][69] Question: What is the status of pricing strategy across different segments? - The company indicated that while mortgage origination numbers reflect pricing efforts, other segments like auto and credit card are experiencing different dynamics, with cautious guidance on future pricing [88][102] Question: What drove the onetime licensing revenue? - The company mentioned that a large renewal contributed to the onetime licensing revenue, which is not expected to recur in the next quarter [103]

FORM 10-Q For the transition period from to Securities registered pursuant to Section 12(b) of the Act: UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 94-1499887 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 West Mendenhall, Suite 105 59715 Bozeman, Montana (Address of principal executive offices) (Zip Code) Large accelerated fil ...

Table of Contents FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 For the transition period from to Delaware 94-1499887 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 West Mendenhall, Suite 105 59715 Bozeman, Montana (Address of principal executive offices) (Zip Code) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) ☐ TRANS ...

Financial Data and Key Metrics Changes - The company reported revenues of $345 million in Q1, up 7% from the prior year [37] - GAAP net income was $98 million, up 15% over the prior year, with GAAP EPS of $3.84, up 24% [37] - Non-GAAP net income was $108 million, up 6% from the prior year, and non-GAAP EPS was $4.26, up 15% [37] - Free cash flow for the quarter was $92 million, with trailing 12 months free cash flow at $471 million [30] Business Line Data and Key Metrics Changes - In the Scores segment, revenues were $178 million, up 5% from the same period last year, with B2B Scores revenues up 11% [41] - B2C revenues were down 6% due to challenging economic conditions, particularly in the myFICO business [25][41] - Software segment revenues were $167 million, up 9% year-over-year, with annual contract value bookings at $21.5 million, an increase of 31% [28][29] Market Data and Key Metrics Changes - In the U.S., auto originations revenues were up 24%, and card and personal loan originations revenues were up 19% [38] - Mortgage origination revenues were down about 40% year-over-year [38] - The Americas region generated 85% of total company revenues, with EMEA at 9% and Asia Pacific at 6% [42] Company Strategy and Development Direction - The company aims to become the preeminent platform player in decisioning analytics, focusing on expanding capabilities and market penetration [40] - The strategic focus has led to the exit of non-strategic products, such as the Siron compliance business, to concentrate resources on the FICO platform [40] - The company continues to see strong demand for its software, with a commitment to delivering value to shareholders through share repurchases [19][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategy and the resilience of its assets despite uncertain economic conditions [23][32] - The macro environment is impacting performance, but the management team is focused on marketing and customer acquisition to sustain growth [9] - The company expects B2C revenues to remain modestly lower throughout the fiscal year due to the economic climate [25][39] Other Important Information - The effective tax rate for the quarter was 17%, including $10 million of reduced tax expense from excess tax benefits [43] - Total operating expenses were $205 million, slightly down from the prior year, but expected to trend up due to salary increases and headcount growth [67] - The company has $166 million in cash and marketable investments, with total debt at $1.92 billion, 67% of which is fixed rate [68] Q&A Session Summary Question: Can you provide additional color on the licensing deals and their revenue impact? - The licensing deal referenced is typical, with variability in timing and size, contributing to revenue fluctuations [52] Question: What is the expectation for B2C revenues going forward? - B2C revenues are expected to be modestly lower, primarily due to challenges in the myFICO side, which is more sensitive to market conditions [53][54] Question: How does the company view capital allocation in the current environment? - The company plans to continue share repurchases but will monitor interest rates and adjust as necessary [55][99] Question: What is the outlook for the software side and any potential slowdown in spending? - The platform software is considered mission-critical, making it less susceptible to budget cuts, although overall budget pressure exists [73] Question: How does the company plan to manage expenses in light of revenue projections? - The company has flexibility in managing expenses and can delay headcount increases if revenues do not meet expectations [14][109]

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q%20Filing%20Information) Details Fair Isaac Corporation's Form 10-Q filing, including registrant information and compliance status [Registrant Details](index=1&type=section&id=Registrant%20Details) Provides Fair Isaac Corporation's fundamental filing details, including name, jurisdiction, and stock exchange - Fair Isaac Corporation (FICO) filed its quarterly report on Form 10-Q for the period ended **December 31, 2022**[31](index=31&type=chunk) Key Registrant Details | Detail | Value | | :--- | :--- | | Registrant Name | Fair Isaac Corporation | | Jurisdiction of Incorporation | Delaware | | Registrant's Telephone Number | 406-982-7276 | | Trading Symbol | FICO | | Exchange Registered | New York Stock Exchange | [Filing Status and Compliance](index=1&type=section&id=Filing%20Status%20and%20Compliance) Confirms the company's compliance with SEC filing requirements and its classification as a large accelerated filer - The registrant has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days[32](index=32&type=chunk) - The registrant has electronically submitted every Interactive Data File required pursuant to Rule 405 of Regulation S-T during the preceding 12 months[32](index=32&type=chunk) Filing Status | Status | Value | | :--- | :--- | | Large Accelerated Filer | Yes | | Accelerated Filer | No | | Non-Accelerated Filer | No | | Smaller Reporting Company | No | | Emerging Growth Company | No | | Shell Company | No | [PART I – FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) Presents Fair Isaac Corporation's unaudited condensed consolidated financial statements and related disclosures [Item 1. Unaudited Financial Statements](index=5&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) Provides unaudited condensed consolidated financial statements and comprehensive notes on accounting policies and key financial areas [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the balance sheet, showing slight increases in assets and liabilities, and stable stockholders' deficit Key Balance Sheet Data (In thousands) | Metric | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | | Total Assets | $1,458,693 | $1,442,034 | | Total Liabilities | $2,260,788 | $2,243,981 | | Total Stockholders' Deficit | $(802,095) | $(801,947) | | Cash and Cash Equivalents | $139,856 | $133,202 | | Current Maturities on Debt | $100,000 | $30,000 | | Long-term Debt | $1,820,666 | $1,823,669 | [Condensed Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Reports a 7% revenue increase, driven by software and Scores, with significant growth in net income and diluted EPS Key Income Statement Data (Quarter Ended Dec 31, In thousands, except per share data) | Metric | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues: | | | | | On-premises and SaaS software | $144,560 | $126,338 | 14.4% | | Professional services | $22,322 | $26,536 | (15.9)% | | Scores | $177,988 | $169,487 | 5.0% | | Total Revenues | $344,870 | $322,361 | 7.0% | | Operating Income | $140,339 | $115,586 | 21.4% | | Net Income | $97,643 | $84,959 | 14.9% | | Basic EPS | $3.90 | $3.13 | 24.6% | | Diluted EPS | $3.84 | $3.09 | 24.3% | | Foreign currency translation adjustments | $18,381 | $(2,138) | - | | Comprehensive Income | $116,024 | $82,821 | 40.1% | [Condensed Consolidated Statements of Stockholders' Deficit](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Deficit) Details the slight increase in stockholders' deficit, influenced by stock repurchases and employee plans Stockholders' Deficit Changes (In thousands) | Item | Balance at Sep 30, 2022 | Quarter Ended Dec 31, 2022 Activity | Balance at Dec 31, 2022 | | :--- | :--- | :--- | :--- | | Total Stockholders' Deficit | $(801,947) | $(148) | $(802,095) | | Share-based compensation | — | $29,702 | $29,702 | | Issuance of treasury stock under employee stock plans | — | $(70,870) | $(70,870) | | Repurchases of common stock | — | $(75,004) | $(75,004) | | Net income | — | $97,643 | $97,643 | | Foreign currency translation adjustments | — | $18,381 | $18,381 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Shows decreased operating cash flow, increased investing cash use, and significantly reduced financing cash use Key Cash Flow Data (Quarter Ended Dec 31, In thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $92,440 | $124,881 | $(32,441) | | Net cash used in investing activities | $(10,590) | $(1,272) | $(9,318) | | Net cash used in financing activities | $(79,624) | $(155,429) | $75,805 | | Effect of exchange rate changes on cash | $4,428 | $(1,377) | $5,805 | | Increase (decrease) in cash and cash equivalents | $6,654 | $(33,197) | $39,851 | | Cash and cash equivalents, end of period | $139,856 | $162,157 | $(22,301) | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed disclosures for interim financial statements, covering accounting policies, debt, revenue, and segment data [Note 1. Nature of Business and Summary of Significant Accounting Policies](index=9&type=section&id=Note%201.%20Nature%20of%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) Describes FICO's business as an applied analytics provider and outlines significant accounting policies - FICO is a leading applied analytics company, providing software and the FICO Score to businesses in nearly 120 countries and consumers through online services[43](index=43&type=chunk)[87](index=87&type=chunk) - The accompanying unaudited interim condensed consolidated financial statements reflect all necessary adjustments for a fair presentation[60](index=60&type=chunk) - The adoption of ASU 2021-08, effective for fiscal years beginning after December 15, 2022, is not expected to have a **significant impact** on FICO's condensed consolidated financial statements[90](index=90&type=chunk) [Note 2. Fair Value Measurements](index=10&type=section&id=Note%202.%20Fair%20Value%20Measurements) Details fair value measurements for financial assets, primarily Level 1 cash equivalents and marketable securities - Fair value is defined as the exit price in the principal or most advantageous market for an asset or liability[63](index=63&type=chunk) - FICO's Level 1 assets include money market funds and certain marketable securities, which use unadjusted quoted prices in active markets[91](index=91&type=chunk) Fair Value of Financial Assets (In thousands) | Asset | Dec 31, 2022 (Level 1) | Sep 30, 2022 (Level 1) | | :--- | :--- | :--- | | Cash equivalents | $18,166 | $19,314 | | Marketable securities | $26,332 | $24,515 | | Total | $44,498 | $43,829 | [Note 3. Derivative Financial Instruments](index=11&type=section&id=Note%203.%20Derivative%20Financial%20Instruments) Explains FICO's use of short-term foreign currency forward contracts to manage exchange rate risk - FICO uses foreign currency forward contracts to manage foreign exchange rate risk on existing foreign-currency-denominated receivable and cash balances[94](index=94&type=chunk) - These derivative financial instruments are short-term, with maturity periods of **less than three months**, and are not designated as hedges[67](index=67&type=chunk)[15](index=15&type=chunk) Gains on Foreign Currency Forward Contracts (Quarter Ended Dec 31, In thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Gains on foreign currency forward contracts | $1,304 | $562 | [Note 4. Goodwill and Intangible Assets](index=12&type=section&id=Note%204.%20Goodwill%20and%20Intangible%20Assets) Reports an increase in goodwill due to currency adjustments and a decrease in intangible asset amortization Goodwill by Segment (In thousands) | Segment | Sep 30, 2022 | Dec 31, 2022 | | :--- | :--- | :--- | | Scores | $146,648 | $146,648 | | Software | $614,419 | $624,807 | | Total Goodwill | $761,067 | $771,455 | Amortization Expense of Intangible Assets (Quarter Ended Dec 31, In thousands) | Intangible Asset | 2022 | 2021 | | :--- | :--- | :--- | | Completed technology | $125 | $125 | | Customer contracts and relationships | $150 | $419 | | Total Amortization Expense | $275 | $544 | [Note 5. Composition of Certain Financial Statement Captions](index=12&type=section&id=Note%205.%20Composition%20of%20Certain%20Financial%20Statement%20Captions) Details the composition of property and equipment, net, and other accrued liabilities Property and Equipment, Net (In thousands) | Metric | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | | Property and equipment | $112,926 | $112,411 | | Less: accumulated depreciation and amortization | $(97,950) | $(94,831) | | Total | $14,976 | $17,580 | Other Accrued Liabilities (In thousands) | Metric | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | | Interest payable | $6,349 | $21,314 | | Current operating leases | $18,360 | $19,369 | | Other | $26,669 | $25,565 | | Total | $51,378 | $66,248 | [Note 6. Revolving Line of Credit and Term Loan](index=13&type=section&id=Note%206.%20Revolving%20Line%20of%20Credit%20and%20Term%20Loan) Details FICO's revolving line of credit and term loan, including outstanding balances and interest rates - FICO has a **$600 million** unsecured revolving line of credit and a **$300 million** unsecured term loan, maturing on August 19, 2026[99](index=99&type=chunk) - In November 2022, the credit agreement was amended to replace the LIBOR reference rate with the Secured Overnight Financing Rate (SOFR)[99](index=99&type=chunk) Outstanding Borrowings and Interest Rates (Dec 31, 2022, In millions) | Debt Type | Outstanding Balance | Weighted-Average Interest Rate | | :--- | :--- | :--- | | Revolving Line of Credit | $350.0 | 5.817% | | Term Loan | $285.0 | 6.051% | [Note 7. Senior Notes](index=13&type=section&id=Note%207.%20Senior%20Notes) Outlines FICO's $1.3 billion Senior Notes, their interest rates, fair value, and covenant compliance - FICO issued **$400 million** of 2018 Senior Notes (**5.25%** due May 15, 2026), **$350 million** of 2019 Senior Notes (**4.00%** due June 15, 2028), and **$550 million** of 2021 Senior Notes (**4.00%** due June 15, 2028)[292](index=292&type=chunk)[75](index=75&type=chunk)[100](index=100&type=chunk) - The company was in compliance with all financial covenants under the Senior Notes indentures as of **December 31, 2022**[76](index=76&type=chunk) Senior Notes Face and Fair Values (In thousands) | Senior Notes | Dec 31, 2022 Face Value | Dec 31, 2022 Fair Value | Sep 30, 2022 Face Value | Sep 30, 2022 Fair Value | | :--- | :--- | :--- | :--- | :--- | | The 2018 Senior Notes | $400,000 | $390,000 | $400,000 | $381,500 | | The 2019 Senior Notes and the 2021 Senior Notes | $900,000 | $812,250 | $900,000 | $767,250 | | Total | $1,300,000 | $1,202,250 | $1,300,000 | $1,148,750 | [Note 8. Revenue from Contracts with Customers](index=14&type=section&id=Note%208.%20Revenue%20from%20Contracts%20with%20Customers) Disaggregates revenue by geography, software deployment, and product features, noting key customer concentrations Disaggregated Revenue by Geographical Market (Quarter Ended Dec 31, 2022, In thousands) | Region | Scores | Software | Total | Percentage | | :--- | :--- | :--- | :--- | :--- | | Americas | $173,297 | $117,830 | $291,127 | 85% | | Europe, Middle East and Africa | $1,348 | $30,992 | $32,340 | 9% | | Asia Pacific | $3,343 | $18,060 | $21,403 | 6% | | Total | $177,988 | $166,882 | $344,870 | 100% | Disaggregated Software Revenue by Deployment Method (Quarter Ended Dec 31, In thousands) | Deployment Method | 2022 | 2021 | 2022 Percentage | 2021 Percentage | | :--- | :--- | :--- | :--- | :--- | | On-premises software | $64,922 | $57,295 | 45% | 45% | | SaaS software | $79,638 | $69,043 | 55% | 55% | | Total on-premises and SaaS software | $144,560 | $126,338 | 100% | 100% | - Revenues from TransUnion, Equifax, and Experian collectively accounted for **36% of total revenues** in Q4 2022, with two agencies each contributing over **10%**[106](index=106&type=chunk) - Revenue allocated to remaining performance obligations was **$406.8 million** as of December 31, 2022, with approximately **51%** expected to be recognized over the next 17 months[134](index=134&type=chunk) [Note 9. Income Taxes](index=16&type=section&id=Note%209.%20Income%20Taxes) Discusses the effective income tax rate and the impact of new R&E capitalization provisions Effective Income Tax Rate (Quarter Ended Dec 31) | Year | Effective Tax Rate | | :--- | :--- | | 2022 | 17.2% | | 2021 | 18.9% | - The effective tax rates were favorably impacted by excess tax benefits relating to stock awards, with an increased net excess tax benefit in Q4 2022 compared to Q4 2021 due to an increase in stock price for vested awards[135](index=135&type=chunk) - A provision from the 2017 Tax Cuts and Jobs Act, effective October 1, 2022, requires capitalization of research and experimental expenditures for tax purposes, which is expected to **significantly increase fiscal 2023 cash tax payments** and deferred tax asset positions[111](index=111&type=chunk) [Note 10. Share-Based Employee Benefit Plans](index=17&type=section&id=Note%2010.%20Share-Based%20Employee%20Benefit%20Plans) Summarizes activity for FICO's share-based employee benefit plans, including RSUs and PSUs - FICO maintains the 2021 Long-Term Incentive Plan for equity awards, including stock options, stock appreciation rights, restricted stock awards, stock unit awards, and other share-based awards[138](index=138&type=chunk) Restricted Stock Unit Activity (Quarter Ended Dec 31, 2022, In thousands) | Activity | Shares | Weighted-average Grantdate Fair Value | | :--- | :--- | :--- | | Outstanding at Sep 30, 2022 | 415 | $398.07 | | Granted | 149 | $610.04 | | Released | (146) | $349.76 | | Forfeited | (18) | $420.56 | | Outstanding at Dec 31, 2022 | 400 | $493.36 | Performance Share Unit Activity (Quarter Ended Dec 31, 2022, In thousands) | Activity | Shares | Weighted-average Grantdate Fair Value | | :--- | :--- | :--- | | Outstanding at Sep 30, 2022 | 144 | $432.73 | | Granted | 30 | $615.45 | | Released | (66) | $428.90 | | Forfeited | (10) | $436.82 | | Outstanding at Dec 31, 2022 | 98 | $490.75 | [Note 11. Earnings per Share](index=18&type=section&id=Note%2011.%20Earnings%20per%20Share) Reports increased basic and diluted earnings per share due to higher net income and lower share count Earnings Per Share (Quarter Ended Dec 31, In thousands, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net income | $97,643 | $84,959 | | Basic weighted-average shares | 25,045 | 27,167 | | Diluted weighted-average shares | 25,443 | 27,524 | | Basic EPS | $3.90 | $3.13 | | Diluted EPS | $3.84 | $3.09 | - Anti-dilutive share-based awards excluded from diluted EPS calculations were immaterial[118](index=118&type=chunk) [Note 12. Segment Information](index=19&type=section&id=Note%2012.%20Segment%20Information) Describes FICO's two reportable segments, Scores and Software, and their respective offerings - FICO's two reportable segments are **Scores** and **Software**[124](index=124&type=chunk)[169](index=169&type=chunk) - The Scores segment includes B2B and B2C scoring solutions, such as myFICO.com offerings[143](index=143&type=chunk)[175](index=175&type=chunk) - The Software segment includes pre-configured analytic and decision management solutions, FICO Platform, and professional services, available as SaaS or on-premises software[143](index=143&type=chunk)[148](index=148&type=chunk) Segment Operating Income (Quarter Ended Dec 31, 2022, In thousands) | Segment | Total Segment Revenues | Segment Operating Expense | Segment Operating Income | | :--- | :--- | :--- | :--- | | Scores | $177,988 | $(21,296) | $156,692 | | Software | $166,882 | $(121,117) | $45,765 | | Unallocated Corporate Expenses | — | $(34,082) | $(34,082) | | Total | $344,870 | $(176,495) | $168,375 | [Note 13. Contingencies](index=20&type=section&id=Note%2013.%20Contingencies) Addresses FICO's involvement in legal disputes and the accounting for potential litigation losses - FICO is involved in disputes with customers regarding amounts owed and claims from former employees related to compensation and employment matters[146](index=146&type=chunk) - Litigation accruals are recorded for legal matters that are both **probable and estimable**[146](index=146&type=chunk) - For legal proceedings with a reasonable possibility of loss, FICO has determined there is **no material exposure** on an aggregate basis[146](index=146&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Discusses FICO's financial condition, operational results, liquidity, and critical accounting estimates for the quarter [FORWARD-LOOKING STATEMENTS](index=21&type=section&id=FORWARD-LOOKING%20STATEMENTS) Cautions readers about forward-looking statements, emphasizing inherent risks and uncertainties - Statements in the report that are not historical facts are considered forward-looking statements, subject to risks and uncertainties[123](index=123&type=chunk) - Factors that could cause actual results to differ materially are described in Part I, Item 1A 'Risk Factors' of the Annual Report on Form 10-K[123](index=123&type=chunk) - FICO undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made[123](index=123&type=chunk) [OVERVIEW](index=21&type=section&id=OVERVIEW) Provides an overview of FICO as an applied analytics company, its offerings, and global reach - FICO is a leading applied analytics company, founded in **1956**, that uses data to improve business decisions[148](index=148&type=chunk) - FICO's software and the FICO Score operationalize analytics for businesses in nearly **120 countries** and provide consumer services for financial literacy[148](index=148&type=chunk) [Highlights from the quarter ended December 31, 2022](index=22&type=section&id=Highlights%20from%20the%20quarter%20ended%20December%2031%2C%202022) Summarizes key financial and operational achievements, including revenue growth and EPS increase Key Financial and Operational Highlights (Quarter Ended Dec 31, 2022, In millions, except percentages and per share data) | Metric | Value | YoY Change | | :--- | :--- | :--- | | Total Revenue | $344.9 | +7% | | Scores Segment Revenue | $178.0 | +5% | | Software Segment Annual Recurring Revenue (ARR) | $582.9 | +11% | | Software Segment Dollar-Based Net Retention Rate (DBNRR) | 110% | - | | Operating Income | $140.3 | +21% | | Net Income | $97.6 | +15% | | Diluted EPS | $3.84 | +24% | | Cash Flows from Operations | $92.4 | vs. $124.9 (2021) | | Cash and Cash Equivalents | $139.9 | vs. $133.2 (Sep 30, 2022) | | Total Debt Balance | $1.9 billion | Stable | | Total Share Repurchases | $75.0 | vs. $493.6 (2021) | [Key performance metrics for Software segment](index=22&type=section&id=Key%20performance%20metrics%20for%20Software%20segment) Details key performance metrics for the Software segment, including ACV Bookings, ARR, and DBNRR - ACV Bookings represent the average annualized value of software contracts signed, excluding perpetual licenses and non-recurring software revenues[150](index=150&type=chunk)[178](index=178&type=chunk) ACV Bookings for On-premises and SaaS Software (Quarter Ended Dec 31, In millions) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total on-premises and SaaS software ACV Bookings | $21.5 | $16.4 | - ARR is the annualized revenue run-rate of on-premises and SaaS software agreements, used to measure underlying performance of subscription-based contracts[154](index=154&type=chunk)[180](index=180&type=chunk) Annual Recurring Revenue (ARR) for On-premises and SaaS Software (In millions) | Metric | Dec 31, 2021 | Dec 31, 2022 | YoY Change (%) | | :--- | :--- | :--- | :--- | | Platform | $90.9 | $132.8 | 46% | | Nonplatform | $433.4 | $450.1 | 4% | | Total ARR | $524.3 | $582.9 | 11% | - DBNRR measures success in retaining and growing revenue from existing customers, including additional product sales, price increases, and usage-based fees, while accounting for attrition[156](index=156&type=chunk)[182](index=182&type=chunk) Dollar-Based Net Retention Rate (DBNRR) for On-premises and SaaS Software | Metric | Dec 31, 2021 | Dec 31, 2022 | | :--- | :--- | :--- | | Platform | 146% | 130% | | Nonplatform | 102% | 103% | | Total DBNRR | 109% | 110% | [RESULTS OF OPERATIONS](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes FICO's operational results, highlighting revenue growth, expense changes, and increased operating income [Revenues](index=24&type=section&id=Revenues) Details the 7% increase in total revenues, driven by growth in both Scores and Software segments Segment Revenues (Quarter Ended Dec 31, In thousands) | Segment | 2022 | 2021 | Period-to-Period Change | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Scores | $177,988 | $169,487 | $8,501 | 5% | | Software | $166,882 | $152,874 | $14,008 | 9% | | Total | $344,870 | $322,361 | $22,509 | 7% | - Scores segment revenue increase was primarily due to a multi-year license renewal, higher unit prices, and increased unsecured credit originations volume, partially offset by decreased mortgage originations and B2C revenue[255](index=255&type=chunk) - Software segment revenue increase was driven by an **$18.2 million increase** in on-premises and SaaS software revenue (including **$8.8 million** from platform software and **$9.4 million** from non-platform software), partially offset by a **$4.2 million decrease** in professional services revenue due to a strategic shift[189](index=189&type=chunk) [Operating Expenses and Other Income, Net](index=25&type=section&id=Operating%20Expenses%20and%20Other%20Income%2C%20Net) Analyzes changes in operating expenses, including cost of revenues, R&D, SG&A, and other income/expense Operating Expenses and Other Income, Net (Quarter Ended Dec 31, In thousands) | Metric | 2022 | 2021 | Period-to-Period Change | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Cost of revenues | $76,569 | $69,203 | $7,366 | 11% | | Research and development | $36,633 | $38,980 | $(2,347) | (6)% | | Selling, general and administrative | $92,995 | $98,048 | $(5,053) | (5)% | | Amortization of intangible assets | $275 | $544 | $(269) | (49)% | | Gain on product line asset sale | $(1,941) | — | $(1,941) | — | | Total operating expenses | $204,531 | $206,775 | $(2,244) | (1)% | | Interest expense, net | $(22,800) | $(12,195) | $(10,605) | 87% | | Other income, net | $364 | $1,429 | $(1,065) | (75)% | - Cost of revenues increased primarily due to a **$9.2 million increase** in personnel and labor costs and a **$0.5 million increase** in travel costs, partially offset by a **$2.2 million decrease** in direct materials costs[223](index=223&type=chunk) - Selling, general and administrative expenses decreased primarily due to a **$5.5 million decrease** in personnel and labor costs and a **$2.6 million decrease** in facilities and infrastructure costs, partially offset by increased travel and marketing costs[193](index=193&type=chunk) [Operating Income](index=28&type=section&id=Operating%20Income) Reports a 21% increase in total operating income, driven by revenue growth and expense management Operating Income by Segment (Quarter Ended Dec 31, In thousands) | Segment | 2022 Operating Income | 2021 Operating Income | Period-to-Period Change | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Scores | $156,692 | $148,323 | $8,369 | 6% | | Software | $45,765 | $34,837 | $10,928 | 31% | | Unallocated corporate expenses | $(34,082) | $(37,152) | $3,070 | (8)% | | Total Operating Income | $140,339 | $115,586 | $24,753 | 21% | - Scores segment operating income as a percentage of segment revenue remained consistent at **88%**[200](index=200&type=chunk) - Software segment operating income as a percentage of segment revenue increased to **27% from 23%**, primarily due to an increase in higher-margin license revenue recognized at a point in time and a decrease in sales of lower-margin professional services[201](index=201&type=chunk) [CAPITAL RESOURCES AND LIQUIDITY](index=29&type=section&id=CAPITAL%20RESOURCES%20AND%20LIQUIDITY) Discusses FICO's cash position, liquidity, and changes in operating, investing, and financing cash flows [Outlook](index=29&type=section&id=Outlook) Projects sufficient liquidity for future operations, with potential for acquisitions or debt/equity financing - Cash and cash equivalents, including foreign holdings, and available borrowings from the **$600 million** revolving line of credit are expected to be sufficient for working capital and capital requirements for at least the next 12 months[234](index=234&type=chunk) - FICO may use available cash for acquisitions or establish strategic relationships, and may raise additional funds through debt or equity if needed[203](index=203&type=chunk) [Summary of Cash Flows](index=29&type=section&id=Summary%20of%20Cash%20Flows) Summarizes changes in cash flows from operating, investing, and financing activities Summary of Cash Flows (Quarter Ended Dec 31, In thousands) | Cash Flow Activity | 2022 | 2021 | Period-to-Period Change | | :--- | :--- | :--- | :--- | | Operating activities | $92,440 | $124,881 | $(32,441) | | Investing activities | $(10,590) | $(1,272) | $(9,318) | | Financing activities | $(79,624) | $(155,429) | $75,805 | | Effect of exchange rate changes on cash | $4,428 | $(1,377) | $5,805 | | Increase (decrease) in cash and cash equivalents | $6,654 | $(33,197) | $39,851 | [Cash Flows from Operating Activities](index=29&type=section&id=Cash%20Flows%20from%20Operating%20Activities) Details the $32.4 million decrease in operating cash flow, driven by timing and non-cash items - Net cash provided by operating activities decreased by **$32.4 million**, from **$124.9 million** in Q4 2021 to **$92.4 million** in Q4 2022[235](index=235&type=chunk) - The decrease was attributable to the timing of receipts and payments (**$29.1 million**) and a decrease in non-cash items (**$16.0 million**), partially offset by a **$12.7 million increase** in net income[235](index=235&type=chunk) [Cash Flows from Investing Activities](index=30&type=section&id=Cash%20Flows%20from%20Investing%20Activities) Explains the $9.3 million increase in cash used for investing activities, mainly from asset sales - Net cash used in investing activities increased to **$10.6 million** in Q4 2022 from **$1.3 million** in Q4 2021[206](index=206&type=chunk) - The **$9.3 million increase** was primarily attributable to a **$9.8 million decrease** in cash proceeds from product line asset sales, net of cash transferred[206](index=206&type=chunk) [Cash Flows from Financing Activities](index=30&type=section&id=Cash%20Flows%20from%20Financing%20Activities) Details the $75.8 million decrease in cash used for financing, primarily due to reduced stock repurchases - Net cash used in financing activities decreased by **$75.8 million**, from **$155.4 million** in Q4 2021 to **$79.6 million** in Q4 2022[207](index=207&type=chunk) - The decrease was primarily due to a **$407.8 million decrease** in common stock repurchases and a **$234.3 million decrease** in net payments on the revolving line of credit[207](index=207&type=chunk) - This was partially offset by a **$550.0 million decrease** in proceeds from senior notes issuance and a **$25.8 million increase** in taxes paid related to net share settlement of equity awards[207](index=207&type=chunk) [Repurchases of Common Stock](index=30&type=section&id=Repurchases%20of%20Common%20Stock) Reports a significant decrease in common stock repurchases and details a new $500 million repurchase program Common Stock Repurchases (Quarter Ended Dec 31, In millions) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Repurchases | $75.0 | $493.6 | - In October 2022, a new open-ended stock repurchase program was approved, authorizing repurchases up to an aggregate cost of **$500.0 million**[208](index=208&type=chunk) - As of December 31, 2022, **$451.1 million** remained under the October 2022 repurchase program[282](index=282&type=chunk) [Revolving Line of Credit and Term Loan](index=30&type=section&id=Revolving%20Line%20of%20Credit%20and%20Term%20Loan) Details FICO's revolving line of credit and term loan, including outstanding balances and interest rates - FICO maintains a **$600 million** unsecured revolving line of credit and a **$300 million** unsecured term loan, maturing on August 19, 2026[209](index=209&type=chunk) - In November 2022, the credit agreement was amended to replace the LIBOR reference rate with the Secured Overnight Financing Rate (SOFR)[209](index=209&type=chunk) Outstanding Borrowings and Interest Rates (Dec 31, 2022, In millions) | Debt Type | Outstanding Balance | Weighted-Average Interest Rate | | :--- | :--- | :--- | | Revolving Line of Credit | $350.0 | 5.817% | | Term Loan | $285.0 | 6.051% | [Senior Notes](index=31&type=section&id=Senior%20Notes) Outlines FICO's $1.3 billion Senior Notes, their interest rates, and covenant compliance - FICO has **$400 million** of 2018 Senior Notes (**5.25%** due May 15, 2026), **$350 million** of 2019 Senior Notes (**4.00%** due June 15, 2028), and **$550 million** of 2021 Senior Notes (**4.00%** due June 15, 2028)[211](index=211&type=chunk) - As of December 31, 2022, the carrying value of the Senior Notes was **$1.3 billion**, and FICO was in compliance with all financial covenants[211](index=211&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=31&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) Identifies FICO's critical accounting estimates, including revenue recognition, impairment, and income taxes [Revenue Recognition](index=31&type=section&id=Revenue%20Recognition) Explains FICO's revenue recognition policies for software, SaaS, and professional services - Revenue is primarily derived from on-premises software and SaaS subscriptions, professional services, and scoring services[243](index=243&type=chunk) - On-premises software license revenue is recognized at a point in time when the software is made available, while maintenance revenue is recognized ratably[214](index=214&type=chunk) - SaaS product revenue, including guaranteed minimums and consumption-based fees, is recognized ratably over the service period[215](index=215&type=chunk) - Professional services revenue is recognized using an input method based on labor hours for fixed-price contracts or the 'right-to-invoice' expedient for time and materials[267](index=267&type=chunk) - Significant judgment is required to determine standalone selling prices (SSPs) for distinct performance obligations, considering historical sales data, pricing practices, and market conditions[268](index=268&type=chunk) [Capitalized Commission Costs](index=33&type=section&id=Capitalized%20Commission%20Costs) Describes the capitalization and amortization policy for incremental commission costs - Incremental commission fees paid for obtaining customer contracts are capitalized[218](index=218&type=chunk) - Capitalized commission costs are amortized on a straight-line basis over **ten years**, included in selling, general, and administrative expenses[218](index=218&type=chunk) - A practical expedient is applied to expense incremental costs when incurred if the amortization period is **one year or less**[270](index=270&type=chunk) [Goodwill and Other Long-Lived Assets - Impairment Assessment](index=33&type=section&id=Goodwill%20and%20Other%20Long-Lived%20Assets%20-%20Impairment%20Assessment) Outlines the impairment assessment methodology for goodwill and other long-lived assets - Goodwill is assessed for impairment annually during the fourth fiscal quarter, using a qualitative 'step zero' approach[219](index=219&type=chunk) - If a qualitative assessment indicates impairment is more likely than not, a quantitative 'step one' test is performed using discounted cash flow models and comparable publicly-traded companies[219](index=219&type=chunk) - Other long-lived assets are assessed for impairment when indicators are identified, using undiscounted projected cash flows[249](index=249&type=chunk) - Historically, there have been **no significant changes** in estimates or assumptions that would have a material impact on impairment assessments[220](index=220&type=chunk) [Share-Based Compensation](index=34&type=section&id=Share-Based%20Compensation) Details the measurement and recognition of share-based compensation using valuation models - Share-based compensation cost is measured at grant date fair value and recognized as expense over the vesting or service period[273](index=273&type=chunk) - The Black-Scholes valuation model is used for stock options, and a Monte Carlo valuation model for market share units[273](index=273&type=chunk) - Valuation models require assumptions and judgments regarding stock price volatility, expected dividend yield, employee turnover rates, and stock option exercise behaviors[273](index=273&type=chunk) [Income Taxes](index=34&type=section&id=Income%20Taxes) Explains the estimation of income taxes, deferred taxes, and uncertain tax positions - Income taxes are estimated based on various jurisdictions, involving significant judgment in determining the provision, deferred tax assets/liabilities, and valuation allowances[251](index=251&type=chunk) - Uncertain tax positions are evaluated using a two-step approach: determining if the position is more likely than not to be sustained upon audit, and then measuring the tax benefit as the largest amount more than **50% likely** of being realized[274](index=274&type=chunk) - Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in income tax expense[274](index=274&type=chunk) [Contingencies and Litigation](index=35&type=section&id=Contingencies%20and%20Litigation) Addresses FICO's legal contingencies and the accounting for potential litigation losses - FICO is subject to various proceedings, lawsuits, and claims related to products, services, technology, labor, and other matters[253](index=253&type=chunk) - A liability for estimated loss is accrued if the potential loss is considered **probable and the amount can be reasonably estimated**[253](index=253&type=chunk) - Significant judgment is required in assessing the likelihood and determining the range of potential losses, but **no material changes** in estimates or assumptions are expected[253](index=253&type=chunk) [Recent Accounting Pronouncements Not Yet Adopted](index=35&type=section&id=Recent%20Accounting%20Pronouncements%20Not%20Yet%20Adopted) Discusses the expected impact of ASU 2021-08 on FICO's financial statements - ASU 2021-08, 'Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,' is effective for FICO's fiscal year beginning **October 1, 2023**[276](index=276&type=chunk) - FICO does not believe that the adoption of ASU 2021-08 will have a **significant impact** on its consolidated financial statements[276](index=276&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Discloses FICO's exposure to market risks, including interest rate and foreign exchange rate fluctuations - FICO is exposed to market risk related to changes in interest rates and foreign exchange rates[277](index=277&type=chunk) - The company does not use derivative financial instruments for speculative or trading purposes[277](index=277&type=chunk) [Interest Rate Risk](index=35&type=section&id=Interest%20Rate%20Risk) Addresses interest rate risk on FICO's investment portfolio and its expected impact - FICO maintains an investment portfolio of bank deposits and money market funds, which are subject to interest rate risk[11](index=11&type=chunk) - The company does not expect its operating results or cash flows to be **significantly affected** by a sudden change in market interest rates[11](index=11&type=chunk) Cash and Cash Equivalents with Interest Rate Risk (In thousands) | Metric | Dec 31, 2022 Carrying Amount | Dec 31, 2022 Average Yield | Sep 30, 2022 Carrying Amount | Sep 30, 2022 Average Yield | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $139,856 | 2.41% | $133,202 | 1.23% | [Senior Notes](index=36&type=section&id=Senior%20Notes) Discusses the fair value fluctuations of FICO's Senior Notes due to market interest rates - The fair value of the Senior Notes may increase or decrease due to various factors, including fluctuations in market interest rates and general economic conditions[13](index=13&type=chunk) Senior Notes Face and Fair Values (In thousands) | Senior Notes | Dec 31, 2022 Face Value | Dec 31, 2022 Fair Value | Sep 30, 2022 Face Value | Sep 30, 2022 Fair Value | | :--- | :--- | :--- | :--- | :--- | | The 2018 Senior Notes | $400,000 | $390,000 | $400,000 | $381,500 | | The 2019 Senior Notes and the 2021 Senior Notes | $900,000 | $812,250 | $900,000 | $767,250 | | Total | $1,300,000 | $1,202,250 | $1,300,000 | $1,148,750 | [Revolving Line of Credit and Term Loan](index=36&type=section&id=Revolving%20Line%20of%20Credit%20and%20Term%20Loan) Addresses interest rate risk associated with FICO's variable-rate revolving line of credit and term loan - FICO has interest rate risk with respect to its unsecured revolving line of credit and term loan, as interest rates are variable[14](index=14&type=chunk) - Interest rates are based on an adjusted base rate or an adjusted term SOFR rate, plus an applicable margin determined by the consolidated leverage ratio[14](index=14&type=chunk) Outstanding Variable Rate Debt (Dec 31, 2022, In millions) | Debt Type | Outstanding Balance | Weighted-Average Interest Rate | | :--- | :--- | :--- | | Revolving Line of Credit | $350.0 | 5.817% | | Term Loan | $285.0 | 6.051% | [Foreign Currency Forward Contracts](index=36&type=section&id=Foreign%20Currency%20Forward%20Contracts) Explains FICO's use of short-term foreign currency forward contracts to manage exchange rate risk - FICO maintains a program to manage foreign exchange rate risk on foreign-currency-denominated receivable and cash balances by entering into forward contracts[15](index=15&type=chunk) - All foreign currency forward contracts have maturity periods of **less than three months**[15](index=15&type=chunk) Outstanding Foreign Currency Forward Contracts (Dec 31, 2022, In thousands) | Type | Currency | Contract Amount | USD Amount | Fair Value USD | | :--- | :--- | :--- | :--- | :--- | | Sell foreign currency | EUR | 10,100 | $10,766 | $0 | | Buy foreign currency | GBP | 7,072 | $8,500 | $0 | | Buy foreign currency | SGD | 4,688 | $3,500 | $0 | [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Details the evaluation of FICO's disclosure controls and procedures, confirming their effectiveness [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Confirms the effectiveness of FICO's disclosure controls and procedures as of December 31, 2022 - FICO's management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures[2](index=2&type=chunk) - The CEO and CFO concluded that FICO's disclosure controls and procedures were **effective** as of **December 31, 2022**[2](index=2&type=chunk) - These controls ensure timely recording, processing, summarizing, and reporting of information required for SEC filings, and communication to management for disclosure decisions[2](index=2&type=chunk) [Changes in Internal Control over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) States no material changes in internal control over financial reporting occurred during the quarter - No material change in FICO's internal control over financial reporting was identified during the period covered by this quarterly report[3](index=3&type=chunk) - The identified changes have not materially affected, nor are they reasonably likely to materially affect, FICO's internal control over financial reporting[3](index=3&type=chunk) [PART II – OTHER INFORMATION](index=38&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) Provides additional information including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) States that legal proceedings are not applicable for this reporting period - Legal proceedings are **not applicable** for this reporting period[5](index=5&type=chunk)[22](index=22&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) Refers to the Annual Report for risk factors, noting no material changes - Readers should carefully consider the risk factors discussed in Part I, Item 1A 'Risk Factors' in FICO's Annual Report on Form 10-K for the fiscal year ended **September 30, 2022**[6](index=6&type=chunk) - There have been **no material changes** from the risk factors disclosed in the Annual Report on Form 10-K[6](index=6&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details common stock repurchases and the approval of a new $500 million repurchase program Issuer Purchases of Equity Securities (Quarter Ended Dec 31, 2022, In millions, except per share data) | Period | Average Price Paid per Share | Total Number of Shares Purchased | Maximum Dollar Value Remaining Under Plans | | :--- | :--- | :--- | :--- | | Oct 1, 2022 – Oct 31, 2022 | $417.65 | 179,637 | $451.06 | | Nov 1, 2022 – Nov 30, 2022 | $485.11 | — | $451.06 | | Dec 1, 2022 – Dec 31, 2022 | $615.42 | — | $451.06 | | Total | $495.82 | 179,637 | $451.06 | - In October 2022, FICO's Board of Directors approved a new open-ended stock repurchase program, authorizing repurchases of common stock up to an aggregate cost of **$500.0 million**[7](index=7&type=chunk) - This new program replaced the previously authorized January 2022 program[7](index=7&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) States that defaults upon senior securities are not applicable for this period - Defaults upon senior securities are **not applicable** for this reporting period[8](index=8&type=chunk)[22](index=22&type=chunk) [Item 4. Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that mine safety disclosures are not applicable for this period - Mine safety disclosures are **not applicable** for this reporting period[9](index=9&type=chunk)[22](index=22&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) Notes that no specific other information is provided in this section - No specific other information is provided in this section[10](index=10&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL documents List of Exhibits | Exhibit Number | Description | | :--- | :--- | | 3.1 | Composite Restated Certificate of Incorporation of Fair Isaac Corporation | | 3.2 | By-laws of Fair Isaac Corporation | | 10.1 * | Second Amendment to Second Amended and Restated Credit Agreement | | 31.1 * | Rule 13a-14(a)/15d-14(a) Certifications of CEO | | 31.2 * | Rule 13a-14(a)/15d-14(a) Certifications of CFO | | 32.1 * | Section 1350 Certification of CEO | | 32.2 * | Section 1350 Certification of CFO | | 101.INS * | Inline XBRL Instance Document | | 101.SCH * | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL * | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF * | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB * | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE * | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104 * | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | [SIGNATURES](index=40&type=section&id=SIGNATURES) Contains the required signatures of Fair Isaac Corporation's authorized officers, certifying the report - The report is duly signed on behalf of Fair Isaac Corporation by its authorized officers[27](index=27&type=chunk) - Signatories include Steven P. Weber (Vice President and Interim Chief Financial Officer) and Michael S. Leonard (Vice President and Chief Accounting Officer)[28](index=28&type=chunk) - The report was signed on **January 26, 2023**[19](index=19&type=chunk)[28](index=28&type=chunk)

Financial Data and Key Metrics Changes - The company reported revenues of $357 million, an increase of 8% year-over-year [8] - GAAP net income was $104 million, up 52%, with GAAP earnings per share of $3.95, reflecting a 70% increase [8][21] - Non-GAAP net income reached $124 million, a 37% increase, with non-GAAP earnings per share of $4.68, up 53% from the previous year [8][22] - Total operating expenses decreased to $205 million from $230 million year-over-year, primarily due to the divestiture of the Collections and Recovery business [20] Business Line Data and Key Metrics Changes - In the Scores segment, revenues were $184 million, up 9% year-over-year, with B2B Scores revenue increasing by 5% [14] - Mortgage origination revenues declined by 23%, accounting for about 14% of Scores revenues and 7% of total company revenues [9] - Auto origination revenues increased by 9%, while personal loan origination revenues rose by 27% [10] - Software segment revenues were $173 million, up 7% year-over-year, with total ARR increasing by 11% and platform ARR growing by 60% [11][18] Market Data and Key Metrics Changes - The Americas region generated 78% of total revenues, while Asia-Pacific contributed 12% and EMEA accounted for 10% [17] - The dollar-based net retention rate for the quarter was 110%, with platform software at 141% [12][19] Company Strategy and Development Direction - The company is focused on diversifying its revenue streams across different credit verticals to mitigate risks associated with rising interest rates [26] - There is a commitment to continue delivering strong growth in the software segment, with a focus on enhancing product efficiency and cost management [27] - The company raised its full-year revenue guidance to $1.355 billion, reflecting strong growth in unsecured lending markets and software [28] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by a volatile macro environment but expressed confidence in the company's diversified business model [26] - The company anticipates higher expenses in the second half of the year but is managing costs effectively [31] - There is uncertainty in the mortgage market, but growth is expected in other lending categories [28][50] Other Important Information - Free cash flow for the quarter was $120 million, down from $152 million in the same period last year [23] - The company repurchased 580,000 shares at an average price of $455 per share, with a new $500 million repurchase authorization approved [24] Q&A Session Summary Question: How is the company managing costs amid inflation dynamics? - Management indicated that expenses will be higher in the second half but are currently well-managed, with cost control measures in place [31][32] Question: Can you elaborate on the dynamics between pricing benefits and volume assumptions? - Management noted that while some volumes are down, pricing increases are offsetting these declines [34] Question: What is the breakdown of the diversified lending categories? - Management stated that mortgage, auto, and personal loans are roughly the same size in terms of B2B originations [35][36] Question: How has customer receptivity been to price increases? - Management reported that while customers prefer not to have price increases, they expect reasonable increases, which have been well received [41][42] Question: What changes have occurred in expectations for auto and personal loans? - Management indicated that expectations for auto credit originations have been adjusted downward due to supply chain issues, while personal loans remain stable [49] Question: Does the guidance assume a similar decline in mortgage inquiries as reported by bureau partners? - Management confirmed that the guidance does assume a similar decline in mortgage inquiries [51] Question: How has the adjusted net income guidance increased relative to revenue guidance? - Management explained that lower travel and entertainment costs, reduced COGS for SaaS products, and slower hiring contributed to the adjusted net income guidance increase [56]

© 2022 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation's express consent. 1 © 2022 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation's express consent. Fair Isaac Corporation Q2 22 Financial Highlights March 31, 2022 Q2 2022 FINANCIAL HIGHLIGHTS $169.5 $183.7 8% 9% $152.9 $173.5 13% 7% $322.4 $3 ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-11689 Fair Isaac Corporation (Exact name of registrant as specified in its charter) Delaware 94-1499887 (State o ...

Financial Performance - Total GAAP revenue for fiscal year 2021 was $1.32 billion, a 2% increase from fiscal year 2020[226] - Total revenues for the company in fiscal 2021 were $1,316.5 million, a 2% increase from $1,294.6 million in fiscal 2020[249] - Operating income for fiscal year 2021 was $505.5 million, a 71% increase from fiscal year 2020[234] - Net income for fiscal year 2021 was $392.1 million, a 66% increase from fiscal year 2020[234] - Cash flow from operations was $423.8 million during fiscal year 2021, compared to $364.9 million in the prior year[234] - Basic earnings per share increased to $13.65 in 2021 from $8.13 in 2020, representing a growth of approximately 68.5%[372] - The company reported a comprehensive income of $399,225 thousand for the year, compared to $243,501 thousand in 2020, reflecting an increase of about 63.9%[372] Segment Performance - Total revenue for the Scores segment was $654.1 million during fiscal year 2021, a 24% increase from fiscal year 2020[226] - Annual Recurring Revenue (ARR) for the Software segment as of September 30, 2021, was $524.0 million, a 6% increase from September 30, 2020[226] - The percentage of revenues from the Scores segment increased to 50% in 2021, up from 41% in 2020 and 36% in 2019[244] - Scores segment revenues rose by $125.6 million in fiscal 2021 compared to 2020, driven by a $64.6 million increase in business-to-business scores revenue and a $61.0 million increase in business-to-consumer revenue[250] - The Software segment operating income decreased by $24.9 million to $105.1 million, with segment revenue declining by $103.6 million[292] Cash Management and Investments - The company had $195.4 million in cash and cash equivalents as of September 30, 2021, including $158.8 million held by foreign subsidiaries[298] - The company plans to evaluate potential acquisitions or strategic relationships using available cash and cash equivalents[299] - The company reported a net cash increase of $37,960 thousand for the year, up from $50,968 thousand in the previous year[1] - The company incurred a finance lease obligation of $1,387 thousand in 2020, reflecting ongoing investment in operational capabilities[1] Stock Repurchase and Dividends - The company repurchased 1.9 million shares at a total repurchase price of $882.2 million during fiscal year 2021[224] - A total of $882.2 million was expended on stock repurchase programs during fiscal years 2021, 2020, and 2019[306] - The company approved a stock repurchase program with an aggregate cost of $500 million in August 2021, following a previous program of $250 million[306] - The company reported a gain of $100.1 million from product line asset sales and business divestiture in fiscal 2021[278] Operating Expenses - Total operating expenses decreased to $811,047 thousand in fiscal 2021, down 9% from $998,593 thousand in fiscal 2020[260] - Research and development expenses were $171,231 thousand in fiscal 2021, a 3% increase from $166,499 thousand in fiscal 2020, maintaining 13% of revenues[267] - Selling, general and administrative expenses decreased to $396,281 thousand in fiscal 2021, down 6% from $420,930 thousand in fiscal 2020, representing 30% of revenues[271] Tax and Compliance - The effective tax rate for fiscal 2021 was 17.1%, an increase from 8.0% in fiscal 2020, due to higher pretax book income[283] - The company has been audited by Deloitte & Touche LLP since 2004, ensuring compliance with PCAOB standards[365] - The company maintained effective internal control over financial reporting as of September 30, 2021, according to the independent auditor's opinion[357] Debt and Obligations - Long-term debt rose to $1,009,018 thousand in 2021, up from $739,435 thousand in 2020, indicating an increase of approximately 36.5%[370] - The company has contractual obligations totaling $1.563 billion as of September 30, 2021, including senior notes and revolving line of credit[311] - The company is obligated to repay a new unsecured term loan of $300 million in quarterly installments starting March 31, 2022[308] Foreign Currency and Risk Management - The company utilizes foreign currency forward contracts to manage foreign exchange rate risks, primarily for the British pound, Euro, and Singapore dollar[350] - As of September 30, 2021, the company had foreign currency forward contracts totaling €17,100, £11,467, and S$6,650, with fair values of $19,829, $15,400, and $4,900 respectively[352] Revenue Recognition - The company recognizes revenue primarily from software licensing, SaaS subscription services, and professional services, with complex contracts often involving multiple performance obligations[362] - Revenue is recognized when control of goods or services is transferred to customers, reflecting expected consideration[404] - The company’s revenue recognition process includes estimating variable consideration and determining standalone selling prices based on historical data and market factors[362]