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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2020
2022
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 CorporationCorporation
(Exact name of registrant as specified in its charter)
Delaware94-1499887
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
181 Metro Drive, Suite 700Delaware94-1499887
San Jose,(State or other jurisdiction of
incorporation or organization)
California(I.R.S. Employer
Identification No.)
95110-1346
5 West Mendenhall, Suite 105
Bozeman,Montana59715
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code:
408-535-1500406-982-7276
Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareFICONew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes      No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes      No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated FilerAccelerated Filer
Non-Accelerated Filer  Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes

No
As of March 31, 2020,2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $7,095,692,430$9,599,184,596 based on the last transaction price as reported on the New York Stock Exchange on such date. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purposes.
The number of shares of common stock outstanding on October 30, 202028, 2022 was 29,098,17724,975,618 (excluding 59,758,60663,881,165 shares held by the Company as treasury stock).


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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement relating to its 20212023 Annual Meeting of Stockholders (“20212023 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 20212023 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

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FORWARD LOOKINGFORWARD-LOOKING STATEMENTS
Statements contained in this report that are not statements of historical fact should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). In addition, certain statements in our future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact constitute forward-looking statements within the meaning of the PSLRA. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, income or loss, expenses, earnings or loss per share, the payment or nonpayment of dividends, share repurchases, capital structure and other statements concerning future financial performance; (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services, research and development, and the sufficiency of capital resources; (iii) statements of assumptions underlying such statements, including those related to economic conditions; (iv) statements regarding results of business combinations;combinations or strategic divestitures; (v) statements regarding business relationships with vendors, customers or collaborators, including the proportion of revenues generated from international as opposed to domestic customers; and (vi) statements regarding products and services, their characteristics, performance, sales potential or effect in the hands ofuse by customers. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “should,” “potential,” “goals,” “strategy,” “outlook,” “plan,” “estimated,” ”will,“will,” variations of these terms and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in Part I, Item 1A, of Part I, “Risk Factors,” below (including the impact of COVID-19 on macroeconomic conditions and our business, operations and personnel).below. The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Such forward-looking statements speak only as of the date on which statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including our Quarterly Reports on FormsForm 10-Q and Current Reports on Form 8-K to be filed by us in fiscal 2021.8-K.


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PART I
Item 1. Business

GENERAL

Fair Isaac Corporation (NYSE: FICO) (together with its consolidated subsidiaries, the “Company,” which may also be referred to in this report as “we,” “us,” “our,” and “FICO”) provides products, solutions and services that enable businesses to automate, improve and connect decisions to enhance business performance. Our predictiveis a leading applied analytics which includes the industry-standard FICO® Score, and our decision management systems leverage the use of big data and mathematical algorithms to predict consumer behavior and power hundreds of billions of customer decisions each year.

company. We were founded in 1956 on the premise that data, used intelligently, can improve business decisions. Today, we helpFICO’s software and the widely used FICO® Score operationalize analytics, enabling thousands of companiesbusinesses in overnearly 120 countries use our decision management technology to targetuncover new opportunities, make timely decisions that matter, and acquire customers more efficiently, increase customer value, reduce fraud and credit losses, lower operating expenses, and enter new markets more profitably.execute them at scale. Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, automotive companies, pharmaceutical companies, healthcare organizations,lenders, consumer reporting agencies, public agencies, and organizations in other industries. We also serve consumers through online services that enable people to access and understand their FICO® Scores the standard measure in the U.S. of consumer credit risk empowering them to increase financial literacy and manage their financial health.

More information about us can be found on our website, www.fico.com. We make our Annual Reports on FormForms 10-K, Quarterly Reports on FormForms 10-Q, and Current Reports on FormForms 8-K, as well as amendments to those reports, available free of charge through our website as soon as reasonably practicable after we electronically file them with the SEC.U.S. Securities and Exchange Commission (“SEC”). References to our website address in this report do not constitute an incorporation by reference. Information on our website is not part of this report.

PRODUCTS AND SERVICES

We use analyticsOur business consists of two operating segments: Scores and Software.
Our Scores segment includes our business-to-business (“B2B”) scoring solutions and services which give our clients access to help businesses automate, improvepredictive credit and connect decisions acrossother scores that can be easily integrated into their enterprise, an approach we commonly refer totransaction streams and decision-making processes. This segment also includes our business-to-consumer (“B2C”) scoring solutions, including our myFICO.com subscription offerings.
Our Software segment includes pre-configured analytic and decision management solutions designed for a specific type of business need or process — such as decision management. Most of our solutions addressaccount origination, customer management, customer engagement, including customer acquisition, customer onboarding, customer servicingfraud detection, financial crimes compliance, and management, and customer protection. We also help businesses improve non-customer decisions such as transaction and claims processing. Our solutions enable users to make decisions that are more precise, consistent and agile, and that systematically advance business goals. This helps our clients reduce the cost of doing business and losses from risks and fraud, while helping increase revenues, profitability, and customer loyalty.

Our Segments

We categorize our products and services into the following three operating segments:

Applications. This segment includes pre-configured decision management applications designed for a specific type of business problem or processmarketing such as marketing, account origination, customer management, fraud, financial crimes compliance, collections and insurance claims management — as well as associated professional services. These applications are available to our customers as on-premises software, and many are available as hosted, software-as-a-service (“SaaS”) applications through the FICO® Analytic Cloud or Amazon Web Services (“AWS”).

Scores. This segment includes our business-to-business scoring solutions and services, our business-to-consumer scoring solutions and services including myFICO® solutions for consumers, and associated professional services. Our scoring solutions give our clients access to analytics that can be easily integrated into their transaction streams and decision-making processes. Our scoring solutions are distributed through major credit reporting agencies worldwide, as well as services through which we provide our scores to clients directly.

Decision Management Software. This segment is composed of analytic and decision management software tools that clients can use to create their own custom decision management applications, our FICO® Decision Management Suite, as well as associated professional services. Decision management software is currently delivered as part of the FICO® Platform and is increasingly being adopted to connect decisioning solutions or previously disconnected use cases. These tools are available to our customers as on-premises software, through the FICO® Analytic Cloud or AWS.



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Our Solutions

Our solutions involve four fundamental disciplines:

Analytics, which include predictive analytics that identify risks and opportunities associated with individual customers, prospects and transactions, in order to detect patterns such as risk, fraud or profitability, as well as optimization analytics that are usedassociated professional services. This segment also includes FICO® Platform, a modular software offering designed to mathematically improve the design of decision logic or “strategies.”

Data management and transaction profiling that bring extensive consumer information to every decision.

Software such as decision management systems that author and implement business rules, modelssupport advanced analytic and decision strategies, often in a real-time environment,use cases, as well as software for managing customer engagement. This software is increasingly deployed as a platform solution that enables previously disparate use cases to be connected in a manner that provides a centralized or 360-degree view of a customer’s journey through traditionally siloed client offerings.

Consulting services that help clients make the most of investments in FICO applications, toolsstand-alone analytic and scores in the shortest possible time.

All of our solutions are designed to help businesses make decisions that are faster, more precise, more consistent and more agile, while reducing costs and risks incurred in making decisions. In addition, we offer our clients a portfolio of applications, tools and services in the cloud, which allow them to create, customize, deploy and manage powerful analytic services.
Applications

We develop industry-tailored decision management applications, which apply analytics, data management and decision managementdecisioning software to specific business challenges and processes. Our applications primarily serve clients in the banking, insurance, telecommunications, healthcare, retail and public sectors. During fiscal 2020, we continued to expand our product offerings for the FICO® Analytic Cloud and AWS, resulting in increased sales opportunities by accommodating customers that can benefit from the power, flexibility and modularity of these solutions. Withinbe configured by our Applications segment our fraud solutions accounted for 15%, 18% and 17% of total revenues in each of fiscal 2020, 2019 and 2018, respectively, and our customer communication services accounted for 8%, 9% and 10% of total revenues in each of these periods, respectively.

Origination Applications

We provide solutions that enable banks, credit unions, finance companies, alternative peer-to-peer and online lenders, auto lenders, and other companiescustomers to automate and improve the processing of requests for credit or service. These solutions increase the speed and efficiency with which requests are handled, reduce losses, and increase approval rates through analytics that assess applicant risk and reduce the need for manual review by loan officers.

FICO® Origination Manager, an application-to-decision processing solution, is available both on-premises and in the FICO® Analytic Cloud, and we plan to make it available in the AWS cloud in fiscal 2021 with the launch of FICO® Origination Manager 5.0.

Other solutions include the web-based FICO® LiquidCredit® service, which is primarily focused on credit decisions and offered largely to mid-tier banking institutions. FICO® Small Business Scoring Service℠ (SBSS) is recognized as the industry leader in assessing the risk of U.S. small business credit applicants. SBSS is delivered via our LiquidCreditservice infrastructure and it brings the speed of consumer lending to small business lending decisions. With SBSS, clients can typically make decisions in hours rather than days to improve customer satisfaction and help attract more small businesses.

Delivered as a cloud service, FICO® Origination Manager Essentials offers mid-market organizations the ability to inexpensively set up and process small business applications quickly, without a long or difficult implementation process. Origination Manager Essentials will be phased out in August 2021.

To support origination, we also offer custom and consortium-based credit risk and application fraud models.


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Customer Management Applications

Our customer portfolio management products and services enable businesses to automate and improve risk-based decisions for their existing customers. These solutions help businesses apply advanced analytics in account and customer decisions to increase portfolio revenue, decrease risk exposure and losses, and reduce customer attrition, while improving operational efficiencies.

We provide customer portfolio management solutions for banking, telecommunications and retail. FICO® TRIAD® Customer Manager, a leading credit management system, is available both on-premises and in the FICO® Analytic Cloud. FICO® Strategy Director is the newest, more flexible customer management application available on the FICO Analytic Cloud and AWS. These solutions enable businesses to rapidly adapt to changing business and internal conditions by designing and testing new strategies in a “champion/challenger” environment. The current versions enable users to manage risk and communications at both the account and customer level from a single platform.

We market and sell FICO® TRIAD® Customer Manager and FICO® Strategy Director software licenses, maintenance, consulting services, and strategy design and evaluation. Additionally, we provide TRIAD and Strategy Director services and similar credit account management services through third-party credit card processors worldwide, including two of the largest processors in the U.S.

Fraud Protection and Compliance Applications

Our fraud protection and compliance products improve our clients’ profitability by providing protections across the customer lifecycle from account origination to digital customer interactions—such as online or mobile logins—to non-monetary transactions—such as address changes or pin changes—to payment transactions. Our fraud and financial crimes solutions analyze activity in real time and generate recommendations for immediate action. These defenses are critical to stopping synthetic identity fraud, first-party fraud, and third-party fraud, as well as identifying money laundering activity to help our clients stay compliant and secure while safeguarding the customer experience.

Our fraud solutions are designed to detect and prevent a wide variety of risk types. By looking across products and channels—including real-time payments, peer-to-peer transactions, digital payments, card payments (credit, debit, prepaid), and deposits—FICO helps financial institutions reduce losses and damaged customer relationships caused by fraud and related criminal behavior. FICO fraud solutions also help protect retailers, insurance companies and government agencies.business use cases. Our offerings are available to our customers as software-as-a-service (“SaaS”) or as on-premises software.

Scores
Our leading fraud detection solutionB2B scoring solutions include the FICO® Score, which is the FICO® Falcon® Platform, which is recognized as a global leaderstandard measure of consumer credit risk in fraud detection. The Falcon Platform examines transactional, account, customer, device and merchant data to detect a wide range of fraud indicators quickly and accurately by utilizing artificial intelligence technology.the U.S. It analyzes transactions in real time, assesses the risk of fraud in a fraud score, and provides the ability for user-defined variables and rules strategies to be used in conjunction with the fraud score to prevent fraud while expediting legitimate transactions. Adaptive analytics, a form of self-learning models, can also be employed to accelerate our customers’ response to evolving fraud tactics.

FICO® Fraud Predictor with Merchant Profiles is used in conjunction with the FICO® Falcon® Platform to improve fraud detection rates through the inclusion of merchant profiles, which is especially important for online transactions. Merchant profiles are built using fraud and transactional data that include characteristics revealing which merchants have a history of higher fraud volumes, and which purchase types and ticket sizes have most often been fraudulent at a particular merchant, among others.

FICO® Falcon® Compromise Manager is used in conjunction with the FICO® Falcon® Platform to identify point-of-sale and e-commerce card compromises with analytically derived recommended actions—such as card block and reissue, or watch-listing—to optimize loss prevention. Separately, the FICO® Card Alert Service prevents ATM debit fraud by identifying counterfeit or compromised payment cards and reporting them to issuers. The service analyzes daily transactions from participating networks and uses this data to identify common points of compromise and suspect cards most likely to incur fraud.

We offer a wide range of solutions focused on preventing and detecting identity fraud. In August 2019, we introduced our identity proofing and user authentication solutions, FICO® Falcon® Identity Proofing and FICO® Falcon® Authentication Suite. Identity proofing is the digital process of onboarding new customers without requiring face-to-face verification. The technology provides an extra layer of security that is easy to use with minimal customer inconvenience, thereby preventing fraud as well as ensuring regulatory compliance standards such as e-KYC are met. User authentication is the real-time corroboration of an identity previously established to enable access to an electronic or digital asset. As an authentication hub, our technology includes multifactor, biometric, and behavioral (user and device-based) capabilities. By bringing digital identity verification into our broader portfolio, we give our clients the ability to strengthen fraud and financial crimes defenses with more contextual data and decisioning.


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FICO® Application Fraud Manager helps businesses prevent both first- and third-party fraud during the application process. By preventing fraud prior to account origination, we help our customers avoid future losses as well as unnecessary collections costs. FICO® Identity Resolution Engine helps organizations detect and investigate organized criminal behavior using graph analytics to identify entities and their connections across federated data sources.

We also offer a comprehensive modular set of compliance solutions to fight money-laundering, terrorist financing, and to fulfill custom requirements for governance, risk and compliance. Solutions include, but are not limited to, Know Your Customer (“KYC”), Anti-Money Laundering (“AML”), and Sanctions Screening.

In September 2019, FICO introduced FICO® Falcon® X, a unified platform for the detection and investigation of both fraud and financial crimes. We also announced FICO® Analytics Workbench™—Falcon Edition, which allows banks’ data science teams to develop machine learning models using open source libraries, as well as FICO machine learning libraries, and then deploy the models on Falcon X for operational use.

Prior to October 2020, when we divested this business, the FICO® Cyber Risk Score was part of the FICO® Enterprise Security Suite and it provided an empirically derived score that conveyed the security posture of an organization and the likelihood of a material data breach in the following twelve months. The score was used by customers to manage the cyber risk of an enterprise, assess third-party risk that may be introduced by third- and fourth-party partners and suppliers, and provide an effective tool for cyber insurance underwriting.

Collections & Recovery Applications

FICO® Debt Manager, FICO® Debt Manager Pro, FICO® Debt Manager Pro Plus, FICO® PlacementsPlus® service, FICO® Network and FICO® Placement OptimizerSM solution (collectively, the “FICO Debt Management Solutions”) automate the full cycle of collections and recovery, including early collections, late collections, asset disposal, agency placement and optimization, recovery, litigation, bankruptcy, asset management and residual balance recovery. PlacementsPlusservice facilitates control over the distribution and management of accounts to agencies, attorneys, debt buyers and internal recovery departments. FICO Network provides creditors with a single, secure and compliant channel to exchange data with collection agencies, credit bureaus, debt buyers, attorneys, and other vendors. Placement Optimizer maximizes the effectiveness of the placement strategy once accounts are outsourced. FICODebt Management Solutions also include assessments, models and scores, predictive analytics, advanced customer engagement and optimization. FICO® Debt Manager is available both on premises and in the FICO® Analytic Cloud.

Customer Communication Services

FICO® Customer Communication Services is an intelligent omnichannel digital communication manager for executing customer lifecycle decisions. It enables businesses to automate individualized dialogues with the consistency and regulatory compliance of their human agents. With Customer Communication Services, businesses can be available 24/7 for one-way or two-way communication through any channel consumers choose. Customers can rapidly launch mobile alerts, messaging, virtual agents, self-service options and other auto-resolution capabilities. It helps make the full customer journey—account origination and onboarding, customer management account notifications and engagement campaigns, fraud management and debt collection—more digital and raises the level of data-driven intelligence behind lifecycle communications. In addition to its own rules-based communication logic and embedded rules engine, Customer Communication Services can execute complex multi-step strategies shaped by risk-based segmentation, predictive scores, machine learning insights and mathematical optimization.

Marketing Applications

FICO® Marketing Solutions Suite is made up of products, capabilities and services designed to integrate the technology and analytic services needed to perform context-sensitive customer acquisition, cross-selling and retention programs and deliver mathematically optimized offers. The Marketing Solutions Suite enables companies that offer multiple products and use multiple channels (companies such as large financial institutions, consumer branded goods companies, pharmaceutical companies, retail merchants and hospitality companies) to execute more efficient and profitable customer interactions. Services offered in our marketing solutions include customer data integration services; services that enable real-time marketing through direct consumer interaction channels; campaign management, messaging and optimization services; interactive tools that automate the design, execution and collection of customer response data across multiple channels; and customer data collection, management and profiling services.

Analytic Services


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We perform custom analytics (descriptive, predictive and prescriptive) as well as decision modeling and related analytic and machine learning projects for clients in multiple industries. This enables them to improve critical business processes and operationalize analytics across the customer lifecycle. We do so with our advanced analytic methodologies and domain expertise to solve risk management, fraud, marketing and other challenges for a single business, using that business’s unique data and industry position to develop a highly customized solution. Most of this work falls under predictive analytics, decision modeling and optimization, which provide greater insight into customer preferences, predict future customer behavior and operationalize these analytics. Within decision analysis and optimization, we apply data and proprietary algorithms to design customer treatment strategies and improve business outcomes.


Scores

Our FICO® Scores are used in the majority of U.S. credit decisions, by nearly all of the major banks, credit card organizations,issuers, mortgage lenders, and auto loan originators. These creditOur B2B scoring solutions are primarily distributed through major consumer reporting agencies worldwide. Our B2C scores developed based on third-party data, provide a consistentare sold directly to consumers through our myFICO.com website and objective measure of an individual’s credit risk. Credit grantors use ourother direct-to-consumer channels.
The FICO® Scores in a variety of ways: to prescreen candidates for marketing programs; to evaluate applicants for new credit; and to manage existing customer accounts. FICO® Score is a three-digit scorenumber ranging from 300-850. TheyOur proprietary analytic algorithms are calculatedapplied to credit data collected and maintained by running data from the three U.S. national creditconsumer reporting agencies Experian, TransUnion and Equifax through one— to produce standard scores that are used across the credit lifecycle, including in origination, account management and consumer marketing. Users of several proprietary scoring models developed by FICO. Lendersour scores generally pay the creditconsumer reporting agencies scoring fees based on usage,a fee for each individual score generated by our algorithms, and the creditconsumer reporting agencies pay an associated fee to us. Except for product development using de-personalized data, FICO does not collect or store the consumer credit data used in the calculation of our scores, and in most cases, we do not sell our scores directly to lenders or other end-users.
Since the introduction of the FICO® Score in the U.S. in 1989, we have regularly updated the score to take advantage of newly available data and enhanced analytics. Our most recent and most predictive scores, FICO® Score 10 and 10T, were introduced in January 2020. To increase its predictive power, FICO® Score 10T builds on FICO Score 10 T,but also incorporates trended credit data. Trended data considers a longer historical view, giving lenders even more insight into how individuals are managing their credit. When we introduced FICO® Score 9 in 2015, it also made use of newly available data such as reported rental payment history, while also de-emphasizing medical debt and disregarding paid collections.
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Most of our scores distributed today are FICO® Score 8 and FICO® Score 9. While our newer scores generally provide greater predictive accuracy than the most recentscores they replace, we ensure that new versions of the standard FICO® Score are anticipatedcompatible with prior versions of the FICO Score.
In addition to be released at the three U.S. national credit reporting agencies by the end of calendar year 2020.

While the core FICO®Score, is the foundation of our scoring portfolio, we offer a number ofseveral other broad-based scores, including several specific FICO® Industry Scores. For example, in July 2021 we introduced Bankcard and Auto Industry versions of FICO® Score 10. We also develop various custom scores for our financial services clients. Additionally, we
The FICO® Resilience Index offering is designed to complement FICO® Score models by identifying those consumers who are more resilient to economic stress relative to other consumers within the same FICO Score bands. The FICO Resilience Index is designed to enable lenders to continue to innovatelend and better manage risk by investingproviding a more precise assessment of loan default risk during periods of economic stress.
FICO has invested significant resources in the development of scores that can help expand credit access and lower borrowing costs for consumers that have limited credit history or who have sparse or inactive credit files. These scores use alternative data sources to enhance conventional credit bureau data and generate scores for otherwise un-scorable consumers and in many cases improve the credit scores of scorable population using alternative credit data. consumers.
FICO® Score XD looks atuses public records and property data, and a consumer’s history with mobile phone, landline phone and cable payments, to generate scores on the same 300-850 scale as standard FICO® Scores. FICO® Score XD is available to lenders fromthrough our distribution partners, LexisNexis Risk Solutions and Equifax.
The UltraFICOTM Score considers consumer permissioneduses consumer-permissioned data from accounts such as checking, savings, or money market accounts.account data, to generate scores on the same 300-850 scale as standard FICO® Scores. Incorporating consumer contributedconsumer-permissioned data is a unique approach to helpinghelps empower consumers to establish or improve their creditworthiness by using data that reflects sound financial activity, but that is not part of a traditionalconventional credit report. This can help consumers qualify for
Both scores maintain the same score to risk relationship as standard FICO® Scores, enhancing their compatibility with existing credit they seek under more competitive terms. This approach is particularly helpful for consumers who may have very sparse or inactive credit filesunderwriting systems and are seeking a path toward greater financial inclusion in mainstream banking.models.

Outside the U.S., we offer FICO® Scores including scores using alternative data, for consumers,consumer loans, and in some cases for small and medium enterprises,business loans. These scores are typically sold to end-users through creditconsumer reporting agencies.agencies in those countries, as they are in the U.S. We have also have installeddeveloped client-specific versions of the FICO® Score in over ten countries. Likecountries that we sell directly to end-user customers. FICO® Scores in the U.S., these scores help lenders in multiple countries leverage the FICO® Score’s predictive analysis to assess the risk of marketing prospects and credit applicants. FICO® Scores are currently in use or being implemented in 30 different countries across five continents outside the U.S.

We also have scoring systems for insurance underwriters and marketers. Our FICO® Insurance Scores use the same underlying statistical technology as our FICO® Scores, but are designed to predict future personal auto and homeowner insurance losses for new applicants and existing policyholders. Our insurance scores are available to the insurance industry throughout the U.S.

During fiscal 2020, we announced the launch of the FICO® Resilience Index, a new analytic tool designed to complement FICO® Score models by identifying those consumers who are most resilient to economic stress relative to other consumers within the same FICO® Score bands. FICO® Resilience Index would enable industry participants to more precisely assess credit risk and extend credit to more consumers throughout the economic cycle by managing the risk that emerges during periods of economic stress.

We also provide FICO®Score based products, education and information on FICO® Scores to consumers. Theyconsumers in the U.S. through our B2C scoring solutions. These Scores are distributed directly by us through our myFICO® servicemyFICO.com subscription offering and indirectly through our licensed distribution partners, including Experian and certain lenders for use in customerthrough the FICO® Score Open Access Program. Through myFICO.com and non-customer programs.


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The myFICO® products and subscription offerings are available online at www.myfico.com. Consumersother direct-to-consumer channels, consumers can use the myFICO.com website to purchase their FICO® Scores, including credit reports associated with the scores, explanations of the factors affecting their scores, and customized educational information on how to manage their scores. We make available the 28 most widely used versions of the FICO® Score from the three major U.S. credit bureaus through our myFICO® service, representing approximately 95% of all FICO® Scores sold and used by lenders. CustomersConsumers can use products to simulate how taking specific actions could affect their FICO® Score 8. Score. Consumers can also subscribe to credit monitoring, services, which deliver alerts via email and text when changes to a user’s FICO® Scores or other credit report content are detected. In addition, consumers can purchase identity theft monitoring products that alert consumers ofthem to potential risks of identity fraud with comprehensive detection and identity restoration services.fraud.


Decision Management Software

We provide anOur software harnesses the power of analytics and decisiondigital decisioning technology to help businesses automate, improve, and connect decisions across their enterprise. Most of our solutions address customer engagement, including acquisition and pricing, onboarding, servicing and management, platform thatand fraud protection. We also help businesses use to build their own tailored, analytically-powered decisionimprove non-customer facing decisions such as supply chain optimization, scheduling management applications. The FICO® Decision Management Platform adds scalable and flexible decision management capabilities to virtually any application or operational system. Together, these tools are sold as licensedpolicy adherence.
FICO provides software or as a SaaS offering in the cloud, and can be used standalone, or in conjunction with third-party solutions to advance a client’s decision management initiatives. We use these tools as foundational components for our own decision management solutions, described above in the “Applications” section, enhancing the cross-compatibility and extensibility of all of the software solutions we build and deliver. We also partner with third-party providers within given industry markets and with major software companies to embed our tools and other FICO Decision Management Platform components within their existing applications.

During fiscal 2020, FICO continued to enhance the FICO® Decision Management Platform and related services for building, extending, deploying and scaling decision management applications and solutions. These services are collectively referred to as the FICO® Decision Management Suite, and include capabilities for authoring, customizing, executing, and managing predictive analytic, decisioning, and optimization components and services; developing, orchestrating and publishing analytics-powered applications; and visualizing, analyzing and reporting data trends. Component capabilities include:

FICO® Decision Management Platform, which connects, executes and powers proprietary platform services that dramatically improve performance, data interchange, model tracking and user collaboration;
FICO® Decision Modeler, the core decision rules modeling tool, which enables users to flexibly author and manage decision rules and strategies;
FICO® Analytics Workbench™, the consolidated predictive analytics modeling authoring tool, with data wrangling, machine learning and explainable AI;
FICO® Applications Workbench, an agile application UI builder, which leverages platform services to speed time to application deployment;
FICO® Strategy Director, which helps organizations proactively manage consumer accounts to increase revenue, decrease risk and improve customer retention;
FICO® Decision Central™ (formerly known as Model Central), a solution which enables users to monitor, manage, measure and control the deployment and performance of all decision assets including analytic models and rules-based decision strategies;
FICO® Xpress Optimization, an optimization modeling suite which includes both the solver technology, Mosel, as well as a general-purpose optimization solver, Xpress Insight; and
FICO® Decision Management Platform Streaming, a real-time and batch data ingestion solution that uniquely delivers in-stream analytics for real-time data insights and complex event processing.

The FICO® Decision Management Suite enables FICO’s clients to combine big data, predictive analytics and decision execution together in an easy-to-use, integrated development and deployment environment. It enables organizations to rapidly create innovative analytic applications; dramatically increase developer and business user productivity with support for a broad range of analytic and decision tools; and execute decisions in real time. It also empowers business analysts and other domain experts to modify systems without IT involvement, providing organizations with the agility they need to rapidly respond to customer, regulatory and business changes.

In addition, FICO offers certain decision management software tools for use outside of the context of the FICO Decision Management Platform, including:


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Rules Management. The FICO® Blaze Advisor® decision rules management system is used to design, develop, execute and maintain rules-based business applications. The Blaze Advisor system enables business users to propose and preview the impact of changes to decisioning logic, to review and approve proposed changes, and to commit those changes to production decisioning, all without demanding IT cycles. The Blaze Advisor system is sold as an end-user tool and is also the rules engine within several of our decision management applications. The Blaze Advisor system, available in six languages, is a multi-platform solution that: embeds rules management within existing applications; supports Web Services and service-oriented architecture, Java 2 Enterprise Edition platforms, and COBOL for z/OS mainframes; and is the first rules engine to support Java and COBOL deployment of the same rules. It also incorporates the exclusive Rete III rules execution technology, which improves the efficiency and speed with which the Blaze Advisor system is able to process and execute complex, high-volume decision rules.

Predictive Modeling. FICO® Decision Central is a comprehensive offering to help banks and other organizations-including insurance, retail and health care companies-streamline their predictive and decision model governance and meet stricter regulations for model management. It complements FICO® Analytics Workbench™, which enables the user to develop and deploy sophisticated predictive models for use in automated decisions. This software is based on the methodology and tools FICO uses to build both client-level and industry-level predictive models, which it developed from countless client engagements. The predictive models and strategies produced can be embedded in custom production applications, the FICO® Platform, or one of our decision management applications. FICO® Analytics Workbench is available for on-premises or cloud implementation.

Optimization. FICO® Xpress Optimization provides operations research professionals with world-class solvers and high-productivity tools to quickly design and deliver custom, mathematically optimal solutions for a wide range of industry problems. Xpress includes a powerful modeling and programming language, with robust scalability, to quickly model and solve even the largest optimization problems. Xpress tools are licensed to end users, consultants and independent software vendors in several industries, and are a core component within FICO® Decision Optimizer.  Decision Optimizer is a software tool that enables complex, large-scale optimizations involving dozens of networked action-effect models, and enables exploration and simulation of many optimized scenarios along an efficient frontier of options. The data-driven strategies produced by these tools can be executed by the FICO® Blaze Advisor® system or one of our Decision Management applications. FICO’s solution for creating or executing optimization solutions is available on-premises or in the cloud.

COMPETITION

The market for our advanced solutions is intensely competitive and is constantly changing. Our competitors vary in size and in the scope of the products and services they offer. We encounter competition from a number of sources, including:

in-house analytic and systems developers;

scoring model builders;

enterprise resource planning and customer relationship management packaged solutions providers;

business intelligence solutions providers;

business process management and decision rules management providers;

providers of credit reports and credit scores;

providers of automated application processing services;

data vendors;

neural network developers and artificial intelligence system builders;

third-party professional services and consulting organizations;

providers of account/workflow management software;

software companies supplying predictive analytic modeling, rules, or analytic development tools; collections and recovery solutions providers; entity resolution and social network analysis solutions providers; and

providers of cloud-based customer engagement and risk management solutions.

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We believe our competitors are presently unable to provide the mix of products, expertise in predictive analytics and integration with decision management software, and enhanced customer management capabilities that we are able to deliver. However, certain competitors may have larger shares of particular geographic or product markets than we do.

Applications

The competition for our Applications varies by both application and industry.

In the marketing services market, we compete with Pegasystems, Equifax, Experian, SAS, Adobe and Salesforce, among others. We also compete with traditional advertising agencies and companies’ internal information technology and analytics departments.

In the customer origination market, we compete with Experian, Equifax, Moody’s, Meridian Link, and CGI, among others.

In the customer strategy management market, we compete with Experian and SAS, among others.

In the fraud and financial crimes market for banking, we compete primarily with Nice Actimize, Experian, BAE Systems Applied Intelligence, SAS, ACI Worldwide, IBM, Feedzai and Featurespace.

In the collections and recovery market, we compete with both outside suppliers and in-house scoring and computer systems departments for software and ASP servicing. Major competitors include CGI, the three major U.S. credit reporting agencies and various boutique firms.

Scores

In this segment, we compete with both outside suppliers and in-house analytics departments for scoring business. Primary competitors among outside suppliers of scoring models are the three major credit reporting agencies in the U.S. and Canada, which are also our partners in offering our scoring solutions, and VantageScore (a joint venture entity established by the major U.S. credit reporting agencies). Additional competitors include CRIF and other credit reporting agencies outside the U.S., and other data providers like LexisNexis and ChoicePoint, some of which also are among our partners.

For our “direct-to-consumer” services that deliver credit scores, credit reports and consumer credit education services, we compete with other direct to consumer credit and identity services.

Decision Management Software

Our primary competitors in this segment include IBM, Experian, SAS, Pegasystems and Gurobi, along with a number of smaller, specialized vendors providing industry-specific solutions.

Competitive Factors

We believe the principal competitive factors affecting our markets include: technical performance; access to unique proprietary databases; availability in SaaS format; product attributes like adaptability, scalability, interoperability, functionality and ease-of-use; product price; customer service and support; the effectiveness of sales and marketing efforts; existing market penetration; and reputation. Although we believe our products and services compete favorably with respect to these factors, we may not be able to maintain our competitive position against current and future competitors.
MARKETS AND CUSTOMERS

Our products and services serve clients in multiple industries, including primarily banking, insurance, retail, healthcare and public agencies. End users of our products include 96 of the 100 largest financial institutions in the U.S., and two-thirds of the largest 100 banks in the world. Our clients also include more than 600 insurers, including nine of the top ten U.S. property and casualty insurers; more than 300 retailers and general merchandisers; more than 200 government or public agencies; and more than 200 healthcare and pharmaceuticals companies, including nine of the world’s top ten pharmaceuticals companies. Eight of the top ten companies on the 2020 Fortune 500 list use one or more of our solutions. In addition, our consumer services are marketed to an estimated 200 million U.S. consumers whose credit relationships are reported to the three major U.S. credit reporting agencies.


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In the U.S., we market our products and services primarily through our own direct sales organization that is organized around vertical markets. Sales groups are based in our headquarters and in field offices strategically located both in and outside the U.S. We also market our products through indirect channels, including alliance partners and other resellers.

Our scores are marketed and sold through credit reporting agencies. During fiscal 2020, 2019 and 2018, revenues generated from our agreements with Experian, TransUnion and Equifax collectively accounted for 32%, 29% and 25% of our total revenues, respectively.

Outside the U.S., we market our products and services primarily through our subsidiary sales organizations. Our subsidiaries license and support our products in their local countries as well as within other foreign countries where we do not operate through a direct sales subsidiary. We also market our products through resellers and independent distributors in international territories not covered by our subsidiaries’ direct sales organizations.

Our largest market segments outside the U.S. are the United Kingdom and Canada. In addition, we have delivered products to userscustomers in more than 120 countries.countries around the world. Our software can be deployed in the cloud utilizing third-party cloud services, or on-premises using our customers’ IT infrastructure. We typically sell our software as multi-year subscriptions, with payments based on usage metrics such as the number of accounts, transactions or decisioning use cases deployed, often subject to contracted minimum payments.

A significant and growing number of our software solutions run natively on FICO® Platform, a modular software offering designed to support advanced analytics and decisioning use cases. While not all our software runs on FICO Platform today, we are investing significant development resources to enable substantially all of our software to run on FICO Platform in the future.

TECHNOLOGY
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Principal Areas of Expertise
We specialize in analytics software and decision management technologiessolutions that analyze data and drive decision strategies and customer engagement. We maintain active research in a number of fields for the purposes of deriving greater insight and predictive value from data, making various forms of data more usable and valuableempower businesses to the model-building process, and automating and applyingoperationalize analytics to the various business processes involved in making high-volumeuncover new opportunities, make timely decisions in real time.that matter, and execute them at scale. With more than 60 years of analytics and software experience, we have found that bringing human and digital intelligence together allows our customers to target and acquire customers more efficiently, increase customer value, reduce fraud and credit losses, lower operating expenses, and enter new markets more profitably.

WeOur principal areas of research and development expertise are widely recognized as a leader in predictive analytics due to our pioneering work in credit scoring and fraud detection. We believe that our tools and processes are among the very best commercially available, and that we are uniquely able to integrate advanced analytic, software and data technologies into mission-critical business solutions that offer superior returns on investment.

In fiscal 2020, we continued to make progress with our FICO® Decision Management Suite and FICO® Decision Management Platform initiatives. Most significantly for the fiscal year, we added new Platform Service functionality to provide cross-application enablement of centralized services (for example, enabling authentication, provisioning, data ingestion, and similar functions). We have seen initial success in delivering platform-centric solutions that provide unique value to enterprise clients in tracking and visualizing a buyer’s journey across otherwise siloed offerings.
In addition, we continue to expand the integration of capabilities that make many of our software solutions, which were previously available only as on-premises software installations, into SaaS solutions hostedfocused on the FICOfollowing four analytic domains.
® Analytic Cloud and/or in AWS. The FICO® Decision Management Suite enables clients to use FICO tools, along with rapid application development tools and visualization tools, to quickly develop their own decision management applications and services. We continue to add functionality to the platform as well as host additional FICO applications in the cloud. These ongoing initiatives are driven by enhancing our core technical capabilities listed below, and extending them through partnerships with other technology providers as well as through employing open source software.Predictive Modeling

Principal Areas of Expertise

Predictive Modeling. Predictive modeling identifies and mathematically represents underlying relationships in historical data in order to explain the data and make predictions or classifications about future events. Our models summarize large quantities of data to amplify its value. Predictive models typically analyze current and historical data onabout individuals to produce easily understood metrics such as scores. These scores rank-order individuals by likely future performance, e.g., theiror specific transactions against a particular variable such as the likelihood of making credit payments on time, the likelihood of a transaction being fraudulent or the probability of responding to a particular offer for services. We also include in this category models that detect the likelihood of a transaction being fraudulent. Our predictive models are frequently operationalizedused in mission-critical transactional systems and drive decisions and actions in near real time. A number of
Several analytic methodologies underlie our products in this area. These include proprietary applications of both linear and nonlinear mathematical programmingoptimization algorithms, in which one objective is optimized within a set of constraints, and advanced neural systems, which learn complex patterns from large data sets to predict the probability that a new individual will exhibit certain behaviors of business interest.machine learning and AI. We also apply various related statistical techniques for analysis and pattern detection within large datasets and have enhanced our abilities tocan derive insights and predictive variablesfeatures from various forms of so-called big data, including unstructured data, such as text. We have enhanced our predictive analytic capabilities to include the development of machine learning algorithms and artificial intelligence. FICO has focused on making artificial intelligence explainable to auditors, developers and decision makers so that it can be deployed responsibly.data.


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Decision Analysis and Optimization. Optimization
Decision analysis refers to the broad quantitative field that deals with modeling, analyzing, and optimizing decisions made by individuals, groups, and organizations. Whereas predictive models analyze multiple aspects of individual behavior to forecast future behavior, decision analysis analyzes multiple aspects of a given decision to identify the most effective action to take to reach a desired result. We have developed anThis is often referred to as prescriptive analytics. Our integrated approach to decision analysis that incorporates the development of a decision model that mathematically maps the entire decision structure; proprietary optimization technology that identifies the most effective strategies, given both the performance objective and constraints; the development of designed testing and simulation required for active, continuous learning; and the robust extrapolation of an optimized strategy to a wider set of scenarios than historically encountered. Our optimization capabilities also include anative support for Python modeling, as well as our own proprietary mathematical modeling and programming language, an easy-to-use developmentauthoring environment, a configurable business simulation and scenario management interface and a state-of-the-art set of pre-built optimization algorithms.
Transaction Profiling

Transaction Profiling. Transaction profiling is a patent-protected technique used to extract meaningful information and reduce the complexity of transaction data used in modeling. Many of our products operate using transactional data, such as credit card purchase transactions, consumer interactions, or other types of data that change over time. In its raw form, this data is very difficult to use in predictive models for several reasons. First, an isolated transaction contains very little information about the behavior of the individual who generated the transaction. In addition,Second, transaction patterns change rapidly over time. Finally,Third, this type of data can often be highly complex. To overcome these issues, we have developed a set of techniques that transform raw transactional data into a mathematical representation that reveals latent information, and which make the data more usable by predictive models. This profiling technology accumulates data across multiple transactions of many types to create and update profiles of transaction patterns. These profiles enable our neural network models to efficiently and effectively make accurate assessments of, for example, fraud risk and credit risk within real-time transaction streams.

Customer Data Integration. Integration
Decisions made onabout customers or prospects can benefit from data stored in multiple sources, both inside and outside the enterprise. In the areas of analytics and digital decisioning, more data is generally better. We have focused on developingdeveloped proprietary data integration processesingestion and management tools that are able to assemble and integrate those disparate data sources into a unified view of the customer, household, or household,other subject through the application of persistent keying technology. This data can include structured or unstructured data. Recent innovations include a solution thatIn addition, our technology can integrate multiple data sources in real timereal-time and make them available for rapid analysis and decisions.decisions such as credit approval, fraud detection and “next best offer” workflows.


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We believe our analytic tools and solutions are among the best commercially available, and that we are uniquely positioned to integrate advanced analytic, software and data technologies into mission-critical business solutions that offer superior returns on investment.

FICO® Platform
FICO® Platform is an analytic and decisioning environment that empowers businesses to configure solutions that orchestrate and operationalize high velocity decisions that matter, at scale. Users of FICO Platform can bring together data from multiple sources, apply advanced analytics to derive insights, and translate those insights into actions and workflows that can be executed in real-time. Based on a modular cloud architecture, FICO Platform can be configured by our customers to solve a vast array of business challenges. FICO Platform delivers increasing value to our customers over time as they add additional analytic capabilities, configure their own solutions or utilize pre-configured solutions to address a diverse set of use cases and integrate disparate analytic and decisioning silos onto a centralized, scalable platform. This drives additional subscription software revenue for FICO over time as customers purchase more FICO Platform capabilities and pay for more usage of those capabilities.
Our goal is to move substantially all of FICO’s current software products onto FICO® Platform. For example, FICO’s industry leading rules-based decisioning engine, FICO® Blaze Advisor® decision rules management system, is now available on FICO Platform as FICO®Decision Management Software. Modeler. In addition, some FICO pre-configured solutions are now available on FICO Platform. We believe this strategy of moving our software products to FICO Platform will result in revenue growth through follow-on “land and expand” sales to existing Platform customers and more sales to medium-sized businesses typically served through value-added resellers and systems integrators.
Our annual recurring revenue (“ARR”) from FICOIn order® Platform based products was $114.2 million as of September 30, 2022, representing 20% of our total software ARR.

Our Offerings
We sell our software primarily as analytic and decisioning software or pre-configured solutions. Our software offerings are sold both individually and as integrated bundles of multiple products.

Analytic and Decisioning Software
FICO analytic and decisioning software offerings use proprietary and open source microservices and capabilities to enable both business users and data scientists to develop and execute advanced analytics and decision modeling. Our key products in this category include:
FICO® Decision Modeler and FICO® Blaze Advisor® are our core decision rules modeling tools, which enable users to flexibly author and manage decision rules and strategies. FICO Decision Modeler delivers the functionality of our industry leading FICO Blaze Advisor product, with the added benefit of seamless integration into FICO® Platform. FICO Blaze Advisor, the predecessor to FICO Decision Modeler, is available as an off-platform product.
FICO® Xpress Optimization provides operations research professionals and business analysts with world-class solvers and productivity tools to determine optimal outcomes for a wide range of industry problems. FICO Xpress Optimization includes a powerful modeling and programming language to quickly model and solve even the largest optimization problems. FICO Xpress Optimization runs on FICO® Platform.
FICO® Analytics WorkbenchTM is a predictive analytics tool that allows businesses to create and deploy explainable machine learning models for use in decisions that typically require strict governance and compliance, often including regulatory oversight. FICO Analytics Workbench runs on FICO® Platform.
FICO® Data Orchestrator is a data retrieval and mapping solution that can access, gather, and transform data from corporate or public facing information services. FICO Data Orchestrator runs on FICO® Platform.
FICO® DMP Streaming is a real-time and batch data ingestion solution that uniquely delivers in-stream analytics for real-time data insights and complex event processing.
FICO® Business Outcome Simulator enables business users to run a wide variety of insightful scenarios to assess how their business is likely to perform under varying conditions and assumptions. It unlocks insights into how key outcomes will likely shift in the face of changing competitor strategy, macroeconomic changes, evolving customer preferences, and more. FICO Business Outcome Simulator runs on FICO® Platform.
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FICO® Decision Optimizer helps business users understand how different customers will react to a variety of different actions that are being considered. Once that link is understood, FICO Decision Optimizer identifies the combination of actions most likely to lead to the desired portfolio outcomes through decisions such as who to offer a new product, what limit and/or price to offer, or how to treat delinquent customers. FICO Decision Optimizer runs on FICO® Platform.

Pre-Configured Solutions
FICO's pre-configured solutions optimize customer interactions in real-time, driving greater customer engagement and improving business results. They enable acquisition and growth marketing, account activation and management, omni-channel communication, risk assessment, fraud detection and prevention, and financial crime compliance. Key FICO solutions offered today include:
FICO® Fraud and Financial Crimes Solutions help our clients detect and prevent transactional financial fraud and violations of global financial compliance regulations. Our solutions analyze activities such as credit card transactions and account openings to generate real time recommendations for immediate action. These defenses are critical to identifying and mitigating identity fraud, payments fraud and money laundering. Our models that identify transaction fraud are continually improved using a proprietary, global data set of transaction data contributed by more than 9,000 institutions that participate in the FICO® Falcon® Intelligence Network. We plan to offer most of our Fraud capabilities on FICO Platform.
FICO® Originations Solution is an application-to-decision credit originations solution. It enables banks, credit unions, finance companies, online lenders, auto lenders, and other companies to automate and improve the processing of requests for credit. Our Originations Solution increases the speed, consistency and efficiency with which requests are handled, reducing losses, and increasing approval rates through the application of sophisticated policies and analytics that assess applicant risk and reduce the need for manual review by underwriters. We plan to offer most of our Originations capabilities on FICO Platform.
FICO® Customer Communication Service is an intelligent omnichannel digital communication manager for resolving customer interactions. It enables businesses to automate individualized customer dialogues with the same consistency and regulatory compliance as their human agents. With Customer Communication Service, businesses can be available 24/7 for one-way or two-way communication through any channel their consumers choose. Businesses can rapidly launch mobile alerts, messaging, virtual agents, self-service options, and other auto-resolution capabilities. It helps make the full customer journey more efficient and raises the level of data-driven digital intelligence behind lifecycle communications. Certain Customer Communication products are available on FICO Platform today, and we plan to make additional Customer Communication products available on FICO® Platform in the future.
FICO® Strategy Director and FICO® TRIAD® Customer Manager enable businesses to automate and improve risk-based decisions for their existing credit customers. These products help businesses apply advanced analytics in credit account and customer decisions to increase portfolio revenue and reduce risk exposure and losses, while improving customer retention. They also allow users to manage risk and communications at both the account and customer level from a single place. FICO Strategy Director runs on FICO® Platform. FICO TRIAD Customer Manager, the predecessor to FICO Strategy Director, is available as an off-platform product.

FICO® Professional Services
FICO offers a range of professional services designed to help customers install and configure our software, develop and deploy advanced analytics using our software, and improve customer satisfaction and retention.
FICO® Implementation Services. We often sell software implementation and configuration services in conjunction with our on-premise and SaaS subscriptions, and our perpetual license sales. The FICO implementation services team leverages their deep expertise in our products and their extensive industry-specific knowledge to help our customers implement and configure FICO software rapidly and effectively.
FICO® Analytic Services. We build custom analytics, decision strategy operational, various stepsmodels and related analytics, and perform machine learning projects for clients in multiple industries. These analytic services help to improve critical business processes and operationalize analytics using FICO software products. Most of our engagements utilize predictive analytics, decision modeling and optimization to provide greater insight into customer preferences and help predict future customer behavior.
FICO® Advisors. FICO Advisors are business consultants accelerating the practical use of FICO solutions through data-driven analytics, strategic design, and software applications. Our seasoned practitioners are uniquely valued for their credit lifecycle risk and fraud knowledge and can help drive measurable results in an ever-dynamic economic market.
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Our professional services are sold on an hourly time and materials basis or for a fixed project fee.


MARKETS AND CUSTOMERS

Our scores and software products and services serve clients in multiple industries, including banking, insurance, retail, healthcare and public agencies. End users of our products include 92 of the 100 largest financial institutions in the U.S., and three-quarters of the largest 100 banks in the world. Our clients also include more than 600 insurers, including eight of the top ten U.S. property and casualty insurers; more than 300 retailers and general merchandisers; and more than 200 government or public agencies. Seven of the top ten companies on the 2022 Fortune 500 list use one or more of our solutions. In addition, our consumer solutions are marketed to an estimated 200 million U.S. consumers whose credit relationships are reported to the three major U.S. consumer reporting agencies.
The majority of our scores are marketed and sold through consumer reporting agencies. During fiscal 2022, 2021 and 2020, revenues generated from our agreements with Experian, TransUnion and Equifax collectively accounted for 39%, 38% and 33% of our total revenues, respectively. We also sell our scores and credit monitoring directly to consumers through our myFICO.com on-line subscription offerings. Outside of the U.S., we sell our scores through consumer reporting agencies, other third-party distributors, and in some cases directly to large end-users.
We market our software products and services primarily through our own direct sales organization that is organized around vertical and geographic markets. Sales teams are based in our headquarters and in field offices strategically located around the world. We also market our products through indirect channels, including alliance partners and other resellers. As more of our products are made available on FICO® Platform, we expect our sales through indirect channels to grow. We are investing significant resources to develop our indirect channel relationships.
Our largest market segment is financial services, representing 90% of our total revenue in 2022. Our largest geographic market is the Americas, representing 82% of our total revenue in 2022.

COMPETITION
The market for our solutions is intensely competitive and is constantly changing. Our competitors vary both in size and in the scope of the products and services they offer. We encounter competition from several sources, including:
in-house analytic and systems developers;
neural network developers and artificial intelligence system builders;
fraud and compliance solution providers;
scoring model builders;
providers of credit reports and credit scores;
software companies supplying predictive analytic modeling, rules, need to be programmed or exported into the business's software infrastructure, where they can communicate with front-end, customer-facing systemsanalytic development tools;
entity resolution and back-end systems such as billing systems. We have developed software systems, sometimes known as decision enginessocial network analysis solutions providers;
providers of customer engagement and risk management solutions;
providers of account workflow management software;
business process management and decision rules management systems, which perform the necessary functionsproviders;
enterprise resource planning and customer relationship management solutions providers;
business intelligence solutions providers;
providers of automated application processing services; and
third-party professional services and consulting organizations.

We believe we offer customers a unique mix of products, expertise and capabilities that allows us to execute a decision strategy. Our software includes very efficient programs for these functions, facilitating, for example, business user definition of extremely complex decision strategies using graphical user interfaces; simultaneous testing of hundreds of decision strategiescompete effectively in “champion/challenger” (test/control) mode; high-volume processing and analysis of transactions in real time; integration of multiple data sources; and execution of predictive models for improved behavior forecasts and finer segmentation. Decision management software is an integral partour target markets. However, many of our decision management applications, described earlier.competitors are larger than FICO, have more development, sales and marketing resources than FICO, and some have larger shares of our target geographic or product markets.

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We believe the principal competitive factors affecting our markets include technical performance; access to unique proprietary analytical models and data; product attributes like adaptability, scalability, interoperability, functionality, and ease-of-use; on-premises and SaaS product availability; product price; customer service and support; the effectiveness of sales and marketing efforts; existing market penetration; and reputation. Although we believe our products and services compete favorably with respect to these factors, we may not be able to maintain our competitive position against current and future competitors.
Customer Engagement
Scores
In our Scores segment, we compete with both outside suppliers and in-house analytics. Primary competitors among outside suppliers of scoring models are the three major consumer reporting agencies in the U.S. and Canada, which are also our partners in offering our scoring solutions, and VantageScore (a joint venture entity established by the major U.S. consumer reporting agencies). We have advanced technology for customer engagement,Additional competitors include consumer reporting agencies outside the U.S. like CRIF Ratings, which enablesoperates in the execution of decisions and customer contact through SMS, email, automated voice, mobile applicationsEuropean Union, and other channels. This technology enables FICOdata providers like LexisNexis and ChoicePoint, some of which also are our partners.
For our offerings that deliver credit scores, credit reports and consumer credit education solutions directly to extend decision management beyond the renderingconsumers, we compete with other direct to consumer credit and identity services such as Credit Karma, Credit Sesame, Experian and TransUnion, some of the decision to the final resolution with a customer, using the most effective method of communication for a given event and customer. Integrating this technology withwhich are also our decision management systems has proven to decrease costs, improve staff efficiency, increase customer satisfaction and improve the return from marketing, fraud and collections activities.partners.


Software
Network Analytics. We have advanced technology for identity resolution and network analysis, which enables users to understandThe competition in our Software segment varies by application. In the relationships between their organization, customers, events, and third-party actors. Businesses can perform real-time searches across their enterprise data to find, match, and link similar entities and uncover hidden relationships between people, places and things. This technology complements FICO’s capabilities in the area of fraud and financial crime analytics.

Identitycrimes market for banking, we compete primarily with Nice Actimize, Experian, Pegasystems, BAE Systems Applied Intelligence, SAS, ACI Worldwide, IBM, Feedzai and Authentication. We have advanced technology for digital identity verification and authentication. As part of a unified digital identity suite, this technology provides a mobile and seamless method for validating identities duringFeaturespace. In the customer onboarding process,origination market, we compete with Experian, Equifax, Moody’s, Meridian Link, and enrolling them as trusted entities for multifactor, biometric and behavioral authentication across digital interactions. It also helps organizations take a balanced approach to security and the user experience, providing easy-to-use, integrated security acrossCGI, among others. In the customer lifecycle.management market, we compete with Experian and SAS, among others. In the marketing services market, we compete with Pegasystems, Equifax, Experian, SAS, Adobe and Salesforce, among others.



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PRODUCT PROTECTION AND TRADEMARKS

We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality agreements and procedures to protect our proprietary rights.
We retain the title to and protect the suite of models and software used to develop scoring models as a trade secret. We also restrict access to our source code and limit access to and distribution of our software, documentation, and other proprietary information. We have generally relied upon the laws protecting trade secrets and upon contractual nondisclosure safeguards and restrictions on transferability to protect our software and proprietary interests in our product and service methodology and know-how. Our confidentiality procedures include invention assignment and proprietary information agreements with our employees and independent contractors, and nondisclosure agreements with our distributors, strategic partners, and customers. We also claim copyright protection for certain proprietary software and documentation.
We have patents on many of our technologies and have patent applications pending on other technologies. The patents we hold may not be upheld as valid and may not prevent the development of competitive products. In addition, patents may never be issued on our pending patent applications or on any future applications that we may submit. We currently hold 184188 U.S. and 1620 foreign patents, with 10283 applications pending.
Despite our precautions, it may be possible for competitors or users to copy or reproduce aspects of our software or to obtain information that we regard as trade secrets. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the U.S. Patents and other protections for our intellectual property are important, but we believe our success and growth will depend principally on such factors as the knowledge, ability, experience and creative skills of our personnel, new products, frequent product enhancements and name recognition.
We have developed technologies for research projects conducted under agreements with various U.S. government agencies or their subcontractors. Although we have acquired commercial rights to these technologies, the U.S. government typically retains ownership of intellectual property rights and licenses in the technologies that we develop under these contracts. In some cases, the U.S. government can terminate our rights to these technologies if we fail to commercialize them on a timely basis. In addition, under U.S. government contracts, the government may make the results of our research public, which could limit our competitive advantage with respect to future products based on funded research.
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We have used, registered and/or applied to register certain trademarks and service marks for our technologies, products and services. We currently have 3431 trademarks registered in the U.S. and select foreign countries.
PERSONNELGOVERNMENTAL REGULATION
We are subject to a number of U.S. federal, state, local and foreign laws and regulations that involve matters central to our business. Laws and governmental regulation affect how our business is conducted and, in some cases, subject us to the possibility of government supervision or enforcement and future lawsuits arising from our products and services. Laws and governmental regulations also influence our current and prospective customers’ activities, as well as their expectations and needs in relation to our products and services. Laws and regulations that may affect our business and our current and prospective customers’ activities include, but are not limited to, those summarized below.
Many U.S. and foreign jurisdictions have passed, or are currently contemplating, a variety of consumer protection, data privacy, and data security laws and regulations that may relate to our business or the business of our customers or affect the demand for our products and services. For example, the General Data Protection Regulation (the “GDPR”) in the United Kingdom (“U.K.”) and the European Union (“E.U.”) imposes, among other things, strict obligations and restrictions on the collection and use of U.K. and E.U. personal data, a requirement for prompt notice of data breaches in certain circumstances, a requirement for implementation of certain approved safeguards for transfers of personal data to third countries, and possible substantial fines for any violations. The E.U. and the U.K each have issued new standard contractual clauses (“SCCs”) as an approved safeguard for cross-border transfer of E.U. and U.K. personal data along with guidance imposing further obligations on controllers and processors that rely on SCCs for such transfers, including carrying out an appropriate data transfer impact assessment to evaluate whether adequate protection will be afforded to the data in the destination country. Our implementation of the new SCCs for affected data flows, which may involve interpretive issues and may have an adverse impact on cross-border transfers of personal data, may subject us or our customers to additional scrutiny from E.U. and U.K. regulators or may increase our costs of compliance associated with performing any necessary assessments, engaging in contract negotiations with third parties, and/or (if appropriate) localizing certain data processing activities. Brazil, India, South Africa, Japan, China, Israel, Canada, and several other countries have introduced and, in some cases, enacted, similar privacy and data security laws.
The California Consumer Privacy Act of 2018 (“CCPA”) gives California residents certain privacy rights in the collection and disclosure of their personal information and requires businesses to make certain disclosures and take certain other acts in furtherance of those rights. Additionally, effective January 1, 2023, the California Privacy Rights Act (the “CPRA”) will revise and significantly expand the scope of the CCPA. The CPRA also created a new agency, the California Privacy Protection Agency, authorized to implement and enforce the CCPA and the CPRA, which could result in increased privacy and information security regulatory actions. Other U.S. states have considered and/or enacted similar privacy laws. For example, Virginia, Utah, Connecticut, and Colorado have passed new consumer privacy laws that become effective in 2023.
The Gramm-Leach-Bliley Act ("GLBA") regulates, among other things, the receipt, use, disclosure, and security of non-public personal information of consumers held by “financial institutions” and applies indirectly to companies that provide services to financial institutions. As a provider of services to financial institutions, portions of our business are subject to obligations to comply with certain GLBA provisions, including limitations on the use or disclosure of the underlying data and rules relating to the technological, physical and administrative safeguarding of non-public personal information.
The Health Insurance Portability and Accountability Act of 1996, as amended by the American Recovery and Reinvestment Act of 2009 (“HIPAA”) and the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations impose specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates.” We function as a business associate for certain of our customers that are HIPAA-covered entities and service providers and, in that context, we are regulated as a business associate for the purposes of HIPAA.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) prohibits unfair, deceptive, or abusive acts or practices (“UDAAP”) with respect to the offering of consumer financial products and services and provides the Consumer Financial Protection Bureau (the “CFPB”) with enforcement authority to enforce those provisions as well as certain enumerated federal consumer financial laws. In certain circumstances, the CFPB also has examination and supervision powers with respect to service providers who provide a material service to a covered financial institution offering consumer financial products and services. Further, the CFPB has authority to issues rules designating non-depository “larger participants” in certain markets for consumer financial services and products for purposes of the CFPB’s supervisory authority under the Dodd-Frank Act. Such designated “larger participants” are subject to reporting and on-site compliance examinations by the CFPB, which may result in increased compliance costs and potentially greater enforcement risks based on these supervisory activities. In addition, the regulators of some of our largest financial institution customers may require them to exercise greater oversight and perform more rigorous audits of their key service providers such as us.
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The Federal Trade Commission Act (the “FTC Act”) prohibits unfair methods of competition and unfair or deceptive acts or practices. Under the FTC Act, the FTC’s jurisdiction includes the ability to bring enforcement actions based on the security measures we employ to safeguard the personal data of consumers. Allegations that we failed to safeguard or handle such data in a reasonable manner may subject us to regulatory scrutiny or enforcement action.
The U.S. Fair Credit Reporting Act (the “FCRA”) applies to consumer reporting agencies, as well as data furnishers, and users of consumer reports such as banks and other companies, many of which are our customers. The FCRA provisions govern the accuracy, fairness and privacy of information in the files of consumer reporting agencies that engage in the practice of assembling or evaluating information relating to consumers for certain specified purposes. The FCRA limits the type of information that may be reported by consumer reporting agencies, limits the distribution and use of consumer reports, establishes consumer rights to access and dispute their own credit files, includes provisions designed to prevent identity theft and assist fraud victims, requires consumer reporting agencies to make a free annual credit report available to consumers and imposes many other requirements on consumer reporting agencies, data furnishers and users of consumer report information. These requirements can affect the manner and extent to which our customers use our products and services.
A number of states have enacted requirements similar to the FCRA. Some of these state laws impose additional, or more stringent, requirements than the FCRA, especially in connection with investigations and responses to reported inaccuracies in consumer reports. The FCRA preempts some of these state laws, but the scope of preemption continues to be defined by the courts. Various consumer credit laws and regulations in the foreign countries where we conduct business also affect the products and services we offer to our customers.
The Credit Repair Organizations Act (the “CROA”) regulates companies that claim to be able to assist consumers in improving their credit standing. There have been efforts to apply the CROA to credit monitoring services offered by consumer reporting agencies and others, which may impact certain of our products and services.
Special requirements may apply to us when providing services directly or indirectly to U.S. federal, state and local government agencies. The applicable requirements depend upon the monetary value of the awarded contract, the particular government agency awarding or funding the contract, the scope of services to be delivered, and the level of access that the agency will need to provide to us to enable us to perform the contract. For example, we may need to abide by the Privacy Act of 1974, the Internal Revenue Service’s Publication 4812, and the Federal Acquisition Regulation and associated supplemental contract clauses. Each of these laws, regulations and contract clauses imposes certain requirements, including measures for the protection of personal information or information that is otherwise categorized as sensitive by the government. Government agencies frequently modify or supplement these requirements, and consequences for violations of applicable requirements may include penalties, civil liability and for severe infractions, criminal liability.
There has been an increased focus on laws and regulations related to our business and the business of our customers, including by the current U.S. presidential administration, the U.S. Congress, and U.S. regulators, such as the CFPB, relating to policy concerns regarding the operation of consumer reporting agencies, the use and accuracy of credit data, the use of credit scores, algorithm accountability and transparency, and fair lending. The European Commission has also released draft proposed regulations (i.e., the EU AI Act) that would establish requirements for the provision and use of products that leverage artificial intelligence, machine learning, and similar analytic and statistical modeling technologies, including credit scoring. The EU AI Act is expected to be finalized in 2024 or 2025.
Additional laws and regulations that may affect our business and our current and prospective customers’ activities include, but are not limited to, those in the following significant regulatory areas:
Laws and regulations that limit the use of credit scoring models (e.g., state “mortgage trigger” or “inquiries” laws, state insurance restrictions on the use of credit-based insurance scores, and the E.U. Consumer Credit Directive).
Fair lending laws (e.g., the Equal Credit Opportunity Act and Regulation B, and the Fair Housing Act) and laws and regulations that may impose requirements relating to algorithmic fairness or accountability.
The Cybersecurity Act of 2015; the U.S. Department of Commerce’s National Institute of Standards and Technology’s Cybersecurity Framework; the Clarifying Lawful Overseas Use of Data Act; cyber incident notice requirements for banks and their service providers under rules and regulations issued by federal banking regulators; and identity theft, file freezing, and similar state privacy laws.
Laws and regulations related to extension of credit to consumers through the Electronic Fund Transfers Act and Regulation E, as well as non‑governmental VISA and MasterCard electronic payment standards.
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Laws and regulations applicable to secondary market participants (e.g., The Federal National Mortgage Association (“Fannie Mae”) and The Federal Home Loan Mortgage Corporation (“Freddie Mac”)) that could have an impact on our scoring products and revenues, including 12 CFR Part 1254 (Validation and Approval of Credit Score Models) issued by the Federal Housing Finance Agency in accordance with Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (Public Law 115-174), and any regulations, standards or criteria established pursuant to such laws or regulations.
Laws and regulations applicable to our customer communication clients and their use of our products and services (e.g., the Telemarketing Sales Rule, the Telephone Consumer Protection Act, the CAN-SPAM Act, the Fair Debt Collection Practices Act, and regulations promulgated thereunder, and similar state laws and similar laws in other countries).
Laws and regulations applicable to our insurance clients and their use of our insurance products and services.
The application or extension of consumer protection laws, including implementing regulations (e.g., the Consumer Financial Protection Act, the Truth In Lending Act and Regulation Z, the Fair Debt Collection Practices Act and Regulation F, the Servicemembers Civil Relief Act, and the Military Lending Act, and similar state consumer protection laws).
Laws and regulations governing the use of the Internet and social media, telemarketing, advertising, endorsements and testimonials.
Anti-money laundering laws and regulations (e.g., the Bank Secrecy Act and the USA PATRIOT Act).
Laws and regulations restricting transactions with sanctioned parties and regarding export controls as they apply to FICO products delivered in non-U.S. countries or to foreign nationals (e.g., Office of Foreign Asset Control sanctions and Export Administration Regulations).
Financial regulatory standards (e.g., Sarbanes-Oxley Act requirements to maintain and verify internal process controls, including controls for material event awareness and notification).
Regulatory requirements for managing third parties (e.g., vendors, contractors, suppliers and distributors).
We are also subject to federal and state laws that are generally applicable to any U.S. business with national or international operations, such as antitrust laws, the Foreign Corrupt Practices Act, the Americans with Disabilities Act, state unfair or deceptive practices acts and various employment laws.
HUMAN CAPITAL RESOURCES
Our People
As of September 30, 2020,2022, we employed 4,0033,404 persons worldwide.across 29 countries. Of these, 175 full-time employees were locatedour largest representation includes 1,247 (37%) based in our San Jose, California office, 404 full-time employees were locatedthe United States, 1,206 (35%) based in our San Diego, California office, 170 full-time employees were locatedIndia and 263 (8%) based in our Roseville, Minnesota office, 166 full-time employees were located in our San Rafael, California office, 129 full-time employees were located in our Fairfax, Virginia office, 1,178 full-time employees were located in our India-based offices and 379 full-time employees were located in ourthe United Kingdom-based offices. None of our employees are covered by a collective bargaining agreement otherKingdom. Other than to the extent mandated by applicable law in certain foreign jurisdictions, none of our employees are covered by a collective bargaining agreement, and no work stoppages were experienced during fiscal 2020.2022.
Our Board of Directors (our “Board”) and executive leadership team believe that our people are vital to our success. The Leadership Development and Compensation Committee (the “LDCC”) of our Board oversees all human capital management policies, programs and strategies, including but not limited to those regarding talent recruitment, development and retention, health and safety, organizational culture, employee engagement, diversity, equity and inclusion, and compensation and benefits.The LDCC also periodically reviews and reports to the Board with respect to succession planning for our Chief Executive Officer and other senior management positions. In addition, our Chief Human Resources Officer reports to our Board periodically on people-focused programs.

Employee Engagement
For much of the past decade, we have conducted quarterly workforce surveys to measure employee engagement and gain feedback and insights from our people about ways to improve the employee experience and the effectiveness of our business operations. Detailed findings from these surveys are promptly communicated to all employees, individual work teams, the executive team and our Board and the findings are leveraged to drive positive organizational change. We involve designated employee “ambassadors” who work with senior leaders to explore findings, identify high value actions and amplify messaging to help our people understand how survey participation can connect to positive change.
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Examples of organizational changes that have been driven by the insights from these surveys include investments in expanded workforce capacity, targeted recruiting of under-represented groups, broadened and more frequent company-wide communications, expanded employee stock ownership, expanded benefit programs including paid parental leave and well-being programs, enhanced incentive plan funding and expanded investments in professional development and culture-based initiatives to promote inclusiveness and belonging.

Diversity, Equity and Inclusion
FICO is committed to building and reinforcing a culture where individual differences and perspectives are valued. We believe that diverse teams can better relate to and deliver against the many and varied needs of our clients. We also believe that promoting a culture where individual differences are both welcomed and valued allows us to attract the best talent while allowing people to reach their full potential.
Foundationally, we have adopted a “Commitment to Inclusion and Belonging Policy” which provides that all employment-related decisions be made in compliance with established equal opportunity statutes. Accordingly, all decisions to employ, transfer, promote, train, compensate or otherwise provide access to benefit programs are to be made in accordance with these statutes. In addition, in the United States we have established an Affirmative Action Program and underlying plans for office locations with 50 or more employees to formally measure, report on and identify needed actions to close any gaps involving the utilization and advancement of women, minorities, disabled persons and veterans. All employees receive mandatory training and testing on this and other foundational and compliance policies during the on-boarding process and every two years thereafter, with people managers receiving training regarding their unique leadership responsibilities. As examples, we have a mandatory training program to identify, prevent and combat prohibited harassment, as well as training and “dialogue sessions” designed to build understanding of unconscious biases and strategies to overcome them.
Building on this foundation, we sponsor and provide dedicated funding to multiple employee resource groups (“ERGs”) that help support our goals of workforce engagement and a strong sense of inclusion and belonging. FICO ERGs focus on women, race/ethnicity, LGBTQ+ and community support groups. Our FICO Cares ERG encourages our people to connect with and contribute to their community. We encourage employees to participate in volunteer activities by providing work schedule flexibility and paid Community Volunteer Leave. We also encourage and match employee cash donations to qualified charitable organizations through our Corporate Matching Gift Program.
As one strategy to accelerate progress in expanding workforce diversity, we engage in targeted campus recruiting efforts. In the United States, we maintained and expanded our partnership with the Management Leadership for Tomorrow (MLT.org) organization, which helped us connect with Black, Latinx and Native American college students for summer internships followed by offers of full-time employment upon graduation.
Additional information on our diversity programs and efforts are available on the Corporate Responsibility page of our website at www.fico.com/en/corporate-responsibility. Information regardingcontained on our executive officerswebsite is included in Item 10, Directors, Executive Officers and Corporate Governance,not deemed part of or incorporated by reference into this Annual Report on Form 10-K.

Talent Recruitment
We leverage our organizational culture as a competitive advantage in our efforts to attract talent from the broadest possible pool. We deploy structured selection practices to ensure strong alignment between candidate qualifications and knowledge and skills needed for success in each role, while avoiding unconscious biases through hiring manager education and use of decision tools.

Professional Development
To support professional development, we offer a structured onboarding program with training specific to a variety of identified career paths to help new employees become rapidly engaged and productive. We have invested in building the FICO Integrated Learning Organization (“ILO”), which is led by our Chief Learning Officer. The ILO develops customized learning content for colleagues, clients and partners around the world. We deliver high quality, targeted new hire onboarding, technology and product skill training, compliance and management and leadership education through this “FICO Learning” platform. This allows our employees to obtain the knowledge and skills to effectively perform in their current roles, while also preparing them for new opportunities. We also offer financial support for degreed or certificated programs through a tuition reimbursement program.

Compensation and Benefit Programs
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We regularly participate in market-based compensation surveys, seek the advice of outside experts and leverage new hire and unplanned attrition trend data to ensure that our base pay and incentive structures are competitive. We create a strong sense of shared purpose by having our CEO and each member of our executive leadership team participate in the same annual cash incentive bonus plan, as all non-sales employees across our organization.
Over the course of the past decade, we’ve steadily and significantly expanded participation in our annual performance-based equity program from 7% to nearly 25% of our workforce. In addition, three years ago, we adopted an Employee Stock Purchase Plan for eligible employees designed to promote even broader equity participation.
We offer competitive health and welfare benefit plans with significant company subsidies to offset premiums, retirement plans with a competitive company match to encourage participation and flexible paid-time-off programs including vacation, sick time and disability time. We have paid Maternity and Parental Leave benefits totaling up to 12 weeks, and we have adopted a Well-Being Program designed to provide broad-based physical and mental health education and personal health coaching, as well as quarterly cash Wellness Awards designed to help employees fund wellness-related purchases which they find most valuable.

Health and Safety
We are committed to providing a safe and healthy workplace. We continuously strive to meet or exceed compliance with all laws, regulations and accepted practices pertaining to workplace safety. All employees and contractors are required to comply with established safety policies, standards and procedures.
As the COVID-19 pandemic persists, our focus remains on promoting employee health and safety, serving our customers and ensuring business continuity. We have implemented a post-pandemic “Remote Work Policy” permitting our people in countries other than India to elect to work primarily from home on an ongoing basis with the vast majority electing to do so. For our offices in India, we have adopted a “hybrid” approach under which employees may elect to work from home up to two days per week and have flexibility to adjust office attendance hours to best manage commuting challenges. We have also substantially reduced employee travel to only essential business needs in favor of ongoing video-based meetings.

Item 1A. Risk Factors

Business, Market and Strategy Risks
The effects of the COVID-19 pandemic have negatively affected how we and our customers are operating our businesses. The duration of these effects, and the extent to which they will impact our future revenues, results of operations and overall financial performance, remain uncertain.
The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected the global economy, leading to reduced consumer spending and lending activities and disruptions and volatility in the global capital markets. COVID-19 has caused shutdowns to businesses and cities worldwide and has disrupted supply chains, business operations, travel, and consumer confidence.
As a result of the COVID-19 pandemic, we have temporarily closed the majorityof our offices (including our corporate headquarters in the United States) and implemented travel restrictions, both of which have disrupted how we operate our business. Due in part to anticipated post-pandemic workforce patterns, we have permanently closed certain non-core offices, reduced certain other office space and reduced our global workforce. Our operations may be further negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many cities, counties, states, and countries may continue to impose a wide range of restrictions on our employees’, partners’ and customers’ physical movement to limit the spread of COVID-19. We have postponed, canceled or shifted certain of our customer, employee or industry events to virtual-only experiences and may continue to do so in the future. If the COVID-19 pandemic has a substantial impact on our employees’, partners’ or customers’ productivity or ability to collaborate, our results of operations and overall financial performance may be harmed.
The situation surrounding the COVID-19 pandemic is constantly evolving and both the short-term and long-term effects remain unknown. Our customers, and therefore our business and revenues, are sensitive to negative changes in general economic conditions and lending activities. The COVID-19 pandemic may affect the rate of spending on our solutions and could adversely affect our customers’ ability or willingness to purchase our products and services, cause prospective customers to change product selections or term commitments, delay or cancel their purchasing decisions, extend sales cycles, and potentially increase payment defaults, all of which could adversely affect our future revenues, results of operations and overall financial performance. We have seen evidence that COVID-19 has adversely affected certain segments and originations volume, which may impact future revenue. We are unable to accurately predict the complete impact that COVID-19 will have on our future results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the severity and transmission rate of the virus, the duration of the outbreak, the extent and effectiveness of containment actions, the effectiveness of any medical treatment and prevention options, and the impact of these and other factors on us, our employees, customers, partners and vendors, and on worldwide and U.S. economic conditions. If we are not able to respond to and manage these impacts effectively, our business may be harmed to a material extent.
We continue to expand the pursuit of our Decision Management strategy, and we may not be successful in executing the business strategy for our Software segment, which could cause our growth prospects and results of operations to suffer.

We continue to expand the pursuit of our business objective to become a leader in helping businesses automate and improve decisions across their enterprises, an approach that we commonly refer to as Decision Management, or “DM.” We have increasingly focused our DMSoftware segment’s business strategy on bringinginvesting significant development resources to enable substantially all of our Decision Management assets together in a flexible, extensible,software to run on FICO® Platform, our modular software offering designed to enable advanced analytics and cloud-native platform approach (the FICO Decision Management Platform). Our DMdecisioning use cases. This business strategy is designed to enable us to increase our business by selling multiple connectable and extensible DM products to clients, as well as to enable the development of custom client solutions and to allow our clients to more easily expand their usage and the use cases they enable over time. The market may be unreceptive to our general DM business approach, including being unreceptive to our cloud-based offerings, unreceptive to purchasing multiple products from us, or unreceptive to our customized solutions. As we continue to pursue our DMthis business strategy, we may experience volatility in our Software segment’s revenues and operating results caused by various factors, including differences in revenue recognition treatment between our cloud-based offerings and on-premiseon-premises software licenses, the timing of investments and other expenditures necessary to develop and operate our cloud-based offerings, and the adoption of new sales and delivery methods. If our DMthis business strategy is not successful, we may not be able to grow our Software segment’s business, growth may occur more slowly than we anticipate, or our revenues and profits may decline.

We derive a substantial portion of our revenues from a small number of products and services, and if the market does not continue to accept these products and services, our revenues will decline.


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We expect that revenues derived from our scoring solutions, fraud solutions, customer communication services, customer management solutions and decision management software will continue to account for a substantial portion of our total revenues for the foreseeable future. Our revenues will decline if the market does not continue to accept these products and services. Factors that might affect the market acceptance of these products and services include the following:

changes in the business analytics industry;
changes in technology;
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our inability to obtain or use key data for our products;
saturation or contraction of market demand;
loss of key customers;
industry consolidation;
failure to successfully adopt cloud-based technologies;
our inability to obtain regulatory approvals for our products and services, including credit score models;
the increasing availability of free or relatively inexpensive consumer credit, credit score and other information from public or commercial sources;
failure to execute our selling approach; and
inability to successfully sell our products in new vertical markets.

Our revenues depend, to a great extent, upon conditions in the banking (including consumer credit) industry. If our clients’ industry experiences uncertainty, it will likely harm our business, financial condition or results of operations.

During fiscal 2020, 86% of our revenues were derived from sales of products and services to the banking industry. Periods of global economic uncertainty experienced in the past have produced substantial stress, volatility, illiquidity and disruption of global credit and other financial markets, resulting in the bankruptcy or acquisition of, or government assistance to, several major domestic and international financial institutions. The potential for future stress and disruptions, including in connection with the COVID-19 pandemic, presents considerable risks to our businesses and operations. These risks include potential bankruptcies or credit deterioration of financial institutions, many of which are our customers. Such disruption would result in a decline in the revenue we receive from financial and other institutions. In addition, if consumer demand for financial services and products and the number of credit applications decrease, the demand for our products and services could also be materially reduced. These types of disruptions could lead to a decline in the volumes of services we provide our customers and could negatively impact our revenue and results of operations.

While the rate of account growth in the U.S. bankcard industry has been slow and many of our large institutional customers have consolidated in recent years, we have generated most of our revenue growth from our bankcard-related scoring and account management businesses by selling and cross-selling our products and services to large banks and other credit issuers. As the banking industry continues to experience contraction in the number of participating institutions, we may have fewer opportunities for revenue growth due to reduced or changing demand for our products and services that support customer acquisition programs of our customers. In addition, industry contraction could affect the base of recurring revenues derived from contracts in which we are paid on a per-transaction basis as formerly separate customers combine their operations under one contract. There can be no assurance that we will be able to prevent future revenue contraction or effectively promote future revenue growth in our businesses.

While we are attempting to expand our sales of consumer credit and banking products and services into international markets, the risks are greater as these markets are also experiencing substantial disruption and we are less well-known in them.

We rely on relatively few customers, as well as our contracts with the three major credit reporting agencies, for a significant portion of our revenues and profits. Many of our customers are significantly larger than we are and may have greater bargaining power. The businesses of our largest customers depend, in large part, on favorable macroeconomic conditions. If these customers are negatively impacted by weak global economic conditions, global economic volatility or the terms of these relationships otherwise change, our revenues and operating results could decline.

Most of our customers are relatively large enterprises, such as banks, payment card processors, insurance companies, healthcare firms, telecommunications providers, retailers and public agencies. As a result, many of our customers and potential customers are significantly larger than we are and may have sufficient bargaining power to demand reduced prices and favorable nonstandard terms.


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In addition, the U.S. and other key international economies are experiencing and have experienced in the past a downturn in which economic activity was impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy. The potential for economic disruption presents considerable risks to our business, including potential bankruptcies or credit deterioration of financial institutions with which we have substantial relationships. Such disruption, whether arising in connection with the current COVID-19 pandemic or otherwise, could result in a decline in the volume of transactions that we execute for our customers.

We also derive a substantial portion of our revenues and operating income from our contracts with the three major credit reporting agencies, Experian, TransUnion and Equifax, and other parties that distribute our products to certain markets. The loss of or a significant change in a relationship with one of these credit reporting agencies with respect to their distribution of our products or with respect to our myFICO® offerings, the loss of or a significant change in a relationship with a major customer, the loss of or a significant change in a relationship with a significant third-party distributor (including payment card processors), or the delay of significant revenues from these sources, could have a material adverse effect on our revenues and results of operations.

If we are unable to access new markets or develop new distribution channels, our business and growth prospects could suffer.

We expect that part of the growth that we seek to achieve through our DM strategy will be derived from the sale of DM products and service solutions in industries and markets we do not currently serve. We also expect to grow our business by delivering our DM solutions through additional distribution channels. If we fail to penetrate these industries and markets to the degree we anticipate utilizing our DM strategy, or if we fail to develop additional distribution channels, we may not be able to grow our business, growth may occur more slowly than we anticipate, or our revenues and profits may decline.

If we are unable to develop successful new products or if we experience defects, failures and delays associated with the introduction of new products, our business could suffer serious harm.

Our growth and the success of our DMbusiness strategy depend upon our ability to develop and sell new products or suites of products, including the development and sale of our cloud-based product offerings. If we are unable to develop new products, or if we are not successful in introducing new products, we may not be able to grow our business or growth may occur more slowly than we anticipate. In addition, significant undetected errors or delays in new products or new versions of products may affect market acceptance of our products and could harm our business, financial condition or results of operations. In the past, we have experienced delays while developing and introducing new products and product enhancements, primarily due to difficulties developing models, acquiring data, and adapting to particular software operating environments orand certain client or other systems. We have also experienced errors or “bugs” in our software products, despite testing prior to release of the products. Software errors in our products could affect the ability of our products to work with other hardware or software products, could delay the development or release of new products or new versions of products, and could adversely affect market acceptance of our products. Errors or defects in our products that are significant, or are perceived to be significant, could result in rejection of our products, damage to our reputation, loss of revenues, diversion of development resources, an increase in product liability claims, and increases in service and support costs and warranty claims.

Our ability to increase our revenues will depend to some extent upon introducing new products and services. If the marketplace does not accept these new products and services, our revenues may decline.

To increase our revenues, we must enhance and improve existing products and continue to introduce new products and new versions of existing products that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance. We believe much of the future growth of our business and the success of our DMbusiness strategy will rest on our ability to continue to expand into newer markets for our products and services. Such areas are relatively new to our product development and sales and marketing personnel. Products that we plan to market in the future are in various stages of development. We cannot assure you that the marketplace will accept these products. If our current or potential customers are not willing to switch to or adopt our new products and services, either as a result of the quality of these products and services or due to other factors, such as economic conditions, our revenues will decrease.

If we fail to keep up with rapidly changing technologies, our products could become less competitive or obsolete.

In our markets, technology changes rapidly, and there are continuous improvements in computer hardware, network operating systems, programming tools, programming languages, operating systems, database technologies, cloud-based technologies and the use of the Internet. If we fail to enhance our current products and develop new products in response to changes in technology or industry standards, or if we fail to bring product enhancements or new product developments to market quickly enough, our products could rapidly become less competitive or obsolete. Our future success will depend, in part, upon our ability to:

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innovate by internally developing new and competitive technologies;
use leading third-party technologies effectively;
continue to develop our technical expertise;
anticipate and effectively respond to changing customer needs;
initiate new product introductions in a way that minimizes the impact of customers delaying purchases of existing products in anticipation of new product releases; and
influence and respond to emerging industry standards and other technological changes.

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Our revenues depend, to a great extent, upon conditions in the banking (including consumer credit) industry. If our clients’ industry experiences uncertainty, it will likely harm our business, financial condition or results of operations.
During fiscal 2022, 90% of our revenues were derived from sales of products and services to the banking industry. Periods of global economic uncertainty experienced in the past have produced substantial stress, volatility, illiquidity and disruption of global credit and other financial markets, resulting in the bankruptcy or acquisition of, or government assistance to, several major domestic and international financial institutions. The potential for future stress and disruptions, including in connection with the conflict between Russia and Ukraine, rising inflation and rising interest rates, presents considerable risks to our businesses and operations. These risks include potential bankruptcies or credit deterioration of financial institutions, many of which are our customers. Such disruption would result in a decline in the revenue we receive from financial and other institutions. In addition, if consumer demand for financial services and products and the number of credit applications decrease, the demand for our products and services could also be materially reduced. These types of disruptions could lead to a decline in the volumes of services we provide our customers and could negatively impact our revenue and results of operations.
While the rate of account growth in the U.S. banking industry has been slow and many of our large institutional customers have consolidated in recent years, we have generated most of our revenue growth in the banking industry by selling and cross-selling our products and services to large banks and other credit issuers. If the banking industry continues to experience contraction in the number of participating institutions, we may have fewer opportunities for revenue growth due to reduced or changing demand for our products and services that support customer acquisition programs of our customers. In addition, industry contraction could affect the base of recurring revenues derived from contracts in which we are paid on a per-transaction basis as formerly separate customers combine their operations under one contract. There can be no assurance that we will be able to prevent future revenue contraction or effectively promote future revenue growth in our businesses.
While we are attempting to expand our sales into international markets, the risks are greater as these markets are also experiencing substantial disruption and we are less well-known in them.
We rely on relatively few customers, as well as our contracts with the three major consumer reporting agencies, for a significant portion of our revenues and profits. Many of our customers are significantly larger than we are and may have greater bargaining power. The businesses of our largest customers depend, in large part, on favorable macroeconomic conditions. If these customers are negatively impacted by weak global economic conditions, global economic volatility or the terms of these relationships otherwise change, our revenues and operating results could decline.
Most of our customers are relatively large enterprises, such as banks, credit card issuers, insurers, retailers, telecommunications providers, automotive lenders, consumer reporting agencies, public agencies, and organizations in other industries. As a result, many of our customers and potential customers are significantly larger than we are and may have sufficient bargaining power to demand reduced prices and favorable nonstandard terms.
In addition, the U.S. and other key international economies are experiencing and have experienced in the past downturns in which economic activity was impacted by falling demand for a variety of goods and services, increased volatility of interest rates, elevated rates of inflation, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy. The potential for economic disruption presents considerable risks to our business, including potential bankruptcies or credit deterioration of financial institutions with which we have substantial relationships. Such disruption could result in a decline in the sales of new products to our customers and the volume of transactions that we execute for existing customers.
We also derive a substantial portion of our Scores segment revenues and operating income from our contracts with the three major consumer reporting agencies in the U.S., Experian, TransUnion and Equifax, and other parties that distribute our products to certain markets. The loss of or a significant change in a relationship with one of the three consumer reporting agencies with respect to their distribution of our products or with respect to our myFICO® offerings, the loss of or a significant change in a relationship with a major customer, the loss of or a significant change in a relationship with a significant third-party distributor (including payment card processors), or the loss of or delay of significant revenues from these sources, could have a material adverse effect on our revenues and results of operations.
The duration of the negative effects of the COVID-19 pandemic, and the extent to which they will impact our future revenues, results of operations and overall financial performance, remain uncertain.
The COVID-19 pandemic has adversely affected the global economy, leading to reduced consumer spending and lending activities and disruptions and volatility in the global capital markets. COVID-19 has caused shutdowns to businesses and cities worldwide and has disrupted supply chains, business operations, travel, and consumer confidence.
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The situation surrounding the COVID-19 pandemic continues to evolve and its effects remain unknown. Our customers, and therefore our business and revenues, are sensitive to negative changes in general economic conditions and lending activities. The COVID-19 pandemic may affect the rate of spending on our solutions and could adversely affect our customers’ ability or willingness to purchase our products and services, cause prospective customers to change product selections or term commitments, delay or cancel their purchasing decisions, extend sales cycles, and pricing strategiespotentially increase payment defaults, all of which could adversely affect our future revenues, results of operations and overall financial performance.
We are unable to accurately predict the complete impact that COVID-19 will have on our future results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the severity and transmission rate of the virus and its variants, the duration and any resurgence of the outbreak, the extent and effectiveness of containment actions, the effectiveness and acceptance of any medical treatment and prevention options, and the impact of these and other factors on us, our employees, customers, partners and vendors, and on worldwide and U.S. economic conditions.

If use of the FICO® Score by Fannie Mae and Freddie Mac were to cease or decline, it could have a material adverse effect on our revenues, results of operations and stock price.
A significant portion of our revenues in our Scores segment is attributable to the U.S. mortgage market, which includes, for mortgages eligible for purchase by The Federal National Mortgage Association (“Fannie Mae”) and The Federal Home Loan Mortgage Corporation (“Freddie Mac”), a requirement by those enterprises that U.S. lenders provide FICO® Scores for each mortgage delivered to them. However, their continued use of the FICO Score is currently subject to validation and approval by those enterprises and the Federal Housing Finance Agency. If other credit score models are approved for use with mortgages delivered to Fannie Mae and Freddie Mac, or the FICO Score is not approved for continued use with those mortgages, it could have a material adverse effect on our revenues, results of operations and stock price.

If we are unable to access new markets or develop new distribution channels, our business and growth prospects could suffer.
We expect our future growth to depend, in part, on the sale of products and service solutions in industries and markets we do not currently serve. We also expect to grow our business by delivering our solutions through additional distribution channels. If we fail to penetrate these industries and markets to the degree we anticipate, or if we fail to develop additional distribution channels, we may not be successful. Ifable to grow our competitors introduce newbusiness, growth may occur more slowly than we anticipate, or our revenues and profits may decline.

We are subject to significant competition in the markets in which we operate, and our products and pricing strategies, itand those of our competitors, could decrease our product sales and market share, or could pressure us to reduce our product prices in a manner that reduces our margins.

share.
Demand for our products and services may be sensitive to product and pricing changes we implement, and our product and pricing strategies may not be accepted by the market. If our customers fail to accept our product and pricing strategies, our revenues, results of operations and business may suffer. In addition, we may not be able to compete successfully against our competitors, and this inability could impair our capacity to sell our products. The market for business analyticsour solutions is rapidly evolvingintensely competitive and highly competitive,is constantly changing, and we expect competition in this market to persist and intensify. Our regional and global competitors vary in size and in the scope of the products and services they offer, and include:

in-house analytic and systems developers;
neural network developers and artificial intelligence system builders;
fraud and compliance solutions providers;
scoring model builders;
fraudproviders of credit reports and security management providers;credit scores;
enterprise resource planning, customer relationship management,software companies supplying predictive analytic modeling, rules, or analytic development tools;
entity resolution and customer communication and mobility solution providers;
business intelligencesocial network analysis solutions providers;
credit reportproviders of customer engagement and credit score providers;risk management solutions;
providers of account/workflow management software;
business process management and decision rules management providers;
process modeling toolsenterprise resource planning and customer relationship management solutions providers;
business intelligence solutions providers;
providers of automated application processing services providers;services; and
data vendors;
neural network developers and artificial intelligence system builders;
third-party professional services and consulting organizations;organizations.
account/workflow management software providers;
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software tools companies supplying modeling, rules, or analytic development tools; collections and recovery solutions providers; entity resolution and social network analysis solutions providers; and
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cloud-based customer engagement and risk management solutions providers.

We expect to experience additional competition from other established and emerging companies,companies. This could include customers of ours that develop their own scoring models or other products, and as well asa result no longer purchase or reduce their purchases from us. We also expect to experience competition from other technologies. For example, certain of our fraud solutions products compete against other methods of preventing payment card fraud, such as payment cards that contain the cardholder’s photograph; smart cards; cardholder verification and authentication solutions; biometric measures on devices including fingerprint and face matching; and other card authorization techniques and user verification techniques.
Many of our existing and anticipated competitors have greater financial, technical, marketing, professional services and other resources than we do, and industry consolidation is creating even larger competitors in many of our markets. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote greater resources than we can to develop, promote and sell their products. Many of these companies have extensive customer relationships, including relationships with many of our current and potential customers. For example, Experian, TransUnion and Equifax have formed an alliance that is selling a credit scoring product competitive with our products. Furthermore, new competitors or alliances among competitors may emerge and rapidly gain significant market share. For example, Experian, TransUnion and Equifax have formed an alliance that has developed a credit scoring product competitive with our products. If we are unable to respond as quickly or effectively to changes in customer requirements as our competition, our ability to expand our business and sell our products will be negatively affected.

Our competitors may be able to sell existing or new products competitive to ours at lower prices individually or as part of integrated suites of several related products. This ability may cause our customers to purchase products that directly compete with our products from our competitors.competitors, which could decrease our product sales and market share. Price reductions by our competitors could pressure us to reduce our product prices in a manner that negatively impactimpacts our margins and could also harm our ability to obtain new long-term contracts and renewals of existing long-term contracts on favorable terms.

We rely on relationships with third parties for marketing, distribution and certain services.If we experience difficulties in these relationships, including competition from these third parties, our future revenues may be adversely affected.

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MostMany of our products rely onare sold by distributors or partners, and we intend to continue to market and distribute our products through these existing and future distributor and partner relationships. Our Scores segment relies on, among others, Experian, TransUnion and Equifax. Failure of our existing and future distributors to generate significant revenues or otherwise perform their expected services or functions, demands by such distributors to change the terms on which they offer our products, or our failure to establish additional distribution or sales and marketing alliances, could have a material adverse effect on our business, operating results and financial condition. In addition, certain of our distributors presently compete with us and may compete with us in the future, either by developing competitive products themselves or by distributing competitive offerings. For example, Experian, TransUnion and Equifax have developed a credit scoring product to compete directly with our products and are collectively attempting to sellactively selling the product. Competition from distributors or other sales and marketing partners could significantly harm sales of our products and services.

Our reengineering efforts may cause our growth prospects and profitability to suffer.
As part of our management approach, we pursue ongoing reengineering efforts designed to grow revenues through strategic resource allocation and improve profitability through cost reductions. Our reengineering efforts may not be successful over the long term should we fail to reduce expenses at the anticipated level, or should we fail to increase revenues to anticipated levels or at all. If our reengineering efforts are not successful over the long term, our revenues, results of operations and business may suffer.
There can be no assurance that strategic divestitures will provide business benefits.
As part of our strategy, we continuously evaluate our portfolio of businesses. As a result of these reviews, we have made decisions to divest certain products and lines of business, and we may do so again in the future. These divestitures involve risks, including:
disruption of our operations or businesses;
reductions of our revenues or earnings per share;
difficulties in the separation of operations, services, products and personnel;
failure to effectively transfer liabilities, contracts, facilities and employees to a purchaser;
divestiture terms that contain potential future purchase price adjustments or the exclusion of assets or liabilities that must be divested, managed or run off separately;
diversion of management's attention from our other businesses;
the potential loss of key personnel;
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adverse effects on relationships with our customers, suppliers or their businesses;
the erosion of employee morale or customer confidence; and
the retention of contingent liabilities and the possibility that we will become subject to third-party claims related to the divested business.
If we do not successfully manage the risks associated with divestitures, our business, financial condition, and results of operations could be adversely affected as the potential strategic benefits may not be realized or may take longer to realize than expected.

Our acquisition activities may disrupt our ongoing business and may involve increased expenses, and we may not realize the financial and strategic goals contemplated at the time of a transaction.

We have acquired, and expect to continue tomay in the future acquire, companies, businesses, products, services and technologies. Acquisitions involve significant risks and uncertainties, including:

our ongoing business may be disrupted and our management’s attention may be diverted by acquisition, transition or integration activities;
an acquisition may not further our business strategy as we expected, we may not integrate acquired operations or technology as successfully as we expected or we may overpay for our investments, or otherwise not realize the expected return, which could adversely affect our business or operating results;
we may be unable to retain the key employees, customers and other business partners of the acquired operation;
we may have difficulties entering new markets where we have no or limited direct prior experience or where competitors may have stronger market positions;
our operating results or financial condition may be adversely impacted by known or unknown claims or liabilities we assume in an acquisition or that are imposed on us as a result of an acquisition, including claims by government agencies or authorities, terminated employees, current or former customers, former stockholders or other third parties;
we could incur material charges in connection with the impairment of goodwill or other assets that we acquire;
a company that we acquire may have experienced a security incident that it has yet to discover, investigate and remediate which we might not be identify in a timely manner and which could spread more broadly to other parts of our company during the integration effort;
we may incur material charges as a result of acquisition costs, costs incurred in combining and/or operating the acquired business, or liabilities assumed in the acquisition that are greater than anticipated;
we may not realize the anticipated increase in our revenues from an acquisition for a number of reasons, including if a larger than predicted number of customers decline to renew their contracts, if we are unable to incorporate the acquired technologies or products with our existing product lines in a uniform manner, if we are unable to sell the acquired products to our customer base or if contract models of an acquired company or changes in accounting treatment do not allow us to recognize revenues on a timely basis;
our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, dividend payments and retirement of outstanding indebtedness; and
to the extent we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.

Because acquisitions are inherently risky, our transactions may not be successful and may have a material adverse effect on our business, results of operations, financial condition or cash flows. Acquisitions of businesses having a significant presence outside the U.S. will increase our exposure to the risks of conducting operations in international markets.

There can be no assurance that strategic divestitures will provide business benefits.

As part of our strategy, we continuously evaluate our portfolio of businesses. We have previously and may in the future make other changes to our portfolio as well, which may be material. Divestitures involve risks, including:

disruption of our operations or businesses;
reductions of our revenues or earnings per share;
difficulties in the separation of operations, services, products and personnel;
finding a suitable purchaser;
disposing of businesses or assets at a price or on terms that are less favorable than we had anticipated, or with purchase price adjustments or the exclusion of assets or liabilities that must be divested, managed or run off separately;
diversion of management's attention from our other businesses;
the potential loss of key personnel;
adverse effects on relationships with our suppliers or their businesses,
the erosion of employee morale or customer confidence; and
the retention of contingent liabilities related to the divested business.


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If we do not successfully manage the risks associated with divestitures, our business, financial condition, and results of operations could be adversely affected as the potential strategic benefits may not be realized or may take longer to realize than expected.

Our reengineering efforts may cause our growth prospects and profitability to suffer.

As part of our management approach, we pursue ongoing reengineering efforts designed to grow revenues through strategic resource allocation and improve profitability through cost reductions. For example, in September 2020, we implemented a course of action designed to reduce our operating costs in lower value, less strategic areas of our business in order to facilitate incremental investment in higher value, more strategic areas while also reducing our facilities footprint in light of anticipated post-pandemic workforce patterns. These and other reengineering efforts may not be successful over the long term should we fail to reduce expenses at the anticipated level, or should we fail to increase revenues to anticipated levels or at all. If our reengineering efforts are not successful over the long term, our revenues, results of operations and business may suffer.

We will continue to rely upon proprietary technology rights, and if we are unable to protect them, our business could be harmed.

Our success depends, in part, upon our proprietary technology and other intellectual property rights. To date, we have relied primarily on a combination of copyright, patent, trade secret, and trademark laws, and nondisclosure and other contractual restrictions on copying and distribution, to protect our proprietary technology. This protection of our proprietary technology is limited, and our proprietary technology could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any disclosure, loss, invalidity of, or failure to protect our intellectual property could negatively impact our competitive position, and ultimately, our business. There can be no assurance that our protection of our intellectual property rights in the U.S. or abroad will be adequate or that others, including our competitors, will not use our proprietary technology without our consent. Furthermore, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could harm our business, financial condition or results of operations.

Some of our technologies were developed under research projects conducted under agreements with various U.S. government agencies or subcontractors. Although we have commercial rights to these technologies, the U.S. government typically retains ownership of intellectual property rights and licenses in the technologies developed by us under these contracts, and in some cases can terminate our rights in these technologies if we fail to commercialize them on a timely basis. Under these contracts with the U.S. government, the results of research may be made public by the government, limiting our competitive advantage with respect to future products based on our research.

Operational Risks

If our cybersecurity measures are compromised or unauthorized access to customer or consumer data is otherwise obtained, our products and services may be perceived as not being secure, customers may curtail or cease their use of our products and services, our reputation may be damaged and we could incur significant liabilities.

Because our business requires the storage, transmission and utilization of sensitive consumer and customer information, we will continue to routinely be the target of attempted cybersecurity and other security threats by outside third parties, including technically sophisticated and well-resourced bad actorsoutside third parties, among others, attempting to access or steal the data we store. Many of our products are provided by us through the Internet. We may be exposed to additional cybersecurity threats as we migrate our software solutions and data from our legacy systems to cloud-based solutions. We operate in an environment of significant risk of cybersecurity incidents resulting from unintentional events or deliberate attacks by third parties or insiders, which may involve exploiting highly obscure security vulnerabilities or sophisticated attack methods. These threats include phishing attacks on our email systems and other cyber-attacks, including state-sponsored cyber-attacks, industrial espionage, insider threats, denial-of-service attacks, computer viruses, ransomware and other malware, payment fraud or other cyber incidents.


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the origin of such software and materials, and could put us at risk of distributing software or other materials that may cause harm to ourselves, our customers or other third parties.
Cybersecurity breaches could expose us to a risk of loss, the unauthorized disclosure of consumer or customer information, significant litigation, regulatory fines, penalties, loss of customers or reputational damage, indemnity obligations and other liability. If our cybersecurity measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and as a result, someone obtains unauthorized access to our systems or to consumer or customer information, sensitive data may be accessed, stolen, disclosed or lost, our reputation may be damaged, our business may suffer and we could incur significant liability. Because the techniques used to obtain unauthorized access, disable or degrade service or to sabotage systems change frequently and generally are not recognized until launched against a target, or even for some time after, we may be unable to anticipate these techniques, implement adequate preventative measures or remediate any intrusion on a timely or effective basis. Because a successful breach of our computer systems, software, networks or other technology asset could occur and persist for an extended period of time before being detected, we may not be able to immediately address the consequences of a cybersecurity incident.

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Malicious third parties may also conduct attacks designed to temporarily deny customers, distributors and vendors access to our systems and services. Cybersecurity breaches experienced by our vendors, by our distributors, by our customers, by companies that we acquire, or by us may trigger governmental notice requirements and public disclosures, which may lead to widespread negative publicity. Any such cybersecurity breach, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing customers to curtail or cease their use of our products and services, cause regulatory or industry changes that impact our products and services, or subject us to third-party lawsuits, regulatory fines or other action or liability, all of which could materially and adversely affect our business and operating results. In addition, the COVID-19 pandemic may cause increased cybersecurity risk, as cybercriminals attempt to capitalizemilitary conflict between Russia and Ukraine could result in cyberattacks that could directly or indirectly impact us, including retaliatory acts of cyberwarfare from Russia against U.S. companies, or the potential proliferation of malware from the disruption, including remote working arrangements.conflict into systems unrelated to the conflict.

If we experience business interruptions or failure of our information technology and communication systems, the availability of our products and services could be interrupted which could adversely affect our reputation, business and financial condition.

Our ability to provide reliable service inproducts and services to our businessescustomers depends on the efficient and uninterrupted operation of our data centers, information technology and communication systems, and increasingly those of our external service providers. Any disruption of or interference with our use of data centers, information technology or communication systems of our external service providers would adversely affect our operations and our business. As we continue to grow our SaaS business, our dependency on the continuing operation and availability of these systems increases. Our systems and data centers, and those of our external service providers, could be exposed to damage or interruption. These interruptions can include software or hardware malfunctions, communication failures, outages or other failures of third partythird-party environments or service providers, fires, floods, earthquakes, pandemics, (including the COVID-19 pandemic), war, terrorist acts or civil unrest, power losses, equipment failures, supply chain disruptions, computer viruses, denial-of-service or other cybersecurity attacks, employee or insider malfeasance, human error and other events beyond our control. AlthoughAny steps that we or our external service providers have taken steps to prevent system failures and we have installed back-up systems and procedures to prevent or reduce disruption such steps may not be sufficient to prevent an interruption of services and our disaster recovery planning may not account for all eventualities.

An operational failure or outage in any of these systems, or damage to or destruction of these systems, which causes disruptions in our services, could result in loss of customers, damage to customer relationships, reduced revenues and profits, refunds of customer charges and damage to our brand and reputation and may require us to incur substantial additional expense to repair or replace damaged equipment and recover data loss caused by the interruption. Any one or more of the foregoing occurrences could have a material adverse effect on our reputation, business, financial condition, cash flows and results of operations.

The failure to recruit and retain additional qualified personnel could hinder our ability to successfully manage our business.

Our DMbusiness strategy and our future success will depend in large part on our ability to attract and retain experienced sales, consulting, research and development, marketing, technical support and management personnel. The complexity of our products requires highly trained personnel for research and development and to assist customers with product installation, deployment, maintenance and support. The labor market for these individuals is very competitive due to the limited number of people available with the necessary technical skills and understanding and may become more competitive with general market and economic improvement. We cannot be certain that our compensation strategies will be perceived as competitive by current or prospective employees. This could impair our ability to recruit and retain personnel. We have experienced difficulty in recruiting qualified personnel, especially technical, sales and consulting personnel, and we may need additional staff to support new customers and/or increased customer needs. We may also recruit skilled technical professionals from other countries to work in the U.S., and from the U.S. and other countries to work abroad. Limitations imposed by immigration laws in the U.S. and abroad and the availability of visas in the countries where we do business could hinder our ability to attract necessary qualified personnel and harm our business and future operating results. There is a risk that even if we invest significant resources in attempting to attract, train and retain qualified personnel, we will not succeed in our efforts, and our business could be harmed. The failure of the value of our stock to appreciate may adversely affect our ability to use equity and equity-based incentive plans to attract and retain personnel, and may require us to use alternative and more expensive forms of compensation for this purpose.

The working arrangements for our employees differ from the arrangements before the pandemic. For example, we have implemented a Remote Work Policy and a Hybrid Work Location Policy, which are applicable depending on the location and position of the employee. Should productivity decline or our employees’ ability to collaborate fall as a result of our Remote Work Policy, or if employees are unsatisfied with our Hybrid Work Location Policy and leave our company, our business could suffer.

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The failure to obtain certain forms of model construction data from our customers or others could harm our business.

Our business requires that we develop or obtain a reliable source of sufficient amounts of current and statistically relevant data to analyze transactions and update some of our products. In most cases, these data must be periodically updated and refreshed to enable our products to continue to work effectively in a changing environment. We do not own or control much of the data that we require, most of which is collected privately and maintained in proprietary databases. Customers and key business partners provide us with the data we require to analyze transactions, report results and build new models. Our DMbusiness strategy depends in part upon our ability to access new forms of data to develop custom and proprietary analytic tools. If we fail to maintain sufficient data sourcing relationships with our customers and business partners, or if they decline to provide such data due to privacy, security, competition orcompetitive concerns, regulatory concerns, or prohibitions or a lack of permission from their customers or partners, we could lose access to required data and our products, and theproducts. If this were to happen, our development of new products, might become less effective. We could also become subject to increased legislative, regulatory or judicial restrictions or mandates on the collection, disclosure, transfer or use of such data, in particular if such data is not collected by our providers in a way that allows us to legally use the data. Third parties have asserted copyright and other intellectual property interests in these data, and these assertions, if successful, could prevent us from using these data. We may not be successful in maintaining our relationships with these external data source providers or in continuing to obtain data from them on acceptable terms or at all. Any interruption of our supply of data could seriously harm our business, financial condition or results of operations.

Global Operational Risks

Material adverse developments in global economic conditions, or the occurrence of certain other world events, could affect demand for our products and services and harm our business.

Purchases of technology products and services and decisioning solutions are subject to adverse economic conditions. When an economy is struggling, companies in many industries delay or reduce technology purchases, and we experience softened demand for our decisioning solutions and other products and services. Global economic uncertainty in the past, and currently as a result of the COVID-19 pandemic, has produced substantial stress, volatility, illiquidity and disruption of global credit and other financial markets. The COVID-19 pandemic has adversely affected the global economy, leading to reduced consumer spending and lending activities and disruptions and volatility in the global capital markets. The pandemic has also caused shutdowns to businesses and cities worldwide and has disrupted supply chains, business operations, travel, and consumer confidence.

Economic uncertainty has and could continue to negatively affect the businesses and purchasing decisions of companies in the industries we serve. Such disruptions present considerable risks to our businesses and operations. As global economic conditions experience stress and negative volatility, or if there is an escalation in regional or global conflicts or terrorism, we will likely experience reductions in the number of available customers and in capital expenditures by our remaining customers, longer sales cycles, deferral or delay of purchase commitments for our products and increased price competition, which may adversely affect our business, results of operations and liquidity.

We are subject to risks and uncertainties associated with the United Kingdom’s withdrawal from the E.U., commonly referred to as “Brexit,” including implications for the free flow of labor and goods in the United Kingdom (“U.K.”) and the E.U. and other economic, financial, legal, tax and trade implications. Brexit could cause disruptions to and create uncertainty surrounding our business in the U.K., including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, financial results and operations. Brexit has caused, and may continue to create, volatility in global stock markets and regional and global economic uncertainty, which may cause our customers to closely monitor their costs and reduce their spending budget on our products and services.
As a result of these conditions, risks and uncertainties, we may need to modify our strategies, businesses or operations, and we may incur additional costs in order to compete in a changed business environment. Given the volatile nature of the global economic environment and the uncertainties underlying efforts to stabilize it, we may not timely anticipate or manage existing, new or additional risks, as well as contingencies or developments, which may include regulatory developments and trends in new products and services. Our failure to do so could materially and adversely affect our business, financial condition, results of operations and prospects.


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In operations outside the U.S., we are subject to additional risks that may harm our business, financial condition or results of operations.

A growing portion of our revenues is derived from international sales. During fiscal 2020, 32% of our revenues were derived from business outside the U.S. As part of our growth strategy, we plan to continue to pursue opportunities outside the U.S., including opportunities in countries with economic systems that are in early stages of development and that may not mature sufficiently to result in growth for our business. Accordingly, our future operating results could be negatively affected by a variety of factors arising out of international commerce, some of which are beyond our control. These factors include:

general economic and political conditions in countries where we sell our products and services;
difficulty in staffing and efficiently managing our operations in multiple geographic locations and in various countries;
effects of a variety of foreign laws and regulations, including restrictions on access to personal information;
data privacy and consumer protection laws and regulations;
import and export licensing requirements;
longer payment cycles;
difficulties in enforcing contracts and collecting accounts receivable;
reduced protection for intellectual property rights;
currency fluctuations;
unfavorable tax rules or changes in tariffs and other trade barriers;
the presence and acceptance of varying level of business corruption in international markets;
terrorism, war, natural disasters and pandemics, including the COVID-19 pandemic; and
difficulties and delays in translating products and related documentation into foreign languages.

There can be no assurance that we will be able to successfully address each of these challenges in the near term. Additionally, some of our business will be conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses are not currently material to our cash flows, financial position or results of operations. However, an increase in our foreign revenues could subject us to increased foreign currency transaction risks in the future.

In addition to the risk of depending on international sales, we have risks incurred in having research and development personnel located in various international locations. We currently have a substantial portion of our product development staff in international locations, some of which have political and developmental risks. If such risks materialize, our business could be damaged.



Legal, Regulatory and Compliance Risks

Laws and regulations in the U.S. and abroad that apply to us and/or to our customers may expose us to liability, cause us to incur significant expense, affect our ability to compete in certain markets, limit the profitability of or demand for our products, or render our products obsolete. If these laws and regulations require us to change our products and services, it could adversely affect our business and results of operations. New legislation or regulations, or changes to existing laws and regulations, may also negatively impact our business and increase our costs of doing business.

Laws and governmental regulation affect how our business is conducted and, in some cases, subject us to the possibility of government supervision and future lawsuits arising from our products and services. Laws and governmental regulationregulations also influence our current and prospective customers’ activities, as well as their expectations and needs in relation to our products and services. Laws and regulations that may affect our business andand/or our current and prospective customers’ activities include, but are not limited to, those in the following significant regulatory areas:

Privacy and security laws and regulations that limit the use and disclosure, require security procedures, or otherwise apply to the collection, processing, storage, use and transfer of personal data of individuals (e.g., the U.S. Financial Services Modernization Act of 1999, also known as the Gramm Leach Bliley Act; identity theft, file freezing, security breach notification and similar state privacy laws; and the data protection laws of other countries such as the General Data Protection Regulation (the “GDPR”) in the European Union (“E.U.”) and the United Kingdom’s (“U.K.”));
Laws and regulations relating to the privacy, security and transmission of protected health information of individuals, including the Health Insurance Portability and Accountability Act of 1996, as amended by the American Recovery and Reinvestment Act of 2009 (“HIPAA”) and the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and their respective implementing regulations;
Financial regulatory reform stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the many regulations mandated by that Act, including regulations issued by, and the supervisory and investigative authority of, the Consumer Financial Protection Bureau (“CFPB”) with respect to enumerated federal consumer financial laws and unfair, deceptive, or abusive acts or practices (“UDAAP”);
The application or extension of consumer protection laws, including implementing regulations (e.g., the Consumer Financial Protection Act, the Federal Trade Commission Act, the Truth In Lending Act and Regulation Z, the Fair Debt Collection Practices Act and Regulation F, the Servicemembers Civil Relief Act, the Military Lending Act, and the Credit Repair Organizations Act, and similar state consumer protection laws);
Use of data by creditors and consumer reporting agencies (e.g., the U.S. Fair Credit Reporting Act)Act and similar state laws);
Special requirements that may apply when we provide products or services directly or indirectly to U.S. federal, state and local government agencies (e.g., the Privacy Act of 1974, the Internal Revenue Service’s Publication 4812, and the Federal Acquisition Regulation);
Laws and regulations that limit the use of credit scoring models (e.g., state “mortgage trigger” or “inquiries” laws, state insurance restrictions on the use of credit-based insurance scores, and the E.U. Consumer Credit Directive);
Fair lending laws (e.g., the Equal Credit Opportunity Act and Regulation B, and the Fair Housing Act);

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Privacy and security laws and regulations that limit the use and disclosuremay impose requirements relating to algorithmic fairness or accountability;
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The Cybersecurity Act of 2015; the U.S. Department of Commerce’s National Institute of Standards and Technology’s Cybersecurity Framework; the Clarifying Lawful Overseas Use of Data Act; and identity theft, file freezing, security breach notificationcyber incident notice requirements for banks and similar state privacy laws);their service providers under rules and regulations issued by federal banking regulators;
ExtensionLaws and regulations related to extension of credit to consumers through the Electronic Fund Transfers Act and Regulation E, as well as non‑governmental VISA and MasterCard electronic payment standards;
Laws and regulations applicable to secondary market participants (e.g., Fannie Mae and Freddie Mac) that could have an impact on our scoring products and revenues, including 12 CFR Part 1254 (Validation and Approval of Credit Score Models) issued by the Federal Housing Finance Agency in accordance with Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (Public Law 115-174), and any regulations, standards or criteria established pursuant to such laws or regulations;
Laws and regulations applicable to our customer communication clients and their use of our products and services (e.g., the Telemarketing Sales Rule, Telephone Consumer Protection Act, the CAN-SPAM Act, the Fair Debt Collection Practices Act, and regulations promulgated thereunder)thereunder, and similar state laws and similar laws in other countries);
Laws and regulations applicable to our insurance clients and their use of our insurance products and services;
The application or extension of consumer protection laws, including implementing regulations (e.g., the Consumer Financial Protection Act, the Federal Trade Commission Act, the Truth In Lending Act and Regulation Z, the Fair Debt Collection Practices Act, the Servicemembers Civil Relief Act, the Military Lending Act, and the Credit Repair Organizations Act);
Laws and regulations governing the use of the Internet and social media, telemarketing, advertising, endorsements and testimonials;
Anti-money laundering laws and regulations (e.g., the Bank Secrecy Act and the USA PATRIOT Act);
Laws and regulations restricting transactions with sanctioned parties and regarding export controls as they apply to FICO products delivered in non-U.S. countries or to foreign nationals (e.g., Office of Foreign Asset Control sanctions and Export Administration Regulations);
Anti-bribery and corruption laws and regulations (e.g., the Foreign Corrupt Practices Act and the UK Bribery Act 2010);
Financial regulatory standards (e.g., Sarbanes-Oxley Act requirements to maintain and verify internal process controls, including controls for material event awareness and notification); and
Regulatory requirements for managing third parties (e.g., vendors, contractors, suppliers and distributors);.
Anti-money laundering laws and regulations (e.g., the Bank Secrecy Act and the USA PATRIOT Act);
Financial regulatory reform stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act and the many regulations mandated by that Act, including regulations issued by, and the supervisory and investigative authority of, the Consumer Financial Protection Bureau; and
Laws and regulations regarding export controls as they apply to FICO products delivered in non-U.S. countries (e.g., Office of Foreign Asset Control sanctions, and Export Administration Regulations).

In addition, manyMany U.S. and foreign jurisdictions have passed, or are currently contemplating, a variety of consumer protection, data privacy, and data security laws and regulations that may relate to our business or the business of our customers or affect the demand for our products and services. For example, the GDPR became effective on May 25, 2018in the E.U. and the U.K. imposes among other things, strict obligations and restrictions on the ability to collect, analyzecollection and transfer European Union (“use of E.U.”) and U.K. personal data, a requirement for prompt noticeand requires the implementation of data breaches in certain circumstances, and possible substantial finesapproved safeguards for any violations (including possible fines for certain violationscross-border transfers of up to the greater of 20 million Euros or 4% of total worldwide annual revenue). A decision in July 2020 by the Court of Justice of the European Union (i.e., Schrems II), calls into question certain data transfer mechanisms between thesuch data. The E.U. and the U.S. The decisionU.K. each have issued new standard contractual clauses (“SCCs”) as an approved safeguard for the transfer of E.U. and U.K. personal data along with guidance imposing further obligations on controllers and processors that rely on SCCs for such cross-border transfers, including carrying out an appropriate data transfer impact assessment to evaluate whether adequate protection will be afforded to the data in the destination country. Our implementation of the new SCCs for affected data flows may involve additional compliance costs associated with performing any necessary assessments, engaging in contract negotiations with third parties, and/or (if appropriate) localizing certain data processing activities. Furthermore, such data transfer restrictions may have an adverse impact on cross-border transfers of personal data within our business and may subject us to additional scrutiny from E.U. regulators or may increase our costs of compliance.

U.K. data protection authorities.
Brazil, India, South Africa, Japan, China, Israel, Canada, and several other countries have introduced and, in some cases, enacted, similar privacy and data security laws.
The California Consumer Privacy Act of 2018 which was enacted on June 28, 2018 and became effective on January 1, 2020,(“CCPA”) gives California residents certain privacy rights in the collection and disclosure of their personal information and requires businesses to make certain disclosures and take certain other acts in furtherance of those rights. Additionally, effective January 1, 2023, the California Privacy Rights Act (the “CPRA”) will revise and significantly expand the scope of the CCPA. The CPRA also created a new agency, the California Privacy Protection Agency, authorized to implement and enforce the CCPA and the CPRA, which could result in increased privacy and information security regulatory actions. Other U.S. states have considered and/or enacted similar privacy laws. For example, Virginia, Utah, Connecticut, and Colorado have passed consumer privacy laws that become effective in 2023.
In addition, there has been an increased focus on laws and regulations related to our business and the business of our customers, including by the current U.S. presidential administration, the U.S. Congress, and U.S. regulators, including the CFPB, relating to policy concerns with regard to the operation of consumer reporting agencies, the use and accuracy of credit data, the use of credit scores, algorithm accountability and transparency, and fair lending.
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The European Commission has also released draft proposed regulations (i.e., the EU AI Act) that would establish requirements for the provision and use of products that leverage artificial intelligence, machine learning, and similar analytic and statistical modeling technologies, including credit scoring. The EU AI Act is expected to be finalized in 2024 or 2025.
The costs and other burdens of compliance with privacy and data securitysuch laws and regulations could negatively impact the use and adoption of our solutions and reduce overall demand for them. Additionally, concerns regarding data privacy may cause our customers, or their customers and potential customers, to resist providing the data necessary to allow us to deliver our solutions effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our solutions and any failure to comply with such laws and regulations could lead to significant fines, penalties or other liabilities. Any such decrease in demand or incurred fines, penalties or other liabilities could have a material adverse effect on our business, results of operations, and financial condition.


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In addition to existing laws and regulations, changes in the U.S. or foreign legislative, judicial, regulatory or consumer environments could harm our business, financial condition or results of operations. The laws and regulations above, and changes to them or their interpretation by the courts, could affect the demand for or profitability of our products, including scoring and consumer products. New laws and regulations pertaining to our customers could cause them to pursue new strategies, reducing the demand for our products. We expect there will continue to be an increased focus on laws and regulations related to our business and/or the business of our clients, including with regard to the operation of consumer reporting agencies, the collection, use, accuracy, correction and sharing of personal information, credit scoring, the use of artificial intelligence and machine learning, and algorithmic accountability and fair lending.

If we are subject to infringement claims, it could harm our business.

We expect that productsProducts in the industry segments in which we compete, including software products, will increasingly beare often subject to claims of patent and other intellectual property infringement, and such claims could increase as the number of products and competitors in our industry segments grow. We may need to defend claims that our products infringe intellectual property rights, and as a result we may:

incur significant defense costs or substantial damages;
be required to cease the use or sale of infringing products;
expend significant resources to develop or license a substitute non-infringing technology;
discontinue the use of some technology; or
be required to obtain a license under the intellectual property rights of the third partythird-party claiming infringement, which license may not be available or might require substantial royalties or license fees that would reduce our margins.

Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred to as “patent trolls,” have purchased patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive threatening letters or notices or may be the subject of claims that our solutions and underlying technology infringe or violate the intellectual property rights of others. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management's attention and resources, damage our reputation and brand, and cause us to incur significant expenses.
Global Operational Risks

Material adverse developments in global economic conditions, or the occurrence of certain other world events, could affect demand for our products and services and harm our business.
Purchases of technology products and services and decisioning solutions are subject to adverse economic conditions. When an economy is struggling, companies in many industries delay or reduce technology purchases, and we experience softened demand for our decisioning solutions and other products and services. Global economic uncertainty has produced, and continues to produce, substantial stress, volatility, illiquidity and disruption of global credit and other financial markets. Various factors contribute to the uncertain economic environment, including the conflict between Russia and Ukraine, the level and volatility of interest rates, high inflation, the continuing effects of the COVID-19 pandemic, an actual recession or fears of a recession, trade policies and tariffs, geopolitical tensions, Brexit, the U.K. withdrawal from the E.U., and political and governmental leadership changes in the U.K. and certain E.U. countries.
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Economic uncertainty has and could continue to negatively affect the businesses and purchasing decisions of companies in the industries we serve. Such disruptions present considerable risks to our businesses and operations. As global economic conditions experience stress and negative volatility, or if there is an escalation in regional or global conflicts, such as that between Russia and Ukraine, or terrorism, we will likely experience reductions in the number of available customers and in capital expenditures by our remaining customers, longer sales cycles, deferral or delay of purchase commitments for our products and increased price competition, which may adversely affect our business, results of operations and liquidity.
As a result of these conditions, risks and uncertainties, we may need to modify our strategies, businesses or operations, and we may incur additional costs in order to compete in a changed business environment. Given the volatile nature of the global economic environment and the uncertainties underlying efforts to stabilize it, we may not timely anticipate or manage existing, new or additional risks, as well as contingencies or developments, which may include regulatory developments and trends in new products and services. Our failure to do so could materially and adversely affect our business, financial condition, results of operations and prospects.

In operations outside the U.S., we are subject to additional risks that may harm our business, financial condition or results of operations.
A large portion of our revenues is derived from international sales. During fiscal 2022, 28% of our revenues were derived from business outside the U.S. As part of our growth strategy, we plan to continue to pursue opportunities outside the U.S., including opportunities in countries with economic systems that are in early stages of development and that may not mature sufficiently to result in growth for our business. Accordingly, our future operating results could be negatively affected by a variety of factors arising out of international commerce, some of which are beyond our control. These factors include:
general economic and political conditions in countries where we sell our products and services;
difficulty in staffing and efficiently managing our operations in multiple geographic locations and in various countries;
effects of a variety of foreign laws and regulations, including restrictions on access to personal information;
data privacy and consumer protection laws and regulations;
import and export licensing requirements;
longer payment cycles;
difficulties in enforcing contracts and collecting accounts receivable;
reduced protection for intellectual property rights;
currency fluctuations;
unfavorable tax rules or changes in tariffs and other trade barriers;
the presence and acceptance of varying levels of business corruption in international markets;
geopolitical instability, terrorism, and war, including the conflict between Ukraine and Russia;
natural disasters and pandemics, including the COVID-19 pandemic, and individual countries’ reactions to them; and
difficulties and delays in translating products and related documentation into foreign languages.
There can be no assurance that we will be able to successfully address each of these challenges. Additionally, some of our business will be conducted in currencies other than the U.S. dollar. Substantial movements in foreign exchange rates relative to the dollar could adversely impact our cash flows, results of operations and financial position.
In addition to the risk of depending on international sales, we have risks incurred in having research and development personnel located in various international locations. We currently have a substantial portion of our product development staff in international locations, some of which have political and developmental risks. If such risks materialize, our business could be damaged.
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Financial Risks

Our products have long and variable sales cycles. If we do not accurately predict these cycles, we may not forecast our financial results accurately, and our stock price could be adversely affected.

We experience difficulty in forecasting our revenues accurately becauseaccurately. In our Software segment, the length of our sales cycles makes it difficult for us to predict the quarter in which sales will occur. In addition, our selling approach is complex as we look to sell multiple products and services across our customers’ organizations. This makes forecasting of revenues in any given period more difficult. As a resultFor example, the sales cycle of our sales approachproducts can extend to greater than a year and lengthening sales cycles,as a result, revenues and operating results may vary significantly from period to period. For example, the sales cycle for our products typically ranges from 60 days to 18 months, which may be further extended as a result of COVID-19. Customers are often cautious in making decisions to acquire our products because purchasing our products typically involves a significant commitment of capital and may involve shifts by the customer to a new software and/or hardware platform or changes in the customer’s operational procedures. This may cause customers, particularly those experiencing financial stress, to make purchasing decisions more cautiously. Delays in completing sales can arise while customers complete their internal procedures to approve large capital expenditures and test and accept our applications. Consequently, we face difficulty predicting the quarter in which sales to expected customers will occur and experience fluctuations in our revenues and operating results.
In our Scores segment, a majority of our revenues come from the sale of our Scores through partners. We have limited visibility on those sales until we receive royalty reports from those partners at the end of each billing period. Furthermore, the volume of our Scores sales depends heavily on macroeconomic conditions that are hard to forecast.
If we are unable to accurately forecast our revenues, our stock price could be adversely affected.

We typically have revenue-generating transactions concentrated in the final weeks of a quarter, which may prevent accurate forecasting of our financial results and cause our stock price to decline.

Large portions of our customer agreements are consummated in the weeks immediately preceding quarter end. Before these agreements are consummated, we create and rely on forecasted revenues for planning, modeling and earnings guidance. Forecasts, however, are only estimates and actual results may vary for a particular quarter or longer periods of time. Consequently, significant discrepancies between actual and forecasted results could limit our ability to plan, budget or provide accurate guidance, which could adversely affect our stock price. Any publicly-stated revenue or earnings projections are subject to this risk.

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Charges to earnings resulting from acquisitions may adversely affect our operating results.

Under business combination accounting standards, we recognize the identifiable assets acquired and the liabilities assumed in acquired companies generally at their acquisition-date fair values and separately from goodwill. Goodwill is measured as the excess amount of consideration transferred, which is also generally measured at fair value, and the net of the amounts of the identifiable assets acquired and the liabilities assumed as of the acquisition date. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain.

After we complete an acquisition, the following factors could result in material charges and adversely affect our operatingfinancial results and may adversely affect our cash flows:

impairment of goodwill or intangible assets, or a reduction in the useful lives of intangible assets acquired;
amortization of intangible assets acquired;
identification of, or changeskey metrics fluctuate within each quarter and from quarter to assumed contingent liabilities, both income tax and non-income tax related, after our final determination of the amounts for these contingencies or the conclusion of the measurement period (generally up to one year from the acquisition date), whichever comes first;
costs incurred to combine the operations of companies we acquire, such as transitional employee expenses and employee retention, redeployment or relocation expenses;
charges to our operating results to maintain certain duplicative pre-merger activities for an extended period of time or to maintain these activities for a period of time that is longer than we had anticipated, charges to eliminate certain duplicative pre-merger activities, and charges to restructure our operations or to reduce our cost structure; and
charges to our operating results resulting from expenses incurred to effect the acquisition.

Substantially all of these costs will be accounted for as expenses that will decrease our net income and earnings per share for the periods in which those costs are incurred. Charges to our operating results in any given period could differ substantially from other periods based on the timing and size ofquarter, making our future acquisitionsrevenue, annual recurring revenue (“ARR”), and the extent of integration activities. A more detailed discussion of our accounting for business combinations and other items is presented in the “Critical Accounting Policies and Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7).

General Risk Factorsfinancial results difficult to predict,

The occurrence of certain negative eventswhich may cause fluctuations in our stock price.

The marketus to miss analyst expectations and may cause the price of our common stock has been volatileto decline.
Our quarterly financial results and maykey metrics have fluctuated in the past and will continue to be subject to wide fluctuations due to a number of factors, including variationsdo so in our revenuesthe future, and operating results. We believe that youtherefore period-to-period comparisons should not rely on period-to-period comparisons of financial resultsbe relied upon as an indication of future performance. Because many of our operating expenses are fixed and will not be affected by short-termThese fluctuations in revenues, short-term fluctuations in revenues may significantly impact operating results. Additional factors that maycould cause our stock price to change significantly or experience declines. We also may provide investors with quarterly and annual financial forward-looking guidance that could prove to be inaccurate as a result of these fluctuations and other factors. In addition to the other risks described in these risk factors, some of the factors that could cause our financial results and key metrics to fluctuate include the following:include:

variability in demand from our existing customers;
failure to meet the expectations of market analysts;
changes in recommendations by market analysts;
the lengthy and variable sales cycle of many products, combined with the relatively large size of orders for our products, increases the likelihood of short-term fluctuation in revenues;
consumer or customer dissatisfaction with, or problems caused by, the performance of our products;
the timing of new product announcements and introductions in comparison with our competitors;
the level of our operating expenses;
changes in demand and competitive and other conditions in the consumer credit, banking and insurance industries;
the level and volatility of interest rates and the level of inflation;
fluctuations in domestic and international economic conditions, such as those which have occurred as a result of the COVID-19 pandemic;
, such as those which have occurred as a result of the COVID-19 pandemic;
our ability to complete large installations, and to adopt and configure cloud-based deployments, on schedule and within budget;
announcements relating to litigation or regulatory matters;
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changes in senior management or key personnel;
acquisition-related expenses and charges; and
timing of orders for and deliveries of software systems.
Our operating expenses are based in part on our expectations for future revenue and many are fixed and cannot be quickly adjusted as revenue changes. Accordingly, any revenue shortfall below expectations has had, and in the future could have, an immediate and significant adverse effect on our operating results and profitability. Greater than anticipated expenses or a failure to maintain rigorous cost controls would also negatively affect profitability.

General Risk Factors
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In addition, theOur stock price has been subject to fluctuations due to a number of factors, including variations in our revenues and operating results. The financial markets have at various times experienced significant price and volume fluctuations that have particularly affected the stock prices of many technology companies and financial services companies, and these fluctuations sometimes have been unrelated to the operating performance of these companies. Broad market fluctuations, as well as industry-specific and general economic conditions, may negatively affect our business and require us to record an impairment charge related to goodwill, which could adversely affect our results of operations, stock price and business.

Our anti-takeover defenses could make it difficult for another company to acquire control of FICO, thereby limiting the demand for our securities by certain types of purchasers or the price investors are willing to pay for our stock.

Certain provisions of our Restated Certificate of Incorporation, as amended, could make a merger, tender offer or proxy contest involving us difficult, even if such events would be beneficial to the interests of our stockholders. These provisions include giving our board the ability to issue preferred stock and determine the rights and designations of the preferred stock at any time without stockholder approval. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third partythird-party to acquire, or discouraging a third partythird-party from acquiring, a majority of our outstanding voting stock. These factors and certain provisions of the Delaware General Corporation Law may have the effect of deterring hostile takeovers or otherwise delaying or preventing changes in control or changes in our management, including transactions in which our stockholders might otherwise receive a premium over the fair market value of our common stock.

If we experience changes in tax laws or adverse outcomes resulting from examination of our income tax returns, it could adversely affect our results of operations.

We are subject to federal and state income taxes in the U.S. and in certain foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. Our future effective tax rates could be adversely affected by changes in tax laws (including the Inflation Reduction Act of 2022), by our ability to generate taxable income in foreign jurisdictions in order to utilize foreign tax losses, and by the valuation of our deferred tax assets. In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from such examinations will not have an adverse effect on our operating results and financial condition.

Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our properties consist primarilyThe Company’s headquarters are located in Bozeman, Montana. As of September 30, 2022, the Company leased office facilities in geographically dispersed locations primarily for corporate functions, sales, data processing, research and development, consultingdata centers and administrative personnel. Our principal locations include:
approximately 55,000 square feet of office spaceother purposes. The Company believes its existing facilities, which are used by both reportable segments, are in San Jose, California in one building under a lease expiring in fiscal 2024; this is used for our corporate headquartersgood operating condition and all of our segments;
approximately 173,000 square feet of office space in Bangalore, India in one building under a lease expiring in fiscal 2022; this is used for our Applications and Decision Management Software segments;
approximately 124,000 square feet of office space in San Rafael, California in one building under a lease expiring in fiscal 2025; this is used for all of our segments;
approximately 80,000 square feet of office space in San Diego, California in one building under a lease expiring in fiscal 2027; this is used for our Applications and Decision Management Software segments; and
approximately 45,000 square feet of office space in Roseville, Minnesota in one building under a lease expiring in fiscal 2028; this is used for all of our segments.
In addition, we lease an aggregate of approximately 235,000 square feet of office and data center space in a number of smaller domestic locations and internationally in the United Kingdom, China, Singapore, and several other locations. We believe thatare suitable additional space will be available to accommodate futuremeet operating needs. See Note 17 to the accompanying consolidated financial statements for information regarding our obligations under leases.

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Item 3. Legal Proceedings
On March 13, 2020, we received a letter from the Antitrust Division of the U.S. Department of Justice (“DOJ”) informing us that the DOJ had opened a civil investigation into potential exclusionary conduct by the Company. We are cooperating with the DOJ in its investigation.Not applicable.
Item 4. Mine Safety Disclosures
Not Applicable.

applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock trades on the New York Stock Exchange under the symbol: FICO. According to records of our transfer agent, at October 30, 2020,28, 2022, we had 278275 stockholders of record of our common stock.
Dividends
We have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness, plans for expansion and restrictions imposed by our debt arrangements, if any.
Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
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)
 
Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs (2)
July 1, 2020 through July 31, 20202,298
 $436.71
 
 $250,000,000
August 1, 2020 through August 31, 202027,880
 $426.55
 24,000
 $239,776,878
September 1, 2020 through September 30, 202035,990
 $421.32
 35,600
 $224,777,076
Total66,168
 $424.05
 59,600
 $224,777,076
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)
Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs (2)
July 1, 2022 through July 31, 20221,189 $454.24 — $118,768,694 
August 1, 2022 through August 31, 202267,635 $481.01 65,000 $87,513,900 
September 1, 2022 through September 30, 202255,217 $452.67 55,000 $62,617,740 
     Total124,041 $468.14 120,000 $62,617,740 
(1)Includes 4,041 shares delivered in satisfaction of the tax withholding obligations resulting from the vesting of restricted stock units held by employees during the quarter ended September 30, 2022.
(1)Includes 6,568 shares delivered in satisfaction of the tax withholding obligations resulting from the vesting of restricted stock units held by employees during the quarter ended September 30, 2020.
(2)In July 2019, our Board of Directors approved a stock repurchase program following the completion of our previous program. This program was open-ended and authorized repurchases of shares of our common stock up to an aggregate cost of $250.0 million in the open market or in negotiated transactions. In July 2020, our Board of Directors approved a new stock repurchase program following the completion of the July 2019 program. The new program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $250.0 million in the open market or in negotiated transactions.
(2)In January 2022, our Board of Directors approved a stock repurchase program following the completion of our previous program. This program was open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $500.0 million in the open market or in negotiated transactions. In October 2022, our Board of Directors approved a new stock repurchase program replacing the January 2022 stock repurchase program. The new program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $500.0 million in the open market or in negotiated transactions.
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Performance Graph
The following graph shows the total stockholder return of an investment of $100 in cash on September 30, 2015,2017, in (a) the Company’s common stock, (b) the Standard & Poor’s 500 Stock Index and (c) the Standard & Poor’s 500 Application Software Index, in each case with reinvestment of dividends. Our past performance may not be indicative of future performance.

fico-20220930_g1.jpg
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fy20performance.gif
Item 6. Selected Financial Data
We acquired TONBELLER Aktiengesellschaft in January 2015, QuadMetrics, Inc. in May 2016, and eZmCom, Inc. in August 2019. Results of operations from the acquisitions are included prospectively from their respective acquisition dates and did not materially impact comparability of the data presented below.[Reserved]
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 Year Ended September 30,
 2020 (1) 2019 2018 2017 (1) 2016
 (In thousands, except per share data)
Revenues$1,294,562
 $1,160,083
 $1,000,146
 $934,983
 $881,356
Operating income295,969
 253,548
 175,359
 182,159
 169,592
Net income236,411
 192,124
 126,482
 133,414
 109,448
Basic earnings per share8.13
 6.63
 4.26
 4.32
 3.52
Diluted earnings per share7.90
 6.34
 4.06
 4.14
 3.39
Dividends declared per share
 
 
 0.04
 0.08

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 September 30,
 2020 2019 2018 2017 2016
 (In thousands)
Working capital$119,567
 $(35,122) $(77,514) $22,842
 $21,561
Total assets1,606,240
 1,433,448
 1,330,467
 1,348,728
 1,220,676
Senior notes750,000
 485,000
 513,000
 244,000
 316,000
Revolving line of credit95,000
 345,000
 257,000
 361,000
 255,000
Stockholders’ equity331,082
 289,767
 287,437
 466,183
 446,828
(1) Results of operations for fiscal years 2020 and 2017 included pre-tax charges of $45.0 million and $4.5 million, respectively, in restructuring and impairment charges.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes the following: a business overview that provides a high-level summary of our strategies and initiatives, financial resultshighlights from fiscal year 2022 and bookings trends that affectkey performance metrics for our business;Software segment; a more detailed analysis of our results of operations; our liquiditycapital resources and capital resources,liquidity, which discusses key aspects of our statements of cash flows, changes in our balance sheets and our financial commitments; and a summary of our critical accounting policies and estimates we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.that involve a significant level of estimation uncertainty. Our MD&A should be read in conjunction with Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. The following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ from those referred to herein due to a number of factors, including but not limited to risks described in Item 1A, Risk Factors, in this Annual Report on Form 10-K.
BUSINESS OVERVIEW
Strategies and Initiatives

DuringIn fiscal 2020, we2022, our B2B scoring solutions, including the flagship FICO® Score, continued to advance our cloud-enabled, platform-based strategybe the standard measure of consumer credit risk in our Applications and Decision Management Software segments. The application of this strategy has ledthe U.S. We continued to an increase in our cloud bookings over the past several years. Our cloud bookings accounted for 41%promote adoption of our total bookings in fiscal 2020, compared to 39% during fiscal 2019. We have invested, and intend to continue to invest, in product development to build out and deliver features, functionalities and performance enhancements using a SaaS-based approach on our platform. Our continued product innovation provides growth opportunities with customers that can benefit from the power, flexibility and modularity of these solutions.
For our Scores segment, our industry leading business-to-businessmost predictive scores, FICO® Scores have achieved a multi-year expansion in the growing U.S. business-to-consumer market. We have launched numerous new FICO® Score-based products, and continue to grow our business-to-consumer partnership with Experian, a leading global information services provider. This partnership provides consumers the FICO® Score that lenders most commonly use in evaluating credit when determining applicant eligibility for new credit cards, car loans, mortgages or other lines of credit10 and can be accessed through Experian.com. The FICO® Score Open Access program, which allows10T. We also continued our participating clients to provide their customers with a free FICO® Score along with content to help them understand the FICO® Score their lender uses, has more than 240 million consumer accounts with access to their free FICO® Scores. We continue to pursue additional partners to distribute FICO® Scores with their product offerings sold directly to consumers. During fiscal 2020, we announced the launchrollout of the FICO® Resilience Index, a new analytic tool designedcomplement to complement FICO® Score models by identifying those Scores that identifies consumers who are mostmore resilient to economic stress relative to other consumers within the same FICO® Score bands. FICO® Resilience Index would enable industry participantsWe continued to more precisely assess credit risk and extend credit to more consumers throughout the economic cycle by managing the riskdevelop scores that emerges during periods of economic stress.
We also continueuse alternative data to enhance stockholder value by returning cash to stockholders through our stock repurchase program. conventional credit bureau data and generate scores for otherwise un-scorableconsumers.
During fiscal 2020,2022, we repurchased approximately 0.7 million shares at a total repurchase price of $235.2 million. As of September 30, 2020, we had $224.8 million remaining undercontinued to advance our current stock repurchase program.

As a strategic cost initiativeplatform-first, cloud delivered strategy in fiscal 2020, we committedour Software segment. This led us to a course of action designed to reduce operating costs in lower value,divert resources from less strategic areas of our business in order to facilitate incremental investment in higher value, more strategic areas whileareas. We also reducingcontinued our facilities footprinttransition from private data centers to external service providers to host our technology infrastructure.
We also continued to enhance stockholder value by returning cash to stockholders through our stock repurchase programs. During fiscal 2022, we repurchased 2.7 million shares at a total repurchase price of $1.1 billion.
Highlights from Fiscal 2022
Total revenue was $1.4 billion during fiscal 2022, a 5% increase from fiscal 2021. Our business divestiture in lightthe prior year had a 3% negative impact on total revenue for fiscal 2022.
Total revenue for our Scores segment was $706.6 million during fiscal 2022, an 8% increase from fiscal 2021.
Annual Recurring Revenue for our Software segment as of post-pandemic workforce patterns. AsSeptember 30, 2022 was $569.3 million, a result of this initiative, in9% increase from September 30, 2021, excluding divestitures.
Dollar-Based Net Retention Rate for our Software segment during the fourth quarter of fiscal 2020, we recorded a net charge of $41.9 million consisting of impairment losses of $33.2 million on our operating lease assets, property and equipment related to closing or consolidating office spaces, as well as a restructuring charge of $8.7 million related to our workforce reduction. We expect this course of action to result in an aggregate annual expense savings of approximately $36 million beginning in fiscal 2021.2022 was 107%, excluding divestitures.

In addition, during fiscal 2020, we changed our practice of selling term software licenses with separate license and maintenance components to a single software subscription contract with license and maintenance bundled. This transition will be substantially completed by the end of the first quarter of our fiscal 2021. This will shift the timing of our revenue recognition on these subscription sales, resulting in less revenue recognized upfront and more revenue recognized over the term of these subscriptions. We expect a decline in revenue recognized from term software licenses in fiscal 2021 as we transition to the new term license subscription model. This change will not negatively impact our cash flows.

Overview of Financial Results

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Total revenues for fiscal 2020 were $1.29 billion, an increase of 12% from $1.16 billion in fiscal 2019. We continue to drive growth in our Scores segment. Scores revenue increased 25% to $528.5 million in fiscal 2020 from $421.2 million in fiscal 2019, and Scores operatingOperating income increased 26% to $454.3 million in fiscal 2020 from $361.4 million in fiscal 2019. For our Applications and Decision Management Software segments, our SaaS business continues to grow as we pursue our cloud-enabled, platform-based strategy. Revenue derived from our cloud-enabled SaaS business, which includes both subscription revenue and associated professional services revenue, increased 11% to $300.0was $542.4 million during fiscal 2020,2022, a 7% increase from $270.4fiscal 2021. Operating income during fiscal 2021 included gains on product line asset sales and business divestiture of $100.1 million.
Net income was $373.5 million during fiscal 2019. SaaS subscription revenue increased 11% to $236.02022, a 5% decrease from fiscal 2021. Net income during fiscal 2021 included pre-tax gains on product line asset sales and business divestiture of $100.1 million.
Diluted EPS was $14.18 during fiscal 2022, a 6% increase from fiscal 2021. Diluted EPS during fiscal 2021 included pre-tax gains on product line asset sales and business divestiture of $100.1 million in the aggregate, or $2.71 per share after tax.
Cash flow from operations was $509.5 million during fiscal 2020, from $213.12022, compared with $423.8 million during fiscal 2019.2021.
We derive a significant portionCash and cash equivalents were $133.2 million as of revenues internationally, and 32% and 34%September 30, 2022, compared with $195.4 million as of total consolidated revenues were derived from clients outside the U.S.September 30, 2021.
Total debt balance was $1.9 billion as of September 30, 2022, compared with $1.3 billion as of September 30, 2021.
Total share repurchases during fiscal 2020 and 2019, respectively. A significant portion of our revenues are derived from the sale of products and services within the banking (including consumer credit) industry, and 86% and 87% of our revenues2022 were derived from within this industry$1.1 billion, compared with $882.2 million during fiscal 2020 and 2019, respectively. In addition, a significant share of our revenues come from transactional or unit-based software license fees, transactional fees under credit scoring, data processing, data management and SaaS subscription services arrangements, and annual software maintenance fees. Arrangements with transactional or unit-based pricing accounted for 75% and 74% of our revenues during fiscal 2020 and 2019, respectively.
Operating income for fiscal 2020 was $296.0 million, an increase of 17% from $253.5 million in fiscal 2019. Operating margin was 23% and 22% for fiscal 2020 and 2019, respectively. Net income increased 23% to $236.4 million in fiscal 2020 from $192.1 million in fiscal 2019 primarily due to an increase in operating income. Diluted earnings per share for fiscal 2020 was $7.90, an increase of 25% from $6.34 in fiscal 2019.

COVID-19 Update
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic, which has spread throughout the U.S. and the world. The COVID-19 pandemic has resulted in authorities implementing numerous measures to contain the virus, including quarantines, shelter-in-place orders, travel bans and restrictions, and business limitations and shutdowns.
Our focus remains on promoting employee health and safety, serving our customers and ensuring business continuity. Since March 2020, our employees have been instructed to work from home in each country where we operate to support their health and well-being as well as for our customers, partners and communities. We have also substantially reduced employee travel to only essential business needs. We cannot predict when or how we will begin to lift the actions put in place, but as of the date of this filing, we do not believe our work-from-home protocol has had a material adverse impact on our internal controls, financial reporting systems or our operations.
Our operational flexibility and strong balance sheet allowed us to successfully manage through the initial impact of COVID-19 while protecting our cash flow and liquidity. However, certain areas of our business have been adversely impacted as a result of the pandemic’s global economic impact. For example, COVID-19 has been adversely affecting certain purchasing decisions by our customers in our Applications and Decision Management Software segments. For our Scores segment, we have seen a decline in auto and unsecured originations volumes, but an increase in mortgage volume through the 2nd half of fiscal 2020 due to strong refinancing activities boosted by low interest rates. Additionally, we have granted and may continue to grant extended payment terms to a small number of customers as a result of COVID-19. We have not and do not plan to modify our customer agreements in a manner that would materially impact our financial condition or results of operations. Finally, contrary to our original expectations, a decrease in sales-related travel activity has not materially affected our ability to consummate sales.2021.
As a cost management initiative due to COVID-19, we accelerated reviews of our leased office spaces across our real estate portfolio to reshape and optimize our occupancy cost structures over the next several years. As a result, in the fourth quarter of fiscal 2020 we recorded impairment charges of $33.2 million on operating lease assets, property and equipment related to closing or consolidating office spaces to better align with anticipated needs. While we intend to continue to manage our costs by limiting the addition of new employees and third-party contracted services, and substantially reducing employee travel and other discretionary spending, to the extent the business disruption continues for an extended period, additional cost management actions will be considered and may become necessary. Further asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges may be required, depending on the severity and duration of the pandemic.
We have not incurred significant financial disruptions thus far from the COVID-19 outbreak, but due to numerous uncertainties, including the severity and duration of the pandemic, actions that may be taken by governmental authorities, the impact on the business of our clients, and other factors, we are unable to accurately predict the impact COVID-19 will have on our results of operations, financial condition, liquidity and cash flows. For more information, see Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K.

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Key performance metrics for Software segment
Annual Contract Value Bookings (“ACV Bookings”)
Management regards the volume of bookings achievedACV Bookings as an important indicator of future revenues, but they are not comparable to, nor are they a substitute for, an analysis of our revenues.revenues and other U.S. generally accepted accounting principles (U.S. GAAP) measures. We define ACV Bookings representas the average annualized value of software contracts signed in the current reporting period that generate current and future revenue streams. Whileon-premises and SaaS software revenue. We only include contracts with an initial term of at least 24 months and we disclose estimatedexclude perpetual licenses and other software revenues that are non-recurring in nature. For renewals of existing software subscription contracts, we count only incremental annual revenue expected to be recognizedover the current contract as ACV Bookings.
ACV Bookings is calculated by dividing the total expected contract value by the contract term in years. The expected contract value equals the fixed amount — including guaranteed minimums, if any — stated in the future related to unsatisfied performance obligations in Note 16 to the accompanying consolidated financial statements, we believe bookings amount is still a meaningful measure of our business as it includes estimated revenues omitted from Note 16, such as usage-based royalties derived from our software licenses, among others.
We estimate bookings as of the end of the period in which a contract, is signed and initial booking estimates are not updated in future periods for changes between estimated and actual results. Our calculations have varying degrees of certainty depending on the revenue type and individual contract terms. They are subject to a number of risks and uncertainties concerning timing and contingencies affecting product delivery and performance, and estimates consider contract terms, knowledge of the marketplace and experience with our customers, among other factors. Actual revenue and the timing thereof could differ materially from our initial estimates.
Although many of our contracts contain non-cancelable terms, most of our bookings are transactional or service-related that depend upon estimates such as volume of transactions, number of active accounts, or number of hours incurred. Since these estimates cannot be considered fixed or firm, we do not believe it is appropriate to characterize bookings as backlog. The following paragraphs discuss the key assumptions used to calculate bookings and the susceptibility of these assumptions to variability for each revenue type, as defined in Revenue Recognition in the Critical Accounting Policies and Estimates.
Transactional and Maintenance Bookings
We calculate transactional bookings as the total estimated volume of transactions or number of accounts under contract, multiplied by the contractual rate. Transactional contracts generally span multiple years and requireplus estimates of future transaction volumes or number of active accounts.usage-based fees. We develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements. Differences between estimated bookingsestimates and actual results occur due to variability in the volume of transactions or number of active accounts estimated.estimated usage. This variability is primarily caused bycan be the result of the economic trends in our customers’ industries; individual performance of our customers relative to their competitors; and regulatory and other factors that affect the business environment in which our customers operate.
We calculate maintenance bookings directly from the terms stateddisclose estimated revenue expected to be recognized in the contract.future related to remaining performance obligations in Note 11 to the accompanying consolidated financial statements. However, we believe ACV Bookings is a more meaningful measure of our business as it includes estimated revenues and future billings excluded from Note 11, such as usage-based fees and guaranteed minimums derived from our on-premises software licenses, among others.
Professional ServicesThe following table summarizes our ACV Bookings during the periods indicated:
We calculate professional services bookings as the estimated number of hours to complete a project multiplied by the rate per hour. We estimate the number of hours based on our understanding of the project scope, conversations with customer personnel and our experience in estimating professional services projects. Estimated bookings may differ from actual results primarily due to differences in the actual number of hours incurred.
License Bookings
Licenses that are sold on a perpetual or term basis when bookings generally equal the fixed amount (including guaranteed minimums) stated in the contract.
Bookings Trend Analysis
 Bookings 
Bookings
Yield (1)
 
Number of
Bookings
over $1 Million
 
Weighted-
Average
Term (2)
 (In millions)     (months)
Quarter ended September 30, 2020$234.6
 15% 31
 55
Quarter ended September 30, 2019$160.4
 15% 34
 34
Year ended September 30, 2020$537.0
 29% 87
 
NM(a)

Year ended September 30, 2019$481.7
 31% 95
 
NM(a)

Quarter Ended September 30,Year Ended September 30,
2022202120222021
(In millions)
Total on-premises and SaaS software (*)
$29.5 $25.8 $85.7 $62.8 
(*) During fiscal 2021, we sold all assets related to our cyber risk score operations, sold certain assets related to our Software segment to an affiliated joint venture in China, and divested our Collections and Recovery (“C&R”) business. The amount for the year ended September 30, 2021 excludes these divested product lines and businesses.
Annual Recurring Revenue (“ARR”)
Accounting Standards Codification Topic 606, Revenue from Contacts with Customers, requires us to recognize a significant portion of revenue from our on-premises software subscriptions at the point in time when the software is first made available to the customer, or at the beginning of the subscription term, despitethe fact that our contracts typically call for billing these amounts ratably over the life of the subscription. The remaining portion of our on-premises software subscription revenue including maintenance and usage-based fees are recognized over the life of the contract. This point-in-time recognition of a portion of our on-premises software subscription revenue creates significant variability in the revenue recognized period to period based on the timing of the subscription start date and the subscription term. Furthermore, this point-in-time revenue recognition can create a significant difference between the timing of our revenue recognition and the actual customer billing under the contract. We use ARR to measure the underlying performance of our subscription-based contracts and mitigate the impact of this variability. ARR is defined as the annualized revenue run-rate of on-premises and SaaS software agreements within a quarterly reporting period, and as such, is different from the timing and amount of revenue recognized. All components of our software licensing and subscription arrangements that are not expected to recur (primarily perpetual licenses) are excluded.We calculate ARR as the quarterly recurring revenue run-rate multiplied by four.
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The following table summarizes our ARR for on-premises and SaaS software at each of the dates presented:
December 31, 2020March 31, 2021June 30,
 2021
September 30, 2021December 31, 2021March 31, 2022June 30,
2022
September 30, 2022
ARR (*)
(In millions)
Platform (**)
$55.1$60.2$67.7$75.2$92.2$96.7$108.4$114.2
Non-Platform439.9437.1445.9448.8454.4453.6452.5455.1
    Total$495.0$497.3$513.6$524.0$546.6$550.3$560.9$569.3
Percentage
Platform11 %12 %13 %14 %17 %18 %19 %20 %
Non-Platform89 %88 %87 %86 %83 %82 %81 %80 %
    Total100 %100 %100 %100 %100 %100 %100 %100 %
YoY Change
Platform38 %47 %54 %58 %67 %60 %60 %52 %
Non-Platform(2)%(3)%%%%%%%
    Total%%%%10 %11 %%%
(1)Bookings yield represents the percentage of revenue recognized from bookings for the periods indicated.
(2)Weighted-average term of bookings measures the average term over which bookings are expected to be recognized as revenue.
(a)NM - Measure is not meaningful as our estimate of bookings is as of the end of the period in which a contract is signed, and we do not update our initial booking estimates in future periods for changes between estimated and actual results.

(*) During fiscal 2021, we sold all assets related to our cyber risk score operations, sold certain assets related to our Software segment to an affiliated joint venture in China, and divested our C&R business. The amounts and percentages above exclude these divested product lines and businesses at all dates presented.
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interoperable capabilities which use software assets owned and/or governed by FICO for building solutions and services which conform to FICO architectural standards based on key elements of Cloud Native Computing design principles. These standards encompass shared security context and access using FICO standard application programming interfaces.

TransactionalDollar-Based Net Retention Rate (“DBNRR”)
We consider DBNRR to be an important measure of our success in retaining and maintenance bookings were 48%growing revenue from our existing customers. To calculate DBNRR for any period, we compare the ARR at the end of total bookingsthe prior comparable quarter (“base ARR”) to the ARR from that same cohort of customers at the end of the current quarter (“retained ARR”); we then divide the retained ARR by the base ARR to arrive at the DBNRR. Our calculation includes the positive impact among this cohort of customers of selling additional products, price increases and increases in usage-based fees, and the negative impact of customer attrition, price decreases, and decreases in usage-based fees during the period. However, the calculation does not include the positive impact from sales to any new customers acquired during the period. Our DBNRR may increase or decrease from period to period as a result of various factors, including the timing of new sales and customer renewal rates.
The following table summarizes our DBNRR for on-premises and SaaS software for each of the years ended September 30, 2020periods presented:
Quarter Ended
December 31, 2020March 31, 2021June 30,
 2021
September 30, 2021December 31, 2021March 31, 2022June 30,
2022
September 30, 2022
DBNRR (*)
Platform123 %130 %137 %143 %143 %141 %135 %128 %
Non-Platform97 %96 %100 %100 %102 %103 %101 %100 %
     Total100 %100 %105 %106 %109 %110 %108 %107 %
(*) During fiscal 2021, we sold all assets related to our cyber risk score operations, sold certain assets related to our Software segment to an affiliated joint venture in China, and 2019. Professional services bookings were 33%divested our C&R business. The percentages above exclude these divested product lines and 39%businesses for all periods presented.
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RESULTS OF OPERATIONS
We are organized into the following threetwo reportable segments: Applications, Scores and Decision Management Software. Although we sell solutions and services into a large number of end user product and industry markets, our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance.
Segment revenues, operating income, and related financial information, including disaggregation of revenue, for the years ended September 30, 2020, 20192022, 2021 and 20182020 are set forth in Note 1511 and Note 17 to the accompanying consolidated financial statements.

Revenues
The following tables set forth certain summary information on a segment basis related to our revenues for fiscal 2020, 20192022, 2021 and 2018:2020: 
 
Year Ended September 30,
Period-to-Period ChangePeriod-to-Period
Percentage Change
Segment2022202120202022 to 20212021 to 20202022 to 20212021 to 2020
 (In thousands)(In thousands)  
Scores$706,643 $654,147 $528,547 $52,496 $125,600 %24 %
Software670,627 662,389 766,015 8,238 (103,626)%(14)%
     Total$1,377,270 $1,316,536 $1,294,562 60,734 21,974 %%
 
Revenues
Year Ended September 30,
 Period-to-Period Change 
Period-to-Period
Percentage Change
Segment2020 2019 2018 2020 to 2019 2019 to 2018 2020 to 2019 2019 to 2018
 (In thousands) (In thousands)    
Applications$602,046
 $605,034
 $564,375
 $(2,988) $40,659
  % 7%
Scores528,547
 421,177
 335,870
 107,370
 85,307
 25 % 25%
Decision Management Software163,969
 133,872
 99,901
 30,097
 33,971
 22 % 34%
Total$1,294,562
 $1,160,083
 $1,000,146
 134,479
 159,937
 12 % 16%
 
Percentage of Revenues
Year Ended September 30,
Segment2020 2019 2018
Applications46% 52% 56%
Scores41% 36% 34%
Decision Management Software13% 12% 10%
Total100% 100% 100%

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Applications
 Year Ended September 30, Period-to-Period Change 
Period-to-Period
Percentage Change
 2020 2019 2018 2020 to 2019 2019 to 2018 2020 to 2019 2019 to 2018
 (In thousands) (In thousands)    
Transactional and maintenance$393,994
 $395,398
 $372,283
 $(1,404) $23,115
  % 6 %
Professional services136,677
 137,258
 142,736
 (581) (5,478)  % (4)%
License71,375
 72,378
 49,356
 (1,003) 23,022
 (1)% 47 %
Total$602,046
 $605,034
 $564,375
 (2,988) 40,659
  % 7 %
 Percentage of Revenues
Year Ended September 30,
Segment202220212020
Scores51 %50 %41 %
Software49 %50 %59 %
      Total100 %100 %100 %
Applications
segment revenues decreased $3.0 million in fiscal 2020 from 2019 primarily attributable to a $17.9 million decrease in our fraud solutions and a $3.1 million decrease in our customer communications services, partially offset by a $10.8 million increase in our compliance solutions and a $7.7 million increase in our originations solutions. The decrease in fraud solutions was primarily attributable to a decrease in license revenue, driven by a large multi-year license renewal recognized during fiscal 2019. The decrease in customer communication services was primarily attributable to a decrease in transactional revenue. The increase in compliance solutions was primarily attributable to an increase in professional services and license revenues. The increase in originations solutions was primarily due to an increase in SaaS subscription revenue classified as transactional and maintenance revenue and an increase in license revenue.
Applications segment revenues increased $40.7 million in fiscal 2019 from 2018 primarily due to a $50.6 million increase in our fraud solutions and a $7.3 million increase in our customer communication services, partially offset by an $8.7 million decrease in our customer management solutions and a $7.6 million decrease in our originations solutions. The increase in fraud solutions was primarily attributable to an increase in license and transactional revenues. The increase in customer communication services was primarily attributable to an increase in transactional revenue. The decrease in customer management solutions was primarily attributable to a decrease in license and professional services revenues. The decrease in originations solutions was primarily attributable to a decrease in professional services revenues.

Scores 
 Year Ended September 30, Period-to-Period Change 
Period-to-Period
Percentage Change
 2020 2019 2018 2020 to 2019 2019 to 2018 2020 to 2019 2019 to 2018
 (In thousands) (In thousands)    
Transactional and maintenance$517,024
 $415,288
 $331,662
 $101,736
 $83,626
 24 % 25%
Professional services1,600
 2,157
 1,900
 (557) 257
 (26)% 14%
License9,923
 3,732
 2,308
 6,191
 1,424
 166 % 62%
Total$528,547
 $421,177
 $335,870
 107,370
 85,307
 25 % 25%
Scores segment revenues increased $107.4$52.5 million in fiscal 20202022 from 20192021 due to an increase of $79.8$28.9 million in our business-to-business scores revenue and $27.6$23.6 million in our business-to-consumer services revenue. The increase in business-to-business scores revenue was primarily attributable to an increase in mortgage volumes, a higher unit price across several business-to-business offerings and an increase in auto and unsecured credit originations a large royalty true-up as well as a large annual license deal recognized during fiscal 2020. The increase wasvolume, partially offset by a decrease in unsecuredmortgage originations volume. The increase in business-to-consumer servicesrevenue was attributable to an increase in both royalties derived from scores and subscription services sold indirectly to consumers through consumer reporting agencies and direct sales generated from the myFICO.com website and scores sold indirectly to consumers through credit reporting agencies.website.
Scores segment revenues increased $85.3$125.6 million in fiscal 20192021 from 20182020 due to an increase of $77.4$64.6 million in our business-to-business scores revenue and $7.9$61.0 million in our business-to-consumer services revenue. The increase in business-to-business scores revenue was primarily attributable to a higher unit price in mortgage and auto activities.across several business-to-business offerings, as well as higher volumes. The increase in business-to-consumer servicesrevenue was primarily attributable to an increase in both royalties derived from scores sold indirectly to consumers through creditconsumer reporting agencies.agencies and direct sales generated from the myFICO.com website.

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Software
During fiscal 2020, 2019 and 2018, revenues generated from our agreements with Experian accounted for 14%, 13% and 11%, respectively,
 Year Ended September 30,Period-to-Period ChangePeriod-to-Period
Percentage Change
 2022202120202022 to 20212021 to 20202022 to 20212021 to 2020
 (In thousands)(In thousands)  
On-premises and SaaS software$564,751 $517,888 $584,576 $46,863 $(66,688)%(11)%
Professional services105,876 144,501 181,439 (38,625)(36,938)(27)%(20)%
Total$670,627 $662,389 $766,015 8,238 (103,626)%(14)%
Year Ended September 30,Period-to-Period ChangePeriod-to-Period
Percentage Change
2022202120202022 to 20212021 to 20202022 to 20212021 to 2020
(In thousands)(In thousands)
Software recognized at a point in time (1)
$75,647 $59,024 $127,666 $16,623 $(68,642)28 %(54)%
Software recognized over contract term (2)
489,104 458,864 456,910 30,240 1,954 %— %
Total on-premises and SaaS software$564,751 $517,888 $584,576 $46,863 (66,688)%(11)%
(1)Includes license portion of our total revenues,on-premises subscription software and revenues generated from our agreements with Equifaxperpetual license, both of which are recognized when the software is made available to the customer, or at the start of the subscription.
(2)Includes maintenance portion and TransUnion together accounted for 18%, 16% and 14%, respectively,usage-based fees of our total revenues. Revenues from these customers included amounts recorded in our other segments.
Decision Management Software
 Year Ended September 30, Period-to-Period Change 
Period-to-Period
Percentage Change
 2020 2019 2018 2020 to 2019 2019 to 2018 2020 to 2019 2019 to 2018
 (In thousands) (In thousands)    
Transactional and maintenance$62,915
 $50,262
 $46,658
 $12,653
 $3,604
 25% 8%
Professional services44,763
 44,680
 32,274
 83
 12,406
 % 38%
License56,291
 38,930
 20,969
 17,361
 17,961
 45% 86%
Total$163,969
 $133,872
 $99,901
 30,097
 33,971
 22% 34%
on-premises subscription software, maintenance revenue on perpetual licenses, as well as SaaS revenue.
Decision Management Software segment revenues increased $30.1$8.2 million in fiscal 20202022 from 20192021 due to a $46.9 million increase in on-premises and SaaS software revenue, partially offset by a $38.6 million decrease in services revenue. The increase in our on-premises and SaaS software revenue was primarily attributable to an increase in point-in-time recognition due to a large license revenue,deal, as well as an increase in over-time recognition due to SaaS growth, partially offset by the C&R business divestiture in June 2021. The decrease in services revenue was primarily attributable to the C&R business divestiture, as well as our strategic shift to emphasize software over services. The total revenue impact from the divestiture was $45.3 million — a $22.3 million decrease in on-premises and SaaS subscriptionsoftware revenue classified as transactional and maintenancea $23.0 million decrease in professional services revenue.
Decision Management Software segment revenues increased $34.0decreased $103.6 million in fiscal 20192021 from 20182020 due to a $66.7 million decrease in on-premises and SaaS software revenue and a $36.9 million decrease in services revenue. The decrease in on-premises and SaaS software revenue was attributable to a $68.6 million decrease in revenue recognized at a point in time, partially offset by a $1.9 million increase in revenue recognized over time. The decrease in point-in-time recognition was primarily attributable to the shift in the timing of revenue recognition on our term license subscription sales as a result of changing our business practice of selling term licenses with separate license and maintenance components to a single software subscription contract with license and maintenance bundled, as well as a decrease in the number and size of term license deals signed or renewed during fiscal 2021. The increase in over-time recognition was primarily attributable to an increase in licenseSaaS subscription revenue, an increasepartially offset by the divestiture of our C&R business in professionalJune 2021. The decrease in services revenue was primarily due to our recent strategic shift to emphasize software over services, as well as an increase inthe divestiture of our SaaS subscriptionC&R business. The total revenue classified as transactional and maintenance revenue.impact from the divestiture was $21.7 million.

35

36


Operating Expenses and Other Income (Expense), Net
The following tables set forth certain summary information related to our consolidated statements of income and comprehensive income for fiscal 2020, 20192022, 2021 and 2018:2020:
Year Ended September 30, Period-to-Period Change 
Period-to-Period
Percentage Change
Year Ended September 30,Period-to-Period ChangePeriod-to-Period
Percentage Change
2020 2019 2018 2020 to 2019 2019 to 2018 2020 to 2019 2019 to 2018 2022202120202022 to 20212021 to 20202022 to 20212021 to 2020
(In thousands, except employees) 
(In thousands, except
employees)
   (In thousands, except employees)(In thousands, except
employees)
 
Revenues$1,294,562
 $1,160,083
 $1,000,146
 $134,479
 $159,937
 12 % 16 %Revenues$1,377,270 $1,316,536 $1,294,562 $60,734 $21,974 %%
Operating expenses:             Operating expenses:
Cost of revenues361,142
 336,845
 312,898
 24,297
 23,947
 7 % 8 %Cost of revenues302,174 332,462 361,142 (30,288)(28,680)(9)%(8)%
Research and development166,499
 149,478
 128,383
 17,021
 21,095
 11 % 16 %Research and development146,758 171,231 166,499 (24,473)4,732 (14)%%
Selling, general and administrative420,930
 414,086
 376,912
 6,844
 37,174
 2 % 10 %Selling, general and administrative383,863 396,281 420,930 (12,418)(24,649)(3)%(6)%
Amortization of intangible assets4,993
 6,126
 6,594
 (1,133) (468) (18)% (7)%Amortization of intangible assets2,061 3,255 4,993 (1,194)(1,738)(37)%(35)%
Restructuring and impairment charges45,029
 
 
 45,029
 
  %  %Restructuring and impairment charges— 7,957 45,029 (7,957)(37,072)(100)%(82)%
Gains on product line asset sales and business divestitureGains on product line asset sales and business divestiture— (100,139)— 100,139 (100,139)(100)%— %
Total operating expenses998,593
 906,535
 824,787
 92,058
 81,748
 10 % 10 %Total operating expenses834,856 811,047 998,593 23,809 (187,546)%(19)%
Operating income295,969
 253,548
 175,359
 42,421
 78,189
 17 % 45 %Operating income542,414 505,489 295,969 36,925 209,520 %71 %
Interest expense, net(42,177) (39,752) (31,311) (2,425) (8,441) 6 % 27 %Interest expense, net(68,967)(40,092)(42,177)(28,875)2,085 72 %(5)%
Other income, net3,208
 2,276
 12,884
 932
 (10,608) 41 % (82)%
Other income (expense), netOther income (expense), net(2,138)7,745 3,208 (9,883)4,537 (128)%141 %
Income before income taxes257,000
 216,072
 156,932
 40,928
 59,140
 19 % 38 %Income before income taxes471,309 473,142 257,000 (1,833)216,142 — %84 %
Provision for income taxes20,589
 23,948
 30,450
 (3,359) (6,502) (14)% (21)%Provision for income taxes97,768 81,058 20,589 16,710 60,469 21 %294 %
Net income$236,411
 $192,124
 $126,482
 44,287
 65,642
 23 % 52 %Net income$373,541 $392,084 $236,411 (18,543)155,673 (5)%66 %
Number of employees at fiscal year-end4,003
 4,009
 3,668
 (6) 341
  % 9 %Number of employees at fiscal year-end3,404 3,650 4,003 (246)(353)(7)%(9)%
 
36
 
Percentage of Revenues
Year Ended September 30,
 2020 2019 2018
Revenues100 % 100 % 100 %
Operating expenses:     
Cost of revenues28 % 29 % 31 %
Research and development13 % 13 % 13 %
Selling, general and administrative33 % 35 % 37 %
Amortization of intangible assets % 1 % 1 %
       Restructuring and impairment charges3 %  %  %
Total operating expenses77 % 78 % 82 %
Operating income23 % 22 % 18 %
Interest expense, net(3)% (3)% (3)%
Other income, net %  % 1 %
Income before income taxes20 % 19 % 16 %
Provision for income taxes2 % 2 % 3 %
Net income18 % 17 % 13 %


37

 Percentage of Revenues
Year Ended September 30,
 202220212020
Revenues100 %100 %100 %
Operating expenses:
Cost of revenues22 %25 %28 %
Research and development11 %13 %13 %
Selling, general and administrative28 %30 %33 %
Amortization of intangible assets— %— %— %
       Restructuring and impairment charges— %%%
Gains on product line asset sales and business divestiture— %(7)%— %
Total operating expenses61 %62 %77 %
Operating income39 %38 %23 %
Interest expense, net(5)%(3)%(3)%
Other income (expense), net— %%— %
Income before income taxes34 %36 %20 %
Provision for income taxes%%%
Net income27 %30 %18 %

Cost of Revenues
Cost of revenues consists primarily of employee salaries, incentives, and benefits for personnel directly involved in delivering software products, operating SaaS infrastructure, and providing support, implementation and consulting services; allocated overhead, facilities and data center costs; software royalty fees; credit bureau data and processing services; third-party hosting fees related to our SaaS services; travel costs; and outside services.
The fiscal 2022 from 2021 decrease of $30.3 million in cost of revenues was primarily attributable to a $24.0 million decrease in personnel and labor costs, and a $6.8 million decrease in facilities and infrastructure costs, partially offset by a $0.9 million increase in direct materials costs. The decreases in personnel and labor costs, and facilities and infrastructure costs were both largely driven by a decrease in our headcount as a result of the divestiture of our C&R business in June 2021, the fourth quarter of fiscal 2021 reduction in workforce, as well as reduced resource requirements associated with our decreased services revenue. The increase in direct materials was primarily attributable to an increase in telecommunication costs to support FICO® Customer Communication Service revenue. Cost of revenues as a percentage of revenues decreased to 22% during fiscal 2022 from 25% during fiscal 2021, primarily due to an increase in license revenue recognized at a point in time, increased sales of our higher-margin Scores products and decreased sales of lower-margin professional services.
The fiscal 2021 from 2020 over 2019 increasedecrease of $24.3$28.7 million in cost of revenues was primarily attributable to an $11.1$18.8 million increasedecrease in allocatedpersonnel and labor costs, a $9.2 million decrease in facilities and infrastructure costs and a $10.3$3.7 million decrease in travel costs, partially offset by an increase in direct materials costs. The decreases in personnel and labor costs, and a $7.6 million increase in direct materials cost, partially offset by a $4.9 million decrease in travel costs. The increase in facilities and infrastructure costs was primarily attributable to increased resource requirements due to expansionwere both largely driven by our strategic cost initiative implemented in September 2020, in which we reduced our cloud infrastructure operations. The increase in personnelworkforce, consolidated office space and labor costs was primarily attributable to an increase in our average headcount. The increase in direct materials cost was primarily attributable to an increase in licenseabandoned certain property and Scores revenues that incur third-party royalties and data costs,equipment; as well as an increasethe divestiture of our C&R business in telecommunication cost.June 2021. The decrease in travel costs was primarily attributable to the COVID-19 pandemic. Cost of revenues as a percentage of revenues was 28% during fiscal 2020, materially consistent with that incurred during fiscal 2019.
The fiscal 2019 over 2018 increase of $23.9 million in cost of revenues expenses was primarily attributable to a $13.9 million increase in personnel and labor costs and a $6.7 million increase in facilities and infrastructure costs. The increase in personnel and labor costs was primarily attributable to an increase in headcount. The increase in facilities and infrastructuredirect materials costs was primarily attributable to increased resource requirements duethird-party data costs related to expansion in our cloud infrastructure operations.increased business-to-consumer Scores revenue. Cost of revenues as a percentage of revenues decreased to 29%25% during fiscal 20192021 from 31%28% during fiscal 20182020, primarily due to increased sales of our high-marginhigher-margin Scores and software products.
Research and Development
Research and development expenses include personnel and related overhead costs incurred in the development of new products and services, including research of mathematical and statistical models and development of new versions of Applications and Decision Management Software products.
The fiscal 20202022 over 20192021 decrease of $24.5 million in research and development expenses was primarily attributable to a $20.1 million decrease in personnel and labor costs as a result of decreased headcount, and a $3.0 million decrease in third-party cloud computing costs. Research and development expenses as a percentage of revenues decreased to 11% during fiscal 2022 from 13% during fiscal 2021.
37

The fiscal 2021 over 2020 increase of $17.0$4.7 million in research and development expenses was primarily attributable to an increase in personnel and labor costs, and an increase in allocated facilities and infrastructure costs, both driven by increased average headcount and our continued investments in new product development. Research and development expenses as a percentage of revenues was 13% during fiscal 2020,2021, consistent with that incurred during fiscal 2019.
The fiscal 2019 over 2018 increase of $21.1 million in research and development expenses was primarily attributable to a $15.6 million increase in personnel and labor costs as a result of increased headcount, and a $3.5 million increase in facilities and infrastructure cost. Research and development expenses as a percentage of revenues was 13% during fiscal 2019, consistent with that incurred during fiscal 2018.

2020.
Selling, General and Administrative
Selling, general and administrative expenses consist principally of employee salaries, incentives, commissions and benefits; travel costs; overhead costs; advertising and other promotional expenses; corporate facilities expenses; legal expenses; and business development expenses; and the cost of operating computer systems.expenses.
The fiscal 2020 over 2019 increase2022 from 2021 decrease in selling, general and administrative expenses of $6.8$12.4 million was primarily attributable to an increasea $27.6 million decrease in personnel and labor costs, as a result of increased average headcount, higher share-based compensation and higher non-capitalizable commission cost. The increase was partially offset by a $6.4 million increase in marketing costs, a $5.1 million increase in travel costs, a $3.4 million increase in insurance costs, and a $0.8 million increase in third-party cloud computing costs. The decrease in personnel and labor costs was primarily a result of decreased headcount, decreased fringe benefit costs related to our supplemental retirement and savings plan, and lower non-capitalizable commission cost, partially offset by higher share-based compensation. The increase in marketing and travel costs was primarily driven by a company-wide marketing event held during fiscal 2022. In addition, travel costs increased as a result of a decrease in travel activity due to COVID-19.certain COVID-19 related restrictions have been relaxed. Selling, general and administrative expenses as a percentage of revenues decreased to 33%28% during fiscal 20202022 from 35%30% during fiscal 2019 primarily due to increased sales of our high-margin Scores and software products.2021.
The fiscal 2019 over 2018 increase2021 from 2020 decrease in selling, general and administrative expenses of $37.2$24.6 million was primarily attributable to an increasea $7.4 million decrease in personneltravel costs, a $6.8 million decrease in marketing costs, a $5.0 million decrease in outside services, and labora $4.6 million decrease in facilities and infrastructure costs. The decrease in travel costs aswas a result of increased headcount, higher share-based compensationa decrease in travel activity due to COVID-19. The decrease in marketing costs was primarily driven by a company-wide marketing event during fiscal 2020. The decrease in outside services was attributable to a decrease in legal and higher non-capitalizable commission cost.consulting fees associated with several company initiatives during fiscal 2020. The decrease in facilities and infrastructure costs was largely driven by our strategic cost initiative implemented in September 2020, in which we consolidated office space and abandoned certain property and equipment. Selling, general and administrative expenses as a percentage of revenues decreased to 35%30% during fiscal 20192021 from 37%33% during fiscal 2018 primarily due to increased sales of our high-margin Scores and software products.2020.
Amortization of Intangible Assets
Amortization of intangible assets consists of expense related to intangible assets recorded in connection with our acquisitions. Our finite-lived intangible assets, consistconsisting primarily of completed technology and customer contracts and relationships, which are being amortized using the straight-line method over periods ranging from four to fifteenten years.

38


Amortization expense was $5.0$2.1 million, $6.1$3.3 million and $6.6$5.0 million for fiscal 2020, 20192022, 2021 and 2018,2020, respectively.
Restructuring and Impairment Charges
There were no restructuring and impairment charges incurred during fiscal 2022.
During the fourth quarter of fiscal 2021, we incurred charges of $8.0 million in employee separation costs due to the elimination of 160 positions throughout the Company. Cash payments for all the employee separation costs were fully paid before the end of our fiscal 2022. There were no impairment charges incurred during fiscal 2021.
During fiscal 2020, we incurred net charges totaling $45.0 million consisting of $28.0 million in impairment loss on operating lease assets, $5.2 million in impairment loss on abandonment of property and equipment and $11.8 million in restructuring charges. The impairment losses were associated with closing certain non-core offices and reducing office space in other locations to better align with anticipated needs in light of post-pandemic workforce patterns. The restructuring charges related to employee separation costs as a result of eliminating 209 positions throughout the Company. Cash payments for all the employee separation costs will bewere fully paid bybefore the end of our fiscal 2021.
There were no restructuringGains on Product Line Asset Sales and impairment charges incurredBusiness Divestiture
The $100.1 million gain on product line asset sales and business divestiture during fiscal 20192021 was attributable to a $92.8 million gain on the sale of the C&R business in June 2021, a $7.3 million gain on the sale of all assets related to our cyber risk score operations in October 2020, and 2018.the sale of certain assets related to our Software operations to an affiliated joint venture in China in December 2020.
38

Interest Expense, Net
Interest expense includes primarily interest on the senior notes issued in December 2021, December 2019, May 2018, and July 2010 (July 2010 senior notes were paid in full at maturity in July 2020), as well as interest and credit facility fees on the revolving line of credit.credit and term loan. On our consolidated statements of income and comprehensive income, interest expense is netted with interest income, which is derived primarily from the investment of funds in excess of our immediate operating requirements.
The fiscal 2020 over 20192022 from 2021 increase in net interest expense of $2.4$28.9 million was primarily attributable to a higher average outstanding debt balance during fiscal 2020.
The fiscal 2019 over 2018 increase in net interest expense of $8.4 million was primarily attributable to a higher average outstanding debt balance during fiscal 2019,2022, as well as a higher average interest rate on our 2018 Senior Notes compared to that on our revolving line of credit.credit and term loan during fiscal 2022.
The fiscal 2021 from 2020 decrease in net interest expense of $2.1 million was primarily attributable to a lower average outstanding debt balance during fiscal 2021.
Other Income (Expense), Net
Other income (expense), net consists primarily of realizedunrealized investment gains/losses and unrealizedrealized gains/losses on certain investments classified as trading securities, exchange rate gains/losses resulting from re-measurementremeasurement of foreign-currency-denominated receivable and cash balances held by our various reporting entities into their respective functional currencies at period-end market rates, net of the impact of offsetting foreign currency forward contracts, and other non-operating items.
The fiscal 20202022 over 20192021 change in other income (expense), net of $9.9 million, from $7.7 million in other income, net in fiscal 2021 to $2.1 million in other expense, net in fiscal 2022, was primarily attributable to net unrealized losses on investments classified as trading securities in our supplemental retirement and savings plan in the current year compared to gains in the prior year, partially offset by an increase in foreign currency exchange gains.
The fiscal 2021 over 2020 increase in other income, net of $0.9$4.5 million was primarily attributable to an increase in net unrealized gains on investments classified as trading securities in our supplemental retirement and savings plan, partially offset by an increaseas well as a decrease in foreign currency exchange losses.
The fiscal 2019 over 2018 decrease in other income, net of $10.6 million was primarily attributable to a non-operating gain related to the divestiture of an investment during fiscal 2018.
Provision for Income Taxes
Our effective tax rates were 8.0%20.7%, 11.1%17.1% and 19.4%8.0% in fiscal 2020, 20192022, 2021 and 2018,2020, respectively.
The decreaseincrease in our income tax provision in fiscal 20202022 compared to fiscal 20192021 was due to thea decrease in excess tax benefits related to stock-basedshare-based compensation.
The decreaseincrease in our income tax provision in fiscal 20192021 compared to fiscal 20182020 was due to an increase in pretax book income, of which a large amount was due to the gain on divestiture of C&R business, as well as a decrease in the overall federalexcess tax rate from the blended 24.5% in fiscal 2018 to 21% in fiscal 2019 and the recording of several one-time items in fiscal 2018benefits related to the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).share-based compensation.
As of September 30, 2020, we had approximately $111.7 million of unremitted earnings of non-U.S. subsidiaries. The Company generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned to the U.S. from the foreign entities. In the event these earnings are later remitted to the U.S., any estimated withholding tax on remittance of those earnings is expected to be immaterial to our income tax provision.

39



Operating Income
The following tables set forth certain summary information on a segment basis related to our operating income for fiscal 2020, 20192022, 2021 and 2018:2020: 
 Year Ended September 30, 
Period-to-Period
Change
 
Period-to-Period
Percentage Change
Segment2020 2019 2018 2020 to 2019 2019 to 2018 2020 to 2019 2019 to 2018
 (In thousands) (In thousands)    
Applications$153,541
 $161,162
 $143,964
 $(7,621) $17,198
 (5)% 12 %
Scores454,310
 361,356
 272,418
 92,954
 88,938
 26 % 33 %
Decision Management Software(23,475) (35,116) (34,360) 11,641
 (756) (33)% 2 %
Unallocated corporate expenses(144,704) (144,755) (125,255) 51
 (19,500)  % 16 %
Total segment operating income439,672
 342,647
 256,767
 97,025
 85,880
 28 % 33 %
Unallocated share-based compensation(93,681) (82,973) (74,814) (10,708) (8,159) 13 % 11 %
Unallocated amortization expense(4,993) (6,126) (6,594) 1,133
 468
 (18)% (7)%
Unallocated restructuring and impairment charges(45,029) 
 
 (45,029) 
  %  %
Operating income$295,969
 $253,548
 $175,359
 42,421
 78,189
 17 % 45 %
Applications
 Year Ended September 30, Percentage of Revenues
 2020 2019 2018 2020 2019 2018
 (In thousands)  ��   
Segment revenues$602,046
 $605,034
 $564,375
 100 % 100 % 100 %
Segment operating expenses(448,505) (443,872) (420,411) (74)% (73)% (74)%
Segment operating income$153,541
 $161,162
 $143,964
 26 % 27 % 26 %
 Year Ended September 30,Period-to-Period
Change
Period-to-Period
Percentage Change
Segment2022202120202022 to 20212021 to 20202022 to 20212021 to 2020
 (In thousands)(In thousands)  
Scores$622,806 $560,684 $454,310 $62,122 $106,374 11 %23 %
Software185,452 105,147 130,066 80,305 (24,919)76 %(19)%
Unallocated corporate expenses(148,428)(136,812)(144,704)(11,616)7,892 %(5)%
Total segment operating income659,830 529,019 439,672 130,811 89,347 25 %20 %
Unallocated share-based compensation(115,355)(112,457)(93,681)(2,898)(18,776)%20 %
Unallocated amortization expense(2,061)(3,255)(4,993)1,194 1,738 (37)%(35)%
Unallocated restructuring and impairment charges— (7,957)(45,029)7,957 37,072 (100)%(82)%
Gains on product line asset sales and business divestiture— 100,139 — (100,139)100,139 (100)%— %
Operating income$542,414 $505,489 $295,969 36,925 209,520 %71 %
Scores
 
 Year Ended September 30,Percentage of Revenues
 202220212020202220212020
 (In thousands)   
Segment revenues$706,643 $654,147 $528,547 100 %100 %100 %
Segment operating expenses(83,837)(93,463)(74,237)(12)%(14)%(14)%
Segment operating income$622,806 $560,684 $454,310 88 %86 %86 %
 Year Ended September 30, Percentage of Revenues
 2020 2019 2018 2020 2019 2018
 (In thousands)      
Segment revenues$528,547
 $421,177
 $335,870
 100 % 100 % 100 %
Segment operating expenses(74,237) (59,821) (63,452) (14)% (14)% (19)%
Segment operating income$454,310
 $361,356
 $272,418
 86 % 86 % 81 %
Decision Management Software
 
 Year Ended September 30, Percentage of Revenues
 2020 2019 2018 2020 2019 2018
 (In thousands)      
Segment revenues$163,969
 $133,872
 $99,901
 100 % 100 % 100 %
Segment operating expenses(187,444) (168,988) (134,261) (114)% (126)% (134)%
Segment operating loss$(23,475) $(35,116) $(34,360) (14)% (26)% (34)%

40



 Year Ended September 30,Percentage of Revenues
 202220212020202220212020
 (In thousands)   
Segment revenues$670,627 $662,389 $766,015 100 %100 %100 %
Segment operating expenses(485,175)(557,242)(635,949)(72)%(84)%(83)%
Segment operating income$185,452 $105,147 $130,066 28 %16 %17 %
The fiscal 20202022 over 20192021 increase in operating income of $42.4$36.9 million was primarily attributable to an $81.7 million decrease in segment operating expenses, a $134.5$60.7 million increase in segment revenues, and a $1.1an $8.0 million decrease in amortization expense, partially offset by a $45.0 million increase in restructuring and impairment charges, a $37.5charges. This was partially offset by $100.1 million in gains on product line asset sales and business divestiture during fiscal 2021, an $11.6 million increase in segment operatingcorporate expenses, and a $10.7$2.9 million increase in share-based compensation expense.
At the segment level, the $97.0$130.8 million increase in segment operating income was the result of an $80.3 million increase in our Software segment operating income, and a $93.0$62.1 million increase in our Scores segment operating income, andpartially offset by an $11.6 million decreaseincrease in corporate expenses.
40

The $62.1 million increase in our Decision Management Software segment operating loss, partially offset by a $7.6 million decrease in our Applications segment operating income.
The $7.6 million decrease in ApplicationsScores segment operating income was attributable to a $4.6$52.5 million increase in segment revenue and a $9.6 million decrease in segment operating expenses. Segment operating income as a percentage of segment revenue for Scores increased to 88% from 86%.
The $80.3 million increase in our Software segment operating income was attributable to a $72.1 million decrease in segment operating expenses and a $3.0an $8.2 million decreaseincrease in segment revenue. Segment operating income as a percentage of segment revenue for Applications was 26%Software increased to 28% from 16%, materially consistent with fiscal 2019.primarily attributable to the divestiture of our lower-margin C&R business, an increase in higher-margin license revenue recognized at a point in time, and a decrease in sales of our lower-margin professional services.
The $93.0fiscal 2021 over 2020 increase in operating income of $209.5 million was primarily attributable to a $100.1 million gain on product line asset sales and business divestiture during fiscal 2021, a $59.5 million decrease in segment operating expenses, a $37.1 million decrease in restructuring and impairment charges, a $22.0 million increase in segment revenues and a $7.8 million decrease in corporate expenses, partially offset by an $18.8 million increase in share-based compensation expense.
At the segment level, the $89.3 million increase in segment operating income was the result of a $106.4 million increase in our Scores segment operating income and a $7.8 million decrease in corporate expenses, partially offset by a $24.9 million decrease in our Software segment operating income.
The $106.4 million increase in our Scores segment operating income was attributable to a $107.4$125.6 million increase in segment revenue, partially offset by a $14.4$19.2 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Scores was 86%, consistent with fiscal 2019.2020.
The $11.6$24.9 million decrease in Decision Managementour Software segment operating loss was attributable to a $30.1 million increase in segment revenue, partially offset by an $18.5 million increase in segment operating expenses. Segment operating margin for Decision Management Software improved to negative 14% from negative 26%, mainly due to an increase in sales of our higher-margin software products, partially offset by our continued investment in cloud infrastructure operations and new products.
The fiscal 2019 over 2018 increase in operating income of $78.2 million was attributable to a $160.0 million increase in segment revenues and a $0.5 million decrease in amortization expense, partially offset by a $54.6 million increase in segment operating expenses, a $19.5 million increase in unallocated corporate expenses and an $8.2 million increase in share-based compensation expense.
At the segment level, the $85.9 million increase in segment operating income was the result of an $88.9 million increase in our Scores segment operating income and a $17.2 million increase in our Applications segment operating income, partially offset by a $19.5 million increase in unallocated corporate expenses primarily driven by an increase in unallocated incentive cost and a $0.7 million increase in our Decision Management Software segment operating loss.
The $17.2 million increase in Applications segment operating income was attributable to a $40.7$103.6 million increasedecrease in segment revenue, partially offset by a $23.5 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Applications increased to 27% from 26% mainly due to an increase in sales of our higher-margin software products.
The $88.9 million increase in Scores segment operating income was attributable to an $85.3 million increase in segment revenue as well as a $3.6$78.7 million decrease in segment operating expenses. Segment operating income as a percentage of segment revenue for Scores increased to 86% from 81% mainly due to an increase in sales of our higher-margin score products.Software was 16%, materially consistent with fiscal 2020.
The $0.7 million increase in Decision Management Software segment operating loss was attributable to a $34.7 million increase in segment operating expenses, partially offset by a $34.0 million increase in segment revenue. Segment operating margin for Decision Management Software improved to negative 26% from negative 34% mainly due to an increase in sales of our higher-margin software products, partially offset by our continued investment in cloud infrastructure operations and new products.

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CAPITAL RESOURCES AND LIQUIDITY
Outlook
As of September 30, 2020,2022, we had $157.4$133.2 million in cash and cash equivalents, which included $118.0$105.8 million held by our foreign subsidiaries. Our cash position could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part I, Item 1A titled “Risk Factors” of this Annual Report on Form 10-K. However, based on our current business plan and revenue prospects, weWe believe our cash and cash equivalents balances, including those held by our foreign subsidiaries, as well as available borrowings from our $400$600 million revolving line of credit and anticipated cash flows from operating activities, will be sufficient to fund our working and other capital requirements.requirements for at least the next 12 months and thereafter for the foreseeable future, including the $15.0 million principal payments on our term loan due over the next twelve months. Under our current financing arrangements, we have no other significant debt obligations maturing over the next twelve months. Our undistributed earningsFor jurisdictions outside the U.S. are deemedwhere cash may be repatriated in the future, the Company expects the net impact of any repatriations to be permanently reinvested in foreign jurisdictions. We currently do not foresee a needimmaterial to repatriate cash and cash equivalents held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we may be required to accrue for state income or foreign withholding taxes on the distributed foreign earnings, which we expect to be immaterial.Company’s overall tax liability.
In the normal course of business, we evaluate the merits of acquiring technology or businesses, or establishing strategic relationships with or investing in these businesses. We may elect to use available cash and cash equivalents to fund such activities in the future. In the event additional needs for cash arise, or if we refinance our existing debt, we may raise additional funds from a combination of sources, including the potential issuance of debt or equity securities. Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited.
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Summary of Cash Flows 
Year Ended September 30, Year Ended September 30,
2020 2019 2018 202220212020
(In thousands) (In thousands)
Cash provided by (used in):     Cash provided by (used in):
Operating activities$364,916
 $260,350
 $223,052
Operating activities$509,450 $423,817 $364,916 
Investing activities(24,583) (42,760) (14,119)Investing activities(5,671)137,850 (24,583)
Financing activities(289,424) (200,047) (218,627)Financing activities(547,165)(523,571)(289,424)
Effect of exchange rate changes on cash59
 (1,140) (5,901)Effect of exchange rate changes on cash(18,766)(136)59 
Increase (decrease) in cash and cash equivalents$50,968
 $16,403
 $(15,595)Increase (decrease) in cash and cash equivalents$(62,152)$37,960 $50,968 
Cash Flows from Operating Activities
Our primary method for funding operations and growth has been through cash flows generated from operating activities. Net cash provided by operating activities totaled $364.9$509.5 million in fiscal 20202022 compared to $260.4$423.8 million in fiscal 2019.2021. The $104.5$85.7 million increase was attributable to a $44.3 million increase in net income, a $46.1$127.3 million increase in non-cash items, including a $28.0$100.1 million gain on product line asset sales and business divestiture in fiscal 2021, partially offset by a $23.1 million decrease that resulted from timing of receipts and payments in our ordinary course of business, and an $18.5 million decrease in net income.
Net cash provided by operating activities totaled $423.8 million in fiscal 2021 compared to $364.9 million in fiscal 2020. The $58.9 million increase was primarily attributable to a $155.7 million increase in impairment loss on operating lease assets as well as a $20.0 million increase in operating lease costs,net income and a $14.2$28.6 million increase that resulted from timing of receipts and payments in our ordinary course of business.
Net cash provided by operating activities totaled $260.4 million in fiscal 2019 compared to $223.1 million in fiscal 2018. The $37.3 million increase was attributable to a $65.6 increase in net income as well as an $18.7 million increase in non-cash items,business, partially offset by a $47.0$125.4 million decrease that resulted from timing of receiptsin non-cash items, including a $100.1 million gain on product line asset sales and paymentsa business divestiture in our ordinary course of business.fiscal 2021.
Cash Flows from Investing Activities
Net cash used in investing activities totaled $24.6$5.7 million in fiscal 20202022 compared to $42.8net cash provided of $137.9 million in fiscal 2019.2021. The $18.2$143.6 million decreasechange was primarily attributable to a $15.9$145.2 million decrease in net cash used for acquisitionsproceeds from the product line asset sales and business divestiture, partially offset by a $2.0$1.5 million decrease in net cash used for purchases of property and equipment.
Net cash used inprovided by investing activities totaled $42.8$137.9 million in fiscal 20192021 compared to $14.1net cash used of $24.6 million in fiscal 2018.2020. The $28.7$162.5 million increasechange was primarily attributable to $147.4 million in cash proceeds from the product line asset sales and a $20.0business divestiture during fiscal 2021 and a $14.4 million decrease in proceeds from the sale of cost method investment and a $15.9 million increase in net cash used for acquisitions, partially offset by a $7.3 million decrease in net cash used for purchases of property and equipment.

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Cash Flows from Financing Activities
Net cash used in financing activities totaled $289.4$547.2 million in fiscal 20202022 compared to $200.0$523.6 million in fiscal 2019.2021. The $89.4$23.6 million increase was primarily dueattributable to a $338.0$372.3 million increase in payments, net of proceeds, on our revolving line of credit and term loan, a $49.9$230.0 million increase in repurchases of common stock, and a $7.3 million increase in payments on debt issuance costs, partially offset by a $550.0 million increase in proceeds from the issuance of senior notes and a $40.7 million decrease in taxes paid related to net share settlement of equity awards, partially offset by a $293.0 million increase in proceeds, net of payments, from our senior notes.awards.
Net cash used in financing activities totaled $200.0$523.6 million in fiscal 20192021 compared to $218.6$289.4 million in fiscal 2018.2020. The $18.6$234.2 million decreaseincrease was primarily dueattributable to a $192.0$639.0 million increase in repurchases of common stock and a $350.0 million decrease in payments, netproceeds from issuance of senior notes, partially offset by a $419.0 million increase in proceeds from our revolving line of credit, a $254.0 million decrease in payments on our revolving line of credit, a $113.7and an $85.0 million decrease in net cash used for repurchases of common stock and an $11.8 million increase in proceeds from issuance of treasury stock under employee stock plans, partially offset by a $297.0 million decrease in proceeds, net of payments from ouron senior notes.
Repurchases of Common Stock
In July 2019,November 2021, our Board of Directors approved a stock repurchase program following the completion of the previously authorized program. This program was open-ended and authorized repurchases of shares of our common stock up to an aggregate cost of $250.0$500.0 million in the open market or in negotiated transactions. In JulyJanuary 2022, our Board of Directors approved another stock repurchase program following the completion of the November 2021 program. This program was open-ended and authorized repurchases of shares of our common stock up to an aggregate cost of $500.0 million in the open market or in negotiated transactions. As of September 30, 2022, we had $62.6 million remaining under our then-current stock repurchase program. During fiscal 2022, 2021 and 2020, we expended $1.1 billion, $882.2 million and $235.2 million, respectively, under these and previously authorized stock repurchase programs.
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In October 2022, our Board of Directors approved a new stock repurchase program followingreplacing the completion of the July 2019January 2022 stock repurchase program. ThisThe new program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $250.0$500.0 million in the open market or in negotiated transactions. As of September 30, 2020, we had $224.8 million remaining under this authorization. During fiscal 2020, 2019 and 2018, we expended $235.2 million, $228.9 million and $336.9 million, respectively, under these and previously authorized stock repurchase programs.
Revolving Line of Credit and Term Loan
On May 8, 2018, we amended ourWe have a $600 million unsecured revolving line of credit agreement with a syndicate of banks extending the maturity date of the unsecured revolving line of credit from December 30, 2019 to May 8, 2023, while reducing our borrowing capacity to $400 million with an option to increase it by another $100 million. Proceeds fromthat expires on August 19, 2026. Borrowings under the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of our common stock. Interest on amounts borrowed under the credit facility is based on (i) aan adjusted base rate, which is the greatergreatest of (a) the prime rate, (b) the Federal Funds rate plus 0.500% and (c) the one-month LIBOR rate plus 1.000%, plus, in each case, an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin. The applicable margin for base rate borrowings ranges from 0% to 0.875%0.750% and for LIBOR borrowings ranges from 1.000% to 1.875%1.750%, and is determined based on our consolidated leverage ratio. In addition, we must pay credit facility fees. The credit facility contains certain restrictive covenants, including maintaining a maximum consolidated leverage ratio of 3.25,3.50, subject to a step up to 3.754.00 following certain permitted acquisitions; and a minimum fixed charge ratio of 2.50 through the maturity of our 2010 Senior Notes (as defined below) in July 2020, following which maintaining a minimum interest coverage ratio of 3.00 is required.3.00. The credit agreement also contains other covenants typical of unsecured facilities.
On October 20, 2021, we amended our credit agreement to provide for the issuance of a $300 million term loan. The term loan is subject to the same pricing and covenants as the revolving line of credit and matures at the expiration of the facility on August 19, 2026. The term loan requires principal payments in consecutive quarterly installments of $3.75 million on the last business day of each quarter.
As of September 30, 2020,2022, we had $95.0$280.0 million in borrowings outstanding under the revolving credit facility at a weighted-average interest rate of 1.285%4.479% and we$288.8 million in outstanding balance of the term loan at an interest rate of 4.283%, of which $538.8 million was classified as a long-term liability and recorded in long-term debt within the accompanying consolidated balance sheets. We were in compliance with all financial covenants under this credit facility.

facility as of September 30, 2022.
Senior Notes
On July 14, 2010, we issued $245 million of senior notes in a private placement to a group of institutional investors, the outstanding aggregate principal amount of which was paid in full at maturity on July 14, 2020 (the “2010 Senior Notes”). On May 8, 2018, we issued $400 million of senior notes in a private offering to qualified institutional investors (the “2018 Senior Notes”). The 2018 Senior Notes require interest payments semi-annually at a rate of 5.25% per annum and will mature on May 15, 2026. On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes,” along with the 2010 Senior Notes and 2018 Senior Notes, the “Senior Notes”). The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028.
The indentures for On December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes in a private offering to qualified institutional investors (the “2021 Senior Notes,” and collectively with the 2018 Senior Notes and the 2019 Senior Notes, the “Senior Notes”). The 2021 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028, the same date as the 2019 Senior Notes. The indentures for the Senior Notes contain certain covenants typical of unsecured obligations. As of September 30, 2020,2022, the carrying value of the Senior Notes was $750.0 million$1.3 billion and we were in compliance with all financial covenants under these obligations, and do not believe we are at material risk of not meeting these covenants due to COVID-19.obligations.

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Contractual Obligations
The following table presents a summary of our contractual obligations at September 30, 2020:2022: 
 Year Ending September 30,
Thereafter
Total
 2021
2022
2023
2024
2025
 (In thousands)
Senior notes (1)$
 $
 $
 $
 $
 $750,000

$750,000
Revolving line of credit
 
 
 
 95,000
 
 95,000
Interest due on debt obligations (2)35,000
 35,000
 35,000
 35,000
 35,000
 63,000

238,000
Finance lease obligations2,397
 2,240
 784
 
 
 
 5,421
Operating lease obligations26,047
 21,925
 17,109
 14,384
 9,004
 17,131

105,600
Unrecognized tax benefits (3)











7,994
Total commitments$63,444

$59,165

$52,893

$49,384

$139,004

$830,131

$1,202,015
 Year Ending September 30,ThereafterTotal
 20232024202520262027
 (In thousands)
Senior Notes (1)
$— $— $— $400,000 $— $900,000 $1,300,000 
Revolving line of credit and term loan (1)
15,000 15,000 15,000 523,750 — — 568,750 
Interest due on Senior Notes57,000 57,000 57,000 57,000 36,000 36,000 300,000 
Operating lease obligations21,306 15,994 9,320 8,211 5,583 2,604 63,018 
Unrecognized tax benefits (2)
— — — — — — 12,980 
Total commitments$93,306 $87,994 $81,320 $988,961 $41,583 $938,604 $2,244,748 
(1)Represents the unpaid principal amount of the Senior Notes.
(2)Represents interest payments on the Senior Notes.
(3)Represents unrecognized tax benefits related to uncertain tax positions. As we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related balances have not been reflected in the section of the table showing payment by fiscal year.
Off-Balance Sheet Arrangements(1)Represents the unpaid principal payments due under the Senior Notes, revolving line of credit, and term loan.
We do(2)Represents unrecognized tax benefits related to uncertain tax positions. As we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related balances have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changesnot been reflected in financial condition, revenues or expenses, resultsthe section of operations, liquidity, capital expenditures, or capital resources.the table showing payment by fiscal year.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles.GAAP. These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We periodically evaluate our estimates including those relating to revenue recognition, goodwill and other intangible assets resulting from business acquisitions, share-based compensation, income taxes, and contingencies and litigation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable based on the specific circumstances, the results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.estimates and such differences could be material to our financial condition and results of operations. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.

WeWhile our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included elsewhere in this report, we believe the following discussion addresses our most critical accounting policiesestimates, which involve significant subjectivity and judgment, and changes to such estimates or assumptions could have a material impact on our financial condition or operating results. Therefore, we consider an understanding of the most significant judgmentsvariability and judgment required in making these estimates usedand assumptions to be critical in the preparation offully understanding and evaluating our consolidatedreported financial statements:

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results.
Revenue Recognition
Contracts with Customers
Our revenue is primarily derived from term-based or perpetual licensing ofon-premises software and scoring productsSaaS subscriptions, professional services and solutions, and associated maintenance; SaaS subscription services; scoring and credit monitoring services for consumers; and professional services. For contracts with customers that contain various combinations of products and services, we evaluate whether the products or services are distinct—distinct — distinct products or services will be accounted for as separate performance obligations, while non-distinct products or services are combined with others to form a single performance obligation. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative standalone selling price (“SSP”) basis. Revenue is recognized when control of the promised goods or services is transferred to our customers.
License revenue
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Our on-premises software is derived from contracts inprimarily sold on a subscription basis, which we grant our direct customers or distributors the right to deploy or resell our software and scoring products and solutions on-premises. Our software offerings often includeincludes a perpetual or term-based license and post-contract support or maintenance, both of which generally represent distinct performance obligations and are accounted for separately. The transaction price is either in the form of a fixed consideration with separately stated prices for license and maintenance, a single subscription with license and maintenance bundled,fee, or a usage-based royalty—fee — sometimes subject to a guaranteed minimum—for the license and maintenance bundle.minimum. When the amount is in the form of a fixed, consideration, including the guaranteed minimum in a usage-based royalty,fee, license revenue from distinct on-premises licenses is recognized at the point in time when the software or scoring solution is made available to the customer or distributor.customer. Maintenance revenue is recognized ratably over the contract period as customers simultaneously consume and receive benefits. Any royaltiesusage-based fees not subject to thea guaranteed minimum or earned in excess of the minimum amount are recognized as transactional revenue when the subsequent sales or usage occurs. Revenue allocatedWe occasionally sell software arrangements consisting of on-premises perpetual licenses and maintenance. License revenue is recognized at a point in time when the software is made available to the customer and maintenance revenue is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits.term.
In addition to usage-based royalty on our software and scoringOur SaaS products transactional revenue is also derived from SaaS contracts in which we provide customers with access to and standard support for our software application either in the FICO® Analytic Cloud or AWS, our primary cloud infrastructure provider, on a subscription basis.basis, delivered through our own infrastructure or third-party cloud services. The SaaS transaction pricecontracts typically includes a fixed consideration in the form ofinclude a guaranteed minimum fee per period that allows up to a certain level of usage and a consumption-based variable consideration in the form of usage or transaction-based feesfee in excess of the minimum threshold; or usage or transaction-baseda consumption-based variable amountfee not subject to a minimum threshold. We determined theThe nature of our SaaS arrangements is to provide continuous access to our hosted applicationsolutions in the cloud, i.e., a stand-ready obligation that comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). We estimate the total variable consideration at contract inception—inception — subject to any constraints that may apply—apply — and update the estimates as new information becomes available and recognize the amount ratably over the SaaS service period, unless we determine it is appropriate to allocate the variable amount to each distinct service period and recognize revenue as each distinct service period is performed.
We also derive transactional revenue from creditOur professional services include software implementation, consulting, model development and training. Professional services are sold either standalone, or together with other products or services and generally represent distinct performance obligations. The transaction price can be a fixed amount or a variable amount based upon the time and materials expended. Revenue on fixed-price services is recognized using an input method based on labor hours expended which we believe provides a faithful depiction of the transfer of services. Revenue on services provided on a time and materials basis is recognized by applying the “right-to-invoice” practical expedient as the amount to which we have a right to invoice the customer corresponds directly with the value of our performance to the customer.
Our scoring services include both business-to-business and monitoringbusiness-to-consumer offerings. Our business-to-business scoring services typically include a license that grants consumer reporting agencies the right to use our scoring solutions in exchange for a usage-based royalty. Revenue is generally recognized when the usage occurs. Business-to-consumer offerings provide consumers with access to their FICO® Scores and credit reports, and enable them to monitor their credit.as well as other value-add services. These are provided as either a one-time or ongoing subscription service renewed monthly or annually, all with a fixed consideration. We determined theThe nature of the subscription service is a stand-ready obligation to generate credit reports, provide credit monitoring, and other services for our customers, which comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). Revenue from one-time or monthly subscription services is recognized during the period when service is performed. Revenue from annual subscription services is recognized ratably over the subscription period.
Professional services include software or SaaS implementation, consulting, model development, training services and premium cloud support. They are sold either standalone, or together with other products or services and generally represent distinct performance obligations. The transaction price can be a fixed amount or on a time and materials basis. Revenue on fixed-price services is recognized using an input method based on labor hours expended which we believe provides a faithful depiction of the transfer of services. Revenue on services provided on a time and materials basis is recognized applying the “right-to-invoice” practical expedient as the amount to which we have a right to invoice the customer corresponds directly with the value of our performance to the customer. In addition, we sell premium cloud support on a subscription basis for a fixed amount, and revenue is recognized ratably over the contract term.

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Significant Judgments
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct and should be accounted for separately may require significant judgment. Specifically, when implementation service is included in the original software or SaaS offerings, judgment is required to determine if the implementation service significantly modifies or customizes the software or SaaS service in such a way that the risks of providing it and the customization service are inseparable. In rare instances, contracts may include significant modification or customization of the software of SaaS service and will result in the combination of software or SaaS service and implementation service as one performance obligation.
We determine the SSPs using data from our historical standalone sales, or, in instances where such information is not available (such as when we do not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. When the selling price of a product or service is highly variable, we may use the residual approach to determine the SSP of that product or service. Significant judgment may be required to determine the SSP for each distinct performance obligation when it involves the consideration of many market conditions and entity-specific factors discussed above.
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Significant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts with a fixed consideration, in which we measure progress using an input method based on labor hours expended. In order to estimate the total hours of the project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others. For certain complex projects, due to the risks and uncertainties inherent with the estimation process and factors relating to the assumptions, actual progress may differ due to the change in estimated total hours. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and, accordingly, recognized revenues are subject to revisions as the contract progresses to completion.
Capitalized Commission Costs
We capitalize incremental commission fees paid as a result of obtaining customer contracts. Capitalized commission costs are amortized on a straight-line basis over ten years — determined using a portfolio approach — based on the transfer of goods or services to which the assets relate, taking into consideration both the initial and future contracts as we do not typically pay a commission on a contract renewal. The amortization costs are included in selling, general, and administrative expenses of our consolidated statements of income and comprehensive income.
We apply a practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. These costs are recorded within selling, general, and administrative expenses.
Business Combinations
Accounting for our acquisitions requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred andover the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income and comprehensive income.
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date, including our estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies and contingent consideration, where applicable. If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, we will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Subsequent to the measurement period, changes in our estimates of such contingencies will affect earnings and could have a material effect on our consolidated results of operations and financial position.

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Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to: (i) future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts and acquired developed technologies and patents; (ii) expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed; and (iii) the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Historically, there have been no significant changes in our estimates or assumptions. To the extent a significant acquisition is made during a fiscal year, as appropriate we will expand the discussion to include specific assumptions and inputs used to determine the fair value of our acquired intangible assets.
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In addition, uncertain tax positions and tax-related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period. Subsequent to the measurement period or our final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax-related valuation allowances will affect our provision for income taxes in our consolidated statements of income and comprehensive income and could have a material impact on our consolidated results of operations and financial position. Historically, there have been no significant changes in our valuation allowances or uncertain tax positions as it relates to business combinations. We do not believe there is a reasonable likelihood there will be a material change in the future estimates.
Goodwill, Acquisition Intangibles and Other Long-Lived Assets - Impairment Assessment
Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. We assess goodwill for impairment for each of our reporting units on an annual basis during our fourth fiscal quarter using a July 1 measurement date unless circumstances require a more frequent measurement.
We have determined that our reporting units are the same as our reportable segments. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value, referred to as a “step zero” approach. If, based on the review of the qualitative factors, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying value, we would bypass the two-step impairment test. Events and circumstances we consider in performing the “step zero” qualitative assessment include macro-economic conditions, market and industry conditions, internal cost factors, share price fluctuations, and the operational stability and the overall financial performance of the reporting units. If we conclude that it is more likely than not that a reporting unit's fair value is less than its carrying amount, we would perform the first step (“step one”) of the two-step impairment test and calculate the estimated fair value of the reporting unit by using discounted cash flow valuation models and by comparing our reporting units to guideline publicly-traded companies. These methods require estimates of our future revenues, profits, capital expenditures, working capital, and other relevant factors, as well as selecting appropriate guideline publicly-traded companies for each reporting unit. We estimate these amounts by evaluating historical trends, current budgets, operating plans, industry data, and other relevant factors. Using assumptions that are different from those used in our estimates, but in each case reasonable, could produce significantly different results and materially affectAlternatively, we may bypass the determination of fair value and/or goodwill impairmentqualitative assessment described above for each reporting unit. For example, if the economic environment impacts our forecasts beyond what we have anticipated, it could cause the fair value of aany reporting unit to fall below its respective carrying value.
For fiscal 2017, we elected toin any period and proceed directly to theperforming step one quantitative analysis for all of our reporting units. There was a substantial excess of fair value over carrying value for each of our reporting units and we determinedthe goodwill was not impaired for any of our reporting units for fiscal 2017. impairment test.
For fiscal 2018, 2019 and 2020, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment. After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of any of our reporting units was less their carrying amounts. Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for any of our reporting units for fiscal 2018, 20192020. For fiscal 2021, we consolidated our operating segment structure from three to two by merging our Applications and 2020.Decision Management Software segments into the new Software segment. We proceeded directly to a step one quantitative impairment test on the Software and Scores reporting units before and immediately following the change in reporting units. There was a substantial excess of fair value over carrying value for the reporting units and we determined goodwill was not impaired for any of our reporting units before or after the change for fiscal 2021. For fiscal 2022, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment. After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of either of our reporting units was less their carrying amounts. Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for either of our reporting units for fiscal 2022.

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Our intangible assets that have finite useful lives and other long-lived assets are assessed for potential impairment when there is evidence that events and circumstances related to our financial performance and economic environment indicate the carrying amount of the assets may not be recoverable. When impairment indicators are identified, we test for impairment using undiscounted cash flows. If such tests indicate impairment, then we measure and record the impairment as the difference between the carrying value of the asset and the fair value of the asset. Significant management judgment is required in forecasting future operating results used in the preparation of the projected cash flows. Should different conditions prevail, material write downs of our intangible assets or other long-lived assets could occur. We review the estimated remaining useful lives of our acquired intangible assets at each reporting period. A reduction in our estimate of remaining useful lives, if any, could result in increased annual amortization expense in future periods. We did not recognize any impairment charges on intangible assets that have finite useful lives or other long-lived assets in fiscal 2020, 20192022, 2021 and 2018.2020.
As discussed above, while we believe that the assumptions and estimates utilized were appropriate based on the information available to management, different assumptions, judgments and estimates could materially affect our impairment assessments for our goodwill, acquired intangibles with finite lives and other long-lived assets. Historically, there have been no significant changes in our estimates or assumptions that would have had a material impact for our goodwill or intangible assets impairment assessment. We believe our projected operating results and cash flows would need to be significantly less favorable to have a material impact on our impairment assessment. However, based upon our historical experience with operations, we do not believe there is a reasonable likelihood of a significant change in our projections.
Share-Based Compensation
We measure stock-basedshare-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock award (generally three to four years). We use the Black-Scholes valuation model to determine the fair value of our stock options and a Monte Carlo valuation model to determine the fair value of our market share units. Our valuation models and generally accepted valuation techniques require us to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the volatility of our stock price, expected dividend yield, employee turnover rates and employee stock option exercise behaviors. Historically, there have been no material changes in our estimates or assumptions. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions. See Note 1315 to the accompanying consolidated financial statements for further discussion of our share-based employee benefit plans.
Income Taxes
We estimate our income taxes based on the various jurisdictions where we conduct business, which involves significant judgment in determining our income tax provision. We estimate our current tax liability using currently enacted tax rates and laws and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities recorded on our consolidated balance sheetsheets using the currently enacted tax rates and laws that will apply to taxable income for the years in which those tax assets are expected to be realized or settled. We then assess the likelihood our deferred tax assets will be realized and to the extent we believe realization is not more likely than not, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a corresponding income tax expense in our consolidated statements of income and comprehensive income. In assessing the need for the valuation allowance, we consider future taxable income in the jurisdictions we operate; our ability to carry back tax attributes to prior years; an analysis of our deferred tax assets and the periods over which they will be realizable; and ongoing prudent and feasible tax planning strategies. An increase in the valuation allowance would have an adverse impact, which could be material, on our income tax provision and net income in the period in which we record the increase.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the technical merits of the tax position indicate it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount more than 50% likely of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions and they are evaluated on a quarterly basis. Our evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.
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A description of our accounting policies associated with tax-related contingencies and valuation allowances assumed as part of a business combination is provided under “Business Combinations” above.

48


Contingencies and Litigation
We are subject to various proceedings, lawsuits and claims relating to products and services, technology, labor, stockholder and other matters. We are required to assess the likelihood of any adverse outcomes and the potential range of probable losses in these matters. If the potential loss is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. If the potential loss is considered less than probable or the amount cannot be reasonably estimated, disclosure of the matter is considered. The amount of loss accrual or disclosure, if any, is determined after analysis of each matter, and is subject to adjustment if warranted by new developments or revised strategies. Due to uncertainties related to these matters, accruals or disclosures are based on the best information available at the time. Significant judgment is required in both the assessment of likelihood and in the determination of a range of potential losses. Revisions in the estimates of the potential liabilities could have a material impact on our consolidated financial position or consolidated results of operations. Historically, there have been no material changes in our estimates or assumptions. We do not believe there is a reasonable likelihood there will be a material change in the future estimates.
New Accounting Pronouncements
Recently AdoptedRecent Accounting Pronouncements Not Yet Adopted
In February 2016,October 2021, the Financial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2016-02,2021-08,LeasesBusiness Combinations (Topic 842)805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” and subsequent amendments to the initial guidance: (“ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”2021-08”). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under Accounting Standards Codification Topic 842 requires606, Revenue from Contacts with Customers, in order to align the recognition of operating lease assets and lease liabilities on the balance sheet. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new standard, disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.
In the first quarter of fiscal 2020, we adopted Topic 842 using the “Comparatives Under 840 Option” approach to transition. In accordancea contract liability with the standard, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Topic 842 provideddefinition of a package of practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the lease classification of any expired or existing lease, and (3) initial direct costs for any existing leases. We elected to apply the package of practical expedients, and did not elect the hindsight practical expedient in determining the lease term for existing leases as of October 1, 2019.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other (Topic 350): Internal-Use Software.” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.performance obligation. The standard is effective for fiscal years andbeginning after December 15, 2022, including interim periods within those fiscal years, beginning after December 15, 2019, which means that it will be effective for our fiscal year beginning October 1, 2020.2023. Early adoption is permitted. We do not believe that adoption of ASU 2018-152021-08 will have a significant impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrumentsand subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, which means it will be effective for our fiscal year beginning October 1, 2020. We do not believe that adoption of Topic 326 will have a significant impact on our consolidated financial statements.

We do not expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Disclosures
We are exposed to market risk related to changes in interest rates and foreign exchange rates. We do not use derivative financial instruments for speculative or trading purposes.

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Interest Rate
We maintain an investment portfolio consisting of bank deposits and money market funds. The funds provide daily liquidity and may be subject to interest rate risk and fall in value if market interest rates increase. We do not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates. The following table presents the principal amounts and related weighted-average yields for our investments with interest rate risk at September 30, 20202022 and 2019:2021: 
 September 30, 2022September 30, 2021
 Cost BasisCarrying
Amount
Average
Yield
Cost BasisCarrying
Amount
Average
Yield
 (Dollars in thousands)
Cash and cash equivalents$133,202 $133,202 1.23 %$195,354 $195,354 0.04 %
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 September 30, 2020 September 30, 2019
 Cost Basis 
Carrying
Amount
 
Average
Yield
 Cost Basis 
Carrying
Amount
 
Average
Yield
 (Dollars in thousands)
Cash and cash equivalents$157,394
 $157,394
 0.05% $106,426
 $106,426
 0.76%
On July 14, 2010, we issued $245 million of senior notes in a private placement to a group of institutional investors, the outstanding aggregate principal amount of which was paid in full at maturity on July 14, 2020 (the “2010 Senior Notes”). On May 8, 2018, we issued $400 million of senior notes in a private offeringplacement to qualified institutional investors (the “2018 Senior Notes”). On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes”). On December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes” along in a private placement to qualified institutional investors (the “2021 Senior Notes” and collectively with the 20102018 Senior Notes and 20182019 Senior Notes, the “Senior Notes”). The fair value of the Senior Notes may increase or decrease due to various factors, including fluctuations in market interest rates and fluctuations in general economic conditions. See Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and LiquidityLiquidity” for additional information on the Senior Notes. The following table presents the carrying amountsface values and fair values for the Senior Notes at September 30, 20202022 and 2019:2021:
 
September 30, 2022September 30, 2021
September 30, 2020 September 30, 2019
Face Value (*)
Fair Value
Face Value (*)
Fair Value
Face Value (*) Fair Value Face Value (*) Fair Value (In thousands)
(In thousands)
The 2010 Senior Notes$
 $
 $85,000
 $86,121
The 2018 Senior Notes400,000
 442,000
 400,000
 428,000
The 2018 Senior Notes400,000 381,500 400,000 453,000 
The 2019 Senior Notes350,000
 358,750
 
 
The 2019 Senior Notes and the 2021 Senior NotesThe 2019 Senior Notes and the 2021 Senior Notes900,000 767,250 350,000 357,000 
Total$750,000

$800,750

$485,000

$514,121
Total$1,300,000 $1,148,750 $750,000 $810,000 
(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $10.6$14.3 million and $5.2$9.0 million at September 30, 20202022 and 2019,2021, respectively.
We have interest rate risk with respect to our $400 million unsecured revolving line of credit.credit and term loan. Interest on amounts borrowed under the credit facility is based on (i) aan adjusted base rate, which is the greatergreatest of (a) the prime rate, and (b) the Federal Funds rate plus 0.500% and (c) the one-month LIBOR rate plus 1.000%, plus, in each case, an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin. The applicable margin for base rate borrowings ranges from 0% to 0.875%0.750% and for LIBOR borrowings ranges from 1.000% to 1.875%1.750%, and is determined based on our consolidated leverage ratio. A change in interest rates on this variable rate debt impacts the interest incurred and cash flows, but does not impact the fair value of the instrument. WeAs of September 30, 2022, we had $95.0$280.0 million in borrowings outstanding under the revolving credit facility at a weighted-average interest rate of 1.285% under4.479% and $288.8 million in outstanding balance of the credit facility asterm loan at an interest rate of September 30, 2020.4.283%.
Foreign Currency Forward Contracts
We use derivative instrumentsmaintain a program to manage risks caused by fluctuations inour foreign exchange rates. The primary objective of our derivative instruments is to protect the value ofrate risk on existing foreign-currency-denominated receivable and cash balances by entering into forward contracts to sell or buy foreign currencies. At period end, foreign-currency-denominated receivable and cash balances held by our various reporting entities are remeasured into their respective functional currencies at current market rates. The change in value from the effects of volatility inthis remeasurement is then reported as a foreign exchange ratesgain or loss for that might occur prior to conversion to their functional currencies. We principally utilizeperiod in our accompanying consolidated statements of income and comprehensive income and the resulting gain or loss on the forward contract mitigates the foreign exchange rate risk of the associated assets. All of our foreign currency forward contracts which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates. We routinely enter into contracts to offset exposures denominated in the British pound, Euro and Singapore dollar.
Foreign-currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the effects of changes in foreign exchange rates reported in other income, net. The forward contracts are not designated as hedges and are marked to market through other income, net. Fair value changes in the forward contracts help mitigate the changes in the value of the remeasured receivable and cash balances attributable to changes in foreign exchange rates. The forward contracts are short-term in nature and typically have average maturities at inceptionmaturity periods of less than three months.

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Such derivative financial instruments are subject to market risk.
The following tables summarize our outstanding foreign currency forward contracts, by currency, at September 30, 20202022 and 2019:2021: 
 September 30, 2022
 Contract AmountFair Value
 Foreign
Currency
USDUSD
 (In thousands)
Sell foreign currency:
Euro (EUR)EUR13,500 $13,158 — 
Buy foreign currency:
British pound (GBP)GBP11,848 $13,100 — 
Singapore dollar (SGD)SGD6,169 $4,300 — 

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 September 30, 2020
 Contract Amount Fair Value
 
Foreign
Currency
 USD USD
 (In thousands)
Sell foreign currency:     
Euro (EUR)EUR15,000
 $17,656
 
Buy foreign currency:     
British pound (GBP)GBP16,555
 $21,300
 
Singapore dollar (SGD)SGD7,815
 $5,700
 

September 30, 2019 September 30, 2021
Contract Amount Fair Value Contract AmountFair Value
Foreign
Currency
 USD USD Foreign
Currency
USDUSD
(In thousands) (In thousands)
Sell foreign currency:     Sell foreign currency:
Euro (EUR)EUR10,800
 $11,723
 
Euro (EUR)EUR17,100 $19,829 — 
Buy foreign currency:     Buy foreign currency:
British pound (GBP)GBP5,200
 $6,400
 
British pound (GBP)GBP11,467 $15,400 — 
Singapore dollar (SGD)SGD5,798
 $4,200
 
Singapore dollar (SGD)SGD6,650 $4,900 — 
The foreign currency forward contracts were entered into on September 30, of each fiscal year;2022 and 2021; therefore, thetheir fair value was $0 on September 30, 2020 and 2019.at each of these dates.

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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Fair Isaac Corporation
San Jose, CaliforniaBozeman, Montana

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Fair Isaac Corporation and subsidiaries (the "Company") as of September 30, 20202022 and 2019, and2021, the related consolidated statements of Incomeincome and comprehensive income, stockholders' equity (deficit), and cash flows, for each of the three years in the period ended September 30, 2020,2022, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of September 30, 2020,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 20202022 and 2019,2021, and the results of operations and cash flows for each of the three years in the period ended September 30, 2020,2022, in conformity with accounting principles generally accepted in the United States of America .America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in fiscal year 2020 due to adoption of the new lease standard (Topic 842). The Company adopted the new lease standard using the modified retrospective approach.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on Internal Control over Financial Reporting.Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain

52


to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-periodcurrent period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenues -ReferRevenue Recognition – Contracts with Customers – Refer to Note 1 and Note 11 to the financial statementstatements
Critical Audit Matter Description
The company recognizes revenueRevenue is recognized when control of the promised goods or services in a contract is transferred to the customer,Company’s customers, in an amount that reflects the consideration to which the companyCompany expects to be entitled to in exchange for those goods or services. The Company'sCompany’s revenue is primarily derived from term-based or perpetual licensing ofon-premises software and scoring productssoftware-as-a-service (SaaS) subscriptions, professional services, and solutions, and associated maintenance; software-as-a service (SaaS) subscription services; scoring and credit monitoring services for customers; and professional services.
The Company's contracts with customers often includes promises to transfer multiple products and services to a customer. For contracts with customers that contain various combinations of products and services, the Company evaluates weatherwhether the productproducts or serviceservices are distinct. Distinct productdistinct — distinct products or services will be accounted for as separate performance obligations, while non distinctnon-distinct products or services are combined with others to form a single performance obligation.
For transactional revenue,SaaS products, the transaction price for contracts with customers typically includes a fixed consideration inCompany estimates the form of a guaranteed minimum that allows up to a certain level of usage and atotal variable consideration inat contract inception — subject to any constraints that may apply — and updates the form of usage or transaction-based fees in excess ofestimates as new information becomes available and recognizes the minimum threshold; or usage or transaction-basedamount ratably over the SaaS service period, unless the Company determines it is appropriate to allocate the variable amount not subject to a minimum threshold.each distinct service period and recognize revenue as each distinct service period is performed.
For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative standalone selling price (“SSP”)(SSP) basis. The Company determines the SSP using data from historical standalone sales, or, in instances where such information is not available (such as when the Company does not sell the product or service separately), the Company considers factors such as the stated contract prices, their overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others.
Given the complexity of certain of the Company’s contracts, together with the judgment involved in identifying performance obligations, estimating variable consideration, and determining SSP, auditing the related revenue required both extensive audit effort due to the volume and complexity of the contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to revenue recognition andover the Company’s identification of performance obligations, estimation of variable consideration, and determination of SSP included the following, among others:
We tested the effectiveness of controls over contract revenue, including management’s controls over the identification of performance obligations, estimation of variable consideration, and determination of the SSP.
We selected a sample of contracts and performed the following procedures:


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-ObtainedObtained and read the contract, including master agreements, renewal agreements, and other source documents that were part of the contract.
-ObtainedObtained other contracts with the same customer that were entered into at or near the same time and evaluated management’s conclusion of whether two or more contracts for multiple products and services promised to a customer should be combined and accounted for as a single contract for revenue recognition.
-ConfirmedConfirmed the terms of the contract directly with the customer, including whether there are side agreements and terms not formally included in the contract that may impact the identification of performance obligations and revenue recognition and performed alternative procedures in the event of nonreplies.
-EvaluatedEvaluated internal certification letters provided by the Company’s sales personnel to identify the existence of side agreements that may impact the identification of performance obligations and revenue recognition.
-TestedTested management’s identification of the performance obligations within the customer contract, including whether material rights that gave rise to a performance obligation were identified.
-TestedTested management’s estimation of variable consideration in the transaction price by evaluating the reasonableness of the inputs used in management’s estimates.
-Tested
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Tested the accuracy and completeness of the data and factors used in management’s determination of the SSP for each performance obligation.
-EvaluatedEvaluated the consistency of the methodologies used to develop the SSP for each performance obligation.

/s/Deloitte & Touche LLP
San Diego, CA
November 10, 20209, 2022
We have served as the Company’s auditor since 2004.



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FAIR ISAAC CORPORATION
CONSOLIDATED BALANCE SHEETS
 
September 30, September 30,
2020 2019 20222021
(In thousands, except par value
data)
(In thousands, except par value
data)
AssetsAssetsAssets
Current assets:   Current assets:
Cash and cash equivalents$157,394
 $106,426
Cash and cash equivalents$133,202 $195,354 
Accounts receivable, net334,180
 297,427
Accounts receivable, net322,410 312,107 
Prepaid expenses and other current assets42,504
 51,853
Prepaid expenses and other current assets29,103 43,513 
Total current assets534,078
 455,706
Total current assets484,715 550,974 
Marketable securities25,513
 20,222
Marketable securities24,515 31,884 
Other investments1,060
 1,643
Other investments1,135 1,312 
Property and equipment, net46,419
 53,027
Property and equipment, net17,580 27,913 
Operating lease right-of-use assets57,656
 
Operating lease right-of-use assets36,688 47,275 
Goodwill812,364
 803,542
Goodwill761,067 788,185 
Intangible assets, net9,236
 14,139
Intangible assets, net2,017 4,099 
Deferred income taxes14,629
 6,006
Deferred income taxes11,803 20,549 
Other assets105,285
 79,163
Other assets102,514 95,585 
Total assets$1,606,240
 $1,433,448
Total assets$1,442,034 $1,567,776 
Liabilities and Stockholders’ Equity   
Liabilities and Stockholders’ DeficitLiabilities and Stockholders’ Deficit
Current liabilities:   Current liabilities:
Accounts payable$23,033
 $23,118
Accounts payable$17,273 $20,749 
Accrued compensation and employee benefits117,952
 106,240
Accrued compensation and employee benefits97,893 103,506 
Other accrued liabilities63,367
 32,454
Other accrued liabilities66,248 79,535 
Deferred revenue115,159
 111,016
Deferred revenue120,045 105,417 
Current maturities on debt95,000
 218,000
Current maturities on debt30,000 250,000 
Total current liabilities414,511
 490,828
Total current liabilities331,459 559,207 
Long-term debt739,435
 606,790
Long-term debt1,823,669 1,009,018 
Operating lease liabilities73,207
 
Operating lease liabilities39,192 53,670 
Other liabilities48,005
 46,063
Other liabilities49,661 56,823 
Total liabilities1,275,158
 1,143,681
Total liabilities2,243,981 1,678,718 
Commitments and contingencies

 

Commitments and contingencies
Stockholders’ equity:   
Stockholders’ deficit:Stockholders’ deficit:
Preferred stock ($0.01 par value; 1,000 shares authorized; none issued and outstanding)0
 0
Preferred stock ($0.01 par value; 1,000 shares authorized; none issued and outstanding)— — 
Common stock ($0.01 par value; 200,000 shares authorized, 88,857 shares issued and 29,096 and 28,944 shares outstanding at September 30, 2020 and September 30, 2019, respectively)291
 289
Paid-in-capital1,218,583
 1,225,365
Treasury stock, at cost (59,761 and 59,913 shares at September 30, 2020 and September 30, 2019, respectively)(2,997,856) (2,802,450)
Common stock ($0.01 par value; 200,000 shares authorized, 88,857 shares issued and 25,154 and 27,568 shares outstanding at September 30, 2022 and September 30, 2021, respectively)Common stock ($0.01 par value; 200,000 shares authorized, 88,857 shares issued and 25,154 and 27,568 shares outstanding at September 30, 2022 and September 30, 2021, respectively)252 276 
Additional paid-in-capitalAdditional paid-in-capital1,299,588 1,237,348 
Treasury stock, at cost (63,703 and 61,289 shares at September 30, 2022 and September 30, 2021, respectively)Treasury stock, at cost (63,703 and 61,289 shares at September 30, 2022 and September 30, 2021, respectively)(4,935,769)(3,857,855)
Retained earnings2,193,059
 1,956,648
Retained earnings2,958,684 2,585,143 
Accumulated other comprehensive loss(82,995) (90,085)Accumulated other comprehensive loss(124,702)(75,854)
Total stockholders’ equity331,082
 289,767
Total liabilities and stockholders’ equity$1,606,240
 $1,433,448
Total stockholders’ deficitTotal stockholders’ deficit(801,947)(110,942)
Total liabilities and stockholders’ deficitTotal liabilities and stockholders’ deficit$1,442,034 $1,567,776 
See accompanying notes.


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FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
 Year Ended September 30,
 202220212020
 (In thousands, except per share data)
Revenues:
On-premises and SaaS software$564,751 $517,888 $584,576 
Professional services105,876 144,501 181,439 
Scores706,643 654,147 528,547 
Total revenues1,377,270 1,316,536 1,294,562 
Operating expenses:
Cost of revenues302,174 332,462 361,142 
Research and development146,758 171,231 166,499 
Selling, general and administrative383,863 396,281 420,930 
Amortization of intangible assets2,061 3,255 4,993 
Restructuring and impairment charges— 7,957 45,029 
Gains on product line asset sales and business divestiture— (100,139)— 
Total operating expenses834,856 811,047 998,593 
Operating income542,414 505,489 295,969 
Interest expense, net(68,967)(40,092)(42,177)
Other income (expense), net(2,138)7,745 3,208 
Income before income taxes471,309 473,142 257,000 
Provision for income taxes97,768 81,058 20,589 
Net income373,541 392,084 236,411 
Other comprehensive income (loss):
Foreign currency translation adjustments(48,848)7,141 7,090 
Comprehensive income$324,693 $399,225 $243,501 
Earnings per share:
       Basic$14.34 $13.65 $8.13 
       Diluted$14.18 $13.40 $7.90 
Shares used in computing basic earnings per share:
       Basic26,042 28,734 29,067 
       Diluted26,347 29,260 29,932 
 Year Ended September 30,
 2020 2019 2018
 (In thousands, except per share data)
Revenues:     
Transactional and maintenance$973,933
 $860,948
 $750,603
Professional services183,040
 184,095
 176,910
License137,589
 115,040
 72,633
Total revenues1,294,562
 1,160,083
 1,000,146
Operating expenses:     
Cost of revenues361,142
 336,845
 312,898
Research and development166,499
 149,478
 128,383
Selling, general and administrative420,930
 414,086
 376,912
Amortization of intangible assets4,993
 6,126
 6,594
Restructuring and impairment charges45,029
 0
 0
Total operating expenses998,593
 906,535
 824,787
Operating income295,969
 253,548
 175,359
Interest expense, net(42,177) (39,752) (31,311)
Other income, net3,208
 2,276
 12,884
Income before income taxes257,000
 216,072
 156,932
Provision for income taxes20,589
 23,948
 30,450
Net income236,411
 192,124
 126,482
Other comprehensive income (loss):     
Foreign currency translation adjustments7,090
 (13,664) (9,926)
Comprehensive income$243,501
 $178,460
 $116,556
Basic earnings per share$8.13
 $6.63
 $4.26
Shares used in computing basic earnings per share29,067
 28,980
 29,711
Diluted earnings per share$7.90
 $6.34
 $4.06
Shares used in computing diluted earnings per share29,932
 30,294
 31,180


See accompanying notes.


56


FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Years Ended September 30, 2020, 20192022, 2021 and 20182020


Common
Stock
       
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
Common
Stock
 Additional
 Paid-in-Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
(In thousands)Shares 
Par
Value
 
Paid-in-
Capital
 
Treasury
Stock
 
Retained
Earnings
 (In thousands)SharesPar
Value
Balance at September 30, 201730,243
 $302
 $1,195,431
 $(2,301,097) $1,638,042
 $(66,495) $466,183
Share-based compensation
 
 74,814
 
 
 
 74,814
Issuance of treasury stock under employee stock plans633
 7
 (59,194) 26,006
 
 
 (33,181)
Repurchases of common stock(1,861) (19) 
 (336,916) 
 
 (336,935)
Net income
 
 
 
 126,482
 
 126,482
Foreign currency translation adjustments
 
 
 
 
 (9,926) (9,926)
Balance at September 30, 201829,015
 290

1,211,051

(2,612,007)
1,764,524

(76,421) 287,437
Share-based compensation
 
 82,973
 
 
 
 82,973
Issuance of treasury stock under employee stock plans854
 8
 (68,659) 38,442
 
 
 (30,209)
Repurchases of common stock(925) (9) 
 (228,885) 
 
 (228,894)
Net income
 
 
 
 192,124
 
 192,124
Foreign currency translation adjustments
 
 
 
 
 (13,664) (13,664)
Balance at September 30, 201928,944
 289

1,225,365

(2,802,450)
1,956,648

(90,085) 289,767
Balance at September 30, 201928,944 $289 $1,225,365 $(2,802,450)$1,956,648 $(90,085)$289,767 
Share-based compensation
 
 93,681
 
 
 
 93,681
Share-based compensation— — 93,681 — — — 93,681 
Issuance of treasury stock under employee stock plans827
 9
 (100,463) 39,810
 
 
 (60,644)Issuance of treasury stock under employee stock plans827 (100,463)39,810 — — (60,644)
Repurchases of common stock(675) (7) 
 (235,216) 
 
 (235,223)Repurchases of common stock(675)(7)— (235,216)— — (235,223)
Net income
 
 
 
 236,411
 
 236,411
Net income— — — — 236,411 — 236,411 
Foreign currency translation adjustments
 
 
 
 
 7,090
 7,090
Foreign currency translation adjustments— — — — — 7,090 7,090 
Balance at September 30, 202029,096

$291

$1,218,583

$(2,997,856)
$2,193,059

$(82,995)
$331,082
Balance at September 30, 202029,096 291 1,218,583 (2,997,856)2,193,059 (82,995)331,082 
Share-based compensationShare-based compensation— — 111,700 — — — 111,700 
Issuance of treasury stock under employee stock plansIssuance of treasury stock under employee stock plans349 (88,953)18,222 — — (70,727)
Repurchases of common stockRepurchases of common stock(1,877)(19)(3,982)(878,221)— — (882,222)
Net incomeNet income— — — — 392,084 — 392,084 
Foreign currency translation adjustmentsForeign currency translation adjustments— — — — — 7,141 7,141 
Balance at September 30, 2021Balance at September 30, 202127,568 276 1,237,348 (3,857,855)2,585,143 (75,854)(110,942)
Share-based compensationShare-based compensation— — 115,355 — — — 115,355 
Issuance of treasury stock under employee stock plansIssuance of treasury stock under employee stock plans264 (53,115)18,196 — — (34,916)
Repurchases of common stockRepurchases of common stock(2,678)(27)— (1,096,110)— — (1,096,137)
Net incomeNet income— — — — 373,541 — 373,541 
Foreign currency translation adjustmentsForeign currency translation adjustments— — — — — (48,848)(48,848)
Balance at September 30, 2022Balance at September 30, 202225,154 $252 $1,299,588 $(4,935,769)$2,958,684 $(124,702)$(801,947)
See accompanying notes.

57


FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended September 30,
 2020 2019 2018
 (In thousands)
Cash flows from operating activities:     
Net income$236,411
 $192,124
 $126,482
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization30,367
 31,612
 30,182
Share-based compensation93,681
 82,973
 74,814
Deferred income taxes(8,639) 7,701
 10,584
Non-cash operating lease costs20,011
 
 
Impairment loss on operating lease assets28,016
 
 
Provision of doubtful accounts3,199
 518
 623
Net gain (loss) on marketable securities(2,071) 761
 (1,449)
Gain on sale of equity investments0
 0
 (10,000)
Net loss on sales and abandonment of property and equipment5,249
 127
 231
Changes in operating assets and liabilities:     
Accounts receivable(59,889) (36,176) (8,266)
Prepaid expenses and other assets(960) (55,507) (9,790)
Accounts payable1,059
 1,885
 843
Accrued compensation and employee benefits12,065
 22,380
 7,352
Other liabilities693
 1,463
 6,246
Deferred revenue5,724
 10,489
 (4,800)
Net cash provided by operating activities364,916
 260,350
 223,052
Cash flows from investing activities:     
Purchases of property and equipment(21,989) (23,981) (31,299)
Proceeds from sales of marketable securities3,470
 3,480
 3,230
Purchases of marketable securities(6,119) (6,404) (6,050)
Proceeds from sale of equity investments0
 0
 20,000
Distribution from equity investments55
 0
 0
Cash paid for acquisitions, net of cash acquired0
 (15,855) 0
Net cash used in investing activities(24,583) (42,760) (14,119)
Cash flows from financing activities:     
Proceeds from revolving line of credit263,000
 229,000
 427,000
Payments on revolving line of credit(513,000) (141,000) (531,000)
Proceeds from issuance of senior notes350,000
 0
 400,000
Payments on senior notes(85,000) (28,000) (131,000)
Payments on debt issuance costs(6,840) 0
 (7,849)
Payments on finance leases(1,716) (945) 0
Proceeds from issuance of treasury stock under employee stock plans42,258
 22,788
 11,023
Taxes paid related to net share settlement of equity awards(102,903) (52,996) (44,205)
Repurchases of common stock(235,223) (228,894) (342,596)
Net cash used in financing activities(289,424) (200,047) (218,627)
Effect of exchange rate changes on cash59
 (1,140) (5,901)
Increase (decrease) in cash and cash equivalents50,968
 16,403
 (15,595)
Cash and cash equivalents, beginning of year106,426
 90,023
 105,618
Cash and cash equivalents, end of year$157,394
 $106,426
 $90,023
Supplemental disclosures of cash flow information:     
Cash paid for income taxes, net of refunds of $1,931, $1,372 and $3,079 during the years ended September 30, 2020, 2019 and 2018, respectively$10,152
 $18,779
 $13,398
Cash paid for interest$37,735
 $39,924
 $26,106
Supplemental disclosures of non-cash investing and financing activities:     
Finance lease obligation incurred$1,387
 $5,803
 $0
Purchase of property and equipment included in accounts payable$166
 $1,448
 $1,913
 Year Ended September 30,
 202220212020
 (In thousands)
Cash flows from operating activities:
Net income$373,541 $392,084 $236,411 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization20,465 25,592 30,367 
Share-based compensation115,355 112,457 93,681 
Deferred income taxes7,816 (5,955)(8,639)
Net (gain) loss on marketable securities9,269 (4,569)(2,071)
Non-cash operating lease costs15,922 16,102 20,011 
Impairment loss on operating lease assets— — 28,016 
Provision of doubtful accounts2,800 652 3,199 
Gains on product line asset sales and business divestiture— (100,139)— 
Net loss on sales and abandonment of property and equipment193 333 5,249 
Changes in operating assets and liabilities:
Accounts receivable(31,557)24,496 (59,889)
Prepaid expenses and other assets7,368 (5,722)(960)
Accounts payable(2,802)(2,354)1,059 
Accrued compensation and employee benefits(3,637)(13,144)12,065 
Other liabilities(28,830)(20,502)693 
Deferred revenue23,547 4,486 5,724 
Net cash provided by operating activities509,450 423,817 364,916 
Cash flows from investing activities:
Purchases of property and equipment(6,029)(7,569)(21,989)
Proceeds from sales of marketable securities8,063 7,237 3,470 
Purchases of marketable securities(9,963)(9,039)(6,119)
Proceeds from product line asset sales and business divestiture2,258 147,431 — 
Distribution from (purchase of) equity investment— (210)55 
Net cash provided by (used in) investing activities(5,671)137,850 (24,583)
Cash flows from financing activities:
Proceeds from revolving line of credit and term loan1,039,000 682,000 263,000 
Payments on revolving line of credit and term loan(988,250)(259,000)(513,000)
Proceeds from issuance of senior notes550,000 — 350,000 
Payments on senior notes— — (85,000)
Payments on debt issuance costs(8,819)(1,488)(6,840)
Payments on finance leases— (176)(1,716)
Proceeds from issuance of treasury stock under employee stock plans16,026 20,881 42,258 
Taxes paid related to net share settlement of equity awards(50,942)(91,609)(102,903)
Repurchases of common stock(1,104,180)(874,179)(235,223)
Net cash used in financing activities(547,165)(523,571)(289,424)
Effect of exchange rate changes on cash(18,766)(136)59 
Increase (decrease) in cash and cash equivalents(62,152)37,960 50,968 
Cash and cash equivalents, beginning of year195,354 157,394 106,426 
Cash and cash equivalents, end of year$133,202 $195,354 $157,394 
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds of $1,090, $464 and $1,931 during the years ended September 30, 2022, 2021 and 2020, respectively$65,332 $71,486 $10,152 
Cash paid for interest$57,208 $37,955 $37,735 
Supplemental disclosures of non-cash investing and financing activities:
Finance lease obligation incurred$— $— $1,387 
Unsettled repurchases of common stock$— $8,043 $— 
Purchase of property and equipment included in accounts payable$22 $71 $166 

See accompanying notes.

58


FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020
1. Nature of Business and Summary of Significant Accounting Policies
Fair Isaac Corporation
Incorporated under the laws of the State of Delaware, Fair Isaac Corporation (“FICO”) is a provider of analytic, software and data management products and services that enable businesses(NYSE: FICO) (together with its consolidated subsidiaries, the “Company,” which may also be referred to automate, improve and connect decisions. FICO provides a range of analytical solutions, credit scoring and credit account management products and services to banks, credit reporting agencies, credit card processing agencies, insurers, retailers, healthcare organizations and public agencies.
In these consolidated financial statements, FICO is referred toin this report as “we,” “us,” “our,” or “the Company.”“FICO”) is a leading applied analytics company. We were founded in 1956 on the premise that data, used intelligently, can improve business decisions. Today, FICO’s software and the widely used FICO® Score operationalize analytics, enabling thousands of businesses in nearly 120 countries to uncover new opportunities, make timely decisions that matter, and execute them at scale. Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, automotive lenders, consumer reporting agencies, public agencies, and organizations in other industries. We also serve consumers through online services that enable people to access and understand their FICO Scores — the standard measure in the U.S. of consumer credit risk — empowering them to increase financial literacy and manage their financial health.
Principles of Consolidation and Basis of Presentation
Effective October 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”) using the modified retrospective approach, under which financial results reported in prior periods were not restated.  As a result, the consolidated balance sheet as of September 30, 2020 is not comparable with that as of September 30, 2019. See our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 filed with the SEC on November 8, 2019 for lease policies that were in effect in prior periods before adoption of Topic 842.
The consolidated financial statements include the accounts of FICO and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
We make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures made in the accompanying notes. For example, we use estimates in determining the collectibility of accounts receivable; the appropriate levels of various accruals; variable considerations included in the transaction price and standalone selling price of each performance obligation for our customer contracts; labor hours in connection with fixed-fee service contracts; the amount of our tax provisionprovision; and the realizability of deferred tax assets. We also use estimates in determining the remaining economic lives and carrying values of acquired intangible assets, property and equipment, and other long-lived assets. In addition, we use assumptions to estimate the fair value of reporting units and share-based compensation. Actual results may differ from our estimates.
As the impact of the COVID-19 pandemic continues to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment. These estimates and assumptions may change in future periods and will be recognized in the consolidated financial statements as new events occur and additional information becomes known. To the extent our actual results differ materially from those estimates and assumptions, our future financial statements could be affected. For more information, see Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks and investments with an original maturity of 90 days or less at time of purchase.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
Fair Value of Financial Instruments
The fair value of certain of our financial instruments, including cash and cash equivalents, receivables, other current assets, accounts payable, accrued compensation and employee benefits, other accrued liabilities and amounts outstanding under our revolving line of credit and term loan, approximate their carrying amounts because of the short-term maturity of these instruments. The fair values of our cash and cash equivalents and marketable securitysecurities investments are disclosed in Note 4. The fair value of our derivative instruments is disclosed in Note 5. The fair value of our senior notes is disclosed in Note 9.

59

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Investments
We categorize our investments in debt and equity instruments as trading, available-for-sale or held-to-maturity at the time of purchase. Trading securities are carried at fair value with unrealized gains or losses included in other income (expense). Available-for-sale securities are carried at fair value measurements using quoted prices in active markets for identical assets or liabilities with unrealized gains or losses included in accumulated other comprehensive income (loss). Held-to-maturity securities are carried at amortized cost. Dividends and interest income are accrued as earned. Realized gains and losses are determined on a specific identification basis and are included in other income (expense). We review marketable securities for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. We did not classify any securities as held-to-maturity or available-for-sale during each of the three years ended September 30, 2020, 20192022, 2021 and 2018.2020. Investments with remaining maturities over one year are classified as long-term investments.

We have certain other investments for which there is no readily determinable fair value. These investments are recorded at cost, less impairment (if any) plus or minus adjustments for observable price changes. The carrying value of these investments was $1.1 million and $1.6$1.3 million at September 30, 20202022 and 2019,2021, respectively, and they arewere reported in other assets on our consolidated balance sheets. At September 30, 2020,2022, we reviewed the carrying value of these investments and concluded that they were not impaired and as of that date, we were unable to exercise significant influence over the investees.
Concentration of Risk
Financial instruments that potentially expose us to concentrations of risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable, which are generally not collateralized. Our policy is to place our cash, cash equivalents, and marketable securities with high quality financial institutions, commercial corporations and government agencies in order to limit the amount of credit exposure. We have established guidelines relative to diversification and maturities for maintaining safety and liquidity. We generally do not require collateral from our customers, but our credit extension and collection policies include analyzing the financial condition of potential customers, establishing credit limits, monitoring payments, and aggressively pursuing delinquent accounts. We maintain allowances for potential credit losses.
A significant portion of our revenues are derived from the sales of products and services to the consumer credit and bankingfinancial services industries.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and amortization. Major renewals and improvements are capitalized, while repair and maintenance costs are expensed as incurred. Assets acquired under capital leases are included in property and equipment with corresponding depreciation included in accumulated depreciation. Depreciation and amortization charges are calculated using the straight-line method over the following estimated useful lives:
 
Estimated Useful Life
Data processing equipment and software3 yearsto6 years
Office furniture and equipment3 yearsto7 years
Leasehold improvements
Shorter of estimated
useful life or lease term
Equipment under capitalfinance lease
Shorter of estimated
useful life or lease term
60


Table of Contents
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
The cost and accumulated depreciation for property and equipment sold, retired or otherwise disposed of are removed from the applicable accounts and resulting gains or losses are recorded in our consolidated statements of income and comprehensive income. Depreciation and amortization on property and equipment totaled $23.5$15.2 million, $24.2$20.3 million and $22.6$23.5 million during fiscal 2020, 20192022, 2021 and 2018,2020, respectively. 

60

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Internal-Use Software
Costs incurred to develop internal-use software during the application development stage are capitalized and reported at cost. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs of significant upgrades and enhancements that result in additional functionality are also capitalized whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized costs are amortized using the straight-line method over two to three years. Software development costs required to be capitalized for internal-use software have not been material to date.
Capitalized Software and Research and Development Costs
Software development costs relating to products to be sold in the normal course of business are expensed as incurred as research and development costs until technological feasibility is established. Technological feasibility for our products occurs approximately concurrently with the general release of our products; accordingly, we have not capitalized any development or production costs. Costs we incur to maintain and support our existing products after the general release of the product are expensed in the period they are incurred and included in research and development costs in our consolidated statements of income and comprehensive income.
Goodwill, Acquisition Intangibles and Other Long-Lived Assets
Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. We assess goodwill for impairment for each of our reporting units on an annual basis during our fourth fiscal quarter using a July 1 measurement date unless circumstances require a more frequent measurement.
We have determined that our reporting units are the same as our reportable segments. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value, referred to as a “step zero” approach. If, based on the review of the qualitative factors, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying value, we would bypass the two-step impairment test. Events and circumstances we consider in performing the “step zero” qualitative assessment include macro-economic conditions, market and industry conditions, internal cost factors, share price fluctuations, and the operational stability and the overall financial performance of the reporting units. If we conclude that it is more likely than not that a reporting unit's fair value is less than its carrying amount, we would perform the first step (“step one”) of the two-step impairment test and calculate the estimated fair value of the reporting unit by using discounted cash flow valuation models and by comparing our reporting units to guideline publicly-traded companies. These methods require estimates of our future revenues, profits, capital expenditures, working capital, and other relevant factors, as well as selecting appropriate guideline publicly-traded companies for each reporting unit. We estimate these amounts by evaluating historical trends, current budgets, operating plans, industry data, and other relevant factors. Alternatively, we may bypass the qualitative assessment described above for any reporting unit in any period and proceed directly to performing step one of the goodwill impairment test.
For fiscal 2017, we elected to proceed directly to the step one quantitative analysis for all of our reporting units. There was a substantial excess of fair value over carrying value for each of our reporting units and we determined goodwill was not impaired for any of our reporting units for fiscal 2017. For fiscal 2018, 2019 and 2020, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment. After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of any of our reporting units was less their carrying amounts. Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for any of our reporting units for fiscal 2018, 20192020. For fiscal 2021, we consolidated our operating segment structure from three to two by merging our Applications and 2020.Decision Management Software segments into the new Software segment. We performed a step one quantitative impairment test on the Software and Scores reporting units before and immediately following the change in reporting units. There was a substantial excess of fair value over carrying value for the reporting units and we determined goodwill was not impaired for any of our reporting units before or after the change for fiscal 2021. For fiscal 2022, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment. After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of either of our reporting units was less their carrying amounts. Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for either of our reporting units for fiscal 2022.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
We amortize our finite-lived intangible assets which result from our acquisitions over the following estimated useful lives:
Estimated Useful Life
Completed technology4 yearsto10 years
Customer contracts and relationships5 yearsto10 years
Trade names1 yearto3 years
Non-compete agreements2 years


61

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Our intangible assets that have finite useful lives and other long-lived assets are assessed for potential impairment when there is evidence that events and circumstances related to our financial performance and economic environment indicate the carrying amount of the assets may not be recoverable. When impairment indicators are identified, we test for impairment using undiscounted cash flows. If such tests indicate impairment, then we measure and record the impairment as the difference between the carrying value of the asset and the fair value of the asset. We did not recognize any impairment charges on intangible assets that have finite useful lives or other long-lived assets in fiscal 2020, 20192022, 2021 and 2018.2020.
Revenue Recognition
Contracts with Customers
Our revenue is primarily derived from term-based or perpetual licensing of software and scoring products and solutions, and associated maintenance; software-as-a-service (“SaaS”) subscription services; scoring and credit monitoring services for consumers; and professional services. For contracts with customers that contain various combinations of products and services, we evaluate whether the products or services are distinct — distinct products or services will be accounted for as separate performance obligations, while non-distinct products or services are combined with others to form a single performance obligation. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative SSP basis. Revenue is recognized when control of the promised goods or services is transferred to our customers.
License revenue is derived from contractscustomers, in which we grant our direct customers or distributorsan amount that reflects the right to deploy or resell our software and scoring products and solutions on-premises. Our software offerings often include a perpetual or term-based license and post-contract support or maintenance, both of which generally represent distinct performance obligations and are accounted for separately. The transaction price is either in the form of a fixed consideration with separately stated prices for license and maintenance, a single subscription with license and maintenance bundled, or a usage-based royalty — sometimes subject to a guaranteed minimum — for the license and maintenance bundle. When the amount is in the form of a fixed consideration, including the guaranteed minimum in usage-based royalty, license revenue from distinct on-premises license is recognized at the point in time when the software or scoring solution is made available to the customer or distributor. Any royalties not subject to the guaranteed minimum or earned in excess of the minimum amount are recognized as transactional revenue when the subsequent sales or usage occurs. Revenue allocated to maintenance is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits.
In addition to usage-based royalty on our software and scoring products, transactional revenue is also derived from SaaS contracts in which we provide customers with access to and standard support for our software application either in the FICO® Analytic Cloud or Amazon Web Services (“AWS”), our primary cloud infrastructure provider, on a subscription basis. The transaction price typically includes a fixed consideration in the form of a guaranteed minimum that allows up to a certain level of usage and a variable consideration in the form of usage or transaction-based fees in excess of the minimum threshold; or usage or transaction-based variable amount not subject to a minimum threshold. We determined the nature of our SaaS arrangements is to provide continuous access to our hosted application in the cloud, i.e., a stand-ready obligation that comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). We estimate the total variable consideration at contract inception — subject to any constraints that may apply — and update the estimates as new information becomes available and recognize the amount ratably over the SaaS service period, unless we determine it is appropriate to allocate the variable amount to each distinct service period and recognize revenue as each distinct service period is performed.
We also derive transactional revenue from credit scoring and monitoring services that provide consumers access to their credit reports and enable them to monitor their credit. These are provided as either a one-time or ongoing subscription service renewed monthly or annually, all with a fixed consideration. We determined the nature of the subscription service is a stand-ready obligation to generate credit reports, provide credit monitoring and other services for our customers, which comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). Revenue from one-time or monthly subscription services is recognized during the period when service is performed. Revenue from annual subscription services is recognized ratably over the subscription period.

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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Professional services include software or SaaS implementation, consulting, model development, training services and premium cloud support. They are sold either standalone, or together with other products or services and generally represent distinct performance obligations. The transaction price can be a fixed amount or on a time and materials basis. Revenue on fixed-price services is recognized using an input method based on labor hours expended which we believe provides a faithful depiction of the transfer of services. Revenue on services provided on a time and materials basis is recognized applying the “right-to-invoice” practical expedient as the amount to which we have a rightexpect to invoice the customer corresponds directly with the value of our performancebe entitled to the customer. In addition, we sell premium cloud support on a subscription basisin exchange for a fixed amount, and revenue is recognized ratably over the contract term.
Significant Judgments
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct and should be accounted for separately may require significant judgment. Specifically, when implementation service is included in the original software or SaaS offerings, judgment is required to determine if the implementation service significantly modifies or customizes the software or SaaS service in such a way that the risks of providing it and the customization service are inseparable. In rare instances, contracts may include significant modification or customization of the software of SaaS service and will result in the combination of software or SaaS service and implementation service as one performance obligation.
We determine the SSPs using data from our historical standalone sales, or, in instances where such information is not available (such as when we do not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. When the selling price of a product or service is highly variable, we may use the residual approach to determine the SSP of that product or service. Significant judgment may be required to determine the SSP for each distinct performance obligation when it involves the consideration of many market conditions and entity-specific factors discussed above.
Significant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts with a fixed consideration, in which we measure progress using an input method based on labor hours expended. In order to estimate the total hours of the project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others. For certain complex projects, due to the risks and uncertainties inherent with the estimation process and factors relating to the assumptions, actual progress may differ due to the change in estimated total hours. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and, accordingly, recognized revenues are subject to revisions as the contract progresses to completion.
Capitalized Commission Costs
We capitalize incremental commission fees paid as a result of obtaining customer contracts. Capitalized commission costs, which are recorded in other assets within the accompanying consolidated balance sheets, were $38.6 million and $33.7 million at September 30, 2020 and 2019, respectively.
Capitalized commission costs are amortized on a straight-line basis over ten years — determined using a portfolio approach — based on the transfer ofthose goods or services to which the assets relate, taking into consideration both the initial and future contracts as we do not typically pay a commission on a contract renewal. The amortization costs are included in selling, general, and administrative expenses of our consolidated statements of income and comprehensive income. The amount of amortization was $5.7 million, $5.0 million and $4.5 million during the years ended September 30, 2020, 2019 and 2018, respectively. There was 0 impairment loss in relation to the costs capitalized.
We apply a practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. These costs are recorded within selling, general, and administrative expenses.services.
See Note 1511 for ourfurther discussion on disaggregation of revenues, and Note 16 for contract balances and performance obligations.

63

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

revenues.
Business Combinations
Accounting for our acquisitions requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred andover the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income and comprehensive income.
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date, including our estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies and contingent consideration, where applicable. If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, we will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Subsequent to the measurement period, changes in our estimates of such contingencies will affect earnings and could have a material effect on our consolidated results of operations and financial position.
Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to: (i) future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts and acquired developed technologies and patents; (ii) expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed; and (iii) the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period. Subsequent to the measurement period or our final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our consolidated statements of income and comprehensive income and could have a material impact on our consolidated results of operations and financial position.
Income Taxes
We estimate our income taxes based on the various jurisdictions where we conduct business, which involves significant judgment in determining our income tax provision. We estimate our current tax liability using currently enacted tax rates and laws and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities recorded on our consolidated balance sheets using the currently enacted tax rates and laws that will apply to taxable income for the years in which those tax assets are expected to be realized or settled. We then assess the likelihood our deferred tax assets will be realized and to the extent we believe realization is not more likely than not, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a corresponding income tax expense in our consolidated statements of income and comprehensive income. In assessing the need for the valuation allowance, we consider future taxable income in the jurisdictions we operate; our ability to carry back tax attributes to prior years; an analysis of our deferred tax assets and the periods over which they will be realizable; and ongoing prudent and feasible tax planning strategies. An increase in the valuation allowance would have an adverse impact, which could be material, on our income tax provision and net income in the period in which we record the increase.

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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the technical merits of the tax position indicate it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount more than 50% likely of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions and they are evaluated on a quarterly basis. Our evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.
A description of our accounting policies associated with tax-related contingencies and valuation allowances assumed as part of a business combination is provided under “Business Combinations” above.
Earnings per Share
Basic earnings per share are computed on the basis of the weighted-average number of common shares outstanding during the period under measurement. Diluted earnings per share are based on the weighted-average number of common shares outstanding and potential common shares. Potential common shares result from the assumed exercise of outstanding stock options or other potentially dilutive equity instruments, when they are dilutive under the treasury stock method.
Comprehensive Income
Comprehensive income is the change in our equity (net assets) during each period from transactions and other events and circumstances from non-owner sources. It includes net income, foreign currency translation adjustments and unrealized gains and losses on our investments in marketable securities, net of tax.
Foreign Currency and Derivative Financial Instruments
We have determined that the functional currency of each foreign operation is the local currency. Assets and liabilities denominated in their local foreign currencies are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates of exchange prevailing during the period. Foreign currency translation adjustments are accumulated as a separate component of consolidated stockholders’ equity.deficit.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
We utilize derivative instruments to manage market risks associated with fluctuations in certain foreign currency exchange rates as they relate to specific balances of accounts receivable and cash denominated in foreign currencies. We principally utilize foreign currency forward contracts to protect against market risks arising in the normal course of business. Our policies prohibit the use of derivative instruments for the sole purpose of trading for profit on price fluctuations or to enter into contracts that intentionally increase our underlying exposure. All of our foreign currency forward contracts have maturity periods of less than three months.
At the end of the reporting period, foreign-currency-denominated assets and liabilities are remeasured into the functional currencies of the reporting entities at current market rates. The change in value from this remeasurement is reported as a foreign exchange gain or loss for that period in other income, net in the accompanying consolidated statements of income and comprehensive income.
We recorded transactional foreign exchange lossesgains (losses) of $1.0$1.9 million, $0.0 million and $0.4$(1.0) million during fiscal 2020, 20192022, 2021 and 2018,2020, respectively.
Share-Based Compensation
We measure stock-basedshare-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock award (generally three to four years). See Note 1315 for further discussion of our share-based employee benefit plans.
Advertising and Promotion Costs

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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Advertising and promotion costs are expensed as incurred and are included in selling, general and administrative expenses in the accompanying consolidated statements of income and comprehensive income. Advertising and promotion costs totaled $8.7$8.1 million, $3.6$6.9 million and $4.1$8.7 million in fiscal 2020, 20192022, 2021 and 2018,2020, respectively.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Topic 842, which requires the recognition of operating lease assets and lease liabilities on the balance sheet. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new standard, disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.
In the first quarter of fiscal 2020, we adopted Topic 842 using the “Comparatives Under 840 Option” approach to transition. In accordance with the standard, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Topic 842 provided a package of practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the lease classification of any expired or existing lease, and (3) initial direct costs for any existing leases. We elected to apply the package of practical expedients, and did not elect the hindsight practical expedient in determining the lease term for existing leases as of October 1, 2019.
Adoption of Topic 842 did not result in the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The most significant impact of adoption was the recognition of operating lease assets and operating lease liabilities of $89.8 million and $98.9 million, respectively, while our accounting for existing capital leases (now referred to as finance leases) remained substantially unchanged. We expect the impact of adoption to be immaterial to our consolidated statements of income and comprehensive income and consolidated statements of cash flows on an ongoing basis. As part of our adoption, we also modified our control procedures and processes, none of which materially affected our internal control over financial reporting. See Note 17 for additional information regarding our accounting policy for leases and additional disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018,October 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2018-15,2021-08,Intangibles—GoodwillBusiness Combinations (Topic 805): Accounting for Contract Assets and Other (Topic 350): Internal-Use Software.Contract Liabilities from Contracts with Customers” (“ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred2021-08”). ASU 2021-08 requires an acquirer in a cloud computing arrangement that isbusiness combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under Accounting Standards Codification Topic 606, Revenue from Contacts with Customers, in order to align the recognition of a service contract liability with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.definition of a performance obligation. The standard is effective for fiscal years andbeginning after December 15, 2022, including interim periods within those fiscal years, beginning after December 15, 2019, which means that it will be effective for our fiscal year beginning October 1, 2020.2023. Early adoption is permitted. We do not believe that adoption of ASU 2018-15 will have a significant impact on our consolidated financial statements.    
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrumentsand subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, which means it will be effective for our fiscal year beginning October 1, 2020. We do not believe that adoption of Topic 3262021-08 will have a significant impact on our consolidated financial statements.
We do not expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements.
2. Business CombinationsDivestitures
There were 0 acquisitions incurredDuring fiscal 2021, we sold our Collections and Recovery (“C&R”) business to Jonas Collections and Recovery Inc. (“Jonas”), a company in the Jonas Software operating group of Constellation Software Inc. In addition during fiscal 2020.
In fiscal 2019,2021, we acquired 100% of the equity of eZmCom, Inc. for $18.6 million in cash. We recorded $6.0 million of intangiblesold all assets which are being amortized using the straight-line method over a weighted-average useful life of 4.73 years. We allocated $11.2 million of goodwillrelated to our Applications segment that is deductible for tax purposes.
Therecyber risk score operations and we sold certain assets related to our Software operations to an affiliated joint venture in China. The gains recognized from these sales were 0 acquisitions incurred during fiscal 2018.

$100.1 million, which were recorded in gains on product line asset sales and business divestiture within the accompanying consolidated statements of income and comprehensive income. The C&R business and the assets sold were part of our Software segment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020


3. Cash, Cash Equivalents and Marketable Securities
The following is a summary of cash, cash equivalents and marketable securities at September 30, 20202022 and 2019:2021: 
 September 30, 2020 September 30, 2019
 
Amortized
Cost
 Fair Value 
Amortized
Cost
 Fair Value
 (In thousands)
Cash and Cash Equivalents:       
Cash$122,119
 $122,119
 $77,525
 $77,525
Money market funds35,275
 35,275
 22,102
 22,102
Bank time deposits0
 0
 6,799
 6,799
Total$157,394
 $157,394
 $106,426
 $106,426
Long-term Marketable Securities:       
Marketable securities$20,195
 $25,513
 $17,193
 $20,222


 September 30, 2022September 30, 2021
 Amortized
Cost
Fair ValueAmortized
Cost
Fair Value
 (In thousands)
Cash and Cash Equivalents:
     Cash$113,888 $113,888 $195,160 $195,160 
     Money market funds19,314 19,314 194 194 
        Total$133,202 $133,202 $195,354 $195,354 
Marketable Securities:
     Marketable securities$25,956 $24,515 $23,836 $31,884 
The assets included in marketable securities represent long-term marketable equity securities held under a supplemental retirement and savings plan for certain officers and senior management employees, which are distributed upon termination or retirement of the employees. These investments are treated as trading securities and recorded at fair value.
4. Fair Value Measurements
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.
Level 1 — uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. Our Level 1 assets arewere comprised of money market funds and certain marketable securities. We did not have any liabilities that are valued using inputs identified under asecurities and our Level 1 hierarchyliabilities included senior notes as of September 30, 20202022 and 2019.2021.
Level 2 — uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. We did not have any assets or liabilities that are valued using inputs identified under a Level 2 hierarchy as of September 30, 20202022 and 2019. We measure the fair value of the Senior Notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities.2021.
Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation. We did not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy as of September 30, 20202022 and 2019.
2021.
The following table representstables represent financial assets that we measured at fair value on a recurring basis at September 30, 20202022 and 2019:2021: 

September 30, 2022Active Markets for
Identical Instruments
(Level 1)
Fair Value as of September 30, 2022
 (In thousands)
Assets:
Cash equivalents (1)
$19,314 $19,314 
Marketable securities (2)
24,515 24,515 
Total$43,829 $43,829 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020

September 30, 2020
Active Markets for
Identical Instruments
(Level 1)
 Fair Value as of September 30, 2020
 (In thousands)
Assets:   
Cash equivalents (1)$35,275
 $35,275
Marketable securities (2)25,513
 25,513
Total$60,788
 $60,788
September 30, 2019
Active Markets for
Identical Instruments
(Level 1)
 Fair Value as of September 30, 2019
September 30, 2021September 30, 2021Active Markets for
Identical Instruments
(Level 1)
Fair Value as of September 30, 2021
(In thousands) (In thousands)
Assets:   Assets:
Cash equivalents (1)$28,901
 $28,901
Cash equivalents (1)
$194 $194 
Marketable securities (2)20,222
 20,222
Marketable securities (2)
31,884 31,884 
Total$49,123
 $49,123
Total$32,078 $32,078 
 
(1)Included in cash and cash equivalents on our consolidated balance sheets at September 30, 2020 and 2019. Not included in this table are cash deposits of $122.1 million and $77.5 million at September 30, 2020 and 2019, respectively.
(2)
(1)Included in cash and cash equivalents on our consolidated balance sheets at September 30, 2022 and 2021. Not included in these tables are cash deposits of $113.9 million and $195.2 million at September 30, 2022 and 2021, respectively.
(2)Represents securities held under a supplemental retirement and savings plan for certain officers and senior management employees, which are distributed upon termination or retirement of the employees. Included in marketable securities on our consolidated balance sheets at September 30, 2022 and 2021.
See Note 9 for certain officers and senior management employees, which are distributed upon termination or retirement of the employees. Included in long-term marketable securities on our consolidated balance sheets at September 30, 2020 and 2019.
For the fair value of our derivative instruments and senior notes, see Note 5 and Note 9, respectively.

notes.
There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the years ended September 30, 2020, 20192022, 2021 or 2018.2020.
5. Derivative Financial Instruments
We use derivative instruments to manage risks caused by fluctuations in foreign exchange rates. The primary objective of our derivative instruments is to protect the value of foreign-currency-denominated receivable and cash balances from the effects of volatility in foreign exchange rates that might occur prior to conversion to their functional currencies. We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates. We routinely enter into contracts to offset exposures denominated in the British pound, Euro and Singapore dollar.
Foreign-currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the effects of changes in foreign exchange rates reported in other income (expense), net. The forward contracts are not designated as hedges and are marked to market through other income (expense), net. Fair value changes in the forward contracts help mitigate the changes in the value of the remeasured receivable and cash balances attributable to changes in foreign exchange rates. The forward contracts are short-term in nature and typically have average maturities at inception of less than three months.
The following tables summarize our outstanding foreign currency forward contracts, by currency, at September 30, 20202022 and 2019:2021: 

 September 30, 2022
 Contract AmountFair Value
 Foreign
Currency
USDUSD
 (In thousands)
Sell foreign currency:
Euro (EUR)EUR13,500 $13,158 — 
Buy foreign currency:
British pound (GBP)GBP11,848 $13,100 — 
Singapore dollar (SGD)SGD6,169 $4,300 — 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020

 September 30, 2020
 Contract Amount Fair Value
 
Foreign
Currency
 USD USD
  (In thousands)
Sell foreign currency:      
Euro (EUR)EUR15,000
 $17,656
 0
Buy foreign currency:      
British pound (GBP)GBP16,555
 $21,300
 0
Singapore dollar (SGD)SGD7,815
 $5,700
 0
 September 30, 2019
 Contract Amount Fair Value
 
Foreign
Currency
 USD USD
  (In thousands)
Sell foreign currency:      
Euro (EUR)EUR10,800
 $11,723
 0
Buy foreign currency:      
British pound (GBP)GBP5,200
 $6,400
 0
Singapore dollar (SGD)SGD5,798
 $4,200
 0

 September 30, 2021
 Contract AmountFair Value
 Foreign
Currency
USDUSD
 (In thousands)
Sell foreign currency:
Euro (EUR)EUR17,100 $19,829 — 
Buy foreign currency:
British pound (GBP)GBP11,467 $15,400 — 
Singapore dollar (SGD)SGD6,650 $4,900 — 
The foreign currency forward contracts were entered into on September 30, of each fiscal year;2022 and 2021; therefore, their fair value was $0 at September 30, 2020 and 2019.each of these dates.
LossesGains (losses) on derivative financial instruments arewere recorded in our consolidated statements of income and comprehensive income as a component of other income (expense), net. These amounts are shown below for the years ended September 30, 2020, 20192022, 2021 and 2018:2020:
 Year Ended September 30,
 2020 2019 2018
 (In thousands)
Loss on foreign currency forward contracts$347
 $896
 $476

 Year Ended September 30,
 202220212020
 (In thousands)
Gain (loss) on foreign currency forward contracts$(2,748)$2,064 $(347)
6. Goodwill and Intangible Assets
Intangible assets that are subject to amortization consisted of the following at September 30, 20202022 and 2019:2021: 
 September 30, 2022September 30, 2021
 Gross
Carrying
Amount
Accumulated
Amortization
NetWeighted Average
Life in Years
Gross
Carrying
Amount
Accumulated
Amortization
NetWeighted Average
Life in Years
 (In thousands, except average life)
Completed technology$67,760 $(66,843)$917 5$71,808 $(70,391)$1,417 5
Customer contracts and relationships3,000 (1,900)1,100 513,719 (11,037)2,682 9
$70,760 $(68,743)$2,017 5$85,527 $(81,428)$4,099 6
 September 30, 2020 September 30, 2019
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 Net 
Average
Life
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 Net 
Average
Life
 (In thousands, except average life)
Completed technology$83,764
 $(80,136) $3,628
 5 $82,724
 $(77,331) $5,393
 5
Customer contracts and relationships19,332
 (13,870) 5,462
 9 30,583
 (22,283) 8,300
 8
Trade names0
 0
 0
 0 150
 (25) 125
 1
Non-compete agreements350
 (204) 146
 2 350
 (29) 321
 2
 $103,446
 $(94,210) $9,236
   $113,807
 $(99,668) $14,139
  



69

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Amortization expense associated with our intangible assets is reflected as a separate operating expense caption—caption — amortization of intangible assets—assets — and is excluded from cost of revenues and selling, general and administrative expenses within the accompanying consolidated statements of income and comprehensive income. Amortization expense consisted of the following:
 Year Ended September 30,
 2020 2019 2018
 (In thousands)
Completed technology$1,766
 $1,974
 $2,380
Customer contracts and relationships2,927
 4,098
 4,214
Trade names125
 25
 0
Non-compete agreements175
 29
 0
Total$4,993
 $6,126
 $6,594

 Year Ended September 30,
 202220212020
 (In thousands)
Completed technology$500 $1,027 $1,766 
Customer contracts and relationships1,561 2,082 2,927 
Trade names— — 125 
Non-compete agreements— 146 175 
Total$2,061 $3,255 $4,993 
Estimated future intangible asset amortization expense associated with intangible assets existing at September 30, 2020,2022, was as follows (in thousands):follows: 
Year Ending September 30, 
2021$3,646
20223,356
20231,317
2024917
20250
Thereafter0
Total$9,236
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
Year Ending September 30,(In thousands)
2023$1,100 
2024917 
Total$2,017 
The following table summarizes changes to goodwill during fiscal 20202022 and 2019,2021, both in total and as allocated to our operating segments. We have not recognized any goodwill impairment losses to date. 
 Applications Scores Decision Management Software Total
 (In thousands)
Balance at September 30, 2018$585,161
 $146,648
 $69,081
 $800,890
Addition from acquisitions11,233
 0
 0
 11,233
Foreign currency translation adjustment(7,780) 0
 (801) (8,581)
Balance at September 30, 2019588,614
 146,648
 68,280
 803,542
Foreign currency translation adjustment8,190
 0
 632
 8,822
Balance at September 30, 2020$596,804
 $146,648
 $68,912
 $812,364

ScoresSoftwareTotal
 (In thousands)
Balance at September 30, 2020$146,648 $665,716 $812,364 
Foreign currency translation adjustment— 1,417 1,417 
C&R business divestiture— (25,596)(25,596)
Balance at September 30, 2021146,648 641,537 788,185 
Foreign currency translation adjustment— (27,118)(27,118)
Balance at September 30, 2022$146,648 $614,419 $761,067 

70

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018


7. Composition of Certain Financial Statement Captions
The following table presents the composition of property and equipment, net and other assetsaccrued liabilities at September 30, 20202022 and 2019:2021: 
 September 30,
 2020 2019
 (In thousands)
Property and equipment:   
Data processing equipment and software$108,913
 $110,874
Office furniture and equipment20,478
 21,443
Leasehold improvements25,239
 33,360
Equipment under capital lease6,489
 6,398
Less: accumulated depreciation and amortization(114,700) (119,048)
Total$46,419
 $53,027
    
Other assets:   
Long-term receivables$54,074
 $34,370
Prepaid commissions38,579
 33,700
Others12,632
 11,093
Total$105,285
 $79,163

 September 30,
 20222021
 (In thousands)
Property and equipment:
Data processing equipment and software$76,335 $86,144 
Office furniture and equipment14,790 16,754 
Leasehold improvements21,286 22,068 
   Less: accumulated depreciation and amortization(94,831)(97,053)
     Total$17,580 $27,913 
Other accrued liabilities:
Interest payable$21,314 $12,241 
Current operating leases19,369 22,074 
Other25,565 45,220 
    Total$66,248 $79,535 
As a strategic cost initiative in fiscal 2020 we committed to a course of action to adjust our facilities footprint in light of post-pandemic workforce patterns. As a result of this initiative, we recorded a net impairment loss of $5.2 million on abandonment of property and equipment. See Note 11 for additional information regarding our restructuring and impairment charges.
8. Revolving Line of Credit and Term Loan
On May 8, 2018, we amended ourWe have a $600 million unsecured revolving line of credit agreement with a syndicate of banks extending the maturity date of the unsecured revolving line of credit from December 30, 2019 to May 8, 2023, while reducing our borrowing capacity to $400 million with an option to increase it by another $100 million. Proceeds fromthat expires on August 19, 2026. Borrowings under the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of our common stock. Interest on amounts borrowed under the credit facility is based on (i) aan adjusted base rate, which is the greatergreatest of (a) the prime rate, and (b) the Federal Funds rate plus 0.500%, and (c) the one-month LIBOR rate plus 1.000%, plus, in each case, an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin. The applicable margin for base rate borrowings ranges from 0% to 0.875%0.750% and for LIBOR borrowings ranges from 1.000% to 1.875%1.750%, and is determined based on our consolidated leverage ratio. In addition, we must pay credit facility fees. The credit facility contains certain restrictive covenants, including maintaining a maximum consolidated leverage ratio of 3.25,3.50, subject to a step up to 3.754.00 following certain permitted acquisitions; and a minimum fixed charge ratio of 2.50 through the maturity of our 2010 Senior Notes in July 2020, following which maintaining a minimum interest coverage ratio of 3.00 is required.3.00. The credit agreement also contains other covenants typical of unsecured facilities. As of September 30, 2020, we had $95.0 million in borrowings outstanding at a weighted-average interest rate of 1.285% and we were in compliance with all financial covenants under this credit facility.
9. Senior Notes
On July 14, 2010, we issued $245 million of senior notes in a private placement to a group of institutional investors (the “2010 Senior Notes”). The 2010 Senior Notes were issued in 4 series as follows:

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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020

SeriesAmountInterest RateMaturity Date
 (In millions)  
E$60.0
4.72%
July 14, 2016
F$72.0
5.04%
July 14, 2017
G$28.0
5.42%
July 14, 2019
H$85.0
5.59%
July 14, 2020

On July 14, 2020,October 20, 2021, we amended our credit agreement to provide for the aggregateissuance of a $300 million term loan. The term loan is subject to the same pricing and covenants as the revolving line of credit and matures at the expiration of the facility on August 19, 2026. The term loan requires principal amountpayments in consecutive quarterly installments of Series H$3.75 million on the last business day of 2010 Senior Notes was repaid at maturity. Ateach quarter.
As of September 30, 2020,2022, we had $280.0 million in borrowings outstanding under the 2010revolving credit facility at a weighted-average interest rate of 4.479% and $288.8 million in outstanding balance of the term loan at an interest rate of 4.283%, of which $538.8 million was classified as a long-term liability and recorded in long-term debt within the accompanying consolidated balance sheets. We were in compliance with all financial covenants under this credit facility as of September 30, 2022.
Future principal payments for the term loan are as follows:
Year Ending September 30,(In thousands)
2023$15,000 
202415,000 
202515,000 
2026243,750 
       Total$288,750 
9. Senior Notes were no longer outstanding.
On May 8, 2018, we issued $400 million of senior notes in a private offering to qualified institutional investors (the “2018 Senior Notes”). The 2018 Senior Notes require interest payments semi-annually at a rate of 5.25% per annum and will mature on May 15, 2026.2026.
On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes,” along with the 2010 Senior Notes and 2018 Senior Notes, the “Senior Notes”). We used the net proceeds to repay a large portion of the outstanding balance on our revolving credit facility. The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028.2028.
The indentures forOn December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes in a private offering to qualified institutional investors (the “2021 Senior Notes,” and collectively with the 2018 Senior Notes and the 2019 Senior Notes, the “Senior Notes”). The 2021 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028, the same date as the 2019 Senior Notes.
The indentures for the Senior Notes contain certain covenants typical of unsecured obligations.
The following table presents the carrying amountsface values and fair values for the Senior Notes at September 30, 20202022 and 2019:2021: 
September 30, 2022September 30, 2021
September 30, 2020
September 30, 2019 Face Value (*)Fair ValueFace Value (*)Fair Value
Face Value (*)
Fair Value
Face Value (*)
Fair Value (In thousands)
(In thousands)
The 2010 Senior Notes$0

$0

$85,000

$86,121
The 2018 Senior Notes400,000
 442,000
 400,000
 428,000
The 2018 Senior Notes$400,000 $381,500 $400,000 $453,000 
The 2019 Senior Notes350,000
 358,750
 0
 0
The 2019 Senior Notes and the 2021 Senior NotesThe 2019 Senior Notes and the 2021 Senior Notes900,000 767,250 350,000 357,000 
Total$750,000
 $800,750
 $485,000
 $514,121
Total$1,300,000 $1,148,750 $750,000 $810,000 
(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $10.6$14.3 million and $5.2$9.0 million at September 30, 20202022 and 2019,2021, respectively.
Future principal payments for the Senior Notes are as follows (in thousands):
Year Ending September 30, 
2021$0
20220
20230
20240
20250
Thereafter750,000
       Total$750,000
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72

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020

Future principal payments for the Senior Notes are as follows:

Year Ending September 30,(In thousands)
2026400,000 
2027— 
Thereafter900,000 
       Total$1,300,000 
10. Employee Benefit Plans
Defined Contribution PlansAccelerated Share Repurchase
We sponsor the Fair Isaac Corporation 401(k) plan for eligible employeeshave authorization to make repurchases of shares of our common stock from time to time in the U.S. Under this plan, eligible employees may contributeopen market or in negotiated transactions. As part of the broader share repurchase program, we entered into an accelerated share repurchase agreement (“ASR Agreement”) with a financial institution on June 17, 2021 to repurchase $200.0 million of our common stock. The ASR Agreement was accounted for as two separate transactions (1) a repurchase of common stock and (2) an equity-linked contract on our own stock. Pursuant to the ASR Agreement, we paid $200.0 million to the financial institution and received an initial delivery of 319,400 shares of common stock, which approximated 80% of the total number of expected shares to be repurchased under the ASR Agreement. The equity-linked contract for the remaining $40.0 million, representing remaining shares to be delivered under the ASR Agreement, was recorded as a reduction to stockholders’ equity as of June 30, 2021 and was settled in August 2021 with us receiving 70,127 additional shares. In total, 389,527 shares were repurchased under the ASR Agreement. We were not required to make any additional cash payments or delivery of common stock to the financial institution upon settlement of the agreement.
11. Revenue from Contracts with Customers
Contracts with Customers
Our revenue is primarily derived from on-premises software and SaaS subscriptions, professional services and scoring services. For contracts with customers that contain various combinations of products and services, we evaluate whether the products or services are distinct — distinct products or services will be accounted for as separate performance obligations, while non-distinct products or services are combined with others to form a single performance obligation. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative standalone selling price (“SSP”) basis. Revenue is recognized when control of the promised goods or services is transferred to our customers.
Our on-premises software is primarily sold on a subscription basis, which includes a term-based license and post-contract support or maintenance, both of which generally represent distinct performance obligations and are accounted for separately. The transaction price is either a fixed fee, or a usage-based fee — sometimes subject to a guaranteed minimum. When the amount is fixed, including the guaranteed minimum in a usage-based fee, license revenue is recognized at the point in time when the software is made available to the customer. Maintenance revenue is recognized ratably over the contract period as customers simultaneously consume and receive benefits. Any usage-based fees not subject to a guaranteed minimum or earned in excess of the minimum amount are recognized when the subsequent usage occurs. We occasionally sell software arrangements consisting of on-premises perpetual licenses and maintenance. License revenue is recognized at a point in time when the software is made available to the customer and maintenance revenue is recognized ratably over the contract term.
Our SaaS products provide customers with access to and standard support for our software on a subscription basis, delivered through our own infrastructure or third-party cloud services. The SaaS transaction contracts typically include a guaranteed minimum fee per period that allows up to 25%a certain level of compensation,usage and a consumption-based variable fee in excess of the minimum threshold; or a consumption-based variable fee not to exceed statutory limits. We also provide a company matching contribution. Investment in FICO common stock is not an option under this plan. Our contributions into all 401(k) plans, including former-acquired-company-sponsored plans that have since merged into the Fair Isaac Corporation 401(k) plan or have been frozen, totaled $10.1 million, $10.3 million and $8.8 million during fiscal 2020, 2019 and 2018, respectively.
Employee Incentive Plans
We maintain various employee incentive plans for the benefit of eligible employees, including officers. The awards generally are based on the achievement of certain financial and performance objectives subject to the discretion of management. Total expenses under our employee incentive plans were $60.6 million, $57.5 million and $48.4 million during fiscal 2020, 2019 and 2018, respectively.
11. Restructuring and Impairment Charges
During fiscal 2020, we incurred net charges totaling $45.0 million consisting of$28.0 million in impairment loss on operating lease assets, $5.2 million in impairment loss on disposals of property and equipment and $11.8 million in restructuring charges.a minimum threshold. The impairment losses were associated with closing certain non-core offices and reducing office space in other locations to better align with anticipated needs in light of post-pandemic workforce patterns. The restructuring charges related to employee separation costs as a result of eliminating 209 positions throughout the Company. Cash payments for all the employee separation costs will be paid by the endnature of our fiscal 2021.
There were 0 restructuringSaaS arrangements is to provide continuous access to our hosted solutions in the cloud, i.e., a stand-ready obligation that comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). We estimate the total variable consideration at contract inception — subject to any constraints that may apply — and impairment charges incurred during fiscal 2019update the estimates as new information becomes available and 2018.
The following tables summarize our restructuring accruals associated withrecognize the employee separation actions. The current portionamount ratably over the SaaS service period, unless we determine it is appropriate to allocate the variable amount to each distinct service period and non-current portion were recorded in other accrued liabilities and other liabilities, respectively, within the accompanying consolidated balance sheets.recognize revenue as each distinct service period is performed.
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 Accrual at September 30, 2018 
Expense
Additions
 
Cash
Payments
 Accrual Adjustments Accrual at September 30, 2019
 (In thousands)
Facilities charges$5,228
 $0
 $(3,850) $0
 $1,378
Less: current portion(3,850)       (1,378)
Non-current$1,378
       $0
 Accrual at September 30, 2019 
Expense
Additions
 
Cash
Payments
 Accrual Adjustments (*) Accrual at September 30, 2020
 (In thousands)
Facilities charges$1,378
 $0
 $0
 $(1,378) $0
Employee separation0
 11,768
 (3,577) 0
 8,191
 1,378
 $11,768
 $(3,577) $(1,378) 8,191
Less: current portion(1,378)       (8,191)
Non-current$0
       $0

(*) Upon adoption of Topic 842, accrued lease exit obligations of $1.4 million, which were associated with vacating excess leased space in fiscal 2017, were reclassified to operating lease liabilities.


73

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020

12. Income TaxesOur professional services include software implementation, consulting, model development and training. Professional services are sold either standalone, or together with other products or services and generally represent distinct performance obligations. The transaction price can be a fixed amount or a variable amount based upon the time and materials expended. Revenue on fixed-price services is recognized using an input method based on labor hours expended which we believe provides a faithful depiction of the transfer of services. Revenue on services provided on a time and materials basis is recognized by applying the “right-to-invoice” practical expedient as the amount to which we have a right to invoice the customer corresponds directly with the value of our performance to the customer.
The provisionOur scoring services include both business-to-business and business-to-consumer offerings. Our business-to-business scoring services typically include a license that grants consumer reporting agencies the right to use our scoring solutions in exchange for income taxes was as follows during fiscal 2020, 2019 and 2018:a usage-based royalty. Revenue is generally recognized when the usage occurs. Business-to-consumer offerings provide consumers with access to their FICO® Scores and credit reports, as well as other value-add services. These are provided as either a one-time or ongoing subscription service renewed monthly or annually, all with a fixed consideration. The nature of the subscription service is a stand-ready obligation to generate credit reports, provide credit monitoring, and other services for our customers, which comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). Revenue from one-time or monthly subscription services is recognized during the period when service is performed. Revenue from annual subscription services is recognized ratably over the subscription period.
 Year ended September 30,
 2020 2019 2018
 (In thousands)
Current:     
         Federal$14,566
 $1,299
 $8,071
         State2,180
 (423) 2,236
         Foreign12,482
 15,371
 9,559
 29,228
 16,247
 19,866
Deferred:     
         Federal(8,575) 7,003
 13,987
         State(957) 947
 132
         Foreign893
 (249) (3,535)
 (8,639) 7,701
 10,584
Total provision$20,589
 $23,948
 $30,450

The foreign provision was based on foreign pre-tax earningsDisaggregation of $42.2 million, $36.0 million and $10.8 million inRevenue
During fiscal 2020, 2019 and 2018, respectively. Current foreign tax expense2021, we sold all assets related to foreign tax withholdings was $6.4 million, $6.5 millionour cyber risk score operations, sold certain assets related to our Software segment to an affiliated joint venture in China, and $6.0 million in fiscal 2020, 2019 and 2018, respectively. Foreign withholding tax and related foreign tax credits are included in current tax expense above.divested our C&R business. The comparability of the data below is impacted as a result of these divestitures.
The following tables provide information about disaggregated revenue by primary geographical market:
Deferred tax assets and liabilities at September 30, 2020 and 2019 were as follows:
 September 30,
 2020 2019
 (In thousands)
Deferred tax assets:   
Loss and credit carryforwards$31,015
 $26,702
Compensation benefits29,640
 23,931
Operating lease liabilities21,827
 0
Other assets9,000
 9,393
 91,482
 60,026
Less: valuation allowance(24,563) (19,231)
Total deferred tax assets66,919
 40,795
Deferred tax liabilities:   
  Intangible assets(14,715) (15,114)
  Deferred commission(9,027) (7,920)
  Property and equipment(3,135) (3,511)
  Operating lease right-of-use assets(13,719) 0
  Other liabilities(11,694) (8,244)
Total deferred tax liabilities(52,290) (34,789)
Deferred tax assets, net$14,629
 $6,006

Based upon the level of historical taxable income and projections
Year Ended September 30, 2022
ScoresSoftwareTotalPercentage
(Dollars in thousands)
Americas$691,006 $439,705 $1,130,711 82 %
Europe, Middle East and Africa4,475 142,824 147,299 11 %
Asia Pacific11,162 88,098 99,260 %
      Total$706,643 $670,627 $1,377,270 100 %

Year Ended September 30, 2021
ScoresSoftwareTotalPercentage
(Dollars in thousands)
Americas$633,497 $416,436 $1,049,933 80 %
Europe, Middle East and Africa11,881 178,515 190,396 14 %
Asia Pacific8,769 67,438 76,207 %
      Total$654,147 $662,389 $1,316,536 100 %

Year Ended September 30, 2020
ScoresSoftwareTotalPercentage
(Dollars in thousands)
Americas$514,909 $477,316 $992,225 76 %
Europe, Middle East and Africa6,385 197,199 203,584 16 %
Asia Pacific7,253 91,500 98,753 %
      Total$528,547 $766,015 $1,294,562 100 %
The following table provides information about disaggregated revenue for future taxable income over the periods that the deferred tax assets will reverse, management believes it is more likely than not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowance at September 30, 2020.

our Software segment by deployment method:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020

Year Ended September 30,Percentage of revenues
202220212020202220212020
(Dollars in thousands)
On-premises software$280,649 $266,452 $347,532 50 %51 %59 %
SaaS software284,102 251,436 237,044 50 %49 %41 %
Total on-premises and SaaS software$564,751 $517,888 $584,576 100 %100 %100 %
AsThe following table provides information about disaggregated revenue for our Software segment by product features:
Year Ended September 30,Percentage of revenues
202220212020202220212020
(Dollars in thousands)
Platform software (*)
$116,252 $66,884 $65,665 21 %13 %11 %
Non-Platform software448,499 451,004 518,911 79 %87 %89 %
Total on-premises and SaaS software$564,751 $517,888 $584,576 100 %100 %100 %
(*) The FICO platform software is a set of September 30, 2020, we hadinteroperable capabilities which use software assets owned and/or governed by FICO for building solutions and services which conform to FICO architectural standards based on key elements of Cloud Native Computing design principles. These standards encompass shared security context and access using FICO standard application programming interfaces.
The following table provides information about disaggregated revenue for our Software segment by timing of revenue recognition:
Year Ended September 30,Percentage of revenues
202220212020202220212020
(Dollars in thousands)
Software recognized at a point in time (1)
$75,647 $59,024 $127,666 13 %11 %22 %
Software recognized over contract term (2)
489,104 458,864 456,910 87 %89 %78 %
Total on-premises and SaaS software$564,751 $517,888 $584,576 100 %100 %100 %
(1)Includes license portion of our on-premises subscription software and perpetual license, both of which are recognized when the software is made available U.S. federal, state and foreign net operating loss (“NOL”) carryforwards of approximately $7.6 million, $0.1 million, and $31.3 million, respectively. The U.S. federal NOLs were acquired in connection with our acquisitions of Adeptra in fiscal 2012 and Infoglide in fiscal 2013. The U.S. federal NOL carryforward will expireto the customer, or at various dates beginning in fiscal 2024, if not utilized. The state NOL carryforward will expire at various dates beginning in fiscal 2021, if not utilized. The $31.3 million of foreign NOL includes $5.5 million related to China and $19.5 million related to Germany. Due to a limited ability to utilize the China and Germany NOLs, a full valuation allowance has been recorded on the China and Germany NOLs, resulting in no tax benefit. Utilizationstart of the U.S. federalsubscription.
(2)Includes maintenance portion and state NOLs are subject to an annual limitation due to the “change in ownership” provisionsusage-based fees of the Internal Revenue Code of 1986,our on-premises subscription software, maintenance revenue on perpetual licenses, as amended, and similar state provisions. In fiscal 2020 we generated approximately $4.7 million of excess federal research credits which are expected to be utilized fully in future tax years. We also have available excess California state research credit of approximately $16.6 million. The California state research credit does not have an expiration date; however, based on enacted law and expected future cash taxes, we have recorded a valuation allowance of $16.6 million.
A reconciliation of the provision for income taxes, with the amount computed by applying the U.S. federal statutory income tax rate (21% in each of fiscal 2020 and fiscal 2019, and 24.5% in fiscal 2018) to income before provision for income taxes for fiscal 2020, 2019 and 2018 is shown below:

 Year Ended September 30,
 2020 2019 2018
 (In thousands)
Income tax provision at U.S. federal statutory rate$53,970
 $45,375
 $38,495
State income taxes, net of U.S. federal benefit4,619
 4,194
 2,755
Foreign tax rate differential493
 839
 (649)
Research credits(5,868) (5,761) (3,486)
Domestic production deduction0
 0
 (2,421)
Amended returns/audit settlements/statute expirations(1,085) (2,268) (2,349)
Foreign7,513
 11,177
 4,040
Valuation allowance5,332
 (333) 1,907
Foreign tax credit and foreign withholding tax2,086
 (464) 1,320
Excess tax benefits relating to stock-based compensation(45,086) (24,891) (22,253)
Tax effect of the Tax Act0
 0
 16,719
GILTI, FDII and BEAT5,050
 1,931
 0
Other(6,435) (5,851) (3,628)
Recorded income tax provision$20,589
 $23,948
 $30,450

well as SaaS revenue.
The decrease infollowing table provides information about disaggregated revenue for our income tax provision in fiscal 2020 compared to fiscal 2019 was due to an increase in the excess tax benefits related to stock-based compensation in fiscal 2020.Scores segment by distribution method:
The decrease in our income tax provision in fiscal 2019 compared to fiscal 2018 was due to the decrease in the overall federal tax rate from the blended 24.5% in fiscal 2018 to 21% in fiscal 2019 and the recording of several one-time items in fiscal 2018 related to the enactment of the Tax Act.
As of September 30, 2020, we had approximately $111.7 million of unremitted earnings of non-U.S. subsidiaries. The Company generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned to the U.S. from the foreign entities. In the event these earnings are later remitted to the U.S., any estimated withholding tax and state income tax due upon remittance of those earnings is expected to be immaterial to the income tax provision.
Unrecognized Tax Benefit for Uncertain Tax Positions
We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. With a few exceptions, we are no longer subject to U.S. federal, state, local, or foreign income tax examinations for fiscal years prior to 2015.

Year Ended September 30,Percentage of revenues
202220212020202220212020
(Dollars in thousands)
Business-to-business Scores$475,442 $446,538 $381,929 67 %68 %72 %
Business-to-consumer Scores231,201 207,609 146,618 33 %32 %28 %
     Total$706,643 $654,147 $528,547 100 %100 %100 %
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 Year Ended September 30,
 2020 2019 2018
 (In thousands)
Gross unrecognized tax benefits at beginning of year$5,834
 $6,113
 $6,480
Gross increases for tax positions in prior years883
 509
 404
Gross decreases for tax positions in prior years(65) (611) 0
Gross increases based on tax positions related to the current year2,260
 1,439
 1,625
Decreases for settlements and payments0
 (637) 0
Decreases due to statute expiration(918) (979) (2,396)
Gross unrecognized tax benefits at end of year$7,994
 $5,834
 $6,113

We had $8.0 million of total unrecognized tax benefits as of September 30, 2020, including $7.8 million of tax benefits that, if recognized, would impact the effective tax rate. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a significant reduction of the uncertain tax benefits in the next twelve months.
We recognize interest expense and penalties related to unrecognized tax benefits and penalties as part of the provision for income taxes in our consolidated statements of income and comprehensive income. We recognize interest earned related to income tax matters as interest income in our consolidated statements of income and comprehensive income. As of September 30, 2020, we had accrued interest of $0.4 million related to the unrecognized tax benefits.
13. Stock-Based Employee Benefit Plans
Description of Stock Option and Share Plans
We maintain the 2012 Long-Term Incentive Plan (the “2012 Plan”) under which we are authorized to issue equity awards, including stock options, stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards. All employees, consultants and advisors of FICO or any subsidiary, as well as all non-employee directors are eligible to receive awards under the 2012 Plan. Stock option awards have a maximum term of seven years. In general, stock option awards and restricted stock unit awards not subject to market or performance conditions vest annually over four years. Restricted stock unit awards subject to market or performance conditions generally vest annually over three years based on the achievement of specified criteria. At September 30, 2020, there were 4,998,722 shares available for issuance under the 2012 Plan.
Description of Employee Stock Purchase Plan
We maintain the 2019 Employee Stock Purchase Plan (the “2019 Purchase Plan”) under which we are authorized to issue up to 1,000,000 shares of common stock to eligible employees. Employees may have up to 15% of their eligible pay withheld through payroll deductions to purchase FICO common stock during semi-annual offering periods. The purchase price of the stock is 85% of the closing sales price on the last trading day of each offering period. Offering period means approximately six-month periods commencing (a) on the first trading day on or after September 1 and terminating on the last trading day in the following February, and (b) on the first trading day on or after March 1 and terminating on the last trading day in the following August. At September 30, 2020, there were 949,702 shares available for issuance under the 2019 Purchase Plan.
We satisfy stock option exercises, vesting of restricted stock units and the 2019 Purchase Plan issuances from treasury shares.
Share-Based Compensation Expense and Related Income Tax Benefits
We recorded share-based compensation expense of $93.7 million, $83.0 million and $74.8 million in fiscal years 2020, 2019 and 2018, respectively. The total tax benefit related to this share-based compensation expense was $13.2 million, $12.5 million and $15.7 million in fiscal 2020, 2019 and 2018, respectively. As of September 30, 2020, there was $127.7 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted-average period of 2.33 years.
In fiscal 2020 we received $25.4 million in cash from stock option exercises, with the tax benefit realized for the tax deductions from these exercises of $30.2 million.

76

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Stock-Based Activity
Stock Options
We estimate the fair value of stock options granted using the Black-Scholes option valuation model and we amortize the fair value on a straight-line basis over the vesting period. We used the following assumptions to estimate the fair value of our stock options during fiscal 2020, 2019 and 2018:
 Year Ended September 30,
 2020 2019 2018
Stock Options:           
Weighted-average expected term (years)  4.46
   4.26
 

 4.78
Expected volatility (range)30.0-35.9% 31.1-32.4% 33.6%-35.1%
Weighted-average volatility  30.6%   32.2% 


 34.6%
Risk-free interest rate (range)0.36-1.68% 2.50-2.68% 2.03%-2.65%
Weighted-average expected dividend yield  0%   0% 

 0%

Expected Volatility. We estimate the volatility of our common stock at the date of grant based on a combination of the implied volatility of publicly traded options on our common stock and our historical volatility rate.
Expected Term. The expected term represents the period that our stock options are expected to be outstanding. We estimate the expected term based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior.
Dividends. We have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future. Consequently, we used an expected dividend yield of zero in the years presented.
Risk-Free Interest Rate. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our employee options.
Forfeitures. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest.
The following table summarizes option activity during fiscal 2020:
 Shares 
Weighted-
average
Exercise
Price
 
Weighted-
average
Remaining
Contractual
Term
 
Aggregate
Intrinsic Value
 (In thousands)   (In years) (In thousands)
Outstanding at September 30, 2019616
 $89.36
    
Granted32
 364.23
    
Exercised(401) 63.47
    
Forfeited(1) 185.05
    
Outstanding at September 30, 2020246
 $166.80
 3.84 $63,605
Exercisable at September 30, 2020168
 $130.87
 3.06 $49,435
Vested and expected to vest at September 30, 2020243
 $165.32
 3.82 $63,125

The weighted-average fair value of options granted were $99.30, $59.63 and $56.61 during fiscal 2020, 2019 and 2018, respectively. The aggregate intrinsic value of options outstanding at September 30, 2020 was calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the 0.2 million outstanding options, which had exercise prices lower than the $425.38 market price of our common stock at September 30, 2020. The total intrinsic value of options exercised was $132.6 million, $99.1 million and $41.4 million during fiscal 2020, 2019 and 2018, respectively, determined as of the date of exercise.

77

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Restricted Stock Units
The fair value of restricted stock units (“RSUs”) granted is the closing market price of our common stock on the date of grant, adjusted for the expected dividend yield, if applicable. We amortize the fair value on a straight-line basis over the vesting period.
The following table summarizes the RSUs activity during fiscal 2020:
 Shares Weighted-average Grant-date Fair Value
 (In thousands)  
Outstanding at September 30, 2019998
 $159.99
Granted218
 356.66
Released(434) 138.04
Forfeited(61) 200.38
Outstanding at September 30, 2020721
 $229.10

The weighted-average fair value of the RSUs granted were $356.66, $206.29 and $161.85 during fiscal 2020, 2019 and 2018, respectively. The total intrinsic value of the RSUs that vested was $159.0 million, $91.2 million and $70.7 million during fiscal 2020, 2019 and 2018, respectively, determined as of the date of vesting.
Performance Share Units
Performance share units (“PSUs”) are granted to our senior officers and earned based on pre-established performance goals approved by the Leadership Development and Compensation Committee of our Board of Directors for any given performance period. The range of payout is 0 to 200% of the number of target PSUs, based on the outcome of the performance conditions. We estimate the fair value of the PSUs using the closing market price of our common stock on the date of grant, adjusted for the expected dividend yield if applicable, based on the performance condition that is probable of achievement. We amortize the fair values over the requisite service period for each vesting tranche of the award. We reassess the probability at each reporting period and recognize the cumulative effect of the change in estimate in the period of change.
The following table summarizes the PSUs activity during fiscal 2020:
 Shares Weighted- average Grant-date Fair Value
 (In thousands)  
Outstanding at September 30, 2019195
 $163.38
Granted53
 354.18
Released(101) 152.45
Forfeited(20) 175.50
Outstanding at September 30, 2020127
 $248.97

The weighted-average fair value of the PSUs granted were $354.18, $185.05 and $157.17 during fiscal 2020, 2019 and 2018, respectively. The total intrinsic value of the PSUs that vested was $36.5 million, $19.3 million and $15.1 million during fiscal 2020, 2019 and 2018, respectively, determined as of the date of vesting.

78

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Market Share Units
Market share units (“MSUs”) are granted to our senior officers and earned based on our total stockholder return relative to the Russell 3000 Index over performance periods of one, two and three years. We estimate the fair value of MSUs granted using the Monte Carlo valuation model and amortize the fair values over the requisite service period for each vesting tranche of the award. In addition, we do not reverse the compensation cost solely because the market condition is not satisfied, and the award is therefore not earned by the employee, provided the requisite service is rendered. We used the following assumptions to estimate the fair value of our MSUs during fiscal 2020, 2019 and 2018:
 Year Ended September 30,
 2020  2019  2018 
         
Expected volatility in FICO’s stock price25.2% 24.6% 24.6%
Expected volatility in Russell 3000 Index12.9% 12.8% 12.7%
Correlation between FICO and the Russell 3000 Index64.0% 66.6% 63.1%
Risk-free interest rate1.67% 2.73% 1.92%
Average expected dividend yield0% 0% 0%

The expected volatility was determined based on daily historical movements in our stock price and the Russell 3000 Index for the three years preceding the grant date. The correlation between FICO and the Russell 3000 Index was determined based on historical daily stock price movements for the three years preceding the grant date. Because we have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future, we used an expected dividend yield of zero. The risk-free rate was determined based on U.S. Treasury zero-coupon yields over the three-year performance period.
The following table summarizes the MSUs activity during fiscal 2020:
 Shares Weighted- average Grant-date Fair Value
 (In thousands)  
Outstanding at September 30, 2019100
 $188.63
Granted96
 249.13
Released(123) 171.42
Forfeited(10) 202.48
Outstanding at September 30, 202063
 $311.91

The weighted-average fair value of the MSUs granted were $249.13, $169.46 and $151.78 during fiscal 2020, 2019 and 2018, respectively. The total intrinsic value of the MSUs that vested was $44.6 million, $21.6 million and $18.7 million during fiscal 2020, 2019 and 2018, respectively, determined as of the date of vesting.
Employee Stock Purchase Plan
The compensation expense on the employee stock purchase plan arises from the 15% discount offered to participants. During fiscal 2020, a total of 50,298 shares of our common stock with a weighted-average purchase price of $334.21 per share was issued under the 2019 Purchase Plan. As our first semi-annual offering period started on September 1, 2019, there were 0 shares purchased during fiscal 2019.


79

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

14. Earnings per Share
The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) during fiscal 2020, 2019 and 2018:
 Year Ended September 30,
 2020 2019 2018
 (In thousands, except per share data)
Numerator for basic and diluted earnings per share — net income$236,411
 $192,124
 $126,482
Denominator — share:     
Basic weighted-average shares29,067
 28,980
 29,711
Effect of dilutive securities865
 1,314
 1,469
Diluted weighted-average shares29,932
 30,294
 31,180
Earnings per share:     
Basic$8.13
 $6.63
 $4.26
Diluted$7.90
 $6.34
 $4.06


Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.
15. Segment Information
We are organized into the following 3 operating segments, each of which is a reportable segment, to align with internal management of our worldwide business operations based on product offerings.
Applications. This segment includes pre-configured decision management applications designed for a specific type of business problem or process — such as marketing, account origination, customer management, fraud, financial crimes compliance, collections and insurance claims management — as well as associated professional services. These applications are available to our customers as on-premises software, and many are available as hosted, SaaS applications through the FICO® Analytic Cloud or AWS.

Scores. This segment includes our business-to-business scoring solutions and services, our business-to-consumer scoring solutions and services including myFICO® solutions for consumers, and associated professional services. Our scoring solutions give our clients access to analytics that can be easily integrated into their transaction streams and decision-making processes. Our scoring solutions are distributed through major credit reporting agencies worldwide, as well as services through which we provide our scores to clients directly.

Decision Management Software. This segment is composed of analytic and decision management software tools that clients can use to create their own custom decision management applications, our FICO® Decision Management Suite, as well as associated professional services. Decision management software is currently delivered as part of the FICO® Decision Management Platform and is increasingly being adopted to connect decisioning solutions or previously disconnected use cases. These tools are available to our customers as on-premises software, through the FICO® Analytic Cloud or AWS.
Our Chief Executive Officer evaluates segment financial performance based on segment revenues and segment operating income. Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, consulting, travel and depreciation. Indirect costs are allocated to the segments generally based on relative segment revenues, fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. We do not allocate broad-based incentive expense, share-based compensation expense, restructuring and acquisition-related expense, amortization expense, various corporate charges and certain other income and expense measures to our segments. These income and expense items are not allocated because they are not considered in evaluating the segment’s operating performance. Our Chief Executive Officer does not evaluate the financial performance of each segment based on its respective assets or capital expenditures; rather, depreciation amounts are allocated to the segments from their internal cost centers as described above.

80

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

The following tables summarize segment information for fiscal 2020, 2019 and 2018:
 Year Ended September 30, 2020
 Applications Scores Decision Management Software 
Unallocated
Corporate
Expenses
 Total
 (In thousands)
Segment revenues:         
Transactional and maintenance$393,994
 $517,024
 $62,915
 $
 $973,933
Professional services136,677
 1,600
 44,763
 
 183,040
License71,375
 9,923
 56,291
 
 137,589
Total segment revenues602,046
 528,547
 163,969
 
 1,294,562
Segment operating expense(448,505) (74,237) (187,444) (144,704) (854,890)
Segment operating income (loss)$153,541
 $454,310
 $(23,475) $(144,704) $439,672
Unallocated share-based compensation expense        (93,681)
Unallocated amortization expense        (4,993)
Unallocated restructuring and impairment charges        (45,029)
Operating income        295,969
Unallocated interest expense, net        (42,177)
Unallocated other income, net        3,208
Income before income taxes        $257,000
Depreciation expense$18,021
 $617
 $4,397
 $418
 $23,453
 Year Ended September 30, 2019
 Applications Scores Decision Management Software 
Unallocated
Corporate
Expenses
 Total
 (In thousands)
Segment revenues:         
Transactional and maintenance$395,398
 $415,288
 $50,262
 $
 $860,948
Professional services137,258
 2,157
 44,680
 
 184,095
License72,378
 3,732
 38,930
 
 115,040
Total segment revenues605,034
 421,177
 133,872
 
 1,160,083
Segment operating expense(443,872) (59,821) (168,988) (144,755) (817,436)
Segment operating income (loss)$161,162
 $361,356
 $(35,116) $(144,755) 342,647
Unallocated share-based compensation expense        (82,973)
Unallocated amortization expense        (6,126)
Operating income        253,548
Unallocated interest expense, net        (39,752)
Unallocated other income, net        2,276
Income before income taxes        $216,072
Depreciation expense$18,766
 $498
 $4,036
 $904
 $24,204


81

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

 Year Ended September 30, 2018
 Applications Scores Decision Management Software 
Unallocated
Corporate
Expenses
 Total
 (In thousands)
Segment revenues:         
Transactional and maintenance$372,283
 $331,662
 $46,658
 $
 $750,603
Professional services142,736
 1,900
 32,274
 
 176,910
License49,356
 2,308
 20,969
 
 72,633
Total segment revenues564,375
 335,870
 99,901
 
 1,000,146
Segment operating expense(420,411) (63,452) (134,261) (125,255) (743,379)
Segment operating income (loss)$143,964
 $272,418
 $(34,360) $(125,255) 256,767
Unallocated share-based compensation expense        (74,814)
Unallocated amortization expense        (6,594)
Operating income        175,359
Unallocated interest expense, net        (31,311)
Unallocated other income, net        12,884
Income before income taxes        $156,932
Depreciation expense$15,651
 $555
 $5,471
 $956
 $22,633

Information about disaggregated revenue by product deployment methods was as follows:
 Year Ended September 30, 2020
Reportable SegmentsOn-Premises SaaS Scores Total Percentage
 (Dollars in thousands)
Applications$340,702
 $261,344
 $0
 $602,046
 46%
Scores0
 0
 528,547
 528,547
 41%
Decision Management Software125,269
 38,700
 0
 163,969
 13%
      Total$465,971
 $300,044
 $528,547
 $1,294,562
 100%
 Year Ended September 30, 2019
Reportable SegmentsOn-Premises SaaS Scores Total Percentage
 (Dollars in thousands)
Applications$360,105
 $244,929
 $0
 $605,034
 52%
Scores0
 0
 421,177
 421,177
 36%
Decision Management Software108,447
 25,425
 0
 133,872
 12%
      Total$468,552
 $270,354
 $421,177
 $1,160,083
 100%

82

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

 Year Ended September 30, 2018
Reportable SegmentsOn-Premises SaaS Scores Total Percentage
 (Dollars in thousands)
Applications$337,162
 $227,213
 $0
 $564,375
 56%
Scores0
 0
 335,870
 335,870
 34%
Decision Management Software86,172
 13,729
 0
 99,901
 10%
      Total$423,334
 $240,942
 $335,870
 $1,000,146
 100%

We derive a significantsubstantial portion of revenues internationally,from our contracts with the three major consumer reporting agencies, TransUnion, Equifax and 32%, 34%, and 35% of total consolidated revenues were derived from clients outside the U.S. during fiscal 2020, 2019 and 2018, respectively. Information about disaggregated revenueExperian. Revenues collectively generated by primary geographical markets was as follows:
 Year Ended September 30, 2020
Reportable SegmentsNorth America Latin America Europe, Middle East and Africa Asia Pacific Total
 (In thousands)
Applications$331,290
 $40,047
 $157,793
 $72,916
 $602,046
Scores511,333
 3,576
 6,385
 7,253
 528,547
Decision Management Software87,305
 18,674
 39,406
 18,584
 163,969
      Total$929,928
 $62,297
 $203,584
 $98,753
 $1,294,562
 Year Ended September 30, 2019
Reportable SegmentsNorth America Latin America Europe, Middle East and Africa Asia Pacific Total
 (In thousands)
Applications$338,990
 $42,656
 $155,539
 $67,849
 $605,034
Scores404,778
 4,591
 6,359
 5,449
 421,177
Decision Management Software63,397
 18,040
 33,288
 19,147
 133,872
      Total$807,165
 $65,287
 $195,186
 $92,445
 $1,160,083
 Year Ended September 30, 2018
Reportable SegmentsNorth America Latin America Europe, Middle East and Africa Asia Pacific Total
 (In thousands)
Applications$318,836
 $39,136
 $141,358
 $65,045
 $564,375
Scores328,990
 1,366
 3,989
 1,525
 335,870
Decision Management Software53,184
 5,035
 24,245
 17,437
 99,901
      Total$701,010
 $45,537
 $169,592
 $84,007
 $1,000,146

Within our Applications segment our fraud solutionsagreements with these customers accounted for 15%39%, 18%38% and 17%33% of our total revenues in fiscal 2022, 2021 and 2020, respectively, with two consumer reporting agencies each of fiscal 2020, 2019 and 2018, respectively, and our customer communication services accounted for 8%, 9% andcontributing more than 10% of our total revenues in eachfiscal 2022 and 2021, and one contributing more than 10% of these periods, respectively.

83

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Revenue generated from a single customer or a group of customers which represented 10% or greater ofour total revenue are summarized below forrevenues in fiscal 2020, 2019 and 2018:
 Year Ended September 30,
 2020 2019 2018
 (Dollars in thousands)
Experian$181,036
 14% $148,037
 13% $109,097
 11%
TransUnion and Equifax239,166
 18% 183,523
 16% 142,179
 14%
Other customers874,360
 68% 828,523
 71% 748,870
 75%
Total$1,294,562
 100% $1,160,083
 100% $1,000,146
 100%

2020. At September 30, 2020 and 2019, 02022, no individual customer accounted for 10% or more of total consolidated receivables.
Our property and equipment, net, on a geographical basis are summarized below at At September 30, 2020 and 2019:
 September 30,
 2020 2019
 (Dollars in thousands)
United States$29,375
 63% $38,058
 72%
United Kingdom8,776
 19% 7,801
 15%
Other countries8,268
 18% 7,168
 13%
Total$46,419
 100% $53,027
 100%

16. Contract Balances and Performance Obligations2021, only one individual customer accounted for 10% or more of total consolidated receivables.
Contract Balances
We record a receivable when we satisfy a performance obligation prior to invoicing if only the passage of time is required before payment is due or if we have an unconditional right to consideration before we satisfy a performance obligation. We record a contract asset when we satisfy a performance obligation prior to invoicing but our right to consideration is conditional. We record deferred revenue when the payment is made or due before we satisfy a performance obligation.
Receivables at September 30, 20202022 and 20192021 consisted of the following: 
September 30, September 30,
2020 2019 20222021
(In thousands) (In thousands)
Billed$211,776
 $206,714
Billed$203,351 $198,305 
Unbilled181,550
 127,651
Unbilled165,386 155,408 
393,326
 334,365
368,737 353,713 
Less: allowance for doubtful accounts(5,072) (2,568)Less: allowance for doubtful accounts(4,218)(4,154)
Net receivables388,254
 331,797
Net receivables364,519 349,559 
Less: long-term receivables *(54,074) (34,370)
Short-term receivables *334,180
 297,427
Less: long-term receivables (*)
Less: long-term receivables (*)
(42,109)(37,452)
Short-term receivables (*)
Short-term receivables (*)
$322,410 $312,107 
(*) Short-term receivables and long-term receivables were recorded in accounts receivable, net and other assets, respectively, within the accompanying consolidated balance sheets.

84

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

Activity in the allowance for doubtful accounts was as follows: 
 Year Ended September 30,
 2020 2019
 (In thousands)
Allowance for doubtful accounts, beginning balance$2,568
 $3,439
Add: expense3,199
 518
Less: write-offs (net of recoveries)(695) (1,389)
Allowance for doubtful accounts, ending balance$5,072
 $2,568

Contract assets balance at September 30, 2020 and 2019 was immaterial.
 Year Ended September 30,
 20222021
 (In thousands)
Allowance for doubtful accounts, beginning balance$4,154 $5,072 
Add: expense2,300 652 
Less: write-offs (net of recoveries)(2,236)(1,570)
Allowance for doubtful accounts, ending balance$4,218 $4,154 
Deferred revenue primarily relates to our maintenance and SaaS contracts billed annually in advance and generally recognized ratably over the term of the service period. Significant changes in the deferred revenues balances are as follows:
Year Ended September 30,
20222021
(In thousands)
Deferred revenues, beginning balance$110,763 $122,141 
Revenue recognized that was included in the deferred revenues balance at the beginning of the period(95,286)(84,735)
Decrease due to divestiture of the C&R business— (16,671)
Increases due to billings, excluding amounts recognized as revenue during the period111,083 90,028 
Deferred revenues, ending balance (*)
$126,560 $110,763 
 Year Ended September 30,
 2020 2019
 (In thousands)
Deferred revenues, beginning balance$116,320
 $108,118
Revenue recognized that was included in the deferred revenues balance at the beginning of the period(101,640) (93,265)
Increases due to billings, excluding amounts recognized as revenue during the period107,461
 101,467
Deferred revenues, ending balance (*)$122,141
 $116,320
73


Table of Contents
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
(*) Ending balanceDeferred revenues at September 30, 20202022 included current portion of $115.1$120.0 million and long-term portion of $7.0$6.6 million that were recorded in deferred revenue and other liabilities, respectively, within the consolidated balance sheets. Ending balanceDeferred revenues at September 30, 20192021 included current portion of $111.0$105.4 million and long-term portion of $5.3$5.4 million that were recorded in deferred revenue and other liabilities, respectively, within the consolidated balance sheets.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to provide customers with financing or to receive financing from our customers. Examples include multi-year on-premises licenses that are invoiced annually with revenue recognized upfront and invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period.
Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include:
RevenueUsage-based revenue that will be recognized in future periods from usage-based royaltyon-premises software subscriptions;
Consumption-based variable fees from license sales;
SaaS transactional revenue from variable considerationssoftware that will be recognized in the distinct service period during which it is earned; and
Revenue from variable considerations that will be recognized in accordance with the “right-to-invoice” practical expedient, such as fees from our professional services billed based on a time and materials basis.
Revenue allocated to remaining performance obligations was $298.0$357.4 million as of September 30, 2020,2022, approximately 52% of which we expect to recognize approximately 50% over the next 18 months and the remainder thereafter. Revenue allocated to remaining performance obligations was $238.4$289.0 million as of September 30, 2019.2021.

Significant Judgments
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct and should be accounted for separately may require significant judgment. Specifically, when implementation service is included in the original software or SaaS offerings, judgment is required to determine if the implementation service significantly modifies or customizes the software or SaaS service in such a way that the risks of providing it and the customization service are inseparable. In rare instances, contracts may include significant modification or customization of the software or SaaS service and will result in the combination of software or SaaS service and implementation service as one performance obligation.
We determine the SSPs using data from our historical standalone sales, or, in instances where such information is not available (such as when we do not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. When the selling price of a product or service is highly variable, we may use the residual approach to determine the SSP of that product or service. Significant judgment may be required to determine the SSP for each distinct performance obligation when it involves the consideration of many market conditions and entity-specific factors discussed above.
Significant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts with a fixed consideration, in which we measure progress using an input method based on labor hours expended. In order to estimate the total hours of the project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others. For certain complex projects, due to the risks and uncertainties inherent with the estimation process and factors relating to the assumptions, actual progress may differ due to the change in estimated total hours. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and, accordingly, recognized revenues are subject to revisions as the contract progresses to completion.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020

Capitalized Commission Costs
We capitalize incremental commission fees paid as a result of obtaining customer contracts. Capitalized commission costs, which are recorded in other assets within the accompanying consolidated balance sheets, were $53.0 million and $44.9 million at September 30, 2022 and 2021, respectively.
Capitalized commission costs are amortized on a straight-line basis over ten years — determined using a portfolio approach — based on the transfer of goods or services to which the assets relate, taking into consideration both the initial and future contracts as we do not typically pay a commission on a contract renewal. The amortization costs are included in selling, general, and administrative expenses of our consolidated statements of income and comprehensive income. The amount of amortization was $7.2 million, $6.0 million, and $5.7 million during the years ended September 30, 2022, 2021 and 2020, respectively. There was no impairment loss in relation to the costs capitalized.
We apply a practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. These costs are recorded within selling, general, and administrative expenses.
12. Employee Benefit Plans
Defined Contribution Plans
We sponsor the Fair Isaac Corporation 401(k) plan for eligible employees in the U.S. Under this plan, eligible employees may contribute up to 25% of compensation, not to exceed statutory limits. We also provide a company matching contribution. Investment in FICO common stock is not an option under this plan. Our contributions into all 401(k) plans, including former-acquired-company-sponsored plans that have since merged into the Fair Isaac Corporation 401(k) plan or have been frozen, totaled $8.2 million, $9.8 million and $10.1 million during fiscal 2022, 2021 and 2020, respectively.
Employee Incentive Plans
We maintain various employee incentive plans for the benefit of eligible employees, including officers. The awards generally are based on the achievement of certain financial and performance objectives subject to the discretion of management. Total expenses under our employee incentive plans were $55.7 million, $58.1 million and $60.6 million during fiscal 2022, 2021 and 2020, respectively.
13. Restructuring and Impairment Charges
There were no restructuring and impairment charges incurred during fiscal 2022.
During fiscal 2021, we incurred restructuring charges of $8.0 million in employee separation costs due to the elimination of 160 positions throughout the Company. Cash payments for all the employee separation costs were fully paid before the end of our fiscal 2022. There were no impairment charges incurred during fiscal 2021.
During fiscal 2020, we incurred net charges totaling $45.0 million consisting of $28.0 million in impairment loss on operating lease assets, $5.2 million in impairment loss on disposals of property and equipment and $11.8 million in restructuring charges. The impairment losses were associated with closing certain non-core offices and reducing office space in other locations to better align with anticipated needs in light of post-pandemic workforce patterns. The restructuring charges related to employee separation costs as a result of eliminating 209 positions throughout the Company. Cash payments for all those employee separation costs were fully paid before the end of our fiscal 2021.
The following tables summarize our restructuring accruals for employee separation. At September 30, 2021, the balance was classified as current liabilities and recorded in other accrued liabilities within the accompanying consolidated balance sheets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
Year Ended September 30,
20222021
(In thousands)
Restructuring accrual, beginning balance$7,856 $8,191 
Expense additions— 7,956 
Cash payments(7,856)(8,291)
Restructuring accrual, ending balance$— $7,856 
14. Income Taxes
The provision for income taxes was as follows during fiscal 2022, 2021 and 2020:
 Year ended September 30,
 202220212020
 (In thousands)
Current:
         Federal$50,403 $43,437 $14,566 
         State8,952 7,961 2,180 
         Foreign30,597 35,615 12,482 
89,952 87,013 29,228 
Deferred:
         Federal8,165 (4,602)(8,575)
         State507 (948)(957)
         Foreign(856)(405)893 
7,816 (5,955)(8,639)
Total provision$97,768 $81,058 $20,589 
The foreign provision was based on foreign pre-tax earnings of $136.0 million, $62.1 million and $42.2 million in fiscal 2022, 2021 and 2020, respectively. Current foreign tax expense related to foreign tax withholdings was $9.5 million, $7.5 million and $6.4 million in fiscal 2022, 2021 and 2020, respectively. Foreign withholding tax and related foreign tax credits are included in current tax expense above.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
Deferred tax assets and liabilities at September 30, 2022 and 2021 were as follows:
 September 30,
 20222021
 (In thousands)
Deferred tax assets:
Loss and credit carryforwards$19,122 $30,311 
Compensation benefits29,344 29,305 
Operating lease liabilities13,065 17,076 
Other assets14,744 16,711 
76,275 93,403 
Less: valuation allowance(16,635)(28,403)
Total deferred tax assets59,640 65,000 
Deferred tax liabilities:
  Intangible assets(14,263)(10,518)
  Deferred commission(12,419)(10,520)
  Property and equipment(327)(487)
  Operating lease right-of-use assets(8,798)(11,258)
  Other liabilities(12,030)(11,668)
Total deferred tax liabilities(47,837)(44,451)
Deferred tax assets, net$11,803 $20,549 
Based upon the level of historical taxable income and projections for future taxable income over the periods that the deferred tax assets will reverse, management believes it is more likely than not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowance at September 30, 2022.
As of September 30, 2022, we had available U.S. federal net operating loss (“NOL”) carryforwards of approximately $5.4 million. The U.S. federal NOLs were acquired in connection with our acquisitions of Adeptra in fiscal 2012 and Infoglide in fiscal 2013. The U.S. federal NOL carryforward will expire at various dates beginning in fiscal 2024, if not utilized. Utilization of the U.S. federal NOL is subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended. We have available an excess California state research credit of approximately $16.0 million. The California state research credit does not have an expiration date; however, based on enacted law and expected future cash taxes, we have recorded a valuation allowance of $16.0 million. There is approximately $0.6 million of foreign tax credit carryforwards.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
A reconciliation of the provision for income taxes, with the amount computed by applying the U.S. federal statutory income tax rate of 21% to income before provision for income taxes for fiscal 2022, 2021 and 2020 is shown below:

 Year Ended September 30,
 202220212020
 (In thousands)
Income tax provision at U.S. federal statutory rate$98,975 $99,360 $53,970 
State income taxes, net of U.S. federal benefit8,359 7,815 4,619 
Foreign tax rate differential3,058 1,490 493 
Research credits(5,932)(6,795)(5,868)
Valuation allowance(11,768)3,839 5,332 
Excess tax benefits relating to share-based compensation702 (15,573)(45,086)
GILTI, FDII, BEAT and FTC(2,491)(4,958)7,136 
Other6,865 (4,120)(7)
Recorded income tax provision$97,768 $81,058 $20,589 
The increase in our income tax provision in fiscal 2022 compared to fiscal 2021 was due to a decrease in excess tax benefits related to share-based compensation.
The increase in our income tax provision in fiscal 2021 compared to fiscal 2020 was due to an increase in pretax book income, of which a large amount was due to the gain on divestiture of C&R business, as well as a decrease in excess tax benefits related to share-based compensation.
As of September 30, 2022, we had approximately $73.7 million of unremitted earnings of non-U.S. subsidiaries. The Company has not provided deferred tax liabilities for foreign withholding taxes and certain state income taxes on the undistributed earnings and profits from certain non-U.S. subsidiaries that will be permanently reinvested outside the United States. In the event these earnings are later remitted to the U.S., any estimated withholding tax and state income tax due upon remittance of those earnings is expected to be immaterial to the income tax provision. For jurisdictions not permanently reinvested, the Company expects the net impact of any future repatriations to be immaterial to the Company’s overall tax liability.
Unrecognized Tax Benefit for Uncertain Tax Positions
We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. With a few exceptions, we are no longer subject to U.S. federal, state, local, or foreign income tax examinations for fiscal years prior to 2019.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 Year Ended September 30,
 202220212020
 (In thousands)
Gross unrecognized tax benefits at beginning of year$10,897 $7,994 $5,834 
Gross increases for tax positions in prior years593 — 883 
Gross decreases for tax positions in prior years— (385)(65)
Gross increases based on tax positions related to the current year3,250 5,273 2,260 
Decreases for settlements and payments— (643)— 
Decreases due to statute expiration(1,760)(1,342)(918)
Gross unrecognized tax benefits at end of year$12,980 $10,897 $7,994 
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
We had $13.0 million of total unrecognized tax benefits as of September 30, 2022, including $12.3 million of tax benefits that, if recognized, would impact the effective tax rate. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a significant reduction of the uncertain tax benefits in the next twelve months.
We recognize interest expense and penalties related to unrecognized tax benefits and penalties as part of the provision for income taxes in our consolidated statements of income and comprehensive income. We recognize interest earned related to income tax matters as interest income in our consolidated statements of income and comprehensive income. As of September 30, 2022, we had accrued interest of $0.5 million related to the unrecognized tax benefits.
15. Share-Based Employee Benefit Plans
Description of Stock Option and Share Plans
We maintain the 2021 Long-Term Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the issuance of up to 5,900,000 shares of our common stock, plus additional shares that become available due to the expiration, forfeiture or cancellation of awards outstanding under the 2012 Long-Term Incentive Plan. Under the terms of the 2021 Plan, the pool of shares available for issuance may be used for all types of equity awards available under the 2021 Plan, which include stock options, stock appreciation rights, restricted stock awards, stock unit awards and other share-based awards. All employees, consultants and advisors of FICO or any subsidiary, as well as all non-employee directors, are eligible to receive awards under the 2021 Plan. The 2021 Plan will remain in effect until the earliest of the following: all shares subject to the Plan are distributed, the Board terminates the Plan, or the tenth anniversary of the effective date of the Plan.
Stock option awards have a maximum term of ten years. In general, stock option awards and stock unit awards not subject to market or performance conditions vest annually over four years. Stock unit awards subject to market or performance conditions generally vest annually over three years based on the achievement of specified criteria. At September 30, 2022, there were 5,270,822 shares available for issuance as new awards under the 2021 Plan.
Description of Employee Stock Purchase Plan
We maintain the 2019 Employee Stock Purchase Plan (the “2019 Purchase Plan”) under which we are authorized to issue up to 1,000,000 shares of our common stock to eligible employees. Employees may have up to 15% of their eligible pay withheld through payroll deductions to purchase FICO common stock during semi-annual offering periods. The purchase price of the stock is 85% of the closing sales price of FICO common stock on the last trading day of each offering period. Offering period means approximately six-month periods commencing (a) on the first trading day on or after September 1 and terminating on the last trading day in the following February, and (b) on the first trading day on or after March 1 and terminating on the last trading day in the following August. At September 30, 2022, there were 874,772 shares available for issuance under the 2019 Purchase Plan.
We satisfy stock option exercises, vesting of stock units and the 2019 Purchase Plan issuances from treasury shares.
Share-Based Compensation Expense and Related Income Tax Benefits
We recorded share-based compensation expense of $115.4 million, $112.5 million and $93.7 million in fiscal 2022, 2021 and 2020, respectively. The total tax benefit related to this share-based compensation expense was $13.5 million, $14.0 million and $13.2 million in fiscal 2022, 2021 and 2020, respectively. As of September 30, 2022, there was $144.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted-average period of 2.22 years.
In fiscal 2022 we received $3.2 million in cash from stock option exercises, with the tax benefit realized for the tax deductions from these exercises of $3.4 million.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
Share-Based Activity
Stock Options
We estimate the fair value of stock options granted using the Black-Scholes option valuation model and we amortize the fair value on a straight-line basis over the vesting period. We used the following assumptions to estimate the fair value of our stock options during fiscal 2022, 2021 and 2020:
 Year Ended September 30,
 202220212020
Stock Options:
Weighted-average expected term (years)4.434.474.46
Expected volatility (range)32.9 -34.1 %33.6 -34.4 %30.0 -35.9 %
Weighted-average volatility33.2 %33.9 %30.6 %
Risk-free interest rate (range)1.18 -2.85 %0.29 -0.73 %0.36 -1.68 %
Weighted-average expected dividend yield— %— %— %
Expected Term. The expected term represents the period that our stock options are expected to be outstanding. We estimate the expected term based on historical experience of similar awards, giving consideration to the contractual terms of the share-based awards, vesting schedules and expectations of future employee behavior.
Expected Volatility. We estimate the volatility of our common stock at the date of grant based on a combination of the implied volatility of publicly traded options on our common stock and our historical volatility rate.
Risk-Free Interest Rate. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our employee options.
Dividends. We have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future. Consequently, we used an expected dividend yield of zero in the years presented.
Forfeitures. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest.
The following table summarizes option activity during fiscal 2022:
SharesWeighted-
average
Exercise
Price
Weighted-
average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
 (In thousands) (In years)(In thousands)
Outstanding at September 30, 2021226 $205.90 
Granted23 451.70 
Exercised(36)87.84 
Forfeited(4)523.43 
Outstanding at September 30, 2022209 $247.56 3.28$36,373 
Exercisable at September 30, 2022159 $214.74 2.82$32,118 
Vested or expected to vest at September 30, 2022207 $246.35 3.27$36,344 
The weighted-average fair value of options granted was $134.91, $139.11 and $99.30 during fiscal 2022, 2021 and 2020, respectively. The aggregate intrinsic value of options outstanding at September 30, 2022 was calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the 180,000 outstanding options that had exercise prices lower than the $412.01 market price of our common stock at September 30, 2022. The total intrinsic value of options exercised was $14.5 million, $15.8 million and $132.6 million during fiscal 2022, 2021 and 2020, respectively, determined as of the date of exercise.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
Restricted Stock Units
The fair value of restricted stock units (“RSUs”) granted is the closing market price of our common stock on the date of grant, adjusted for the expected dividend yield, if applicable. We amortize the fair value on a straight-line basis over the vesting period.
The following table summarizes the RSUs activity during fiscal 2022:
SharesWeighted-average Grant-date Fair Value
(In thousands)
Outstanding at September 30, 2021517 $335.16 
Granted224 416.62 
Released(236)276.82 
Forfeited(90)401.31 
Outstanding at September 30, 2022415 $398.07 
The weighted-average fair value of the RSUs granted was $416.62, $505.70 and $356.66 during fiscal 2022, 2021 and 2020, respectively. The total intrinsic value of the RSUs that vested was $97.3 million, $156.6 million and $159.0 million during fiscal 2022, 2021 and 2020, respectively, determined as of the date of vesting.
Performance Share Units
Performance share units (“PSUs”) are granted to our senior officers and earned based on pre-established performance goals approved by the Leadership Development and Compensation Committee of our Board of Directors for any given performance period. The range of payout is zero to 200% of the number of target PSUs, based on the outcome of the performance conditions. We estimate the fair value of the PSUs using the closing market price of our common stock on the date of grant, adjusted for the expected dividend yield if applicable, based on the performance condition that is probable of achievement. We amortize the fair values over the requisite service period for each vesting tranche of the award. We reassess the probability at each reporting period and recognize the cumulative effect of the change in estimate in the period of change.
The following table summarizes the PSUs activity during fiscal 2022:
SharesWeighted- average Grant-date Fair Value
(In thousands)
Outstanding at September 30, 2021126 $403.61 
Granted84 407.49 
Released(64)344.62 
Forfeited(2)354.18 
Outstanding at September 30, 2022144 $432.73 
The weighted-average fair value of the PSUs granted was $407.49, $506.91 and $354.18 during fiscal 2022, 2021 and 2020, respectively. The total intrinsic value of the PSUs that vested was $25.9 million, $34.7 million and $36.5 million during fiscal 2022, 2021 and 2020, respectively, determined as of the date of vesting.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
Market Share Units
Market share units (“MSUs”) are granted to our senior officers and earned based on our total stockholder return relative to the Russell 3000 Index over performance periods of one, two and three years. We estimate the fair value of MSUs granted using the Monte Carlo valuation model and amortize the fair values over the requisite service period for each vesting tranche of the award. In addition, we do not reverse the compensation cost solely because the market condition is not satisfied, and the award is therefore not earned by the employee, provided the requisite service is rendered. We used the following assumptions to estimate the fair value of our MSUs during fiscal 2022, 2021 and 2020:
 Year Ended September 30,
 202220212020
Expected volatility in FICO’s stock price42.3 %41.3 %25.2 %
Expected volatility in Russell 3000 Index23.3 %23.7 %12.9 %
Correlation between FICO and the Russell 3000 Index74.7 %77.5 %64.0 %
Risk-free interest rate0.97 %0.20 %1.67 %
Average expected dividend yield— %— %— %
The expected volatility was determined based on daily historical movements in our stock price and the Russell 3000 Index for the three years preceding the grant date. The correlation between FICO and the Russell 3000 Index was determined based on historical daily stock price movements for the three years preceding the grant date. The risk-free rate was determined based on U.S. Treasury zero-coupon yields over the three-year performance period. Because we have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future, we used an expected dividend yield of zero.
The following table summarizes the MSUs activity during fiscal 2022:
SharesWeighted- average Grant-date Fair Value
(In thousands)
Outstanding at September 30, 202163 $541.41 
Granted50 493.66 
Released(19)206.71 
Forfeited(2)467.87 
Outstanding at September 30, 202292 $586.91 
The weighted-average fair value of the MSUs granted was $493.66, $471.16 and $249.13 during fiscal 2022, 2021 and 2020, respectively. The total intrinsic value of the MSUs that vested was $7.8 million, $34.5 million and $44.6 million during fiscal 2022, 2021 and 2020, respectively, determined as of the date of vesting.
Employee Stock Purchase Plan
The compensation expense on the employee stock purchase plan arises from the 15% discount offered to participants. During fiscal 2022, a total of 32,528 shares of our common stock with a weighted-average purchase price of $393.95 per share were issued under the 2019 Purchase Plan. During fiscal 2021, a total of 42,402 shares of our common stock with a weighted-average purchase price of $389.61 per share were issued under the 2019 Purchase Plan.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
16. Earnings per Share
The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) during fiscal 2022, 2021 and 2020:
 Year Ended September 30,
 202220212020
 (In thousands, except per share data)
Numerator for diluted and basic earnings per share:
Net income$373,541 $392,084 $236,411 
Denominator — share:
Basic weighted-average shares26,042 28,734 29,067 
Effect of dilutive securities305 526 865 
Diluted weighted-average shares26,347 29,260 29,932 
Earnings per share:
Basic$14.34 $13.65 $8.13 
Diluted$14.18 $13.40 $7.90 
The computation of diluted EPS excludes options to purchase approximately 32,000, 12,000, and 10,000 shares of common stock for fiscal 2022, 2021 and 2020, respectively, because the exercise prices of the options exceeded the average market price of our common stock in these fiscal years and their inclusion would be antidilutive.
17. Segment Information
We are organized into two reportable segments: Scores and Software. Although we sell solutions and services into a large number of end user product and industry markets, our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance.
Scores. This segment includes our business-to-business (“B2B”) scoring solutions and services which give our clients access to predictive credit and other scores that can be easily integrated into their transaction streams and decision-making processes. This segment also includes our business-to-consumer (“B2C”) scoring solutions, including our myFICO.com subscription offerings.
Software. This segment includes pre-configured analytic and decision management solutions designed for a specific type of business need or process — such as account origination, customer management, customer engagement, fraud detection, financial crimes compliance, and marketing — as well as associated professional services. This segment also includes FICO® Platform, a modular software offering designed to support advanced analytic and decision use cases, as well as stand-alone analytic and decisioning software that can be configured by our customers to address a wide variety of business use cases. These offerings are available to our customers as SaaS or as on-premises software.
Our chief operating decision maker (“CODM”), who is our Chief Executive Officer, evaluates segment financial performance based on segment revenues and segment operating income. Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, IT infrastructure, consulting, travel and depreciation. Indirect costs are allocated to the segments generally based on relative segment revenues, fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. We do not allocate broad-based incentive expense, share-based compensation expense, restructuring and acquisition-related expense, amortization expense, various corporate charges and certain other income and expense measures to our segments. These income and expense items are not allocated because they are not considered in evaluating the segment’s operating performance. Our CODM does not evaluate the financial performance of each segment based on its respective assets or capital expenditures; rather, depreciation amounts are allocated to the segments from their internal cost centers as described above.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
The following tables summarize segment information for fiscal 2022, 2021 and 2020:
 Year Ended September 30, 2022
 ScoresSoftwareUnallocated
Corporate
Expenses
Total
 (In thousands)
Segment revenues:
On-premises and SaaS software$— $564,751 $— $564,751 
Professional services— 105,876 — 105,876 
Scores706,643 — — 706,643 
Total segment revenues706,643 670,627 — 1,377,270 
Segment operating expense(83,837)(485,175)(148,428)(717,440)
Segment operating income$622,806 $185,452 $(148,428)$659,830 
Unallocated share-based compensation expense(115,355)
Unallocated amortization expense(2,061)
Operating income542,414 
Unallocated interest expense, net(68,967)
Unallocated other expense, net(2,138)
Income before income taxes$471,309 
Depreciation expense$723 $14,412 $107 $15,242 
 Year Ended September 30, 2021
 ScoresSoftwareUnallocated
Corporate
Expenses
Total
 (In thousands)
Segment revenues:
On-premises and SaaS software$— $517,888 $— $517,888 
Professional services— 144,501 — 144,501 
Scores654,147 — — 654,147 
Total segment revenues654,147 662,389 — 1,316,536 
Segment operating expense(93,463)(557,242)(136,812)(787,517)
Segment operating income$560,684 $105,147 $(136,812)529,019 
Unallocated share-based compensation expense(112,457)
Unallocated amortization expense(3,255)
Unallocated restructuring and impairment charges(7,957)
Unallocated gains on product line asset sales and business divestiture100,139 
Operating income505,489 
Unallocated interest expense, net(40,092)
Unallocated other income, net7,745 
Income before income taxes$473,142 
Depreciation expense$667 $19,505 $147 $20,319 

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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
 Year Ended September 30, 2020
 ScoresSoftwareUnallocated
Corporate
Expenses
Total
 (In thousands)
Segment revenues:
On-premises and SaaS software$— $584,576 $— $584,576 
Professional services— 181,439 — 181,439 
Scores528,547 — — 528,547 
Total segment revenues528,547 766,015 — 1,294,562 
Segment operating expense(74,237)(635,949)(144,704)(854,890)
Segment operating income$454,310 $130,066 $(144,704)439,672 
Unallocated share-based compensation expense(93,681)
Unallocated amortization expense(4,993)
Unallocated restructuring and impairment charges(45,029)
Operating income295,969 
Unallocated interest expense, net(42,177)
Unallocated other income, net3,208 
Income before income taxes$257,000 
Depreciation expense$617 $22,418 $418 $23,453 





18. Leases
We lease office space and data centers under operating lease arrangements, which constitute the majority of our lease obligations. We also enter into finance lease agreements from time to time for certain computer equipment. For any lease with a lease term in excess of 12 months, the related lease assets and liabilities are recognized on our consolidated balance sheets as either operating or finance leases at the commencement of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components, and we have elected to combine these components together and account for them as a single lease component for all classes of assets. Leases with a lease term of 12 months or less are not recorded on our consolidated balance sheets. Furthermore, we recognize lease expense for these leases on a straight-line basis over the lease term.
Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We use a collateralized incremental borrowing rate based on the information available at the commencement date, including the lease term, in determining the present value of future payments. In calculating the incremental borrowing rates, we consider recent ratings from credit agencies and current lease demographic information. Our operating leases also typically require payment of real estate taxes, common area maintenance, insurance and other operating costs as well as payments that are adjusted based on a consumer price index. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Operating lease assets also include prepaid lease payments and initial direct costs, and are reduced by lease incentives. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.
As a strategic cost initiative in fiscal 2020 we committed to a course of action to adjust our facilities footprint in light of post-pandemic workforce patterns, including closing certain non-core offices and reducing office space in other locations to better align with anticipated needs. As a result of this initiative, we recorded a net impairment of $28.0 million on operating lease right-of-use assets. Prior to the adoption of ASC 842, these adjustments were described as restructuring expenses - facilities charges. See Note 11 for additional information regarding our restructuring and impairment charges.
The following table presents the lease balances within the accompanying consolidated balance sheet as of September 30, 2020:
85
 Balance Sheet Location September 30, 2020
   (In thousands)
Assets   
Operating leasesOperating lease right-of-use assets $57,656
Finance leases (*)Property and equipment, net 5,021
    Total lease assets  $62,677
Liabilities   
Current:   
   Operating leasesOther accrued liabilities $22,787
   Finance leasesOther accrued liabilities 2,186
Non-current:   
   Operating leasesOperating lease liabilities 73,207
   Finance leasesOther liabilities 3,076
       Total lease liabilities  $101,256
(*) Finance leases are recorded net of accumulated depreciation of $1.5 million.

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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 20192022, 2021 and 20182020

The following table presents the lease balances within the accompanying consolidated balance sheets as of September 30, 2022 and 2021:
Balance Sheet LocationSeptember 30,
20222021
(In thousands)
Assets
   Operating leasesOperating lease right-of-use assets$36,688 $47,275 
Liabilities
   Current operating leasesOther accrued liabilities$19,369 $22,074 
   Non-current operating leasesOperating lease liabilities39,192 53,670 
       Total lease liabilities$58,561 $75,744 
The components of our operating and finance lease expenses were as follows:
 Year Ended 
 September 30, 2020
 (In thousands)
Operating lease cost$23,624
Finance lease cost: 
     Depreciation of lease assets2,078
     Interest on lease liabilities186
Short-term lease cost1,171
Variable lease cost3,264
     Total lease cost$30,323
Year Ended September 30,
202220212020
(In thousands)
Operating lease cost$18,426 $19,551 $23,624 
Finance lease cost:
     Depreciation of lease assets— 175 2,078 
     Interest on lease liabilities— 11 186 
Short-term lease cost201 85 1,171 
Variable lease cost2,091 1,190 3,264 
     Total lease cost$20,718 $21,012 $30,323 
The following table presents weighted-average remaining lease term and weighted-average discount rates related to our operating and finance leases:
September 30,
20222021
     Weighted-average remaining lease term (in months)4753
     Weighted-average discount rate4.01 %3.64 %
 September 30, 2020
 Operating Leases Finance Leases
Weighted-average remaining lease term (in months)63
 29
Weighted-average discount rate3.86% 2.56%
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
Supplemental cash flow information related to our operating and finance leases was as follows:
 Year Ended 
 September 30, 2020
 (In thousands)
Cash paid for amounts included in the measurement of lease liabilities: 
    Operating cash outflow for operating leases$18,801
    Operating cash outflow for finance leases186
    Financing cash outflow for finance leases1,716
Lease assets obtained in exchange for new lease liabilities: 
    Operating leases11,457
    Finance leases1,387

Year Ended September 30,
202220212020
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
    Operating cash outflow for operating leases$22,021 $23,260 $18,801 
    Operating cash outflow for finance leases— 11 186 
    Financing cash outflow for finance leases— 176 1,716 
Lease assets obtained in exchange for new lease liabilities:
    Operating leases7,505 5,413 11,457 
    Finance leases— — 1,387 
Future lease payments under our non-cancellable operating leases as of September 30, 2020 were as follows:
(In thousands)Operating Leases Finance Leases
Fiscal 2021$26,047
 $2,397
Fiscal 202221,925
 2,240
Fiscal 202317,109
 784
Fiscal 202414,384
 0
Fiscal 20259,004
 0
Thereafter17,131
 0
      Total future undiscounted lease payments105,600
 5,421
         Less imputed interest(9,606) (159)
      Total reported lease liability$95,994
 $5,262

In accordance with the prior guidance—ASC 840, Leases—our leases were previously designated as either capital or operating. Previously designated capital leases are now considered finance leases under the new guidance, Topic 842. The

87

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

designation of operating leases remains substantially unchanged under the new guidance. The future minimum lease payments by fiscal year as determined prior to the adoption of Topic 842 under our previously designated capital and operating leases as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019,2022 were as follows:
(In thousands)Operating Leases Capital Leases
Fiscal 2020$19,842
 $1,935
Fiscal 202119,969
 1,934
Fiscal 202217,677
 1,934
Fiscal 202316,940
 0
Fiscal 202414,887
 0
Thereafter24,431
 0
     Total minimum lease payments$113,746
 5,803
        Less amount representing interest  (379)
     Present value of minimum lease payments  $5,424

(In thousands)
Fiscal 2023$21,306 
Fiscal 202415,994 
Fiscal 20259,320 
Fiscal 20268,211 
Fiscal 20275,583 
Thereafter2,604 
      Total future undiscounted lease payments63,018 
         Less imputed interest(4,457)
      Total reported lease liability$58,561 
18.19. Commitments
In the ordinary course of business, we enter into contractual purchase obligations and other agreements that are legally binding and specify certain minimum payment terms.
We are also a party to a management agreement with 2321 of our executives providing for certain payments and other benefits in the event of a qualified change in control of FICO, coupled with a termination of the officer during the following year.
19.20. Contingencies
We are in disputes with certain customers regarding amounts owed in connection with the sale of certain of our products and services. We also have had claims asserted by former employees relating to compensation and other employment matters. We are also involved in various other claims and legal actions arising in the ordinary course of business. We record litigation accruals for legal matters which are both probable and estimable. For legal proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable), we have determined we do not have material exposure on an aggregate basis.
20.21. Guarantees
In the ordinary course of business, we are not subject to potential obligations under guarantees, except for standard indemnification and warranty provisions that are contained within many of our customer license and service agreements and certain supplier agreements, including underwriter agreements, as well as standard indemnification agreements that we have executed with certain of our officers and directors, and give rise only to the disclosure in the consolidated financial statements. In addition, we continue to monitor the conditions that are subject to the guarantees and indemnifications to identify whether it
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Table of Contents
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2022, 2021 and 2020
is probable that a loss has occurred, and would recognize any such losses under the guarantees and indemnifications when those losses are estimable.
Indemnification and warranty provisions contained within our customer license and service agreements and certain supplier agreements are generally consistent with those prevalent in our industry. The duration of our product warranties generally does not exceed 90 days following delivery of our products. We have not incurred significant obligations under customer indemnification or warranty provisions historically and do not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential customer indemnification or warranty-related obligations. The indemnification agreements that we have executed with certain of our officers and directors would require us to indemnify such officers and directors in certain instances. We have not incurred obligations under these indemnification agreements historically and do not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential officer or director indemnification obligations. The maximum potential amount of future payments that we could be required to make under the indemnification provisions in our customer license and service agreements, and officer and director agreements is unlimited. 


88

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018

21. Supplementary Financial Data (Unaudited)
The following table presents selected unaudited consolidated financial results for each of the eight quarters in the two-year period ended September 30, 2020. In the opinion of management, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting of only normal recurring adjustments, except as noted below) necessary for a fair statement of the consolidated financial information for the period presented.
 Quarter Ended
 September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 (In thousands, except per share data)
Revenues$374,356
 $313,731
 $307,971
 $298,504
Cost of revenues (1)93,676
 88,569
 88,139
 90,758
Gross profit280,680
 225,162
 219,832
 207,746
Net income$59,126
 $64,076
 $58,288
 $54,921
Earnings per share (2):       
Basic$2.04
 $2.21
 $2.00
 $1.89
Diluted$1.98
 $2.15
 $1.94
 $1.82
Shares used in computing earnings per share:       
Basic29,045
 29,005
 29,194
 29,025
Diluted29,833
 29,744
 29,985
 30,169
 Quarter Ended
 September 30,
2019
 June 30,
2019
 March 31,
2019
 December 31,
2018
 (In thousands, except per share data)
Revenues$305,344
 $314,249
 $278,234
 $262,256
Cost of revenues (1)87,996
 87,215
 85,568
 76,066
Gross profit217,348
 227,034
 192,666
 186,190
Net income$54,584
 $64,152
 $33,381
 $40,007
Earnings per share (2):       
Basic$1.89
 $2.21
 $1.15
 $1.38
Diluted$1.80
 $2.12
 $1.10
 $1.32
Shares used in computing earnings per share:       
Basic28,918
 28,967
 29,074
 28,961
Diluted30,290
 30,292
 30,259
 30,336

(1)Cost of revenues excludes amortization expense of $0.3 million, $0.4 million, $0.5 million, $0.6 million, $0.5 million, $0.5 million, $0.5 million and $0.5 million for the quarters ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019 and December 31, 2018, respectively.
(2)Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts may not equal the totals for the respective years.
22. Subsequent EventsEvent
In October 2020, we entered into2022, our Board of Directors approved a purchase agreement with Rackspace US, Inc. (“Rackspace”) pursuant to which Rackspace will provide to us primary cloud infrastructure services as a resellernew stock repurchase program replacing the previous stock repurchase program. The new program is open-ended and authorizes repurchases of AWS. The initial term is a five-year period for which we have a minimum purchase obligationshares of $120 million over the first 3 years with the ability to rollour common stock up to $12an aggregate cost of $500.0 million into a fourth year if we spend less thanin the minimum commitment. The purpose of this agreement is to replace services that were previously provided directly through AWS.open market or in negotiated transactions.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of FICO’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of FICO’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this annual report. Based on that evaluation, the CEO and CFO have concluded that FICO’s disclosure controls and procedures arewere effective as of September 30, 2022 to ensure that information required to be disclosed by FICO in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. In addition, the disclosure controls and procedures are designed to ensure that information required to be disclosed is accumulated and communicated to management, including the CEO and CFO, allowing timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
No change in FICO’s internal control over financial reporting was identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the yearquarter ended September 30, 2020,2022, that has materially affected, or is reasonably likely to materially affect, FICO’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 20202022 based on the guidelines established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation management has concluded that our internal control over financial reporting was effective as of September 30, 2020.2022.
Deloitte & Touche LLP, an independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, has also audited the effectiveness of our internal control over financial reporting as of September 30, 2020,2022, as stated in their attestation report included in Part II, Item 8 of this Annual Report on Form 10-K.
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Item 9B. Other Information
Not applicable.


Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
90
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The required information regarding our Directors is incorporated by reference from the information under the caption “Our Director Nominees” in our 20212023 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.

91


2022.
Our current executive officers are as follows:
NamePositions HeldAge
William J. LansingJanuary 2012-present, Chief Executive Officer and member of the Board of Directors of the Company. February 2009-November 2010, Chief Executive Offer and President, Infospace, Inc. 2004-2007, Chief Executive Officer and President, ValueVision Media, Inc. 2001-2003, General Partner, General Atlantic LLC. 2000-2001, Chief Executive Officer, NBC Internet, Inc. 1998-2000, President/Chief Executive Officer, Fingerhut Companies, Inc. 1996-1998, Vice President, Corporate Business Development, General Electric Company. 1996, Executive Vice President, Chief Operating Office, Prodigy, Inc. 1986-1995, various positions, McKinsey & Company, Inc.6264
Michael I. McLaughlinAugust 2019-present, Executive Vice President, Chief Financial Officer of the Company. May 2007-August 2019, Managing Director, Head of Technology Corporate Finance of Morgan Stanley. January 2004-May 2007, Managing Director, Head of Enterprise Systems and Supply Chain Coverage of BofA Securities. January 2001-January 2004, Executive Director, Head of Enterprise Hardware and Supply Chain of UBS Investment Bank. 1997-2001, founder and co-Chief Executive Officer of Stampede Ventures, LLC. 1993-1997, Vice President of Montgomery Securities. 1990-1993, Associate of The First Boston Corporation. 1986-1988, Analyst of The First Boston Corporation.5658
Thomas A. BowersAugust 2020-present, Executive Vice President, Corporate Strategy of the Company. September 2019-August 2020, Vice President, Business Consulting of the Company. April 2018-September 2019, Founder and Managing Partner, M Cubed Development, LLC. August 2012-March 2018, Executive Vice President, American Savings Bank. 1987-2012, Senior partner and various positions, McKinsey & Company, Inc.6567
Stephanie CovertJanuary 2022-present, Executive Vice President, Software of the Company. October 2020-present,2020-January 2022, Executive Vice President, Sales & Marketing of the Company. June 2016-October 2020, Vice President, Global Sales Operations of the Company. December 2015-May 2016, Vice President, Solution Success of the Company. June 2015-December 2015, Senior Director, Solution Success, Americas & EMEA of the Company. May 2014-June 2015, Senior Director, Solution Success, Americas of the Company. March 2013-May 2014, Senior Director, Sales Operations, Apttus. March 2012-March 2013, Sales Operations Director, Oracle Corporation. June 2007-March 2012, various positions, RightNow Technologies, Inc.4143
Richard S. DealNovember 2015-present, Executive Vice President, Chief Human Resources Officer of the Company. August 2007-November 2015, Senior Vice President, Chief Human Resources Officer of the Company. January 2001-August 2007, Vice President, Human Resources of the Company. 1998-2001, Vice President, Human Resources, Arcadia Financial, Ltd. 1993-1998, managed broad range of human resources corporate and line consulting functions with U.S. Bancorp.5355
Michael S. LeonardNovember 2011-present, Vice President, Chief Accounting Officer of the Company. November 2007-November 2011, Senior Director, Finance of the Company. July 2000-November 2007, Director, Finance of the Company. 1998-2000, Controller of Natural Alternatives International, Inc. 1994-1998, various audit staff positions at KPMG LLP.5658
Claus MoldtAugust 2019-present, Executive Vice President, Chief Technology Officer of the Company. March 2016-August 2019, Chief Information Officer of the Company. June 2013-March 2016, Chief Executive Officer of mPath. October 2006-June 2013, Global Chief Information Officer and Senior Vice President of Technical Operations of Salesforce.com. November 2002-September 2006, Senior Director Operations Infrastructure and Project Delivery of eBay. May 2001-May 2002, Manager Database and System Administration, LoudCloud/Opsware.57
Mark R. ScadinaFebruary 2009-present, Executive Vice President and General Counsel and Corporate Secretary of the Company. June 2007-February 2009, Senior Vice President and General Counsel and Corporate Secretary of the Company. 2003-2007, various senior positions including Executive Vice President, General Counsel and Corporate Secretary, Liberate Technologies, Inc. 1999-2003, various leadership positions including Vice President and General Counsel, Intertrust Technologies Corporation. 1994-1999, Associate, Pennie and Edmonds LLP.5153
James M. WehmannApril 2012-present, Executive Vice President, Scores of the Company. November 2003-March 2012, Vice President/Senior Vice President, Global Marketing, Digital River, Inc. March 2002-June 2003, Vice President, Marketing, Brylane, Inc. September 2000-March 2002, Senior Vice President, Marketing, New Customer Acquisition, Bank One. 1993-2000, various roles, including Senior Vice President, Marketing, Fingerhut Companies, Inc.5557
90

The required information regarding compliance with Section 16(a) of the Securities Exchange Act is incorporated by reference from the information in our 20212023 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.

92


2022.
FICO has adopted a Code of Ethics for Senior Financial Management that applies to the Company’s Chief Executive Officer, Chief Financial Officer, Controller and other employees performing similar functions who have been identified by the Chief Executive Officer. We have posted the Code of Ethics on our website located at www.fico.com. FICO intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, this Code of Ethics by posting such information on its website. FICO also has a Code of Conduct and Business Ethics applicable to all directors, officers and employees, which is also available at the website cited above.
The required information regarding the Company’s audit committee is incorporated by reference from the information under the caption “Board Committees” in our 20212023 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.2022.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from the information under the captions “Director Compensation for Fiscal 2020”2022” and “Executive Compensation” in our 20212023 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.2022.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference from the information under the caption “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation Plan Information” in our 20212023 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.2022.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference from the information under the caption “Certain Relationships and Related Persons Transactions” in our 20212023 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.2022.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference from the information under the caption “Ratification of Independent Registered Public Accounting Firm” in our 20212023 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.

2022.
93
91


PART IV
Item 15. Exhibits and Financial Statement Schedules
1. Consolidated Financial Statements: 
2. Financial Statement Schedules
All financial statement schedules are omitted as the required information is not applicable or as the information required is included in the consolidated financial statements and related notes.

92
94


3. Exhibits: 
Exhibit
Number
Description
3.1
3.2
4.1
10.1
10.2
10.3
10.410.2
10.510.3
10.610.4
10.7
10.8
10.9
10.10
10.1110.5
10.1210.6
10.1310.7
10.1410.8

95


10.1510.9
10.1610.10
10.1710.11
10.1810.12
10.1910.13
10.20
10.2110.14
10.2210.15
10.2310.16
10.2410.17
93

10.2510.18
10.2610.19
10.2710.20
10.2810.21
10.2910.22
10.3010.23
10.3110.24
10.3210.25
10.3310.26

96


10.3410.27
10.3510.28
10.3610.29
10.3710.30
10.3810.31
10.3910.32
10.4010.33
10.41
10.4210.34
10.4310.35
10.4410.36
94

10.4510.37
10.4610.38
10.4710.39
10.4810.40
10.49
10.50
10.51

97


10.5210.41
10.53
10.54
10.5510.42
10.5610.43
10.5710.44
10.58*10.45
10.59*10.46
21.1*10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
95

10.57
10.58
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL 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).
(1)Management contract or compensatory plan or arrangement.
(1)*Management contract or compensatory plan or arrangement.
*Filed herewith.

Item 16.Form 10-K Summary
None
98
96


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
FAIR ISAAC CORPORATION
FAIR ISAAC CORPORATION
By
By/s/ MICHAEL I. MCLAUGHLIN
Michael I. McLaughlin
Executive Vice President

and Chief Financial Officer
DATE: November 10, 20209, 2022
POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael I. McLaughlin his or her attorney-in-fact, with full power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
97

/s/ WILLIAM J. LANSINGChief Executive Officer
(Principal Executive Officer)
and Director
November 9, 2022
William J. Lansing
/s/ WILLIAM J. LANSING
Chief Executive Officer
(Principal Executive Officer)
and Director

November 10, 2020
William J. Lansing
/s/ MICHAEL I. MCLAUGHLIN
Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)
November 10, 20209, 2022
Michael I. McLaughlin
/s/ MICHAEL S. LEONARD
Vice President and

Chief Accounting Officer

(Principal Accounting Officer)
November 10, 20209, 2022
Michael S. Leonard
/s/ A. GEORGE BATTLEFABIOLA R. ARREDONDODirectorNovember 10, 20209, 2022
A. George BattleFabiola R. Arredondo
/s/ BRADEN R. KELLYDirectorNovember 10, 20209, 2022
Braden R. Kelly
/s/ JAMES D. KIRSNERDirectorNovember 10, 20209, 2022
James D. Kirsner
/s/ EVA MANOLISDirectorNovember 10, 20209, 2022
Eva Manolis
/s/ MARC F. MCMORRISDirectorNovember 10, 20209, 2022
Marc F. McMorris
/s/ JOANNA REESDirectorNovember 10, 20209, 2022
Joanna Rees
/s/ DAVID A. REYDirectorNovember 10, 20209, 2022
David A. Rey
/s/ FABIOLA R. ARREDONDODirectorNovember 10, 2020
Fabiola R. Arredondo




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