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]

FICO Decisions Fair Isaac Corporation Q3 21 Financial Highlights June 30, 2021 © 2021 Fair Isaac Corporation. Confidential. 1 © 2021 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. Q3 2021 Highlights • Revenue: Q3 21 revenue of $338 million vs. Q3 20 revenue of $314 million or 8% increase. • Applications revenue of $133 million, or 6% y/y decrease • Scores revenue of $172 million, ...

Fair Isaac Corporation (NYSE:FICO) Q3 2021 Earnings Conference Call August 3, 2021 5:00 PM ET Company Representatives Will Lansing - Chief Executive Officer Mike McLaughlin - Chief Financial Officer Steve Weber - Vice President, Investor Relations Conference Call Participants Surinder Thind - Jefferies George Tong - Goldman Sachs Ashish Sabadra - RBC Capital Markets Caroline Conway - Autonomous Research Jeff Mueler - Baird Operator Greetings! And welcome to the Fair Isaac Corporate Quarterly Earnings Confer ...

Revenue Performance - Revenue increased 8% to $338.2 million for the quarter ended June 30, 2021, compared to $313.7 million for the same quarter in 2020[88]. - Scores revenue grew 31% to $172.2 million during the quarter ended June 30, 2021, up from $131.6 million in the same quarter of 2020[88]. - Total revenues for the quarter ended June 30, 2021, were $338.2 million, an increase of 8% compared to $313.7 million for the same period in 2020[106]. - For the nine months ended June 30, 2021, total revenues were $982.0 million, a 7% increase from $920.2 million in the same period of 2020[106]. - Scores segment revenues for the nine months increased by $109.7 million, with a 30% increase in transactional and maintenance revenue[115]. Income and Expenses - Operating income surged 135% to $194.4 million for the quarter ended June 30, 2021, compared to $82.9 million in the same quarter of 2020, primarily due to a gain from divesting the Collections and Recovery business[89]. - Net income rose 136% to $151.2 million for the quarter ended June 30, 2021, up from $64.1 million in the same quarter of 2020[89]. - Total operating expenses decreased to $143.8 million, down 38% from $230.9 million in the prior year quarter[120]. - Research and development expenses increased to $45.8 million, accounting for 14% of revenues, up from 13% in the prior year quarter[120][128]. - Selling, general and administrative expenses were $107.7 million, remaining at 32% of revenues, consistent with the prior year quarter[120][131]. Segment Performance - Applications segment revenues decreased by $8.2 million, primarily due to a $6.0 million decrease in services revenue and a $3.6 million decrease in license revenue[109]. - Scores segment revenues increased by $40.7 million, driven by a $22.0 million increase in business-to-business scores revenue and an $18.7 million increase in business-to-consumer services revenue[110]. - Decision Management Software segment revenues decreased by $8.0 million, mainly due to a $5.9 million decrease in license revenue and a $1.8 million decrease in services revenue[112]. - Total segment operating income for the quarter ended June 30, 2021, was $133,150, an increase of $26,967 or 25% compared to the same period in 2020[145]. - The Scores segment reported an operating income of $146,784 for the quarter, up $36,567 or 33% from $110,217 in the prior year[145]. Share Repurchase and Financing - The company repurchased approximately 489,000 shares at a total repurchase price of $246.0 million during the quarter ended June 30, 2021[90]. - The company repurchased approximately 1,031,000 shares of common stock at a total repurchase price of $501.2 million during the nine months ended June 30, 2021, with $225.3 million remaining under the March 2021 stock repurchase program[169]. - As of June 30, 2021, the company had $316.0 million in borrowings outstanding under a $400 million unsecured revolving line of credit at a weighted-average interest rate of 1.216%[171]. - The company issued $400 million of senior notes in May 2018 and $350 million in December 2019, with a total carrying value of $750.0 million as of June 30, 2021, and was in compliance with all financial covenants[172]. Cash Flow and Investments - Cash and cash equivalents as of June 30, 2021, totaled $237.6 million, including $186.4 million held by foreign subsidiaries[160]. - Operating activities generated $332,062 in cash for the nine months ended June 30, 2021, an increase of $103,332 from $228,730 in the prior year[162]. - Net cash provided by operating activities increased to $332.1 million for the nine months ended June 30, 2021, up from $228.7 million for the same period in 2020, reflecting a $103.3 million increase attributed to a $129.1 million rise in net income[164]. - Net cash provided by investing activities was $137.6 million for the nine months ended June 30, 2021, compared to net cash used of $23.3 million for the same period in 2020, marking a $160.9 million change primarily due to $146.4 million in cash proceeds from product line asset sales[165]. - Net cash used in financing activities rose to $394.6 million for the nine months ended June 30, 2021, from $183.5 million in the prior year, a $211.1 million increase mainly due to a $350.0 million decrease in proceeds from issuance of senior notes[166]. Strategic Initiatives - The company emphasized a strategic shift towards software over services, impacting revenue across multiple segments[109]. - The company plans to evaluate potential acquisitions or strategic relationships to enhance its business operations[161]. Tax and Compliance - The effective income tax rate for the quarter was 19.5%, compared to 15.9% in the same quarter of 2020[142]. - The company evaluates uncertain tax positions quarterly, with significant judgment required, and has historically not experienced material changes in its estimates[199]. - The company has not experienced significant changes in its valuation allowances or uncertain tax positions related to business combinations historically[191][196]. Market Risks - The company is exposed to market risks related to interest rates and foreign exchange rates, but does not use derivative financial instruments for speculative purposes[206]. - The company maintains a program to manage foreign exchange rate risk through forward contracts, with all contracts having maturity periods of less than three months[211].

Financial Performance - Q2 2021 revenue reached $331 million, an 8% increase compared to $308 million in Q2 2020[2] - GAAP net income was $69 million, or $2.33 per share, in Q2 2021, compared to $58 million, or $1.94 per share, in Q2 2020[2] - Non-GAAP net income was $90 million, or $3.06 per share, in Q2 2021, compared to $64 million, or $2.14 per share, in Q2 2020[3] - Free cash flow was $152 million in Q2 2021, significantly higher than $55 million in Q2 2020[3] - Adjusted EBITDA reached $135.6 million in Q2 2021, a 28% increase year-over-year from $105.7 million[7] Revenue Breakdown - Scores revenue increased by 31% year-over-year, reaching $169 million[2] - Applications revenue decreased by 8% year-over-year, totaling $129 million[2] - Decision Management Software revenue decreased by 14% year-over-year, amounting to $33 million[2] Liquidity and Leverage - Total liquidity stood at $373 million, comprising $198 million in cash and $175 million available on the revolving line[5] - The leverage ratio for Q2 2021 was 1.60x[4] Additional Metrics - Non-GAAP operating margin was 39% in Q2 2021[7] - Bookings for Q2 2021 were $84 million[7]

Financial Data and Key Metrics Changes - The company reported revenues of $331 million, an increase of 8% over the same period last year [11][25] - GAAP net income was $69 million, up 18%, with GAAP earnings of $2.33 per share, up 20% [11][42] - Non-GAAP net income was $90 million, up 40%, and earnings per share of $3.06 was up 42% [11][42] - Free cash flow reached a record $152 million, up 178% from last year [12][43] - Operating expenses totaled $230 million, compared to $218 million in the prior quarter [39] Business Line Data and Key Metrics Changes - Application segment revenues were $130 million, down 8% due to a 29% decline in upfront license revenues and a 21% decline in professional services revenues [14][25] - Decision management segment revenues were $33 million, down 14% year-over-year, despite a 34% increase in SaaS subscription revenue [14][26] - Scores segment revenues were $169 million, up 31% from the same period last year, with B2B revenues up 25% and B2C revenues up 47% [32][18] Market Data and Key Metrics Changes - 79% of total revenues were derived from the Americas region, with EMEA generating 15% and Asia Pacific contributing 6% [34] - Recurring revenues from transactional and maintenance sources represented 85% of total revenues [34] Company Strategy and Development Direction - The company is focused on migrating more of its business toward a subscription-based model, including SaaS software subscriptions [13] - A strategic divestiture of the collections and recovery product line was announced to enhance focus on the decision management platform [19][46] - The company aims to become a leader in decisioning analytics and is reallocating resources to support this vision [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business model, emphasizing long-term value over short-term targets [50] - The company is not providing formal guidance until the credit markets stabilize and the full-year impact of revenue recognition is understood [50] Other Important Information - The company expects to close the divestiture deal in the third fiscal quarter, with proceeds funding a $200 million accelerated share repurchase program [48] - The effective tax rate for the quarter was 25%, with expectations for the fiscal year to be approximately 26% to 27% [42] Q&A Session Summary Question: Any smaller products left that could be candidates for divestiture? - Management indicated that there are no significant divestitures planned in the immediate future [53] Question: Potential for M&A to be a bigger part of the story going forward? - Management stated that the potential for M&A remains the same as in the past, with a focus on investing in internal growth [54] Question: Insights on the sales pipeline by geography? - Management noted strong performance in South America and healthy pipelines across all major regions [55][56] Question: Expense trajectory outlook? - Management expects expenses to increase slightly in the next quarter but does not anticipate a material impact on profitability [59][61] Question: Strength in the scores business? - Management attributed strength primarily to volume rather than pricing, with continued strong performance in mortgage and B2C segments [62] Question: Implications of the divestiture on customer retention? - Management reassured that customers will continue to receive support and innovation, with resources redirected to focus on the platform [72][73]

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 March 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Securities registered pursuant | --- | --- | --- | --- | |------------------------------|-------------------------------------------------------------|----------------------- ...

[Form 10-Q Filing Information](index=1&type=section&id=Form%2010-Q%20Filing%20Information) Fair Isaac Corporation (FICO) filed its Quarterly Report on Form 10-Q for the period ended December 31, 2020 - Fair Isaac Corporation (FICO) filed its Quarterly Report on Form 10-Q for the period ended December 31, 2020[1](index=1&type=chunk)[2](index=2&type=chunk) - The registrant is a large accelerated filer and has filed all required reports and interactive data files during the preceding 12 months[3](index=3&type=chunk) - As of January 15, 2021, there were **29,236,110 shares of common stock outstanding**, excluding treasury stock[6](index=6&type=chunk) [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This part presents FICO's financial statements and management's analysis of its financial condition and operations [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents FICO's unaudited condensed consolidated financial statements, reflecting its financial position and performance [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section details FICO's financial position, including assets, liabilities, and stockholders' equity at specific dates | Metric (In thousands) | December 31, 2020 | September 30, 2020 | | :-------------------- | :------------------ | :------------------- | | **Assets** | | | | Total current assets | $508,441 | $534,078 | | Goodwill | $817,777 | $812,364 | | Total assets | $1,576,863 | $1,606,240 | | **Liabilities** | | | | Total current liabilities | $391,042 | $414,511 | | Long-term debt | $739,831 | $739,435 | | Total liabilities | $1,252,742 | $1,275,158 | | **Stockholders' Equity** | | | | Total stockholders' equity | $324,121 | $331,082 | [Condensed Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) This section outlines FICO's financial performance, presenting revenues, expenses, and net income for the reported periods | Metric (In thousands, except per share data) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | | :------------------------------------------- | :------------------------- | :------------------------- | | Total revenues | $312,414 | $298,504 | | Total operating expenses | $217,693 | $246,622 | | Operating income | $94,721 | $51,882 | | Income before income taxes | $87,960 | $41,895 | | Net income | $86,492 | $54,921 | | Comprehensive income | $103,540 | $69,013 | | Basic EPS | $2.97 | $1.89 | | Diluted EPS | $2.90 | $1.82 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in FICO's equity accounts, including common stock, retained earnings, and treasury stock | Metric (In thousands) | Balance at Sep 30, 2020 | Balance at Dec 31, 2020 | | :-------------------- | :---------------------- | :---------------------- | | Common Stock Par Value | $291 | $292 | | Additional Paid-in Capital | $1,218,583 | $1,145,893 | | Treasury Stock | $(2,997,856) | $(3,035,668) | | Retained Earnings | $2,193,059 | $2,279,551 | | Accumulated Other Comprehensive Loss | $(82,995) | $(65,947) | | Total Stockholders' Equity | $331,082 | $324,121 | - Net income for the quarter ended December 31, 2020, was **$86,492 thousand**, contributing to retained earnings[13](index=13&type=chunk) - The company repurchased common stock totaling **$50,011 thousand** during the quarter[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports on FICO's cash inflows and outflows from operating, investing, and financing activities | Metric (In thousands) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | | :-------------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $77,947 | $60,365 | | Net cash provided by (used in) investing activities | $3,862 | $(9,011) | | Net cash used in financing activities | $(99,808) | $(48,195) | | Effect of exchange rate changes on cash | $5,267 | $1,631 | | Increase (decrease) in cash and cash equivalents | $(12,732) | $4,790 | | Cash and cash equivalents, end of period | $144,662 | $111,216 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [1. Nature of Business](index=9&type=section&id=1.%20Nature%20of%20Business) This note describes FICO's core business, products, services, and the basis of financial statement preparation - FICO provides analytic, software, and data management products and services to automate, improve, and connect decisions for businesses[18](index=18&type=chunk) - The company serves banks, credit reporting agencies, insurers, retailers, healthcare organizations, and public agencies[18](index=18&type=chunk) - Unaudited interim condensed consolidated financial statements are prepared in accordance with Form 10-Q instructions and applicable accounting guidance[19](index=19&type=chunk) [2. Fair Value Measurements](index=10&type=section&id=2.%20Fair%20Value%20Measurements) This note details the fair value hierarchy and valuation methods used for FICO's financial assets and liabilities - Fair value is categorized into a three-level hierarchy based on input observability[27](index=27&type=chunk) - Level 1 assets include money market funds and certain marketable securities, valued using unadjusted quoted prices in active markets[28](index=28&type=chunk) | Assets (In thousands) | December 31, 2020 (Level 1) | September 30, 2020 (Level 1) | | :-------------------- | :-------------------------- | :--------------------------- | | Cash equivalents | $10,694 | $35,275 | | Marketable securities | $28,455 | $25,513 | | Total | $39,149 | $60,788 | [3. Derivative Financial Instruments](index=11&type=section&id=3.%20Derivative%20Financial%20Instruments) This note explains FICO's use of foreign currency forward contracts to manage exchange rate risks - FICO uses foreign currency forward contracts to manage risks from fluctuations in foreign exchange rates, primarily for British pound, Euro, and Singapore dollar exposures[32](index=32&type=chunk) - These contracts are not designated as hedges and are marked to market through other income, net, to mitigate changes in remeasured receivable and cash balances[33](index=33&type=chunk) | Metric (In thousands) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | | :-------------------- | :------------------------- | :------------------------- | | Gains on foreign currency forward contracts | $1,686 | $1,145 | [4. Goodwill and Intangible Assets](index=12&type=section&id=4.%20Goodwill%20and%20Intangible%20Assets) This note provides details on amortization expenses for FICO's goodwill and intangible assets | Amortization Expense (In thousands) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | | :---------------------------------- | :------------------------- | :------------------------- | | Completed technology | $322 | $575 | | Customer contracts and relationships | $571 | $1,140 | | Trade names | — | $37 | | Non-compete agreements | $44 | $44 | | Total | $937 | $1,796 | [5. Composition of Certain Financial Statement Captions](index=13&type=section&id=5.%20Composition%20of%20Certain%20Financial%20Statement%20Captions) This note breaks down the components of FICO's property and equipment, and other assets | Metric (In thousands) | December 31, 2020 | September 30, 2020 | | :-------------------- | :---------------- | :----------------- | | **Property and equipment, net:** | | | | Property and equipment | $156,053 | $161,119 | | Less: accumulated depreciation and amortization | $(117,042) | $(114,700) | | Total | $39,011 | $46,419 | | **Other assets:** | | | | Long-term receivables | $50,566 | $54,074 | | Prepaid commissions | $40,159 | $38,579 | | Others | $11,727 | $12,632 | | Total | $102,452 | $105,285 | [6. Revolving Line of Credit](index=14&type=section&id=6.%20Revolving%20Line%20of%20Credit) This note outlines the terms and outstanding balance of FICO's unsecured revolving line of credit - FICO has a **$400 million** unsecured revolving line of credit expiring May 8, 2023, with an option to increase by **$100 million**[42](index=42&type=chunk) - As of December 31, 2020, **$131.0 million** was outstanding at a weighted-average interest rate of **1.284%**, and the company was in compliance with all financial covenants[42](index=42&type=chunk) [7. Senior Notes](index=14&type=section&id=7.%20Senior%20Notes) This note details FICO's outstanding senior notes, including face and fair values - The company has **$400 million** in 2018 Senior Notes (**5.25%** interest, maturing May 15, 2026) and **$350 million** in 2019 Senior Notes (**4.00%** interest, maturing June 15, 2028)[43](index=43&type=chunk)[44](index=44&type=chunk) | Senior Notes (In thousands) | Face Value (Dec 31, 2020) | Fair Value (Dec 31, 2020) | Face Value (Sep 30, 2020) | Fair Value (Sep 30, 2020) | | :-------------------------- | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | The 2018 Senior Notes | $400,000 | $452,000 | $400,000 | $442,000 | | The 2019 Senior Notes | $350,000 | $364,000 | $350,000 | $358,750 | | Total | $750,000 | $816,000 | $750,000 | $800,750 | [8. Income Taxes](index=14&type=section&id=8.%20Income%20Taxes) This note explains FICO's effective income tax rates and unrecognized tax benefits | Metric | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | | :----- | :------------------------- | :------------------------- | | Effective income tax rate | 1.7% | (31.1)% | - The effective tax rates were impacted by excess tax benefits from stock awards, with a significantly larger increase in stock price for awards vested in December 2019 compared to December 2020[48](index=48&type=chunk) - Unrecognized tax benefits for uncertain tax positions were **$9.0 million** at December 31, 2020, up from **$8.0 million** at September 30, 2020[50](index=50&type=chunk) [9. Stock-Based Employee Benefit Plans](index=15&type=section&id=9.%20Stock-Based%20Employee%20Benefit%20Plans) This note describes FICO's equity award plans and provides details on stock options and restricted stock units - FICO maintains the 2012 Long-Term Incentive Plan for equity awards (stock options, restricted stock units, performance share units, market share units) and the 2019 Employee Stock Purchase Plan[51](index=51&type=chunk) | Stock Options (In thousands) | Outstanding at Sep 30, 2020 | Granted | Outstanding at Dec 31, 2020 | | :--------------------------- | :-------------------------- | :------ | :-------------------------- | | Shares | 246 | 12 | 258 | | Weighted-average Exercise Price | $166.80 | $506.91 | $182.79 | | Restricted Stock Units (In thousands) | Outstanding at Sep 30, 2020 | Granted | Released | Forfeited | Outstanding at Dec 31, 2020 | | :------------------------------------ | :-------------------------- | :------ | :------- | :-------- | :-------------------------- | | Shares | 721 | 159 | (273) | (19) | 588 | | Weighted-average Grant-date Fair Value | $229.10 | $506.38 | $187.57 | $241.04 | $323.15 | [10. Earnings per Share](index=16&type=section&id=10.%20Earnings%20per%20Share) This note presents FICO's net income and weighted-average shares used to calculate basic and diluted earnings per share | Metric (In thousands, except per share data) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | | :------------------------------------------- | :------------------------- | :------------------------- | | Net income | $86,492 | $54,921 | | Basic weighted-average shares | 29,127 | 29,025 | | Diluted weighted-average shares | 29,789 | 30,169 | | Basic EPS | $2.97 | $1.89 | | Diluted EPS | $2.90 | $1.82 | [11. Segment Information](index=16&type=section&id=11.%20Segment%20Information) This note provides financial data for FICO's reportable segments: Applications, Scores, and Decision Management Software - FICO operates in three reportable segments: Applications, Scores, and Decision Management Software[59](index=59&type=chunk)[63](index=63&type=chunk) | Segment Revenues (In thousands) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | | :------------------------------ | :------------------------- | :------------------------- | | Applications | $135,361 | $152,178 | | Scores | $144,651 | $115,138 | | Decision Management Software | $32,402 | $31,188 | | Total segment revenues | $312,414 | $298,504 | | Segment Operating Income (Loss) (In thousands) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | | :--------------------------------------------- | :------------------------- | :------------------------- | | Applications | $35,502 | $36,168 | | Scores | $123,025 | $97,426 | | Decision Management Software | $(14,818) | $(19,457) | | Unallocated Corporate Expenses | $(30,253) | $(34,210) | | Total segment operating income | $113,456 | $79,927 | [12. Contract Balances and Performance Obligations](index=19&type=section&id=12.%20Contract%20Balances%20and%20Performance%20Obligations) This note details FICO's contract balances, including receivables and deferred revenues, and remaining performance obligations | Receivables (In thousands) | December 31, 2020 | September 30, 2020 | | :------------------------- | :---------------- | :----------------- | | Billed | $187,071 | $211,776 | | Unbilled | $178,839 | $181,550 | | Net receivables | $361,192 | $388,254 | | Short-term receivables | $310,626 | $334,180 | | Deferred Revenues (In thousands) | Quarter Ended Dec 31, 2020 | | :------------------------------- | :------------------------- | | Deferred revenues at Sep 30, 2020 | $122,141 | | Revenue recognized from beginning balance | $(47,793) | | Increases due to billings | $48,441 | | Deferred revenues at Dec 31, 2020 | $122,789 | - Revenue allocated to remaining performance obligations was **$337.7 million** as of December 31, 2020, with approximately **50%** expected to be recognized over the next **20 months**[80](index=80&type=chunk) [13. Contingencies](index=20&type=section&id=13.%20Contingencies) This note addresses FICO's involvement in legal disputes and the accounting for potential losses - FICO is involved in disputes with customers, claims from former employees, and other legal actions in the ordinary course of business[81](index=81&type=chunk) - Litigation accruals are recorded for probable and estimable losses; for reasonable possibility of loss, no material aggregate exposure is determined[81](index=81&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of FICO's financial condition, operational results, and key performance drivers [FORWARD LOOKING STATEMENTS](index=21&type=section&id=FORWARD%20LOOKING%20STATEMENTS) This section cautions readers about forward-looking statements and the inherent risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including the impact of COVID-19, which may cause actual results to differ materially[84](index=84&type=chunk) - Readers are cautioned to review risk factors described in this and other SEC filings[84](index=84&type=chunk) [OVERVIEW](index=21&type=section&id=OVERVIEW) This section provides a high-level summary of FICO's business, strategic initiatives, and key financial highlights for the period - FICO uses predictive analytics and decision management systems to automate and improve business decisions, serving thousands of companies in over 100 countries[86](index=86&type=chunk) | Metric | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | YoY Change | | :----- | :------------------------- | :------------------------- | :--------- | | Total Revenue | $312.4 million | $298.5 million | +5% | | Scores Revenue | $144.7 million | $115.1 million | +26% | | Applications and Decision Management Software Revenue | $167.8 million | $183.4 million | -9% | | Operating Income | $94.7 million | $51.9 million | +83% | | Net Income | $86.5 million | $54.9 million | +57% | - The company completed a transition to bundled software subscription contracts, shifting revenue recognition timing and expecting a negative impact on recognized term software license revenue in fiscal 2021, but no negative impact on cash flows[89](index=89&type=chunk) - FICO sold cyber risk score operations and certain Applications and Decision Management Software assets to an affiliated joint venture in China, exiting less strategic areas to invest in higher-value ones[91](index=91&type=chunk) - The company repurchased approximately **101,000 shares** for **$50.0 million**, with **$174.8 million** remaining under the stock repurchase program[92](index=92&type=chunk) [COVID-19 Update](index=22&type=section&id=COVID-19%20Update) This section discusses FICO's response to the COVID-19 pandemic and its uncertain impact on future financial results - FICO's focus remains on employee health and safety, customer service, and business continuity amidst the COVID-19 pandemic[93](index=93&type=chunk) - The full impact of COVID-19 on future results, financial condition, liquidity, and cash flows remains uncertain due to evolving factors[93](index=93&type=chunk) [Bookings](index=22&type=section&id=Bookings) This section presents booking metrics as an indicator of future revenue, including contract values and terms - Bookings, representing contracts signed that generate current and future revenue, are an important indicator of future revenues, though not a substitute for revenue analysis[94](index=94&type=chunk) | Metric | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | | :----- | :------------------------- | :------------------------- | | Bookings (in millions) | $68.1 | $112.1 | | Bookings Yield | 13% | 14% | | Number of Bookings over $1 Million | 11 | 25 | | Weighted-Average Term (Months) | 36 | 39 | - Transactional and maintenance bookings increased to **67%** of total bookings in Q4 2020 from **37%** in Q4 2019, while professional services and license bookings decreased[104](index=104&type=chunk) [RESULTS OF OPERATIONS](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes FICO's financial performance, focusing on revenue and expense trends across segments [Revenues](index=24&type=section&id=Revenues) This section details FICO's revenue performance by segment, highlighting key drivers and changes | Segment Revenues (In thousands) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | Period-to-Period Change | Period-to-Period Percentage Change | | :------------------------------ | :------------------------- | :------------------------- | :---------------------- | :--------------------------------- | | Applications | $135,361 | $152,178 | $(16,817) | (11)% | | Scores | $144,651 | $115,138 | $29,513 | 26% | | Decision Management Software | $32,402 | $31,188 | $1,214 | 4% | | Total | $312,414 | $298,504 | $13,910 | 5% | - Applications revenue decreased primarily due to a **$12.8 million decrease** in fraud solutions, attributed to the shift in revenue recognition for term license subscription sales and fewer new/renewed deals[108](index=108&type=chunk) - Scores revenue increased by **$29.5 million**, driven by a **$16.8 million increase** in business-to-business scores (higher mortgage volumes, higher unit price in unsecured originations) and a **$12.7 million increase** in business-to-consumer services[108](index=108&type=chunk) - Decision Management Software revenue increased by **$1.2 million**, mainly from higher SaaS subscription revenue, partially offset by lower license revenue[111](index=111&type=chunk) [Operating Expenses and Other Income / Expenses](index=25&type=section&id=Operating%20Expenses%20and%20Other%20Income%20%2F%20Expenses) This section analyzes FICO's operating expenses and other income/expenses, explaining period-over-period changes | Operating Expenses (In thousands) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | Period-to-Period Change | Period-to-Period Percentage Change | | :-------------------------------- | :------------------------- | :------------------------- | :---------------------- | :--------------------------------- | | Cost of revenues | $89,528 | $90,758 | $(1,230) | (1)% | | Research and development | $40,651 | $38,943 | $1,708 | 4% | | Selling, general and administrative | $93,911 | $112,021 | $(18,110) | (16)% | | Amortization of intangible assets | $937 | $1,796 | $(859) | (48)% | | Restructuring and impairment charges | — | $3,104 | $(3,104) | (100)% | | Gain on sale of product line assets | $(7,334) | — | $(7,334) | —% | | Total operating expenses | $217,693 | $246,622 | $(28,929) | (12)% | - Cost of revenues decreased due to reduced travel from COVID-19, partially offset by increased third-party data costs[115](index=115&type=chunk) - Selling, general and administrative expenses decreased significantly due to lower travel, marketing costs, non-capitalizable commissions, and labor/personnel costs from strategic cost initiatives[119](index=119&type=chunk) - A **$7.3 million gain** on sale of product line assets was recognized from the divestiture of cyber risk score operations and certain Applications and Decision Management Software assets[124](index=124&type=chunk) - Other income (expense), net increased by **$3.1 million**, primarily due to decreased foreign currency exchange losses and increased net unrealized gains on the supplemental retirement and savings plan[127](index=127&type=chunk) [Operating Income](index=27&type=section&id=Operating%20Income) This section examines FICO's operating income by segment and overall, detailing the factors influencing changes | Segment Operating Income (Loss) (In thousands) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | Period-to-Period Change | Period-to-Period Percentage Change | | :--------------------------------------------- | :------------------------- | :------------------------- | :---------------------- | :--------------------------------- | | Applications | $35,502 | $36,168 | $(666) | (2)% | | Scores | $123,025 | $97,426 | $25,599 | 26% | | Decision Management Software | $(14,818) | $(19,457) | $4,639 | (24)% | | Corporate expenses | $(30,253) | $(34,210) | $3,957 | (12)% | | Total segment operating income | $113,456 | $79,927 | $33,529 | 42% | | Operating income (Total) | $94,721 | $51,882 | $42,839 | 83% | - The **83% increase** in total operating income was driven by a **$15.6 million decrease** in segment operating expenses, a **$13.9 million increase** in segment revenues, a **$7.3 million gain** on asset sales, and a **$4.0 million decrease** in corporate expenses[132](index=132&type=chunk) - Scores segment operating income increased by **$25.6 million** due to higher revenue, while Decision Management Software segment operating loss decreased by **$4.6 million** due to lower expenses and higher revenue[133](index=133&type=chunk) [CAPITAL RESOURCES AND LIQUIDITY](index=29&type=section&id=CAPITAL%20RESOURCES%20AND%20LIQUIDITY) This section discusses FICO's financial resources, liquidity position, and management's outlook on funding requirements [Outlook](index=29&type=section&id=Outlook) This section provides FICO's perspective on its cash position and ability to meet future capital and working capital needs - As of December 31, 2020, FICO had **$144.7 million** in cash and cash equivalents, with **$97.7 million** held by foreign subsidiaries[139](index=139&type=chunk) - Management believes current cash, available credit, and anticipated operating cash flows will be sufficient to fund working capital and other capital requirements[139](index=139&type=chunk) - The company does not foresee a need to repatriate foreign cash and cash equivalents, which are deemed permanently reinvested[139](index=139&type=chunk) [Summary of Cash Flows](index=29&type=section&id=Summary%20of%20Cash%20Flows) This section summarizes FICO's cash flow activities from operations, investing, and financing | Cash Flows (In thousands) | Quarter Ended Dec 31, 2020 | Quarter Ended Dec 31, 2019 | Period-to-Period Change | | :------------------------ | :------------------------- | :------------------------- | :---------------------- | | Operating activities | $77,947 | $60,365 | $17,582 | | Investing activities | $3,862 | $(9,011) | $12,873 | | Financing activities | $(99,808) | $(48,195) | $(51,613) | | Effect of exchange rate changes on cash | $5,267 | $1,631 | $3,636 | | Increase (decrease) in cash and cash equivalents | $(12,732) | $4,790 | $(17,522) | - Net cash from operating activities increased by **$17.5 million**, primarily due to a **$31.6 million increase** in net income[142](index=142&type=chunk) - Net cash from investing activities saw a **$12.9 million change**, driven by **$8.3 million** in proceeds from asset sales and a **$3.5 million decrease** in property and equipment purchases[143](index=143&type=chunk) - Net cash used in financing activities increased by **$51.6 million**, mainly due to a **$350.0 million decrease** in senior note proceeds, partially offset by reduced revolving line of credit payments and common stock repurchases[144](index=144&type=chunk) [Repurchases of Common Stock](index=30&type=section&id=Repurchases%20of%20Common%20Stock) This section details FICO's common stock repurchase program and shares bought back during the quarter - In July 2020, the Board approved an open-ended stock repurchase program for up to **$250.0 million**[146](index=146&type=chunk) - During the quarter ended December 31, 2020, FICO repurchased approximately **101,000 shares** for **$50.0 million**[147](index=147&type=chunk) [Revolving Line of Credit](index=30&type=section&id=Revolving%20Line%20of%20Credit) This section describes FICO's revolving credit facility, its outstanding balance, and compliance with covenants - FICO has a **$400 million** unsecured revolving line of credit, expiring May 8, 2023, used for working capital, general corporate purposes, debt refinancing, acquisitions, and stock repurchases[148](index=148&type=chunk) - As of December 31, 2020, **$131.0 million** was outstanding at a weighted-average interest rate of **1.284%**, with compliance to all financial covenants[148](index=148&type=chunk) [Senior Notes](index=30&type=section&id=Senior%20Notes) This section outlines FICO's senior notes, their carrying value, and compliance with financial covenants - The company has 2018 Senior Notes (**$400 million**, **5.25%**, maturing May 15, 2026) and 2019 Senior Notes (**$350 million**, **4.00%**, maturing June 15, 2028)[149](index=149&type=chunk) - As of December 31, 2020, the carrying value of Senior Notes was **$750.0 million**, and FICO was in compliance with all financial covenants[149](index=149&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet arrangements impacting FICO's financial condition - FICO does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition or results of operations[150](index=150&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=30&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section describes FICO's key accounting policies and estimates that require significant management judgment [Revenue Recognition](index=31&type=section&id=Revenue%20Recognition) This section explains FICO's policies for recognizing revenue from various contract types and performance obligations - Revenue is primarily from term/perpetual software/scoring licenses, maintenance, SaaS subscriptions, consumer scoring/monitoring, and professional services[154](index=154&type=chunk) - For contracts with multiple performance obligations, transaction price is allocated based on relative standalone selling price (SSP)[154](index=154&type=chunk) - Significant judgment is required to determine if products/services are distinct, to determine SSPs, and to estimate progress for fixed-price professional services[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk) [Capitalized Commission Costs](index=32&type=section&id=Capitalized%20Commission%20Costs) This section details FICO's accounting policy for capitalizing and amortizing incremental commission costs - Incremental commission fees for obtaining customer contracts are capitalized and amortized on a straight-line basis over ten years[162](index=162&type=chunk) - Costs with an amortization period of one year or less are expensed as incurred[163](index=163&type=chunk) [Business Combinations](index=32&type=section&id=Business%20Combinations) This section outlines FICO's accounting for business combinations, including valuation of acquired assets and liabilities - Acquired assets and assumed liabilities are recognized at acquisition-date fair values, with goodwill as the excess of consideration transferred[164](index=164&type=chunk) - Significant estimates and assumptions are required for valuing intangible assets, contractual obligations, and pre-acquisition contingencies[165](index=165&type=chunk) - Changes in estimates for uncertain tax positions and tax-related valuation allowances after the measurement period affect income tax provision[168](index=168&type=chunk) [Goodwill, Acquisition Intangibles and Other Long-Lived Assets - Impairment Assessment](index=33&type=section&id=Goodwill%2C%20Acquisition%20Intangibles%20and%20Other%20Long-Lived%20Assets%20-%20Impairment%20Assessment) This section describes FICO's policies for assessing impairment of goodwill and other long-lived assets - Goodwill is assessed for impairment annually using a qualitative 'step zero' approach, or a two-step quantitative test if impairment is more likely than not[169](index=169&type=chunk) - For fiscal 2018, 2019, and 2020, a qualitative analysis concluded that goodwill was not impaired for any reporting units[170](index=170&type=chunk) - Finite-lived intangible assets and other long-lived assets are assessed for impairment when indicators exist, using undiscounted cash flows[171](index=171&type=chunk) [Share-Based Compensation](index=34&type=section&id=Share-Based%20Compensation) This section explains FICO's accounting for stock-based compensation and the valuation assumptions used - Stock-based compensation cost is measured at grant date fair value and recognized as expense over the vesting period[174](index=174&type=chunk) - Valuation models (Black-Scholes, Monte Carlo) require assumptions on stock price volatility, dividend yield, turnover rates, and exercise behaviors[174](index=174&type=chunk) [Income Taxes](index=34&type=section&id=Income%20Taxes) This section details FICO's policies for income tax estimation and recognition of uncertain tax positions - Income taxes are estimated based on various jurisdictions, involving significant judgment in determining the provision and assessing deferred tax asset realization[175](index=175&type=chunk) - Benefits for uncertain tax positions are recognized using a two-step approach: likelihood of sustainment and measurement of the largest likely realized amount[176](index=176&type=chunk) [Contingencies and Litigation](index=35&type=section&id=Contingencies%20and%20Litigation) This section describes FICO's approach to assessing and accounting for potential losses from legal proceedings - FICO assesses the likelihood and potential range of probable losses for various legal proceedings, lawsuits, and claims[179](index=179&type=chunk) - Accruals are made for probable and estimable losses; disclosures are considered for less probable or unestimable amounts[179](index=179&type=chunk) [New Accounting Pronouncements](index=35&type=section&id=New%20Accounting%20Pronouncements) This section discusses the adoption of new accounting standards and their impact on FICO's financial statements - FICO adopted ASU 2018-15 (Internal-Use Software) and Topic 326 (Credit Losses) in Q1 fiscal 2021, with no significant impact on condensed consolidated financial statements[180](index=180&type=chunk)[181](index=181&type=chunk) - No recently issued accounting pronouncements are expected to have a significant effect on financial statements[26](index=26&type=chunk)[184](index=184&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) This section details FICO's exposure to market risks, including interest and foreign exchange rates, and risk management strategies [Market Risk Disclosures](index=35&type=section&id=Market%20Risk%20Disclosures) This section outlines FICO's exposure to market risks, particularly interest rate and foreign exchange rate fluctuations - FICO is exposed to market risk from changes in interest rates and foreign exchange rates, but does not use derivative financial instruments for speculative purposes[182](index=182&type=chunk) [Interest Rate](index=35&type=section&id=Interest%20Rate) This section details FICO's exposure to interest rate risk, affecting cash equivalents and variable-rate debt | Metric (Dollars in thousands) | December 31, 2020 Basis Cost | December 31, 2020 Carrying Amount | December 31, 2020 Average Yield | | :---------------------------- | :--------------------------- | :-------------------------------- | :------------------------------ | | Cash and cash equivalents | $144,662 | $144,662 | 0.05% | - The fair value of Senior Notes (2018 and 2019) may fluctuate due to market interest rates and economic conditions[187](index=187&type=chunk) - The revolving line of credit has variable interest rates, impacting interest incurred and cash flows but not the fair value of the instrument[188](index=188&type=chunk) [Foreign Currency Forward Contracts](index=36&type=section&id=Foreign%20Currency%20Forward%20Contracts) This section describes FICO's use of foreign currency forward contracts to mitigate exchange rate risk - FICO uses foreign currency forward contracts to manage foreign exchange rate risk on foreign-currency-denominated receivable and cash balances[189](index=189&type=chunk) - These contracts have maturity periods of less than three months and mitigate foreign exchange rate risk by offsetting changes in remeasured asset values[189](index=189&type=chunk) | Foreign Currency Forward Contracts (In thousands) | Contract Amount (Dec 31, 2020) | USD (Dec 31, 2020) | Fair Value (Dec 31, 2020) | | :------------------------------------------------ | :----------------------------- | :----------------- | :------------------------ | | Sell Euro (EUR) | EUR 18,900 | $23,068 | $0 | | Buy British pound (GBP) | GBP 12,034 | $16,400 | $0 | | Buy Singapore dollar (SGD) | SGD 6,725 | $5,100 | $0 | [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of FICO's disclosure controls and reports no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of FICO's disclosure controls and procedures as evaluated by management - FICO's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2020[192](index=192&type=chunk) - These controls ensure timely and accurate recording, processing, summarizing, and reporting of information required under the Exchange Act[192](index=192&type=chunk) [Changes in Internal Control over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports no material changes in FICO's internal control over financial reporting during the quarter - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, FICO's internal control over financial reporting during the quarter[193](index=193&type=chunk) [PART II – OTHER INFORMATION](index=38&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This part provides additional information on legal proceedings, risk factors, equity sales, and other disclosures [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section reports on legal proceedings, noting the closure of a civil antitrust investigation without enforcement action - The U.S. Department of Justice (DOJ) closed its civil investigation into potential exclusionary conduct by FICO on December 8, 2020, with no enforcement action taken[195](index=195&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) This section outlines various risks that could materially affect FICO's business, financial condition, and results of operations [Business, Market and Strategy Risks](index=38&type=section&id=Business%2C%20Market%20and%20Strategy%20Risks) This section details risks related to FICO's business model, market conditions, and strategic initiatives, including COVID-19 impacts - The COVID-19 pandemic has negatively affected FICO's operations and customer spending, with uncertain duration and impact on future revenues and financial performance[196](index=196&type=chunk)[199](index=199&type=chunk) - FICO's Decision Management (DM) strategy, focusing on cloud-native platforms and multiple connectable products, may not be successful if the market is unreceptive, leading to potential volatility in revenues[201](index=201&type=chunk)[202](index=202&type=chunk) - A substantial portion of revenues comes from a few products (scoring, fraud, customer management) and the banking industry (**85%** in Q4 2020), making FICO vulnerable to market acceptance changes and industry conditions[86](index=86&type=chunk)[203](index=203&type=chunk)[205](index=205&type=chunk) - Reliance on major credit reporting agencies (Experian, TransUnion, Equifax) and large customers for significant revenue creates bargaining power imbalances and risks from changes in relationships or economic downturns[210](index=210&type=chunk)[213](index=213&type=chunk) - Failure to develop successful new products, keep pace with rapidly changing technologies, or manage product and pricing strategies could harm FICO's business and market share[216](index=216&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk) - Acquisition activities involve risks like disruption, integration difficulties, and failure to realize financial goals, while strategic divestitures may not provide anticipated business benefits[229](index=229&type=chunk)[233](index=233&type=chunk) [Operational Risks](index=45&type=section&id=Operational%20Risks) This section outlines risks associated with FICO's internal operations, including cybersecurity, IT systems, and personnel management - Compromised cybersecurity measures or unauthorized access to data could damage FICO's reputation, lead to significant liabilities, and cause customers to cease using products[239](index=239&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - Business interruptions or failures of IT and communication systems could adversely affect service availability, reputation, and financial condition[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) - Failure to recruit and retain qualified personnel, especially in technical and sales roles, could hinder FICO's ability to manage its business and achieve future success[247](index=247&type=chunk) - Inability to obtain essential model construction data from customers or other sources due to privacy, security, or regulatory concerns could impair product effectiveness and development[249](index=249&type=chunk) [Global Operational Risks](index=47&type=section&id=Global%20Operational%20Risks) This section addresses risks stemming from FICO's international operations and global economic conditions - Adverse global economic conditions, including the COVID-19 pandemic, can reduce demand for FICO's products and services, leading to softened demand, longer sales cycles, and increased price competition[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - Brexit introduces uncertainties for FICO's U.K. business, potentially affecting labor, goods flow, customer relationships, and creating economic volatility[253](index=253&type=chunk) - International operations (**32% of revenues** in fiscal 2020) expose FICO to risks like political instability, foreign laws, data privacy regulations, currency fluctuations, and difficulties in managing global staff[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) [Legal, Regulatory and Compliance Risks](index=48&type=section&id=Legal%2C%20Regulatory%20and%20Compliance%20Risks) This section covers risks related to legal proceedings, regulatory compliance, and intellectual property - FICO is subject to various U.S. and international laws and regulations (e.g., Fair Credit Reporting Act, GDPR, CCPA) that could expose it to liability, increase expenses, or limit product demand[260](index=260&type=chunk)[261](index=261&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk) - New or changing legislation, especially regarding consumer protection, privacy, and data security, could negatively impact FICO's business and increase compliance costs[265](index=265&type=chunk)[267](index=267&type=chunk) - Infringement claims related to intellectual property could lead to significant defense costs, damages, or require FICO to cease using or selling certain products[268](index=268&type=chunk)[269](index=269&type=chunk) [Financial Risks](index=50&type=section&id=Financial%20Risks) This section discusses financial risks such as revenue forecasting challenges, sales cycle variability, and acquisition-related charges - Long and variable sales cycles (**60 days to 18 months**) make accurate revenue forecasting difficult, potentially leading to stock price volatility[270](index=270&type=chunk)[271](index=271&type=chunk) - Revenue-generating transactions concentrated in quarter-end weeks can prevent accurate financial forecasting and cause stock price declines[272](index=272&type=chunk)[273](index=273&type=chunk) - Acquisitions can result in material charges to earnings (e.g., goodwill impairment, amortization, integration costs), adversely affecting operating results and cash flows[275](index=275&type=chunk)[276](index=276&type=chunk)[277](index=277&type=chunk) [General Risk Factors](index=51&type=section&id=General%20Risk%20Factors) This section includes broader risks affecting FICO's stock price, corporate governance, and tax matters - FICO's stock price is volatile and subject to fluctuations due to variations in revenues, operating results, market analyst expectations, and economic conditions (e.g., COVID-19)[278](index=278&type=chunk) - Anti-takeover defenses, such as the board's ability to issue preferred stock, could make it difficult for another company to acquire control, potentially limiting demand or price for FICO's securities[281](index=281&type=chunk)[282](index=282&type=chunk) - Changes in tax laws or adverse outcomes from income tax return examinations could negatively affect FICO's operating results and financial condition[283](index=283&type=chunk)[284](index=284&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's common stock repurchase activities during the quarter ended December 31, 2020 [Issuer Purchases of Equity Securities](index=52&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) This section details FICO's common stock repurchases, including shares bought under publicly announced programs | Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) | | :----- | :----------------------------------- | :--------------------------- | :----------------------------------------------------------------------------------- | :------------------------------------------------------------------------ | | Oct 1 - Oct 31, 2020 | 2,606 | $414.27 | — | $224,777,076 | | Nov 1 - Nov 30, 2020 | 39,698 | $477.20 | 39,618 | $205,860,921 | | Dec 1 - Dec 31, 2020 | 227,868 | $507.55 | 61,532 | $174,777,136 | | Total | 270,172 | $502.19 | 101,150 | $174,777,136 | - The total shares purchased include **169,022 shares** delivered for tax withholding obligations from restricted stock unit vesting[285](index=285&type=chunk) - The company repurchased **101,150 shares** under its July 2020 stock repurchase program, which authorizes up to **$250.0 million**[285](index=285&type=chunk) [Item 3. Defaults Upon Senior Securities](index=52&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to Fair Isaac Corporation for the reported period - This item is not applicable[286](index=286&type=chunk) [Item 4. Mine Safety Disclosures](index=52&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Fair Isaac Corporation for the reported period - This item is not applicable[287](index=287&type=chunk) [Item 5. Other Information](index=53&type=section&id=Item%205.%20Other%20Information) This item is not applicable to Fair Isaac Corporation for the reported period - This item is not applicable[289](index=289&type=chunk) [Item 6. Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including corporate governance documents and certifications - Exhibits include the Composite Restated Certificate of Incorporation, By-laws, CEO/CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and Inline XBRL documents[291](index=291&type=chunk) [Signatures](index=55&type=section&id=Signatures) This section contains the required signatures for the Form 10-Q filing, confirming its submission by authorized officers - The report was signed by Michael I. McLaughlin, Executive Vice President and Chief Financial Officer, and Michael S. Leonard, Vice President and Chief Accounting Officer, on January 28, 2021[295](index=295&type=chunk)

FICO Decisions Fair Isaac Corporation Q4 20 Financial Highlights September 30, 2020 © 2020 Fair Isaac Corporation. Confidential. 1 © 2020 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. Q4 2020 Highlights • Revenue: Q4 20 revenue of $374 million vs. Q4 19 revenue of $ 305 million or 23% increase. • Applications revenue of $168 million, or 12% y/y increase • Scores revenue of $153 m ...