What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-05 · 139 added, 129 removed, 456 unchanged (37% of the section changed)

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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 Form 10-Q and Current Reports on Form 8-K.

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 Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

We use analytics to help businesses automate, improve and connect decisions across their enterprise — an approach we commonly refer to as decision management.

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This helps our clients to reduce the cost of doing business, increase revenues and profitability, reduce losses from risks and fraud, and increase customer loyalty.

A significant portion of our revenues are derived from the sale of products and services within the banking (including consumer credit) industry, and 90% and 86% of our revenues were derived from within this industry during the quarters ended March 31, 2021 and 2020, respectively, and 87% and 85% of our revenues were derived from within this industry during the six months ended March 31, 2021 and 2020, respectively.

A significant portion of our revenues are derived from the sale of products and services within the banking (including consumer credit) industry, and 91% and 86% of our revenues were derived from within this industry during the quarters ended June 30, 2021 and 2020, respectively, and 89% and 86% of our revenues were derived from within this industry during the nine months ended June 30, 2021 and 2020, respectively.

In addition, we derive a significant share of revenues from transactional or unit-based software license fees, transactional fees derived under credit scoring and SaaS subscription services arrangements, and annual software maintenance fees.

Arrangements with transactional or unit-based pricing accounted for 85% and 78% of our revenues during the quarters ended March 31, 2021 and 2020, respectively.

Arrangements with transactional or unit-based pricing accounted for 83% and 76% of our revenues during the six months ended March 31, 2021 and 2020, respectively.

Arrangements with transactional or unit-based pricing accounted for 85% and 79% of our revenues during the quarters ended June 30, 2021 and 2020, respectively.

Arrangements with transactional or unit-based pricing accounted for 84% and 77% of our revenues during the nine months ended June 30, 2021 and 2020, respectively.

We derive a significant portion of our revenues from clients outside the U.S.

International revenues accounted for 29% and 32% of total consolidated revenues for the quarters ended March 31, 2021 and 2020, respectively, and 29% and 32% of total consolidated revenues for the six months ended March 31, 2021 and 2020, respectively.

Revenue increased 8% to $331.4 million during the quarter ended March 31, 2021 from $308.0 million for the quarter ended March 31, 2020, and 6% to $643.8 million during the six months ended March 31, 2021 from $606.5 million during the six months ended March 31, 2020.

International revenues accounted for 29% and 31% of total consolidated revenues for the quarters ended June 30, 2021 and 2020, respectively, and 29% and 32% of total consolidated revenues for the nine months ended June 30, 2021 and 2020, respectively.

Revenue increased 8% to $338.2 million during the quarter ended June 30, 2021 from $313.7 million for the quarter ended June 30, 2020, and 7% to $982.0 million during the nine months ended June 30, 2021 from $920.2 million during the nine months ended June 30, 2020.

We continue to drive growth in our Scores segment.

Scores revenue increased 31% to $168.7 million during the quarter ended March 31, 2021 from $129.1 million during the quarter ended March 31, 2020, and 28% to $313.4 million during the six months ended March 31, 2021 from $244.3 million during the six months ended March 31, 2020.

Scores operating income increased 29% to $146.5 million during the quarter ended March 31, 2021 from $113.5 million during the quarter ended March 31, 2020, and 28% to $269.6 million during the six months ended March 31, 2021 from $210.9 million during the six months ended March 31, 2020.

For our Applications and Decision Management Software segments, revenue decreased 9% to $162.6 million during the quarter ended March 31, 2021 from $178.8 million during the quarter ended March 31, 2020, and 9% to $330.4 million during the six months ended March 31, 2021 from $362.2 million during the six months ended March 31, 2020.

Scores revenue increased 31% to $172.2 million during the quarter ended June 30, 2021 from $131.6 million during the quarter ended June 30, 2020, and 29% to $485.6 million during the nine months ended June 30, 2021 from $375.8 million during the nine months ended June 30, 2020.

Scores operating income increased 33% to $146.8 million during the quarter ended June 30, 2021 from $110.2 million during the quarter ended June 30, 2020, and 30% to $416.4 million during the nine months ended June 30, 2021 from $321.1 million during the nine months ended June 30, 2020.

For our Applications and Decision Management Software segments, revenue decreased 9% to $166.0 million during the quarter ended June 30, 2021 from $182.2 million during the quarter ended June 30, 2020, and 9% to $496.4 million during the nine months ended June 30, 2021 from $544.4 million during the nine months ended June 30, 2020.

The decrease was largely attributable to the shift in the timing of revenue recognition on our term license subscription sales, as described below;

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In addition, this change does not negatively impact our cash flows.

Operating income increased 34% to $101.2 million during the quarter ended March 31, 2021 from $75.7 million during the quarter ended March 31, 2020, and net income increased 18% to $68.7 million during the quarter ended March 31, 2021 from $58.3 million during the quarter ended March 31, 2020.

Operating income increased 54% to $195.9 million during the six months ended March 31, 2021 from $127.6 million during the six months ended March 31, 2020, and net income increased 37% to $155.2 million from $113.2 million, primarily driven by higher operating income during the six months ended March 31, 2021, partially offset by lower excess tax benefits related to stock-based compensation.

We continued to advance our cloud-enabled, platform-based software strategy by exiting less strategic areas of our business in order to increase our focus on the FICO Decision Management Platform.

In May 2021, we signed a definitive agreement to sell our Collections and Recovery (“C&R”) business.

The transaction is expected to close in our current fiscal year, subject to customary closing conditions.

In June 2021, we divested the non-platform-based Collections and Recovery (“C&R”) business pursuant to our cloud-enabled, Decision Management Platform-based software strategy, and recognized an operating gain of $92.8 million from the divestiture.

Our operating income increased 135% to $194.4 million during the quarter ended June 30, 2021 from $82.9 million during the quarter ended June 30, 2020, primarily attributable to the gain recognition.

Net income increased 136% to $151.2 million during the quarter ended June 30, 2021 from $64.1 million during the quarter ended June 30, 2020, primarily driven by higher operating income, partially offset by a higher tax provision due to lower excess tax benefits related to stock-based compensation, as well as the gain from the C&R divestiture.

Operating income increased 85% to $390.3 million during the nine months ended June 30, 2021 from $210.5 million during the nine months ended June 30, 2020, and net income increased 73% to $306.4 million from $177.3 million.

We continue to enhance stockholder value by returning cash to stockholders through our stock repurchase program.

During the quarter and six months ended March 31, 2021, we repurchased approximately 440,588 shares at a total repurchase price of $205.2 million and 541,738 shares at a total repurchase price of $255.2 million, respectively.

As of March 31, 2021, we had $471.3 million remaining under our current stock repurchase program.

We intend to include the C&R sale proceeds in a $200 million Accelerated Share Repurchase program following the close of the transaction.

In June 2021, following the close of the C&R divestiture, we entered into an accelerated share repurchase agreement (“ASR Agreement”) to repurchase $200.0 million of our common stock.

During the quarter and nine months ended June 30, 2021, we repurchased approximately 489,000 shares, including 319,400 shares repurchased under the ASR Agreement, at a total repurchase price of $246.0 million and 1,031,000 shares, including 319,400 shares repurchased under the ASR Agreement, at a total repurchase price of $501.2 million, respectively.

As of June 30, 2021, we had $225.3 million remaining under our current stock repurchase program, which includes a $40.0 million prepayment under the ASR Agreement.

COVID-19 Update

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Bookings represent contracts signed in the current reporting period that generate current and future revenue streams.

While we disclose estimated revenue expected to be recognized in the future related to unsatisfied performance obligations in Note 11 to the accompanying condensed consolidated financial statements, we believe bookings amount is still a meaningful measure of our business as it includes estimated revenues omitted from Note 11, such as usage-based royalties derived from our software licenses, among others.

While we disclose estimated revenue expected to be recognized in the future related to unsatisfied performance obligations in Note 13 to the accompanying condensed consolidated financial statements, we believe the bookings amount is still a meaningful measure of our business as it includes estimated revenues omitted from Note 13, 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.

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(In millions) (Months)

Quarter Ended March 31, 2021 $ 84.0 10 % 13 34

Quarter Ended March 31, 2020 $ 84.1 14 % 15 35

Six Months Ended March 31, 2021 $ 152.1 17 % 24 NM (a)

Six Months Ended March 31, 2020 $ 196.2 23 % 40 NM (a)

Quarter Ended June 30, 2021 $ 75.5 12 % 10 30

Quarter Ended June 30, 2020 $ 106.2 15 % 16 37

Nine Months Ended June 30, 2021 $ 227.6 21 % 34 NM (a)

Nine Months Ended June 30, 2020 $ 302.4 29 % 56 NM (a)

(1) Bookings yield represents the percentage of revenue recognized from bookings for the periods indicated.

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(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.

Transactional and maintenance bookings were 58% and 44% of total bookings for the quarters ended March 31, 2021 and 2020, respectively.

Professional services bookings were 26% and 40% of total bookings for the quarters ended March 31, 2021 and 2020, respectively.

License bookings were 16% of total bookings for each of the quarters ended March 31, 2021 and 2020.

Transactional and maintenance bookings were 62% and 40% of total bookings for the six months ended March 31, 2021 and 2020, respectively.

Professional services bookings were 25% and 38% of total bookings for the six months ended March 31, 2021 and 2020, respectively.

License bookings were 13% and 22% of total bookings for the six months ended March 31, 2021 and 2020, respectively.

Transactional and maintenance bookings were 53% and 49% of total bookings for the quarters ended June 30, 2021 and 2020, respectively.

Professional services bookings were 28% and 39% of total bookings for the quarters ended June 30, 2021 and 2020, respectively.

License bookings were 19% of total bookings for each of the quarters ended June 30, 2021 and 2020.

Transactional and maintenance bookings were 59% and 44% of total bookings for the nine months ended June 30, 2021 and 2020, respectively.

Professional services bookings were 26% and 38% of total bookings for the nine months ended June 30, 2021 and 2020, respectively.

License bookings were 15% and 18% of total bookings for the nine months ended June 30, 2021 and 2020, respectively.

RESULTS OF OPERATIONS

The following tables set forth certain summary information on a segment basis related to our revenues for the quarters and six-month periods ended March 31, 2021 and 2020:

Quarter Ended March 31, Percentage of Revenues Period-to-Period Change Period-to-Period

The following tables set forth certain summary information on a segment basis related to our revenues for the quarters and nine-month periods ended June 30, 2021 and 2020:

Quarter Ended June 30, Percentage of Revenues Period-to-Period Change Period-to-Period

Percentage Change

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Total $ 338,184 $ 313,731 100 % 100 % 24,453 8 %

Six Months Ended March 31, Percentage of Revenues Period-to-Period Change Period-to-Period

Nine Months Ended June 30, Percentage of Revenues Period-to-Period Change Period-to-Period

Percentage Change

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Total $ 981,959 $ 920,206 100 % 100 % 61,753 7 %

Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020

Quarter Ended March 31, Period-to-Period Change Period-to-Period

Quarter Ended June 30, 2021 Compared to Quarter Ended June 30, 2020

Quarter Ended June 30, Period-to-Period Change Period-to-Period

Percentage Change

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Total $ 133,213 $ 141,460 (8,247) (6) %

Applications segment revenues decreased $10.8 million primarily due to a $7.5 million decrease in services revenue, a $2.2 million decrease in license revenue and a $1.1 million decrease in transactional and maintenance revenue.

Applications segment revenues decreased $8.2 million due to a $6.0 million decrease in services revenue and a $3.6 million decrease in license revenue, partially offset by a $1.3 million increase in transactional and maintenance revenue.

The decrease in services revenue was primarily due to our recent strategic shift to emphasize software over services.

The decrease in transactional and maintenance revenue was primarily attributable to a decrease in our fraud solutions revenue, partially offset by an increase in our marketing and compliance solutions revenue.

Quarter Ended March 31, Period-to-Period Change Period-to-Period

The increase in transactional and maintenance revenue was primarily attributable to an increase in SaaS subscription revenue.

Quarter Ended June 30, Period-to-Period Change Period-to-Period

Percentage Change

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Scores segment revenues increased $40.7 million due to an increase of $22.0 million in our business-to-business scores revenue and $18.7 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 insurance and auto resellers, as well as an increase in auto and mortgage volumes during the quarter ended March 31, 2021.

The increase in business-to-consumer services revenue was attributable to an increase in both royalties derived from direct sales generated from the myFICO.com website and scores sold indirectly to consumers through credit reporting agencies.

Revenues generated from our agreements with Experian, TransUnion, and Equifax accounted for 16%, 13% and 10%, respectively, of our total revenues for the quarter ended March 31, 2021.

Revenues generated from our agreements with Experian, TransUnion, and Equifax accounted for 16%, 10% and 8%, respectively, of our total revenues for the quarter ended March 31, 2020.

The increase in business-to-business scores revenue was primarily attributable to a higher unit price in the insurance and auto reseller markets, as well as higher origination volumes during the quarter ended June 30, 2021.

The increase in business-to-consumer services revenue was attributable to an increase in both royalties derived from scores sold indirectly to consumers through credit reporting agencies and direct sales generated from the myFICO.com website.

Revenues generated from our agreements with Experian, TransUnion, and Equifax accounted for 17%, 12% and 10%, respectively, of our total revenues for the quarter ended June 30, 2021.

Revenues generated from our agreements with Experian, TransUnion, and Equifax accounted for 15%, 11% and 9%, respectively, of our total revenues for the quarter ended June 30, 2020.

Revenues from these customers included amounts recorded in our other segments.

Decision Management Software

Quarter Ended March 31, Period-to-Period Change Period-to-Period

Quarter Ended June 30, Period-to-Period Change Period-to-Period

Percentage Change

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Total $ 32,769 $ 40,721 (7,952) (20) %

Decision Management Software segment revenues decreased $5.4 million primarily due to a $4.6 million decrease in license revenue and a $2.5 million decrease in services revenue, partially offset by a $1.7 million increase in transactional and maintenance revenue.

Decision Management Software segment revenues decreased $8.0 million primarily due to a $5.9 million decrease in license revenue and a $1.8 million decrease in services revenue.

The decrease in license revenue was primarily attributable to a decrease in the number and size of term license deals signed or renewed during the quarter ended June 30, 2021.

The decrease in services revenue was primarily due to our recent strategic shift to emphasize software over services.

The increase in transactional and maintenance revenue was primarily attributable to an increase in SaaS subscription revenue.

Six Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020

Six Months Ended March 31, Period-to-Period Change Period-to-Period

Nine Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020

Nine Months Ended June 30, Period-to-Period Change Period-to-Period

Percentage Change

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Total $ 398,088 $ 433,917 (35,829) (8) %

Applications segment revenues decreased $27.6 million primarily due to a $14.4 million decrease in license revenue, a $10.9 million decrease in services revenue, and a $2.2 million decrease in transactional and maintenance revenue.

The decrease in license revenue was primarily attributable to the shift in the timing of revenue recognition on our term license subscription sales as a result of changing our 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 the six months ended March 31, 2021, mainly in our fraud solutions.

Applications segment revenues decreased $35.8 million primarily due to an $18.1 million decrease in license revenue and a $16.9 million decrease in services revenue.

The decrease in license revenue was primarily attributable to the shift in the timing of revenue recognition on our term license subscription sales as a result of changing our 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 the nine months ended June 30, 2021, mainly in our fraud solutions.

The decrease in services revenue was primarily due to our recent strategic shift to emphasize software over services.

The decrease in transactional and maintenance revenue was primarily attributable to a decrease in our fraud solutions, partially offset by an increase in our compliance and marketing solutions.

Six Months Ended March 31, Period-to-Period Change Period-to-Period

Nine Months Ended June 30, Period-to-Period Change Period-to-Period

Percentage Change

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Scores segment revenues increased $109.7 million due to an increase of $62.5 million in our business-to-business scores revenue and $47.2 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 auto, unsecured originations and insurance, and an increase in mortgage and auto volumes, partially offset by a decrease in unsecured originations volume.

The increase in business-to-business scores revenue was primarily attributable to a higher unit price in the auto, unsecured originations and insurance markets, as well as higher origination volumes.

Revenues generated from our agreements with Experian, TransUnion, and Equifax accounted for 15%, 12% and 10%, respectively, of our total revenues for the six months ended March 31, 2021.

Revenues generated from our agreements with Experian, TransUnion, and Equifax accounted for 14%, 10% and 7%, respectively, of our total revenues for the six months ended March 31, 2020.

Revenues generated from our agreements with Experian, TransUnion, and Equifax accounted for 16%, 12% and 10%, respectively, of our total revenues for the nine months ended June 30, 2021.

Revenues generated from our agreements with Experian, TransUnion, and Equifax accounted for 14%, 10% and 8%, respectively, of our total revenues for the nine months ended June 30, 2020.

Revenues from these customers included amounts recorded in our other segments.

Decision Management Software

Six Months Ended March 31, Period-to-Period Change Period-to-Period

Nine Months Ended June 30, Period-to-Period Change Period-to-Period

Percentage Change

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Total $ 98,299 $ 110,453 (12,154) (11) %

Decision Management Software segment revenues decreased $4.2 million primarily due to a $6.1 million decrease in license revenue, and a $1.5 million decrease in services revenue, partially offset by a $3.5 million increase in transactional and maintenance revenue.

Decision Management Software segment revenues decreased $12.2 million due to a $12.0 million decrease in license revenue and a $3.4 million decrease in services revenue, partially offset by a $3.2 million increase in transactional and maintenance revenue.

The decrease in services revenue was primarily due to our recent strategic shift to emphasize software over services.

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Operating Expenses and Other Income / Expenses

The following tables set forth certain summary information related to our condensed consolidated statements of income and comprehensive income for the quarters and six-month periods ended March 31, 2021 and 2020:

Quarter Ended March 31, Percentage of Revenues Period-to-Period Change Period-to-

The following tables set forth certain summary information related to our condensed consolidated statements of income and comprehensive income for the quarters and nine-month periods ended June 30, 2021 and 2020:

Quarter Ended June 30, Percentage of Revenues Period-to-Period Change Period-to-

Percentage Change

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Amortization of intangible assets 810 1,048 — % — % (238) (23) %

Gains on product line asset sales and business divestiture (92,805) — (27) % — % (92,805) — %

Total operating expenses 143,800 230,860 43 % 74 % (87,060) (38) %

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Interest expense, net (10,018) (11,223) (3) % (4) % 1,205 (11) %

Other income (expense), net 568 (2,008) — % (1) % 2,576 (128) %

Other income, net 3,526 4,560 1 % 2 % (1,034) (23) %

Income before income taxes 187,892 76,208 56 % 24 % 111,684 147 %

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Number of employees at quarter end 3,841 4,065 (224) (6) %

Six Months Ended March 31, Percentage of Revenues Period-to-Period Change Period-to-

Nine Months Ended June 30, Percentage of Revenues Period-to-Period Change Period-to-

Percentage Change

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Restructuring and impairment charges — 3,104 — % — % (3,104) (100) %

Gain on sale of product line assets (7,334) — (1) % — % (7,334) — %

Gains on product line asset sales and business divestiture (100,139) — (10) % — % (100,139) — %

Total operating expenses 591,655 709,727 60 % 77 % (118,072) (17) %

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Interest expense, net (29,602) (32,245) (3) % (3) % 2,643 (8) %

Other income (expense), net 3,448 (2,227) 1 % — % 5,675 (255) %

Other income, net 6,974 2,333 1 % — % 4,641 199 %

Income before income taxes 367,676 180,567 37 % 20 % 187,109 104 %

Income tax provision (benefit) 24,618 (8,850) 4 % (1) % 33,468 (378) %

Income tax provision 61,312 3,282 6 % 1 % 58,030 1,768 %

Net income $ 306,364 $ 177,285 31 % 19 % 129,079 73 %

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and outside services.

The quarter-over-prior year quarter increase in cost of revenues of $0.2 million was primarily attributable to a $1.6 million increase in direct materials primarily driven by increased third-party data costs related to increased Scores revenue, partially offset by a $1.5 million decrease in travel activity due to COVID-19.

Cost of revenues as a percentage of revenues decreased to 27% during the quarter ended March 31, 2021 from 29% during the quarter ended March 31, 2020 primarily due to increased sales of our higher-margin Scores products.

The year-to-date period over period decrease in cost of revenues of $1.0 million was primarily attributable to a $3.6 million decrease in travel activity due to COVID-19, partially offset by a $2.9 million increase in direct materials primarily driven by increased third-party data costs related to increased Scores revenue.

Cost of revenues as a percentage of revenues decreased to 28% during the six months ended March 31, 2021 from 29% during the six months ended March 31, 2020, primarily due to increased sales of our higher-margin Scores products.

The quarter-over-prior year quarter decrease in cost of revenues of $6.3 million was primarily attributable to a $4.2 million decrease in personnel and labor costs and a $3.2 million decrease in allocated facilities and infrastructure costs, both largely driven by our strategic cost initiative implemented in September 2020, in which we reduced our workforce, consolidated office space and abandoned certain property and equipment.

The increase was partially offset by a $1.4 million increase in direct materials cost as a result of increased third-party data costs related to increased Scores revenue.

Cost of revenues as a percentage of revenues decreased to 24% during the quarter ended June 30, 2021 from 29% during the quarter ended June 30, 2020, primarily due to increased sales of our higher-margin Scores products.

The year-to-date period over period decrease in cost of revenues of $7.4 million was primarily attributable to $6.4 million decrease in allocated facilities and infrastructure costs and a $3.7 million decrease in travel costs, partially offset by a $4.3 million increase in direct materials cost.

The decrease in allocated facilities and infrastructure costs was primarily driven by our strategic cost initiative implemented in September 2020, in which we consolidated office space and abandoned certain property and equipment.

The decrease in travel costs was primarily attributable to a decrease in travel activity due to COVID-19.

The increase in direct materials cost was primarily driven by third-party data costs related to increased Scores revenue.

Cost of revenues as a percentage of revenues decreased to 26% during the nine months ended June 30, 2021 from 29% during the nine months ended June 30, 2020, primarily due to increased sales of our higher-margin Scores 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 quarter-over-prior year quarter increase in research and development expenses of $4.2 million was primarily attributable to an increase in labor and personnel costs as a result of increased headcount and increased fringe benefit costs related to our supplemental retirement and savings plan.

Research and development expenses as a percentage of revenues was 13% during each of the quarters ended March 31, 2021 and March 31, 2020.

The year-to-date period over period increase in research and development expenses of $5.9 million was primarily attributable to an increase in labor and personnel costs as a result of increased headcount and increased fringe benefit costs related to our supplemental retirement and savings plan.

Research and development expenses as a percentage of revenues was 13% during each of the six months ended March 31, 2021 and March 31, 2020.

The quarter-over-prior year quarter increase in research and development expenses of $4.4 million was primarily attributable to an increase in labor and personnel costs as a result of increased headcount.

Research and development expenses as a percentage of revenues increased to 14% during the quarter ended June 30, 2021 from 13% during the quarter ended June 30, 2020.

The year-to-date period over period increase in research and development expenses of $10.3 million was primarily attributable to an increase in labor and personnel costs as a result of increased headcount.

Research and development expenses as a percentage of revenues was 13% during each of the nine months ended June 30, 2021 and June 30, 2020.

Selling, General and Administrative

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and the cost of operating computer systems.

The quarter-over-prior year quarter decrease in selling, general and administrative expenses of $6.2 million was primarily attributable to a $2.7 million decrease in travel activity, a $2.1 million decrease in non-capitalizable commission cost, and a $2.1 million decrease in bad debt expense attributable to estimated losses for customers and industries most impacted by COVID-19 during the second quarter of our fiscal 2020.

Selling, general and administrative expenses as a percentage of revenues decreased to 29% during the quarter ended March 31, 2021 from 33% during the quarter ended March 31, 2020.

The year-to-date period over period decrease in selling, general and administrative expenses of $24.3 million was primarily attributable to a $7.6 million decrease in travel activity, a $4.5 million decrease in marketing costs primarily driven by a company-wide marketing event held during the first quarter of our fiscal 2020, a $4.7 million decrease in non-capitalizable commission cost, and a $2.1 million decrease in bad debt expense attributable to estimated losses for customers and industries most impacted by COVID-19 during the second quarter of our fiscal 2020.

Selling, general and administrative expenses as a percentage of revenues decreased to 30% during the six months ended March 31, 2021 from 36% during the six months ended March 31, 2020.

The quarter-over-prior year quarter increase in selling, general and administrative expenses of $7.9 million was primarily attributable to an increase in personnel and labor costs, primarily driven by an increase in share-based compensation and incentive costs, partially offset by a decrease in non-capitalizable commission cost.

Selling, general and administrative expenses as a percentage of revenues was 32% during each of the quarters ended June 30, 2021 and June 30, 2020.

The year-to-date period over period decrease in selling, general and administrative expenses of $16.4 million was primarily attributable to a $7.6 million decrease in travel costs, a $5.5 million decrease in allocated facilities and infrastructure costs, as well as a $4.1 million decrease in marketing costs.

The decrease in travel costs was due to a decrease in travel activity due to COVID-19.

The decrease in allocated 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.

The decrease in marketing costs was primarily driven by a company-wide marketing event held during the first quarter of our fiscal 2020.

Selling, general and administrative expenses as a percentage of revenues decreased to 31% during the nine months ended June 30, 2021 from 34% during the nine months ended June 30, 2020.

Amortization of Intangible Assets

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Our finite-lived intangible assets, consisting primarily of completed technology and customer contracts and relationships, are being amortized using the straight-line method over periods ranging from four to fifteen years.

Amortization expense was $0.9 million during the quarter ended March 31, 2021 compared to $1.2 million during the quarter ended March 31, 2020.

Amortization expense was $1.9 million during the six months ended March 31, 2021 compared to $3.0 million during the six months ended March 31, 2020.

Amortization expense was $0.8 million during the quarter ended June 30, 2021 compared to $1.0 million during the quarter ended June 30, 2020.

Amortization expense was $2.7 million during the nine months ended June 30, 2021 compared to $4.0 million during the nine months ended June 30, 2020.

The decrease was primarily attributable to certain assets associated with our Tonbeller acquisition becoming fully amortized in January 2020.

Restructuring and Impairment Charges

There were no restructuring expenses during the quarter and six months ended March 31, 2021.

There were no restructuring expenses during the quarter ended March 31, 2020.

During the six months ended March 31, 2020, we incurred employee separation costs of $3.1 million due to the elimination of 69 positions throughout the Company.

There were no restructuring expenses during the quarter and nine months ended June 30, 2021.

There were no restructuring expenses during the quarter ended June 30, 2020.

During the nine months ended June 30, 2020, we incurred employee separation costs of $3.1 million due to the elimination of 69 positions throughout the Company.

Cash payments for all the employee separation costs were paid during fiscal 2020.

Gain on Sale of Product Line Assets

The $7.3 million gain on the sale of product line assets during the six months ended March 31, 2021 was attributable to the sale of all assets related to our cyber risk score operations in October 2020;

and the sale of certain assets related to our Applications and Decision Management Software operations to an affiliated joint venture in China in December 2020.

Gains on Product Line Asset Sales and Business Divestiture

The $92.8 million g ain on product line asset sales and business divestiture during the quarter ended June 30, 2021 was attributable to the sale of the C&R business in June 2021.

The $100.1 million gain during the nine months ended June 30, 2021 also included a $7.3 million gain attributable to the sale of all assets related to our cyber risk score operations in October 2020, and the sale of certain assets related to our Applications and Decision Management Software operations to an affiliated joint venture in China in December 2020.

Interest Expense, Net

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Our condensed consolidated statements of income and comprehensive income include interest expense netted with interest income, which is derived primarily from the investment of funds in excess of our immediate operating requirements.

The quarter-over-prior year quarter decrease in interest expense of $1.3 million was primarily attributable to a lower average outstanding debt balance during the quarter ended March 31, 2021.

The year-to-date period over period decrease in interest expense of $1.4 million was primarily attributable to a lower average outstanding debt balance during the six months ended March 31, 2021.

Other Income (Expense), Net

Other income (expense), net consists primarily of realized investment gains/losses, exchange rate gains/losses resulting from remeasurement of foreign-currency-denominated receivable and cash balances 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 quarter-over-prior year quarter increase in other income (expense), net of $2.6 million was primarily attributable to an increase in net unrealized gains on our supplemental retirement and savings plan, partially offset by an increase in foreign currency exchange losses.

The year-to-date period over period increase in other income (expense), net of $5.7 million was primarily attributable to an increase in net unrealized gains on our supplemental retirement and savings plan during the six months ended March 31, 2021.

Income Tax Provision (Benefit)

The effective income tax rates were 25.2% and 6.7% during the quarters ended March 31, 2021 and 2020, respectively, and 13.7% and (8.5)% during the six months ended March 31, 2021 and 2020, respectively.

The quarter-over-prior year quarter decrease in interest expense of $1.2 million was primarily attributable to a lower average outstanding debt balance during the quarter ended June 30, 2021.

The year-to-date period over period decrease in interest expense of $2.6 million was primarily attributable to a lower average outstanding debt balance during the nine months ended June 30, 2021.

Other Income, Net

Other income, net consists primarily of realized investment gains/losses, exchange rate gains/losses resulting from remeasurement of foreign-currency-denominated receivable and cash balances 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 quarter-over-prior year quarter decrease in other income, net of $1.0 million was primarily attributable to a decrease in net unrealized gains on our supplemental retirement and savings plan.

The year-to-date period over period increase in other income, net of $4.6 million was primarily attributable to an increase in net unrealized gains on our supplemental retirement and savings plan during the nine months ended June 30, 2021.

Income Tax Provision

The effective income tax rates were 19.5% and 15.9% during the quarters ended June 30, 2021 and 2020, respectively, and 16.7% and 1.8% during the nine months ended June 30, 2021 and 2020, respectively.

The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the full fiscal year.

The effective tax rate in any quarter can also be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution.

The effective tax rates for the six months ended March 31, 2021 and 2020 were both impacted by the recording of excess tax benefits relating to stock awards.

In addition, stock exercises during the quarter and six months ended March 31, 2020 resulted in an additional increase in excess benefits.

The effective tax rates for the nine months ended June 30, 2021 and 2020 were both impacted favorably by the recording of excess tax benefits relating to stock awards.

In addition, the effective tax rate for the nine months ended June 30, 2021 was increased by the tax impact of the gain on the sale of C&R business.

Operating Income

The following tables set forth certain summary information on a segment basis related to our operating income (loss) for the quarters and six-month periods ended March 31, 2021 and 2020:

Quarter Ended March 31, Period-to-Period Change Period-to-Period

The following tables set forth certain summary information on a segment basis related to our operating income (loss) for the quarters and nine-month periods ended June 30, 2021 and 2020:

Quarter Ended June 30, Period-to-Period Change Period-to-Period

Percentage Change

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Unallocated amortization expense (810) (1,048) 238 (23) %

Unallocated gains on product line asset sales and business divestiture 92,805 — 92,805 — %

Operating income $ 194,384 $ 82,871 111,513 135 %

Six Months Ended March 31, Period-to-Period Change Period-to-Period

Nine Months Ended June 30, Period-to-Period Change Period-to-Period

Percentage Change

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Unallocated restructuring and impairment charges — (3,104) 3,104 (100) %

Unallocated gain on sale of product line assets 7,334 — 7,334 — %

Unallocated gains on product line asset sales and business divestiture 100,139 — 100,139 — %

Operating income $ 390,304 $ 210,479 179,825 85 %

Quarter Ended

March 31, Percentage of

Revenues Six Months Ended

March 31, Percentage of

June 30, Percentage of

Revenues Nine Months Ended

June 30, Percentage of

2021 2020 2021 2020 2021 2020 2021 2020

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Quarter Ended

March 31, Percentage of

Revenues Six Months Ended

March 31, Percentage of

June 30, Percentage of

Revenues Nine Months Ended

June 30, Percentage of

2021 2020 2021 2020 2021 2020 2021 2020

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Quarter Ended

March 31, Percentage of

Revenues Six Months Ended

March 31, Percentage of

June 30, Percentage of

Revenues Nine Months Ended

June 30, Percentage of

2021 2020 2021 2020 2021 2020 2021 2020

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Segment operating loss $ (15,243) $ (3,118) (47) % (8) % $ (40,233) $ (31,385) (41) % (28) %

The quarter-over-prior year quarter $25.5 million increase in operating income was primarily attributable to a $23.4 million increase in segment revenues, a $6.8 million decrease in segment operating expenses, and a $0.4 million decrease in corporate expenses, partially offset by a $5.4 million increase in share-based compensation cost.

At the segment level, the quarter-over-prior year quarter $30.6 million increase in segment operating income was the result of a $33.1 million increase in our Scores segment operating income and a $0.4 million decrease in corporate expenses, partially offset by a $1.5 million decrease in our Applications segment operating income and $1.4 million increase in our Decision Management Software segment operating loss.

The quarter-over-prior year quarter $1.5 million decrease in Applications segment operating income was due to a $10.8 million decrease in segment revenue, partially offset by a $9.3 million decrease in segment operating expenses.

Segment operating margin for Applications during the quarter ended March 31, 2021 was 21%, consistent with the quarter ended March 31, 2020.

The quarter-over-prior year quarter $111.5 million increase in operating income was primarily attributable to an $92.8 million gain on product line asset sales and business divestiture during the quarter ended June 30, 2021, a $24.5 million increase in segment revenues and a $5.0 million decrease in segment operating expenses, partially offset by an $8.5 million increase in share-based compensation cost and a $2.5 million increase in corporate expenses.

At the segment level, the quarter-over-prior year quarter $27.0 million increase in segment operating income was the result of a $36.6 million increase in our Scores segment operating income and a $5.0 million increase in our Applications segment operating income, partially offset by a $12.1 million increase in our Decision Management Software segment operating loss and a $2.5 million increase in corporate expenses.

The quarter-over-prior year quarter $5.0 million increase in Applications segment operating income was due to a $13.3 million decrease in segment operating expenses, partially offset by a $8.3 million decrease in segment revenue.

Segment operating income as a percentage of segment revenue for Applications increased to 27% from 21%, primarily attributable to a decrease in travel activity due to COVID-19, as well as our strategic cost initiative implemented in September 2020, in which we reduced our workforce, consolidated office space and abandoned certain property and equipment.

The quarter-over-prior year quarter $36.6 million increase in Scores segment operating income was due to a $40.7 million increase in segment revenue, partially offset by a $4.1 million increase in segment operating expenses.

Segment operating margin for Scores during the quarter ended March 31, 2021 was 87%, consistent with the quarter ended March 31, 2020.

The quarter-over-prior year quarter $1.4 million increase in Decision Management Software segment operating loss was due to a $5.4 million decrease in segment revenue, partially offset by a $4.0 million decrease in segment operating expenses.

Segment operating margin for Scores during the quarter ended June 30, 2021 was 85%, consistent with the quarter ended June 30, 2020.

The quarter-over-prior year quarter $12.1 million increase in Decision Management Software segment operating loss was due to a $7.9 million decrease in segment revenue and a $4.2 million increase in segment operating expenses.

Segment operating margin for Decision Management Software decreased to negative 47% from negative 8%, mainly due to a decrease in sales of our higher-margin software products.

The year-to-date period over period increase of $68.3 million in operating income was primarily attributable to a $37.3 million increase in segment revenues, a $22.6 million decrease in segment operating expenses, a $7.3 million gain on sale of product line assets, a $4.3 million decrease in corporate expenses, and a $3.1 million decrease in restructuring and impairment charges, partially offset by a $7.4 million increase in share-based compensation cost.

At the segment level, the year-to-date period over period increase of $64.2 million in segment operating income was the result of a $58.7 million increase in our Scores segment operating income, a $4.3 million decrease in corporate expenses, a $3.3 million decrease in our Decision Management Software segment operating loss, partially offset by a $2.1 million decrease in our Applications segment operating income.

The year-to-date period over period $2.1 million decrease in Applications segment operating income was due to a $27.6 million decrease in segment revenue, partially offset by a $25.5 million decrease in segment operating expenses.

The year-to-date period over period increase of $179.8 million in operating income was primarily attributable to a $100.1 million gain on product line asset sales and business divestiture during the nine months ended June 30, 2021, a $61.8 million increase in segment revenues, a $27.5 million decrease in segment operating expenses and a $3.1 million decrease in restructuring and impairment charges, partially offset by a $15.9 million increase in share-based compensation cost.

At the segment level, the year-to-date period over period increase of $91.1 million in segment operating income was the result of a $95.2 million increase in our Scores segment operating income, a $2.9 million increase in our Applications segment operating income and a $1.8 million decrease in corporate expenses, partially offset by an $8.8 million increase in our Decision Management Software segment operating loss.

The year-to-date period over period $2.9 million increase in Applications segment operating income was due to a $38.7 million decrease in segment operating expenses, partially offset by a $35.8 million decrease in segment revenue.

Segment operating income as a percentage of segment revenue for Applications increased to 25% from 22%, primarily attributable to a decrease in travel activity due to COVID-19, as well as our strategic cost initiative implemented in September 2020 in which we reduced our workforce, consolidated office space and abandoned certain property and equipment.

The year-to-date period over period $95.2 million increase in Scores segment operating income was attributable to a $109.7 million increase in segment revenue, partially offset by a $14.5 million increase in segment operating expenses.

Segment operating margin for Scores during the six months ended March 31, 2021 was 86%, consistent with the six months ended March 31, 2020.

The year-to-date period over period $3.3 million decrease in Decision Management Software segment operating loss was attributable to a $7.5 million decrease in segment operating expenses, partially offset by a $4.2 million decrease in segment revenue.

Segment operating margin for Decision Management Software improved to negative 38% from negative 41%, primarily attributable to a decrease in travel activity due to COVID-19, as well as our strategic cost initiative implemented in September 2020 through which we reduced our workforce, consolidated office space and abandoned certain property and equipment.

Segment operating margin for Scores during the nine months ended June 30, 2021 was 86%, consistent with the nine months ended June 30, 2020.

The year-to-date period over period $8.8 million increase in Decision Management Software segment operating loss was attributable to a $12.1 million decrease in segment revenue, partially offset by a $3.3 million decrease in segment operating expenses.

Segment operating margin for Decision Management Software decreased to negative 41% from negative 28%, mainly due to a decrease in sales of our higher-margin software products.

CAPITAL RESOURCES AND LIQUIDITY

As of March 31, 2021, we had $197.8 million in cash and cash equivalents, which included $124.8 million held by our foreign subsidiaries.

As of June 30, 2021, we had $237.6 million in cash and cash equivalents, which included $186.4 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 II, Item 1A titled “Risk Factors” of this Quarterly Report on Form 10-Q.

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Summary of Cash Flows

Six Months Ended March 31, Period-to-Period Change

Nine Months Ended June 30, Period-to-Period Change

(In thousands)

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Our primary method for funding operations and growth has been through cash flows generated from operating activities.

Net cash provided by operating activities increased to $231.5 million during the six months ended March 31, 2021 from $121.9 million during the six months ended March 31, 2020.

The $109.6 million increase was attributable to a $77.8 million increase that resulted from timing of receipts and payments in our ordinary course of business and a $42.0 million increase in net income, partially offset by a $10.2 million decrease in non-cash items, including a $7.3 million gain on the sale of product line assets.

Net cash provided by operating activities increased to $332.1 million during the nine months ended June 30, 2021 from $228.7 million during the nine months ended June 30, 2020.

The $103.3 million increase was attributable to a $129.1 million increase in net income and a $80.6 million increase that resulted from timing of receipts and payments in our ordinary course of business, partially offset by a $106.3 million decrease in non-cash items, including a $100.1 million gain on product line asset sales and business divestiture.

Cash Flows from Investing Activities

Net cash provided by investing activities was $1.7 million for the six months ended March 31, 2021 as compared to net cash used of $15.0 million for the six months ended March 31, 2020.

The $16.7 million change was primarily attributable to an $8.9 million decrease in purchases of property and equipment and $8.3 million in cash proceeds from the sale of product line assets for the six months ended March 31, 2021.

Net cash provided by investing activities was $137.6 million for the nine months ended June 30, 2021 as compared to net cash used of $23.3 million for the nine months ended June 30, 2020.

The $160.9 million change was primarily attributable to $146.4 million in cash proceeds from the product line asset sales and business divestiture during the nine months ended June 30, 2021 and a $15.3 million decrease in purchases of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities increased to $196.8 million for the six months ended March 31, 2021 from $100.3 million for the six months ended March 31, 2020.

The $96.5 million increase was primarily attributable to a $350.0 million decrease in proceeds from issuance of senior notes and a $102.3 million increase in repurchases of common stock, partially offset by a $256.0 million decrease in payments on our revolving line of credit and a $95.0 million increase in proceeds from our revolving line of credit.

Net cash used in financing activities increased to $394.6 million for the nine months ended June 30, 2021 from $183.5 million for the nine months ended June 30, 2020.

The $211.1 million increase was primarily attributable to a $350.0 million decrease in proceeds from issuance of senior notes and a $331.2 million increase in repurchases of common stock, partially offset by a $236.0 million increase in proceeds from our revolving line of credit and a $227.0 million decrease in payments on our revolving line of credit.

Repurchases of Common Stock

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This 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.

Pursuant to the July 2020 and March 2021 programs, we repurchased approximately 440,588 shares of our common stock at a total repurchase price of $205.2 million and 541,738 shares of our common stock at a total repurchase price of $255.2 million during the quarter and six months ended March 31, 2021, respectively.

As part of the broader share repurchase program, we entered into the ASR Agreement with Wells Fargo on June 17, 2021 to repurchase $200.0 million of our common stock.

Pursuant to the ASR Agreement, we paid $200.0 million to Wells Fargo and received an initial delivery of 319,400 shares of common stock, which approximated 80 percent of the total number of expected shares to be repurchased under the ASR Agreement.

The final number of shares to be repurchased and the average price paid per share will be determined upon the expected settlement of the agreement during the fourth quarter of fiscal 2021.

Pursuant to the July 2020 and March 2021 programs, we repurchased approximately 489,000 shares of our common stock, including 319,400 shares repurchased under the ASR Agreement, at a total repurchase price of $246.0 million and 1,031,000 shares of our common stock, including 319,400 shares repurchased under the ASR Agreement, at a total repurchase price of $501.2 million during the quarter and nine months ended June 30, 2021, respectively.

As of June 30, 2021, we had $225.3 million remaining under the March 2021 program, which includes a $40.0 million prepayment under the ASR Agreement.

Revolving Line of Credit

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The credit agreement also contains other covenants typical of unsecured facilities.

As of March 31, 2021, we had $225.0 million in borrowings outstanding at a weighted-average interest rate of 1.236% and we were in compliance with all financial covenants under this credit facility, and do not believe we are at material risk of not meeting these covenants due to COVID-19.

As of June 30, 2021, we had $316.0 million in borrowings outstanding at a weighted-average interest rate of 1.216% and we were in compliance with all financial covenants under this credit facility, and do not believe we are at material risk of not meeting these covenants due to COVID-19.

On May 8, 2018, we issued $400 million of senior notes in a private offering to qualified institutional investors (the “2018 Senior Notes”).

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The indentures for the Senior Notes contain certain covenants typical of unsecured obligations.

As of March 31, 2021, the carrying value of the Senior Notes was $750.0 million 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.

As of June 30, 2021, the carrying value of the Senior Notes was $750.0 million 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.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis