What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-11-10 compared with 2020-11-12 · 520 added, 454 removed, 789 unchanged (55% of the section changed)

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Fair Isaac Corporation

San Jose, California

Bozeman, 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, 2020 and 2019, and the related consolidated statements of Income and comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended September 30, 2020, and the related notes (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of Fair Isaac Corporation and subsidiaries (the "Company") as of September 30, 2021 and 2020, the related consolidated statements of income and comprehensive income, stockholders' equity (deficit), and cash flows, for each of the three years in the period ended September 30, 2021, 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, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, 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

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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

to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain 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;

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-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 -Refer to Note 1 to the financial statement

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relate 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 matter 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 separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Contracts with Customers – Refer to Note 1 and Note 12 to the financial statements

Critical Audit Matter Description

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software-as-a-service (SaaS) subscription services;

scoring and credit monitoring services for customers;

scoring and credit monitoring services for consumers;

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 weather the product or service are distinct.

Distinct product 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.

The Company’s contracts with customers often include 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 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 transactional revenue, the transaction price for contracts with customers 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;

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to revenue recognition and the Company’s identification of performance obligations, estimation of variable consideration, and determination of SSP included the following, among others:

Our audit procedures related to revenue recognition to 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.

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Operating lease right-of-use assets 47,275 57,656

Goodwill 788,185 812,364

Intangible assets, net 4,099 9,236

Deferred income taxes 20,549 14,629

Other assets 95,585 105,285

Total assets $ 1,567,776 $ 1,606,240

Liabilities and Stockholders’ Equity

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Commitments and contingencies

Stockholders’ equity:

Stockholders’ equity (deficit):

Preferred stock ($ 0.01 par value;

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Treasury stock, at cost ( 61,289 and 59,761 shares at September 30, 2021 and September 30, 2020, respectively)

( 3,857,855 ) ( 2,997,856 )

Retained earnings 2,585,143 2,193,059

Accumulated other comprehensive loss ( 75,854 ) ( 82,995 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total stockholders’ equity (deficit) ( 110,942 ) 331,082

Total liabilities and stockholders’ equity (deficit) $ 1,567,776 $ 1,606,240

See accompanying notes.

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Year Ended September 30,

2021 2020 2019

(In thousands, except per share data)

Transactional and maintenance

On-premises and SaaS software $ 517,888 $ 584,576 $ 556,968

Professional services 144,501 181,439 181,938

Scores 654,147 528,547 421,177

Total revenues 1,316,536 1,294,562 1,160,083

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Restructuring and impairment charges 7,957 45,029 —

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

Total operating expenses 811,047 998,593 906,535

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Provision for income taxes 81,058 20,589 23,948

Net income 392,084 236,411 192,124

Other comprehensive income (loss):

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FAIR ISAAC CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

Years Ended September 30, 2021, 2020 and 2019

Stock Accumulated

Comprehensive

Stockholders’

(In thousands)

Equity (Deficit)

(In thousands) Shares Par

Value Paid-in-

Capital Treasury

Stock Retained

Balance at September 30, 2018 29,015 $ 290 $ 1,211,051 $ ( 2,612,007 ) $ 1,764,524 $ ( 76,421 ) $ 287,437

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Repurchases of common stock ( 925 ) ( 9 ) — ( 228,885 ) — — ( 228,894 )

Net income — — — — 192,124 — 192,124

Foreign currency translation adjustments — — — — — ( 13,664 ) ( 13,664 )

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Repurchases of common stock ( 675 ) ( 7 ) — ( 235,216 ) — — ( 235,223 )

Net income — — — — 236,411 — 236,411

Foreign currency translation adjustments — — — — — 7,090 7,090

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Repurchases of common stock ( 1,877 ) ( 19 ) ( 3,982 ) ( 878,221 ) — — ( 882,222 )

Net income — — — — 392,084 — 392,084

Foreign currency translation adjustments — — — — — 7,141 7,141

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Year Ended September 30,

2021 2020 2019

(In thousands)

Cash flows from operating activities:

Net income $ 392,084 $ 236,411 $ 192,124

Adjustments to reconcile net income to net cash provided by operating activities:

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Net gain (loss) on marketable securities ( 4,569 ) ( 2,071 ) 761

Gain on sale of equity investments

Net loss on sales and abandonment of property and equipment 333 5,249 127

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

Changes in operating assets and liabilities:

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Purchases of marketable securities ( 9,039 ) ( 6,119 ) ( 6,404 )

Proceeds from sale of equity investments

Distribution from equity investments

Proceeds from product line asset sales and business divestiture 147,431 — —

Distribution from (purchase of) equity investment ( 210 ) 55 —

Cash paid for acquisitions, net of cash acquired — — ( 15,855 )

Net cash used in investing activities

Net cash provided by (used in) investing activities 137,850 ( 24,583 ) ( 42,760 )

Cash flows from financing activities:

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Effect of exchange rate changes on cash ( 136 ) 59 ( 1,140 )

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents 37,960 50,968 16,403

Cash and cash equivalents, beginning of year 157,394 106,426 90,023

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Cash paid for income taxes, net of refunds of $ 464 , $ 1,931 and $ 1,372 during the years ended September 30, 2021, 2020 and 2019, respectively

$ 71,486 $ 10,152 $ 18,779

Cash paid for interest $ 37,955 $ 37,735 $ 39,924

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Finance lease obligation incurred $ — $ 1,387 $ 5,803

Unsettled repurchases of common stock $ 8,043 $ — $ —

Purchase of property and equipment included in accounts payable $ 71 $ 166 $ 1,448

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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 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.

Fair Isaac Corporation (“FICO”), a Delaware corporation, was 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 companies, 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.

In these consolidated financial statements, FICO is referred to as “we,” “us,” “our,” or “the Company.”

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.

During the fourth quarter of our fiscal 2021, we reevaluated our operating segments to better align with how our chief operating decision maker (“CODM”), who is our Chief Executive Officer, evaluates performance and allocates resources.

The key factors evaluated included our evolving platform strategies, our go-to market considerations, and sales of our product lines and businesses during fiscal 2021, and in particular the divestiture of our Collections and Recovery (“C&R”) business in June 2021, among others.

As a result, we consolidated our operating segment structure from three to two by merging Applications and Decision Management Software segments into the new Software segment.

As a result, we modified the presentation of our segment financial information with retrospective application to all prior periods presented.

In addition, effective beginning in the fourth quarter of fiscal 2021, we changed the classification of revenue from transactional and maintenance, professional services, and license to on-premises and SaaS software, professional services and scores on our consolidated statements of income and comprehensive income, as well as our disclosures on disaggregation of revenue, to better align with our business strategy.

Previously reported amounts in the consolidated statements of income and comprehensive income and notes to the consolidated financial statements have been adjusted to conform to the current presentation.

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 for our customer contracts;

For example, we use estimates in determining 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;

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Cash and cash equivalents consist of cash in banks and investments with an original maturity of 90 days or less at time of purchase.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

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, approximate their carrying amounts because of the short-term maturity of these instruments.

The fair values of our cash and cash equivalents and marketable security investments are disclosed in Note 4.

The fair values of our cash and cash equivalents and marketable securities investments are disclosed in Note 5.

The fair value of our derivative instruments is disclosed in Note 6.

The fair value of our senior notes is disclosed in Note 10.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

We categorize our investments in debt and equity instruments as trading, available-for-sale or held-to-maturity at the time of purchase.

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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 banking industries.

A significant portion of our revenues are derived from the sales of products and services to the financial services industries.

Property and Equipment

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Estimated Useful Life

Data processing equipment and software

Office furniture and equipment

Leasehold improvements

Shorter of estimated

Data processing equipment and software 3 years to 6 years

Office furniture and equipment 3 years to 7 years

Leasehold improvements Shorter of estimated

useful life or lease term

Equipment under capital lease

Shorter of estimated

Equipment under capital lease Shorter of estimated

useful life or lease term

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 million , $ 24.2 million and $ 22.6 million during fiscal 2020, 2019 and 2018 , respectively.

FAIR ISAAC CORPORATION

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Years Ended September 30, 2021, 2020 and 2019

Depreciation and amortization on property and equipment totaled $ 20.3 million, $ 23.5 million and $ 24.2 million during fiscal 2021, 2020 and 2019, respectively.

Internal-Use Software

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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.

During the fourth quarter of fiscal 2021, we reevaluated our operating segments to better align with how our CODM evaluates performance and allocates resources, which resulted in a change from three operating segments, Applications, Decision Management Software and Scores, to two operating segments, Software and Scores.

As part of this reevaluation, we reconsidered our reporting units and concluded our operating segments continue to represent our reporting units.

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.

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 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.

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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.

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 2019 and 2020, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment.

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Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for any of our reporting units for fiscal 2019 and 2020.

We amortize our finite-lived intangible assets which result from our acquisitions over the following estimated useful lives:

Estimated Useful Life

Completed technology

Customer contracts and relationships

Non-compete agreements

FAIR ISAAC CORPORATION

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Years Ended September 30, 2021, 2020 and 2019

We amortize our finite-lived intangible assets which result from our acquisitions over the following estimated useful lives:

Estimated Useful Life

Completed technology 4 years to 10 years

Customer contracts and relationships 5 years to 10 years

Trade names 1 year

Non-compete agreements 2 years

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.

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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 contracts in 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 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.

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 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.

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 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 $ 5.7 million , $ 5.0 million and $ 4.5 million during the years ended September 30, 2020, 2019 and 2018 , 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.

See Note 15 for our discussion on disaggregation of revenues, and Note 16 for contract balances and performance obligations.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services.

See Note 12 for further discussion on 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 and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over 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.

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Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

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.

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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.

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.

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Foreign currency translation adjustments are accumulated as a separate component of consolidated stockholders’ equity.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

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.

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Share-Based Compensation

We measure stock-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 measure share-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 16 for further discussion of our share-based employee benefit plans.

Advertising and Promotion Costs

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.

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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, the FASB issued ASU No.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018-15, Intangibles—Goodwill and Other (Topic 350):

Internal-Use Software.

Internal-Use Software (“ASU 2018-15”).

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.

The standard is effective for fiscal years and 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.

We do not believe that adoption of ASU 2018-15 will have a significant impact on our consolidated financial statements.

We adopted ASU 2018-15 in the first quarter of our fiscal 2021 and the adoption did not have a significant impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No.

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Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance:

ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”).

ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-11 (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.

We adopted Topic 326 in the first quarter of our fiscal 2021 and the adoption did not have a significant impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

We do not expect that any recently issued accounting pronouncements will have a significant effect on our financial statements.

Business Combinations

There were no acquisitions incurred during fiscal 2020.

There were no acquisitions incurred during fiscal 2021 and 2020.

In fiscal 2019, we acquired 100 % of the equity of eZmCom, Inc.

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We recorded $ 6.0 million of intangible 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 goodwill to our Applications segment that is deductible for tax purposes.

There were no acquisitions incurred during fiscal 2018.

We allocated $ 11.2 million of goodwill to our Software segment that is deductible for t ax purposes.

FAIR ISAAC CORPORATION

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Years Ended September 30, 2021, 2020 and 2019

Business Divestiture

On May 4, 2021, we entered into a definitive agreement to sell our C&R business to Jonas Collections and Recovery Inc.

(“Jonas”), a company in the Jonas Software operating group of Constellation Software Inc.

The decision to sell the C&R business was the result of management’s decision to divest certain software products that are not built on FICO ® Platform.

This divestiture will allow us to focus our development and go-to market resources on the growth of our Platform products.

On June 7, 2021, we completed the sale to Jonas.

As the C&R business has the input, process, and output elements defined in Accounting Standards Codification 805, Business Combinations , we concluded the sale qualified as a sale of a business.

The gain recognized from the sale was $ 92.8 million, which was recorded in gains on product line asset sales and business divestiture within the accompanying consolidated statements of income and comprehensive income.

Our C&R business was part of our Software segment.

In addition, we sold all assets related to our cyber risk score operations in October 2020, and sold certain assets related to our Software operations to an affiliated joint venture in China in December 2020.

The net gain realized from both transactions was immaterial.

Cash, Cash Equivalents and Marketable Securities

The following is a summary of cash, cash equivalents and marketable securities at September 30, 2021 and 2020:

September 30, 2020

September 30, 2019

September 30, 2021 September 30, 2020

Cost Fair Value Amortized

Cost Fair Value

(In thousands)

Cash and Cash Equivalents:

Cash $ 195,160 $ 195,160 $ 122,119 $ 122,119

Money market funds 194 194 35,275 35,275

Bank time deposits

Total $ 195,354 $ 195,354 $ 157,394 $ 157,394

Long-term Marketable Securities:

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We did not have any assets that are valued using inputs identified under a Level 2 hierarchy as of September 30, 2021 and 2020.

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.

We measure the fair value of our senior notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

• 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.

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The following table represents financial assets that we measured at fair value on a recurring basis at September 30, 2021 and 2020:

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

September 30, 2020

Active Markets for

September 30, 2021 Active Markets for

Identical Instruments

Fair Value as of September 30, 2020

(Level 1) Fair Value as of September 30, 2021

(In thousands)

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Marketable securities (2)

September 30, 2019

Active Markets for

31,884 31,884

Total $ 32,078 $ 32,078

September 30, 2020 Active Markets for

Identical Instruments

Fair Value as of September 30, 2019

(Level 1) Fair Value as of September 30, 2020

(In thousands)

Cash equivalents (1)

$ 35,275 $ 35,275

Marketable securities (2)

25,513 25,513

Total $ 60,788 $ 60,788

(1) Included in cash and cash equivalents on our consolidated balance sheets at September 30, 2021 and 2020.

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Included in long-term marketable securities on our consolidated balance sheets at September 30, 2021 and 2020.

For the fair value of our derivative instruments and senior notes, see Note 5 and Note 9, respectively.

See Note 10 for the fair value of our senior notes.

There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the years ended September 30, 2021, 2020 or 2019.

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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, 2020 and 2019 :

FAIR ISAAC CORPORATION

1 unchanged sentence

Years Ended September 30, 2021, 2020 and 2019

The following tables summarize our outstanding foreign currency forward contracts, by currency, at September 30, 2021 and 2020:

September 30, 2021

Contract Amount

Contract Amount Fair Value

Currency USD USD

(In thousands)

Sell foreign currency:

Euro (EUR) EUR 17,100 $ 19,829 —

Buy foreign currency:

British pound (GBP)

Singapore dollar (SGD)

British pound (GBP) GBP 11,467 $ 15,400 —

Singapore dollar (SGD) SGD 6,650 $ 4,900 —

September 30, 2020

Contract Amount

Contract Amount Fair Value

Currency USD USD

(In thousands)

Sell foreign currency:

Euro (EUR) EUR 15,000 $ 17,656 —

Buy foreign currency:

British pound (GBP)

Singapore dollar (SGD)

British pound (GBP) GBP 16,555 $ 21,300 —

Singapore dollar (SGD) SGD 7,815 $ 5,700 —

The foreign currency forward contracts were entered into on September 30 of each fiscal year;

therefore, their fair value was $ 0 at September 30, 2021 and 2020.

Losses on derivative financial instruments are recorded in our consolidated statements of income and comprehensive income as a component of other income, net.

Gains (losses) on derivative financial instruments are recorded in our consolidated statements of income and comprehensive income as a component of other income, net.

These amounts are shown below for the years ended September 30, 2021, 2020 and 2019:

Year Ended September 30,

2021 2020 2019

(In thousands)

Loss on foreign currency forward contracts

Gain (loss) on foreign currency forward contracts $ 2,064 $ ( 347 ) $ ( 896 )

Goodwill and Intangible Assets

Intangible assets that are subject to amortization consisted of the following at September 30, 2021 and 2020:

September 30, 2020

September 30, 2019

September 30, 2021 September 30, 2020

Amount Accumulated

Amortization Net Average

Amount Accumulated

Amortization Net Average

(In thousands, except average life)

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Non-compete agreements — — — — 350 ( 204 ) 146 2

$ 85,527 $ ( 81,428 ) $ 4,099 6 $ 103,446 $ ( 94,210 ) $ 9,236 6

FAIR ISAAC CORPORATION

4 unchanged sentences

Year Ended September 30,

2021 2020 2019

(In thousands)

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Customer contracts and relationships 2,082 2,927 4,098

Trade names — 125 25

Non-compete agreements 146 175 29

Total $ 3,255 $ 4,993 $ 6,126

Estimated future intangible asset amortization expense associated with intangible assets existing at September 30, 2021, was as follows (in thousands):

Year Ending September 30,

Total $ 4,099

The following table summarizes changes to goodwill during fiscal 2021 and 2020, both in total and as allocated to our operating segments.

We have not recognized any goodwill impairment losses to date.

Decision Management Software

Scores Software Total

(In thousands)

Balance at September 30, 2019 $ 146,648 $ 656,894 $ 803,542

Addition from acquisitions

Foreign currency translation adjustment — 8,822 8,822

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Foreign currency translation adjustment — 1,417 1,417

C&R business divestiture — ( 25,596 ) ( 25,596 )

Balance at September 30, 2021 $ 146,648 $ 641,537 $ 788,185

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accumulated depreciation and amortization ( 97,053 ) ( 114,700 )

Total $ 27,913 $ 46,419

Other assets:

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Prepaid commissions 44,932 38,579

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.

Others 13,201 12,632

Total $ 95,585 $ 105,285

Revolving Line of Credit

On May 8, 2018, we amended our 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 from 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) a base rate, which is the greater 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.

On August 19, 2021, we amended our credit agreement with a syndicate of banks, increasing our borrowing capacity under the unsecured revolving line of credit to $ 600 million and extended its maturity to 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) an adjusted base rate, which is the greatest 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 0.750 % and for LIBOR borrowings ranges from 1.000 % to 1.750 % and is determined based on our consolidated leverage ratio.

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The credit facility contains certain restrictive covenants, including maintaining a maximum consolidated leverage ratio of 3.50 , subject to a step up to 4.00 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.

and a minimum interest coverage ratio of 3.00 .

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

As of September 30, 2021, we had $ 518.0 million in borrowings outstanding at a weighted-average interest rate of 1.212 % and we were in compliance with all financial covenants under this credit facility.

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 four series as follows:

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

Interest Rate

Maturity Date

(In millions)

July 14, 2016

July 14, 2017

July 14, 2019

July 14, 2020

On July 14, 2020, the aggregate principal amount of Series H of 2010 Senior Notes was repaid at maturity.

At September 30, 2020, the 2010 Senior Notes were no longer outstanding.

In October 2021, we further amended the credit agreement.

See Note 23 for additional information.

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”).

We used the net proceeds to repay a large portion of the outstanding balance on our revolving credit facility.

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 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 the 2018 Senior Notes and the 2019 Senior Notes contain certain covenants typical of unsecured obligations.

The indentures for the 2018 Senior Notes and the 2019 Senior Notes contain customary affirmative and negative covenants, including certain events of default, typical of unsecured obligations.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

The following table presents the carrying amounts and fair values for the Senior Notes at September 30, 2021 and 2020:

September 30, 2020

September 30, 2019

Face Value (*)

September 30, 2021 September 30, 2020

Face Value (*) Fair Value Face Value (*) Fair Value

(In thousands)

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The 2019 Senior Notes 350,000 357,000 350,000 358,750

The 2019 Senior Notes

(*) The carrying value of the Senior Notes was reduced by the net debt issuance costs of $ 10.6 million and $ 5.2 million at September 30, 2020 and 2019 , respectively.

Total $ 750,000 $ 810,000 $ 750,000 $ 800,750

(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $ 9.0 million and $ 10.6 million at September 30, 2021 and 2020, respectively.

Future principal payments for the Senior Notes are as follows (in thousands):

Year Ending September 30,

Thereafter 350,000

Total $ 750,000

Accelerated Share Repurchase

We have authorization to make repurchases of shares of our common stock from time to time in the open 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.

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 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.

FAIR ISAAC CORPORATION

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Years Ended September 30, 2021, 2020 and 2019

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 a certain level of usage and a consumption-based variable amount in excess of the minimum threshold;

or a consumption-based variable fee not subject to a minimum threshold.

The nature of our SaaS 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).

Our professional services include software implementation, consulting, model development and training.

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 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 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 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.

Disaggregation of Revenue

As discussed in Note 1, effective beginning in the fourth quarter of fiscal 2021, we changed the classification of revenue from transactional and maintenance, professional services, and license to on-premises and SaaS software, professional services and scores on our consolidated statements of income and comprehensive income, as well as our disclosures on disaggregation of revenue to better align with our business strategy.

Previously reported amounts in the consolidated statements of income and comprehensive income and notes herein have been adjusted to conform to the current presentation.

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 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:

Year Ended September 30, 2021

Scores Software Total Percentage

(Dollars in thousands)

Americas $ 633,497 $ 416,436 $ 1,049,933 80 %

Europe, Middle East and Africa 11,881 178,515 190,396 14 %

Asia Pacific 8,769 67,438 76,207 6 %

Total $ 654,147 $ 662,389 $ 1,316,536 100 %

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Year Ended September 30, 2020

Scores Software Total Percentage

(Dollars in thousands)

Americas $ 514,909 $ 477,316 $ 992,225 76 %

Europe, Middle East and Africa 6,385 197,199 203,584 16 %

Asia Pacific 7,253 91,500 98,753 8 %

Total $ 528,547 $ 766,015 $ 1,294,562 100 %

Year Ended September 30, 2019

Scores Software Total Percentage

(Dollars in thousands)

Americas $ 409,369 $ 463,083 $ 872,452 75 %

Europe, Middle East and Africa 6,359 188,827 195,186 17 %

Asia Pacific 5,449 86,996 92,445 8 %

Total $ 421,177 $ 738,906 $ 1,160,083 100 %

The following table provides information about disaggregated revenue for our Software segment by deployment method:

Year Ended September 30, Percentage of revenues

2021 2020 2019 2021 2020 2019

(Dollars in thousands)

On-premises software $ 266,452 $ 347,532 $ 342,848 51 % 59 % 62 %

SaaS software 251,436 237,044 214,120 49 % 41 % 38 %

Total $ 517,888 $ 584,576 $ 556,968 100 % 100 % 100 %

The following table provides information about disaggregated revenue for our Software segment by product features:

Year Ended September 30, Percentage of revenues

2021 2020 2019 2021 2020 2019

(Dollars in thousands)

Platform software (*) $ 66,884 $ 65,665 $ 39,175 13 % 11 % 7 %

Non-Platform software 451,004 518,911 517,793 87 % 89 % 93 %

Total $ 517,888 $ 584,576 $ 556,968 100 % 100 % 100 %

(*) The FICO platform software is a set of interoperable services which use software assets owned and/or governed by FICO for building solutions and which conform to FICO architectural standards based on key elements of Cloud Native Computing design principles.

These standards encompass shared security context and pre-integration using FICO standard application programming interfaces for all services.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

The following table provides information about disaggregated revenue for our Software segment by timing of revenue recognition:

Year Ended September 30, Percentage of revenues

2021 2020 2019 2021 2020 2019

(Dollars in thousands)

Software recognized at a point time (1)

$ 59,024 $ 127,666 $ 111,308 11 % 22 % 20 %

Software recognized over contract term (2)

458,864 456,910 445,660 89 % 78 % 80 %

Total $ 517,888 $ 584,576 $ 556,968 100 % 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 to the customer, or at the start of the subscription.

(2) Includes maintenance portion and usage-based fees of our on-premises subscription software, maintenance revenue on perpetual licenses, as well as SaaS revenue.

The following table provides information about disaggregated revenue for our Scores segment by distribution method:

Year Ended September 30, Percentage of revenues

2021 2020 2019 2021 2020 2019

(Dollars in thousands)

Business-to-business Scores $ 446,538 $ 381,929 $ 302,103 68 % 72 % 72 %

Business-to-consumer Scores 207,609 146,618 119,074 32 % 28 % 28 %

Total $ 654,147 $ 528,547 $ 421,177 100 % 100 % 100 %

We derive a substantial portion of revenues from our contracts with the three major consumer reporting agencies, TransUnion, Equifax and Experian.

Revenues collectively generated by agreements with these customers accounted for 38 %, 33 % and 29 % of our total revenues in fiscal 2021, 2020 and 2019, respectively, with all three consumer reporting agencies contributing more than 10% of our total revenues in fiscal 2021, and one contributing more than 10% of our total revenues in fiscal 2020 and 2019.

At September 30, 2021, only one individual customer accounted for 10% or more of total consolidated receivables.

At September 30, 2020, no 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.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Receivables at September 30, 2021 and 2020 consisted of the following:

September 30,

(In thousands)

Billed $ 198,305 $ 211,776

Unbilled 155,408 181,550

353,713 393,326

allowance for doubtful accounts ( 4,154 ) ( 5,072 )

Net receivables 349,559 388,254

long-term receivables * ( 37,452 ) ( 54,074 )

Short-term receivables * $ 312,107 $ 334,180

(*) Short-term receivables and long-term receivables were recorded in accounts receivable, net and other assets, respectively, within the accompanying consolidated balance sheets.

Activity in the allowance for doubtful accounts was as follows:

Year Ended September 30,

(In thousands)

Allowance for doubtful accounts, beginning balance $ 5,072 $ 2,568

expense 652 3,199

write-offs (net of recoveries) ( 1,570 ) ( 695 )

Allowance for doubtful accounts, ending balance $ 4,154 $ 5,072

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,

(In thousands)

Deferred revenues, beginning balance $ 122,141 $ 116,320

Revenue recognized that was included in the deferred revenues balance at the beginning of the period ( 84,735 ) ( 101,640 )

Decrease due to divestiture of the C&R business ( 16,671 ) —

Increases due to billings, excluding amounts recognized as revenue during the period 90,028 107,461

Deferred revenues, ending balance (*) $ 110,763 $ 122,141

(*) Ending balance at September 30, 2021 included current portion of $ 105.4 million and long-term portion of $ 5.4 million that were recorded in deferred revenue and other liabilities, respectively, within the consolidated balance sheets.

Ending balance at September 30, 2020 included current portion of $ 115.1 million and long-term portion of $ 7.0 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.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

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:

• Usage-based revenue that will be recognized in future periods from on-premises software subscriptions;

• Future billings on guaranteed minimums derived from on-premises software licenses;

• Consumption-based variable fees from SaaS software that will be recognized in the distinct service period during which it is earned;

• 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 $ 289.0 million as of September 30, 2021, of which we expect to recognize approximately 50 % over the next 18 months and the remainder thereafter.

Revenue allocated to remaining performance obligations was $ 298.0 million as of September 30, 2020.

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.

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.

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.

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.

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 $ 44.9 million and $ 38.6 million at September 30, 2021 and 2020, respectively.

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 $ 6.0 million, $ 5.7 million, and $ 5.0 million during the years ended September 30, 2021, 2020 and 2019, respectively.

There was no impairment loss in relation to the costs capitalized.

These costs are recorded within selling, general, and administrative expenses.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Employee Benefit Plans

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Restructuring and Impairment Charges

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 will be paid by 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.

1 unchanged sentence

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 end of our fiscal 2021.

There were no restructuring and impairment charges incurred during fiscal 2019 and 2018.

The following tables summarize our restructuring accruals associated with the employee separation actions.

The current portion and non-current portion were recorded in other accrued liabilities and other liabilities, respectively, within the accompanying consolidated balance sheets.

Accrual at September 30, 2018

Accrual Adjustments

Cash payments for all those employee separation costs were fully paid before the end of our fiscal 2021.

There were no restructuring and impairment charges incurred during fiscal 2019.

The following tables summarize our restructuring accruals.

At September 30 2021, 2020, and 2019, the balances were classified as current liabilities and recorded in other accrued liabilities within the accompanying consolidated balance sheets.

Accrual at September 30, 2019 Expense

Additions Cash

Payments Accrual Adjustments (*)

Accrual at September 30, 2020

1 unchanged sentence

Facilities charges $ 1,378 $ — $ — $ ( 1,378 ) $ —

current portion

Accrual at September 30, 2019

Accrual Adjustments (*)

Accrual at September 30, 2020

Employee separation — 11,768 ( 3,577 ) — 8,191

1,378 $ 11,768 $ ( 3,577 ) $ ( 1,378 ) 8,191

Accrual at September 30, 2020 Expense

Additions Cash

Payments Accrual Adjustments Accrual at September 30, 2021

(In thousands)

Facilities charges

Employee separation 8,191 7,956 ( 8,291 ) — 7,856

current portion

8,191 $ 7,956 $ ( 8,291 ) $ — 7,856

(*) 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.

4 unchanged sentences

Year ended September 30,

2021 2020 2019

(In thousands)

Federal $ 43,437 $ 14,566 $ 1,299

State 7,961 2,180 ( 423 )

Foreign 35,615 12,482 15,371

87,013 29,228 16,247

Federal ( 4,602 ) ( 8,575 ) 7,003

State ( 948 ) ( 957 ) 947

Foreign ( 405 ) 893 ( 249 )

( 5,955 ) ( 8,639 ) 7,701

Total provision $ 81,058 $ 20,589 $ 23,948

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Operating lease liabilities 17,076 21,827

Other assets 16,711 9,000

93,403 91,482

valuation allowance ( 28,403 ) ( 24,563 )

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As of September 30, 2021, we had 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.

federal and foreign net operating loss (“NOL”) carryforwards of approximately $ 6.7 million and $ 29.2 million, respectively.

federal NOLs were acquired in connection with our acquisitions of Adeptra in fiscal 2012 and Infoglide in fiscal 2013.

federal NOL carryforward will expire 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 $ 29.2 million of foreign NOL includes $ 4.9 million related to China and $ 18.1 million related to Germany.

1 unchanged sentence

Utilization of the U.S.

federal and state NOLs are subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, 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 .

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 $ 17.1 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 $ 17.1 million.

There is approximately $3.0 million of excess Foreign Tax Credit.

The foreign tax credit is not expected to be utilized fully in future tax, and a valuation allowance of $3.0 million has been recorded.

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:

federal statutory income tax rate of 21 % to income before provision for income taxes for fiscal 2021, 2020 and 2019 is shown below:

Year Ended September 30,

2021 2020 2019

(In thousands)

5 unchanged sentences

Research credits ( 6,795 ) ( 5,868 ) ( 5,761 )

Domestic production deduction

Amended returns/audit settlements/statute expirations

Valuation allowance 3,839 5,332 ( 333 )

Foreign tax credit and foreign withholding tax

Excess tax benefits relating to stock-based compensation

Tax effect of the Tax Act

Excess tax benefits relating to share-based compensation ( 15,573 ) ( 45,086 ) ( 24,891 )

GILTI, FDII and BEAT ( 4,958 ) 7,136 1,467

Other ( 4,120 ) ( 7 ) 3,058

Recorded income tax provision $ 81,058 $ 20,589 $ 23,948

The decrease in 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.

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.

The increase in our income tax provision in fiscal 2021 compared to fiscal 2020 is 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.

The decrease in our income tax provision in fiscal 2020 compared to fiscal 2019 is due to the excess tax benefits related to share-based compensation.

As of September 30, 2021, we had approximately $ 141.5 million of unremitted earnings of non-U.S.

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Year Ended September 30,

2021 2020 2019

(In thousands)

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As of September 30, 2021, we had accrued interest of $ 0.4 million related to the unrecognized tax benefits.

Stock-Based Employee Benefit Plans

Share-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.

We maintained the 2012 Long-Term Incentive Plan (the “2012 Plan”) under which we were authorized to issue equity awards, including 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 were eligible to receive awards under the 2012 Plan.

Upon effectiveness of the new long-term incentive plan on March 3, 2021 as described further below, no new awards may be made under the 2012 Plan.

On March 3, 2021, our shareholders approved the adoption of 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 Plan on March 3, 2021.

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.

Stock option awards have a maximum term of seven years .

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 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.

At September 30, 2021, there were 5,850,154 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 common stock to eligible employees.

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 on the last trading day of each offering period.

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, 2021, there were 907,300 shares available for issuance under the 2019 Purchase Plan.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

We satisfy stock option exercises, vesting of restricted stock units and the 2019 Purchase Plan issuances from treasury shares.

6 unchanged sentences

In fiscal 2021 we received $ 4.4 million in cash from stock option exercises, with the tax benefit realized for the tax deductions from these exercises of $ 3.7 million.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

Stock-Based Activity

Share-Based Activity

Stock Options

2 unchanged sentences

Year Ended September 30,

2021 2020 2019

Stock Options:

8 unchanged sentences

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.

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.

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.

3 unchanged sentences

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.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

The following table summarizes option activity during fiscal 2021:

Shares Weighted-

Price Weighted-

Term Aggregate

Intrinsic Value

(In thousands)

(In thousands) (In years) (In thousands)

Outstanding at September 30, 2020 246 $ 166.80

Granted 21 485.77

Exercised ( 40 ) 108.81

Forfeited ( 1 ) 506.91

Outstanding at September 30, 2021 226 $ 205.90 3.44 $ 45,263,900

Exercisable at September 30, 2021 163 $ 168.38 2.85 $ 37,659,408

Vested and expected to vest at September 30, 2020

Vested or expected to vest at September 30, 2021 225 $ 204.66 3.42 $ 45,173,168

The weighted-average fair value of options granted were $ 139.11 , $ 99.30 and $ 59.63 during fiscal 2021, 2020 and 2019, 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 aggregate intrinsic value of options outstanding at September 30, 2021 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 that had exercise prices lower than the $ 397.93 market price of our common stock at September 30, 2021.

The total intrinsic value of options exercised was $ 15.8 million, $ 132.6 million and $ 99.1 million during fiscal 2021, 2020 and 2019, respectively, determined as of the date of exercise.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

Restricted Stock Units

2 unchanged sentences

The following table summarizes the RSUs activity during fiscal 2021:

Weighted-average Grant-date Fair Value

Shares Weighted-average Grant-date Fair Value

(In thousands)

Outstanding at September 30, 2020 721 $ 229.10

Granted 182 505.70

Released ( 311 ) 197.53

Forfeited ( 75 ) 300.05

Outstanding at September 30, 2021 517 $ 335.16

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We reassess the probability at each reporting period and recognize the cumulative effect of the change in estimate in the period of change.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

The following table summarizes the PSUs activity during fiscal 2021:

Weighted- average Grant-date Fair Value

Shares Weighted- average Grant-date Fair Value

(In thousands)

Outstanding at September 30, 2020 127 $ 248.97

Granted 67 506.91

Released ( 68 ) 217.36

Outstanding at September 30, 2021 126 $ 403.61

1 unchanged sentence

The total intrinsic value of the PSUs that vested was $ 34.7 million, $ 36.5 million and $ 19.3 million during fiscal 2021, 2020 and 2019, respectively, determined as of the date of vesting.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

Market Share Units

4 unchanged sentences

Year Ended September 30,

2021 2020 2019

Expected volatility in FICO’s stock price

41.3 % 25.2 % 24.6 %

Expected volatility in Russell 3000 Index 23.7 % 12.9 % 12.8 %

Correlation between FICO and the Russell 3000 Index

77.5 % 64.0 % 66.6 %

Risk-free interest rate 0.20 % 1.67 % 2.73 %

6 unchanged sentences

The following table summarizes the MSUs activity during fiscal 2021:

Weighted- average Grant-date Fair Value

Shares Weighted- average Grant-date Fair Value

(In thousands)

Outstanding at September 30, 2020 63 $ 311.91

Granted 67 471.16

Released ( 67 ) 257.15

Outstanding at September 30, 2021 63 $ 541.42

1 unchanged sentence

The total intrinsic value of the MSUs that vested was $ 34.5 million, $ 44.6 million and $ 21.6 million during fiscal 2021, 2020 and 2019, 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 no shares purchased during fiscal 2019.

FAIR ISAAC CORPORATION

1 unchanged sentence

Years Ended September 30, 2021, 2020 and 2019

Employee Stock Purchase Plan

The compensation expense on the employee stock purchase plan arises from the 15 % discount offered to participants.

During fiscal 2021, a total of 42,402 shares of our common stock with a weighted-average purchase price of $389.61 per share was issued under the 2019 Purchase Plan.

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.

Earnings per Share

1 unchanged sentence

Year Ended September 30,

2021 2020 2019

(In thousands, except per share data)

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Earnings per share:

Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

Basic $ 13.65 $ 8.13 $ 6.63

Diluted $ 13.40 $ 7.90 $ 6.34

Anti-dilutive share-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

Segment Information

We are organized into the following three 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.

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.

During the fourth quarter of our fiscal 2021, we reevaluated our operating segments to better align with how our CODM, who is our Chief Executive Officer, evaluates performance and allocates resources.

As a result, we consolidated our operating segment structure from three to two by merging Applications and Decision Management Software segments into the new Software segment.

All periods presented have been adjusted to reflect these changes.

The new segments are as follows:

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.

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.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Our CODM 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.

4 unchanged sentences

rather, depreciation amounts are allocated to the segments from their internal cost centers as described above.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

The following tables summarize segment information for fiscal 2021, 2020 and 2019:

Year Ended September 30, 2021

Decision Management Software

Scores Software Unallocated

Expenses Total

(In thousands)

Segment revenues:

Transactional and maintenance

On-premises and SaaS software $ — $ 517,888 $ — $ 517,888

Professional services — 144,501 — 144,501

Scores 654,147 — — 654,147

Total segment revenues 654,147 662,389 — 1,316,536

Segment operating expense ( 93,463 ) ( 557,242 ) ( 136,812 ) ( 787,517 )

Segment operating income (loss)

Segment operating income $ 560,684 $ 105,147 $ ( 136,812 ) $ 529,019

Unallocated share-based compensation expense ( 112,457 )

1 unchanged sentence

Unallocated restructuring and impairment charges ( 7,957 )

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

Operating income 505,489

3 unchanged sentences

Depreciation expense $ 667 $ 19,505 $ 147 $ 20,319

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Year Ended September 30, 2020

Decision Management Software

Scores Software Unallocated

Expenses Total

(In thousands)

Segment revenues:

Transactional and maintenance

On-premises and SaaS software $ — $ 584,576 $ — $ 584,576

Professional services — 181,439 — 181,439

Scores 528,547 — — 528,547

Total segment revenues 528,547 766,015 — 1,294,562

Segment operating expense ( 74,237 ) ( 635,949 ) ( 144,704 ) ( 854,890 )

Segment operating income (loss)

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 income 295,969

3 unchanged sentences

Depreciation expense $ 617 $ 22,418 $ 418 $ 23,453

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

Year Ended September 30, 2019

Decision Management Software

Scores Software Unallocated

Expenses Total

(In thousands)

Segment revenues:

Transactional and maintenance

On-premises and SaaS software $ — $ 556,968 $ — $ 556,968

Professional services — 181,938 — 181,938

Scores 421,177 — — 421,177

Total segment revenues 421,177 738,906 — 1,160,083

Segment operating expense ( 59,821 ) ( 612,860 ) ( 144,755 ) ( 817,436 )

Segment operating income (loss)

Segment operating income $ 361,356 $ 126,046 $ ( 144,755 ) 342,647

Unallocated share-based compensation expense ( 82,973 )

5 unchanged sentences

Depreciation expense $ 498 $ 22,802 $ 904 $ 24,204

Information about disaggregated revenue by product deployment methods was as follows:

Year Ended September 30, 2020

Reportable Segments

(Dollars in thousands)

Decision Management Software

Year Ended September 30, 2019

Reportable Segments

(Dollars in thousands)

Decision Management Software

FAIR ISAAC CORPORATION

1 unchanged sentence

Years Ended September 30, 2021, 2020 and 2019

Year Ended September 30, 2018

Reportable Segments

(Dollars in thousands)

Decision Management Software

We derive a significant portion of revenues internationally, 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 revenue by primary geographical markets was as follows:

Year Ended September 30, 2020

Reportable Segments

North America

Latin America

Europe, Middle East and Africa

(In thousands)

Decision Management Software

Year Ended September 30, 2019

Reportable Segments

North America

Latin America

Europe, Middle East and Africa

(In thousands)

Decision Management Software

Year Ended September 30, 2018

Reportable Segments

North America

Latin America

Europe, Middle East and Africa

(In thousands)

Decision Management Software

Within 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.

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 of total revenue are summarized below for fiscal 2020, 2019 and 2018 :

Year Ended September 30,

(Dollars in thousands)

TransUnion and Equifax

Other customers

At September 30, 2020 and 2019 , 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 September 30, 2020 and 2019 :

September 30,

(Dollars in thousands)

United States

United Kingdom

Other countries

Contract Balances and Performance Obligations

Contract Balances

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, 2020 and 2019 consisted of the following:

September 30,

(In thousands)

allowance for doubtful accounts

Net receivables

long-term receivables *

Short-term receivables *

(*) Short-term receivables and long-term receivables were recorded in accounts receivable, net and other assets, respectively, within the accompanying consolidated balance sheets.

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,

(In thousands)

Allowance for doubtful accounts, beginning balance

write-offs (net of recoveries)

Allowance for doubtful accounts, ending balance

Contract assets balance at September 30, 2020 and 2019 was immaterial.

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,

(In thousands)

Deferred revenues, beginning balance

Revenue recognized that was included in the deferred revenues balance at the beginning of the period

Increases due to billings, excluding amounts recognized as revenue during the period

Deferred revenues, ending balance (*)

(*) Ending balance at September 30, 2020 included current portion of $ 115.1 million and long-term portion of $ 7.0 million that were recorded in deferred revenue and other liabilities, respectively, within the consolidated balance sheets.

Ending balance at September 30, 2019 included current portion of $ 111.0 million and long-term portion of $ 5.3 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.

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

This does not include:

Revenue that will be recognized in future periods from usage-based royalty from license sales;

SaaS transactional revenue from variable considerations that will be recognized in the distinct service period during which it is earned;

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 million as of September 30, 2020, 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 million as of September 30, 2019.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

We lease office space and data centers under operating lease arrangements, which constitute the majority of our lease obligations.

15 unchanged sentences

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:

Balance Sheet Location

September 30, 2020

The following table presents the lease balances within the accompanying consolidated balance sheet as of September 30, 2021 and 2020:

Balance Sheet Location September 30,

(In thousands)

Operating leases

Operating lease right-of-use assets

Finance leases (*)

Property and equipment, net

Operating leases Operating lease right-of-use assets $ 47,275 $ 57,656

Finance leases (*) Property and equipment, net — 5,021

Total lease assets $ 47,275 $ 62,677

Operating leases

Other accrued liabilities

Finance leases

Other accrued liabilities

Operating leases

Operating lease liabilities

Finance leases

Other liabilities

Operating leases Other accrued liabilities $ 22,074 $ 22,787

Finance leases Other accrued liabilities — 2,186

Operating leases Operating lease liabilities 53,670 73,207

Finance leases Other liabilities — 3,076

Total lease liabilities $ 75,744 $ 101,256

(*) Finance leases are recorded net of accumulated depreciation of $ 1.5 million .

(*) Finance leases were recorded net of accumulated depreciation of $ 1.5 million at September 30, 2020.

FAIR ISAAC CORPORATION

2 unchanged sentences

The components of our operating and finance lease expenses were as follows:

September 30, 2020

Year Ended September 30,

(In thousands)

8 unchanged sentences

September 30,

Operating Leases

Finance Leases

Operating lease:

Weighted-average remaining lease term (in months) 53 63

Weighted-average discount rate 3.64 % 3.86 %

Finance lease:

Weighted-average remaining lease term (in months) 0 29

Weighted-average discount rate — % 2.56 %

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Supplemental cash flow information related to our operating and finance leases was as follows:

September 30, 2020

Year Ended September 30,

(In thousands)

7 unchanged sentences

Future lease payments under our non-cancellable leases as of September 30, 2021 were as follows:

(In thousands)

Operating Leases

Finance Leases

(In thousands) Operating Leases

Fiscal 2022 $ 24,441

Fiscal 2023 19,621

Fiscal 2024 14,025

Fiscal 2025 8,639

Fiscal 2026 7,602

Thereafter 7,522

Total future undiscounted lease payments 81,850

1 unchanged sentence

Total reported lease liability $ 75,744

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.

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, were as follows:

(In thousands)

Operating Leases

Capital Leases

Total minimum lease payments

Less amount representing interest

Present value of minimum lease payments

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.

7 unchanged sentences

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 is probable that a loss has occurred, and would recognize any such losses under the guarantees and indemnifications when those losses are estimable.

In addition, we continue to monitor the conditions that are subject to the guarantees and indemnifications to identify whether it

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

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.

6 unchanged sentences

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.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2020, 2019 and 2018

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,

(In thousands, except per share data)

Cost of revenues (1)

Earnings per share (2):

Shares used in computing earnings per share:

Quarter Ended

September 30,

(In thousands, except per share data)

Cost of revenues (1)

Earnings per share (2):

Shares used in computing earnings per share:

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.

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.

Subsequent Events

In October 2020, we entered into a purchase agreement with Rackspace US, Inc.

(“Rackspace”) pursuant to which Rackspace will provide to us primary cloud infrastructure services as a reseller of AWS.

The initial term is a five-year period for which we have a minimum purchase obligation of $ 120 million over the first 3 years with the ability to roll up to $ 12 million into a fourth year if we spend less than the minimum commitment.

The purpose of this agreement is to replace services that were previously provided directly through AWS.

Subsequent Event

In October 2021, we amended our credit agreement with a syndicate of banks to allow for the issuance of $ 300 million in term loans, increasing the total capacity of the agreement to $ 900 million.

The term loans are subject to the same pricing and covenants as the revolving line of credit, a description of which is provided in Note 9, and mature at the expiration of the facility on August 19, 2026 .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data