What changed in this filing

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Item 1A. Risk Factors

2022-01-27 compared with 2021-08-03 · 121 added, 110 removed, 308 unchanged (43% of the section changed)

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COVID-19 has caused shutdowns to businesses and cities worldwide and has disrupted supply chains, business operations, travel, and consumer confidence.

As a result of the COVID-19 pandemic, we have temporarily closed the majority of our offices (including our corporate headquarters in the United States) and implemented travel restrictions, both of which have disrupted how we operate our business.

Due in part to anticipated post-pandemic workforce patterns, we have permanently closed certain non-core offices, reduced certain other office space and reduced our global workforce.

As a result of the COVID-19 pandemic, we temporarily closed the majority of our offices (including our corporate headquarters in the United States), but are in the process of re-opening them while extending our company-wide voluntary work from home policy until March 31, 2022 and allowing the majority of our workforce the flexibility to work remotely on an ongoing basis.

In addition, we continue to impose certain travel restrictions where applicable.

Both of these actions have disrupted how we operate our business.

Due in part to anticipated post-pandemic workforce patterns, in late fiscal 2020 and early fiscal 2021, we permanently closed certain non-core offices, reduced certain other office space and reduced our global workforce.

Our operations may be further negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control.

For example, many cities, counties, states, and countries may continue to impose a wide range of restrictions on our employees’, partners’ and customers’ physical movement to limit the spread of COVID-19.

We have postponed, canceled or shifted certain of our customer, employee or industry events to virtual-only experiences and may continue to do so in the future.

For example, many cities, counties, states, and countries may impose or continue to impose requirements and restrictions related to COVID-19 that affect us, including a wide range of restrictions on our employees’, partners’ and customers’ physical movement to limit the spread of COVID-19.

We postponed, canceled or shifted certain of our customer, employee or industry events to virtual-only experiences and may decide to do so in the future.

If the COVID-19 pandemic has a substantial impact on our employees’, partners’ or customers’ productivity or ability to collaborate, our results of operations and overall financial performance may be harmed.

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The COVID-19 pandemic may affect the rate of spending on our solutions and could adversely affect our customers’ ability or willingness to purchase our products and services, cause prospective customers to change product selections or term commitments, delay or cancel their purchasing decisions, extend sales cycles, and potentially increase payment defaults, all of which could adversely affect our future revenues, results of operations and overall financial performance.

We have seen evidence that COVID-19 has adversely affected certain segments and originations volume, which may impact future revenue.

We are unable to accurately predict the complete impact that COVID-19 will have on our future results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the severity and transmission rate of the virus and its variants, the duration and any resurgence of the outbreak, the extent and effectiveness of containment actions, the effectiveness of any medical treatment and prevention options, and the impact of these and other factors on us, our employees, customers, partners and vendors, and on worldwide and U.S.

COVID-19 has adversely affected certain segments and originations volume, which may impact future revenue .

We are unable to accurately predict the complete impact that COVID-19 will have on our future results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the severity and transmission rate of the virus and its variants, the duration and any resurgence of the outbreak, the extent and effectiveness of containment actions, the effectiveness and acceptance of any medical treatment and prevention options, and the impact of these and other factors on us, our employees, customers, partners and vendors, and on worldwide and U.S.

economic conditions.

If we are not able to respond to and manage these impacts effectively, our business may be harmed to a material extent.

We continue to expand the pursuit of our Decision Management strategy, and we may not be successful, which could cause our growth prospects and results of operations to suffer.

We continue to expand the pursuit of our business objective to become a leader in helping businesses automate and improve decisions across their enterprises, an approach that we commonly refer to as Decision Management, or “DM.” We have increasingly focused our DM strategy on bringing our Decision Management software together in a flexible, extensible, and cloud-native platform approach (the FICO Decision Management Platform).

Our DM strategy is designed to enable us to increase our business by selling multiple connectable and extensible DM products to clients, as well as to enable the development of custom client solutions and to allow our clients to more easily expand their usage and the use cases they enable over time.

The market may be unreceptive to our general DM business approach, including being unreceptive to our cloud-based offerings, unreceptive to purchasing multiple products from us, or unreceptive to our customized solutions.

As we continue to pursue our DM strategy, we may experience volatility in our revenues and operating results caused by various factors, including differences in revenue recognition treatment between our cloud-based offerings and on-premise software licenses, the timing of investments and other expenditures necessary to develop and operate our cloud-based offerings, and the adoption of new sales and delivery methods.

If our DM strategy is not successful, we may not be able to grow our business, growth may occur more slowly than we anticipate, or our revenues and profits may decline.

We may not be successful in executing our business strategy, which could cause our growth prospects and results of operations to suffer.

We have increasingly focused our business strategy on investing significant development resources to enable substantially all of our software to run on FICO ® Platform, our modular software offering designed to enable advanced analytics and decisioning use cases.

Our business strategy is designed to enable us to increase our business by selling multiple connectable and extensible products to clients, as well as to enable the development of custom client solutions and to allow our clients to more easily expand their usage and the use cases they enable over time.

The market may be unreceptive to our general business approach, including being unreceptive to our cloud-based offerings, unreceptive to purchasing multiple products from us, or unreceptive to our customized solutions.

As we continue to pursue our business strategy, we may experience volatility in our revenues and operating results caused by various factors, including differences in revenue recognition treatment between our cloud-based offerings and on-premises software licenses, the timing of investments and other expenditures necessary to develop and operate our cloud-based offerings, and the adoption of new sales and delivery methods.

If our business strategy is not successful, we may not be able to grow our business, growth may occur more slowly than we anticipate, or our revenues and profits may decline.

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

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

We rely on relatively few customers, as well as our contracts with the three major credit reporting agencies, for a significant portion of our revenues and profits.

We rely on relatively few customers, as well as our contracts with the three major consumer reporting agencies, for a significant portion of our revenues and profits.

Many of our customers are significantly larger than we are and may have greater bargaining power.

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If these customers are negatively impacted by weak global economic conditions, global economic volatility or the terms of these relationships otherwise change, our revenues and operating results could decline.

Most of our customers are relatively large enterprises, such as banks, payment card processors, insurance companies, healthcare firms, telecommunications providers, retailers and public agencies.

Most of our customers are relatively large enterprises, such as banks, credit card issuers, insurers, retailers, telecommunications providers, automotive companies, public agencies, and organizations in other industries.

As a result, many of our customers and potential customers are significantly larger than we are and may have sufficient bargaining power to demand reduced prices and favorable nonstandard terms.

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Such disruption, whether arising in connection with the current COVID-19 pandemic or otherwise, could result in a decline in the volume of transactions that we execute for our customers.

We also derive a substantial portion of our revenues and operating income from our contracts with the three major credit reporting agencies, Experian, TransUnion and Equifax, and other parties that distribute our products to certain markets.

The loss of or a significant change in a relationship with one of these credit reporting agencies with respect to their distribution of our products or with respect to our myFICO ® offerings, the loss of or a significant change in a relationship with a major customer, the loss of or a significant change in a relationship with a significant third-party distributor (including payment card processors), or the delay of significant revenues from these sources, could have a material adverse effect on our revenues and results of operations.

We also derive a substantial portion of our revenues and operating income from our contracts with the three major consumer reporting agencies in the U.S., Experian, TransUnion and Equifax, and other parties that distribute our products to certain markets.

The loss of or a significant change in a relationship with one of the three consumer reporting agencies with respect to their distribution of our products or with respect to our myFICO ® offerings, the loss of or a significant change in a relationship with a major customer, the loss of or a significant change in a relationship with a significant third-party distributor (including payment card processors), or the loss of or delay of significant revenues from these sources, could have a material adverse effect on our revenues and results of operations.

If use of the FICO ® Score by Fannie Mae and Freddie Mac were to cease or decline, it could have a material adverse effect on our revenues, results of operations and stock price.

A significant portion of our revenues in our Scores segment is attributable to the U.S.

mortgage market, which includes, for conforming mortgages in that market, a requirement of The Federal National Mortgage Association (“Fannie Mae”) and The Federal Home Loan Mortgage Corporation (“Freddie Mac”) that U.S.

lenders provide FICO ® Scores for each mortgage delivered to them.

However, their continued use of the FICO Score is currently subject to validation and approval by those enterprises and the Federal Housing Finance Agency.

If Fannie Mae and Freddie Mac approve other credit score models for use by them, or do not approve the FICO Score for continued use by them, it could have a material adverse effect on our revenues, results of operations and stock price.

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

We expect that part of the growth that we seek to achieve through our DM strategy will be derived from the sale of DM products and service solutions in industries and markets we do not currently serve.

We also expect to grow our business by delivering our DM solutions through additional distribution channels.

If we fail to penetrate these industries and markets to the degree we anticipate utilizing our DM strategy, or if we fail to develop additional distribution channels, we may not be able to grow our business, growth may occur more slowly than we anticipate, or our revenues and profits may decline.

We expect that part of the growth that we seek to achieve through our business strategy will be derived from the sale of products and service solutions in industries and markets we do not currently serve.

We also expect to grow our business by delivering our solutions through additional distribution channels.

If we fail to penetrate these industries and markets to the degree we anticipate utilizing our business strategy, or if we fail to develop additional distribution channels, we may not be able to grow our business, growth may occur more slowly than we anticipate, or our revenues and profits may decline.

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

Our growth and the success of our DM strategy depend upon our ability to develop and sell new products or suites of products, including the development and sale of our cloud-based product offerings.

Our growth and the success of our business strategy depend upon our ability to develop and sell new products or suites of products, including the development and sale of our cloud-based product offerings.

If we are unable to develop new products, or if we are not successful in introducing new products, we may not be able to grow our business or growth may occur more slowly than we anticipate.

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To increase our revenues, we must enhance and improve existing products and continue to introduce new products and new versions of existing products that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance.

We believe much of the future growth of our business and the success of our DM strategy will rest on our ability to continue to expand into newer markets for our products and services.

We believe much of the future growth of our business and the success of our business strategy will rest on our ability to continue to expand into newer markets for our products and services.

Such areas are relatively new to our product development and sales and marketing personnel.

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In addition, we may not be able to compete successfully against our competitors, and this inability could impair our capacity to sell our products.

The market for business analytics is rapidly evolving and highly competitive, and we expect competition in this market to persist and intensify.

The market for our solutions is intensely competitive and is constantly changing, and we expect competition to persist and intensify.

Our regional and global competitors vary in size and in the scope of the products and services they offer, and include:

• in-house analytic and systems developers;

• neural network developers and artificial intelligence system builders;

• fraud and compliance solutions providers;

• scoring model builders;

• fraud and security management providers;

• enterprise resource planning, customer relationship management, and customer communication and mobility solution providers;

• business intelligence solutions providers;

• credit report and credit score providers;

• providers of credit reports and credit scores;

• software companies supplying predictive analytic modeling, rules, or analytic development tools;

• entity resolution and social network analysis solutions providers;

• providers of customer engagement and risk management solutions;

• providers of account/workflow management software;

• business process management and decision rules management providers;

• process modeling tools providers;

• automated application processing services providers;

• data vendors;

• neural network developers and artificial intelligence system builders;

• enterprise resource planning and customer relationship management solutions providers;

• business intelligence solutions providers;

• providers of automated application processing services;

• third-party professional services and consulting organizations.

• account/workflow management software providers;

• software tools companies supplying modeling, rules, or analytic development tools;

collections and recovery solutions providers;

entity resolution and social network analysis solutions providers;

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

We expect to experience additional competition from other established and emerging companies, as well as from other technologies.

We expect to experience additional competition from other established and emerging companies.

This could include customers of ours that develop their own scoring models or other products, and as a result no longer purchase or reduce their purchases from us.

We also expect to experience competition from other technologies.

For example, certain of our fraud solutions products compete against other methods of preventing payment card fraud, such as payment cards that contain the cardholder’s photograph;

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In addition, certain of our distributors presently compete with us and may compete with us in the future, either by developing competitive products themselves or by distributing competitive offerings.

For example, Experian, TransUnion and Equifax have developed a credit scoring product to compete directly with our products and are collectively attempting to sell the product.

For example, Experian, TransUnion and Equifax have developed a credit scoring product to compete directly with our products and are collectively selling the product.

Competition from distributors or other sales and marketing partners could significantly harm sales of our products and services.

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

We have acquired and expect to continue to acquire companies, businesses, products, services and technologies.

Acquisitions involve significant risks and uncertainties, including:

• our ongoing business may be disrupted and our management’s attention may be diverted by acquisition, transition or integration activities;

• an acquisition may not further our business strategy as we expected, we may not integrate acquired operations or technology as successfully as we expected or we may overpay for our investments, or otherwise not realize the expected return, which could adversely affect our business or operating results;

• we may be unable to retain the key employees, customers and other business partners of the acquired operation;

• we may have difficulties entering new markets where we have no or limited direct prior experience or where competitors may have stronger market positions;

• our operating results or financial condition may be adversely impacted by known or unknown claims or liabilities we assume in an acquisition or that are imposed on us as a result of an acquisition, including claims by government agencies or authorities, terminated employees, current or former customers, former stockholders or other third parties;

• we may not realize the anticipated increase in our revenues from an acquisition for a number of reasons, including if a larger than predicted number of customers decline to renew their contracts, if we are unable to incorporate the acquired technologies or products with our existing product lines in a uniform manner, if we are unable to sell the acquired products to our customer base or if contract models of an acquired company or changes in accounting treatment do not allow us to recognize revenues on a timely basis;

• our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, dividend payments and retirement of outstanding indebtedness;

• to the extent we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.

Because acquisitions are inherently risky, our transactions may not be successful and may have a material adverse effect on our business, results of operations, financial condition or cash flows.

Acquisitions of businesses having a significant presence outside the U.S.

will increase our exposure to the risks of conducting operations in international markets.

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

As part of our management approach, we pursue ongoing reengineering efforts designed to grow revenues through strategic resource allocation and improve profitability through cost reductions.

For example, in September 2020, we implemented a course of action designed to reduce our operating costs in lower value, less strategic areas of our business in order to facilitate incremental investment in higher value, more strategic areas while also reducing our facilities footprint in light of anticipated post-pandemic workforce patterns.

In September 2021, we further reduced our operating costs primarily through a reduction of headcount.

In addition, we have implemented a Remote Work Policy which allows a portion of our workforce to partially or fully work from home.

These and other reengineering efforts may not be successful over the long term should we fail to reduce expenses at the anticipated level, should we fail to increase revenues to anticipated levels or at all, or should productivity decline or employees’ ability to collaborate fall as a result of the Remote Work Policy.

If our reengineering efforts are not successful over the long term, our revenues, results of operations and business may suffer.

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

As part of our strategy, we continuously evaluate our portfolio of businesses.

We have previously, are currently, and may in the future make other changes to our portfolio as well, which may be material.

We have previously and may in the future make other changes to our portfolio as well, which may be material.

Divestitures involve risks, including:

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

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

As part of our management approach, we pursue ongoing reengineering efforts designed to grow revenues through strategic resource allocation and improve profitability through cost reductions.

In addition, we are in the process of implementing a new Remote Work Policy which will allow a portion of our workforce to partially or fully work from home.

If our reengineering efforts are not successful over the long term, our revenues, results of operations and business may suffer.

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

We have acquired and expect to continue to acquire companies, businesses, products, services and technologies.

Acquisitions involve significant risks and uncertainties, including:

• our ongoing business may be disrupted and our management’s attention may be diverted by acquisition, transition or integration activities;

• we may be unable to retain the key employees, customers and other business partners of the acquired operation;

• we may have difficulties entering new markets where we have no or limited direct prior experience or where competitors may have stronger market positions;

• we could incur material charges in connection with the impairment of goodwill or other assets that we acquire;

• a company that we acquire may have experienced a security incident that it has yet to discover, investigate and remediate which we might not be identify in a timely manner and which could spread more broadly to other parts of our company during the integration effort;

• we may incur material charges as a result of acquisition costs, costs incurred in combining and/or operating the acquired business, or liabilities assumed in the acquisition that are greater than anticipated;

• our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, dividend payments and retirement of outstanding indebtedness;

• to the extent we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.

Because acquisitions are inherently risky, our transactions may not be successful and may have a material adverse effect on our business, results of operations, financial condition or cash flows.

Acquisitions of businesses having a significant presence outside the U.S.

will increase our exposure to the risks of conducting operations in international markets.

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

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These threats include phishing attacks on our email systems and other cyber-attacks, including state-sponsored cyber-attacks, industrial espionage, insider threats, denial-of-service attacks, computer viruses, ransomware and other malware, payment fraud or other cyber incidents.

As a software and technology vendor, we may incorporate or distribute software or other materials from third parties.

Attacks or other threats to our supply chain for such software and materials may render us unable to provide assurances of the origin of such software and materials, and could put us at risk of distributing software or other materials that may cause harm to ourselves, our customers or other third parties.

Cybersecurity breaches could expose us to a risk of loss, the unauthorized disclosure of consumer or customer information, significant litigation, regulatory fines, penalties, loss of customers or reputational damage, indemnity obligations and other liability.

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Malicious third parties may also conduct attacks designed to temporarily deny customers, distributors and vendors access to our systems and services.

Cybersecurity breaches experienced by our vendors, by our distributors, by our customers or by us may trigger governmental notice requirements and public disclosures, which may lead to widespread negative publicity.

Cybersecurity breaches experienced by our vendors, by our distributors, by our customers, by companies that we acquire, or by us may trigger governmental notice requirements and public disclosures, which may lead to widespread negative publicity.

Any such cybersecurity breach, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing customers to curtail or cease their use of our products and services, cause regulatory or industry changes that impact our products and services, or subject us to third-party lawsuits, regulatory fines or other action or liability, all of which could materially and adversely affect our business and operating results.

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

Our ability to provide reliable service in our businesses depends on the efficient and uninterrupted operation of our data centers, information technology and communication systems, and increasingly those of our external service providers.

As we continue to grow our SaaS business, our dependency on the continuing operation and availability of these systems increases.

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

Our DM strategy and our future success will depend in large part on our ability to attract and retain experienced sales, consulting, research and development, marketing, technical support and management personnel.

Our business strategy and our future success will depend in large part on our ability to attract and retain experienced sales, consulting, research and development, marketing, technical support and management personnel.

The complexity of our products requires highly trained personnel for research and development and to assist customers with product installation, deployment, maintenance and support.

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Customers and key business partners provide us with the data we require to analyze transactions, report results and build new models.

Our DM strategy depends in part upon our ability to access new forms of data to develop custom and proprietary analytic tools.

Our business strategy depends in part upon our ability to access new forms of data to develop custom and proprietary analytic tools.

If we fail to maintain sufficient data sourcing relationships with our customers and business partners, or if they decline to provide such data due to privacy, security, competition or regulatory concerns, prohibitions or a lack of permission from their customers or partners, we could lose access to required data and our products, and the development of new products, might become less effective.

We could also become subject to increased legislative, regulatory or judicial restrictions or mandates on the collection, disclosure or use of such data, in particular if such data is not collected by our providers in a way that allows us to legally use the data.

We could also become subject to increased legislative, regulatory or judicial restrictions or mandates on the collection, disclosure, transfer or use of such data, in particular if such data is not collected by our providers in a way that allows us to legally use the data.

Third parties have asserted copyright and other intellectual property interests in these data, and these assertions, if successful, could prevent us from using these data.

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As global economic conditions experience stress and negative volatility, or if there is an escalation in regional or global conflicts or terrorism, we will likely experience reductions in the number of available customers and in capital expenditures by our remaining customers, longer sales cycles, deferral or delay of purchase commitments for our products and increased price competition, which may adversely affect our business, results of operations and liquidity.

We are subject to risks and uncertainties associated with the United Kingdom’s withdrawal from the E.U., commonly referred to as “Brexit,” including implications for the free flow of labor and goods in the United Kingdom (“U.K.”) and the E.U.

We are subject to risks and uncertainties associated with the United Kingdom’s withdrawal from the European Union (“E.U.”), commonly referred to as “Brexit,” including implications for the free flow of labor and goods in the United Kingdom (“U.K.”) and the E.U.

and other economic, financial, legal, tax and trade implications.

Brexit could cause disruptions to and create uncertainty surrounding our business in the U.K., including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, financial results and operations.

Brexit has caused, and may continue to create, volatility in global stock markets and regional and global economic uncertainty, which may cause our customers to closely monitor their costs and reduce their spending budget on our products and services.

The post-Brexit relationship between the U.K.

continues to evolve, which could cause disruptions to and create uncertainty surrounding our business in the U.K., including affecting our relationships with our existing and future customers, suppliers and employees, and could contribute to long-term instability in financial, stock and currency exchange markets, any of which could have an adverse effect on our business, financial results and operations.

Further, any continuing legal or economic disruptions resulting from Brexit may negatively impact our clients with operations in the U.K., which may cause them to reduce their spending budget on our products and services.

As a result of these conditions, risks and uncertainties, we may need to modify our strategies, businesses or operations, and we may incur additional costs in order to compete in a changed business environment.

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

A growing portion of our revenues is derived from international sales.

A large portion of our revenues is derived from international sales.

During fiscal 2021, 28% of our revenues were derived from business outside the U.S.

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• difficulties and delays in translating products and related documentation into foreign languages.

There can be no assurance that we will be able to successfully address each of these challenges in the near term.

There can be no assurance that we will be able to successfully address each of these challenges.

Additionally, some of our business will be conducted in currencies other than the U.S.

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Laws and governmental regulation affect how our business is conducted and, in some cases, subject us to the possibility of government supervision and future lawsuits arising from our products and services.

Laws and governmental regulation also influence our current and prospective customers’ activities, as well as their expectations and needs in relation to our products and services.

Laws and governmental regulations also influence our current and prospective customers’ activities, as well as their expectations and needs in relation to our products and services.

Laws and regulations that may affect our business and our current and prospective customers’ activities include, but are not limited to, those in the following significant regulatory areas:

• Privacy and security laws and regulations that limit the use and disclosure of personally identifiable information, require security procedures, or otherwise apply to the collection, processing, storage, use and transfer of protected data (e.g., the U.S.

Financial Services Modernization Act of 1999, also known as the Gramm Leach Bliley Act;

the General Data Protection Regulation (the “GDPR”) and country-specific data protection laws enacted to supplement the GDPR;

and identity theft, file freezing, security breach notification and similar state privacy laws);

• Laws and regulations relating to the privacy, security and transmission of individually identifiable health information, including t he Health Insurance Portability and Accountability Act of 1996, as amended by the American Recovery and Reinvestment Act of 2009 (“HIPAA”) and the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and their respective implementing regulations;

• Financial regulatory reform stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act and the many regulations mandated by that Act, including regulations issued by, and the supervisory and investigative authority of, the Consumer Financial Protection Bureau;

• The application or extension of consumer protection laws, including implementing regulations (e.g., the Consumer Financial Protection Act, the Federal Trade Commission Act, the Truth In Lending Act and Regulation Z, the Fair Debt Collection Practices Act, the Servicemembers Civil Relief Act, the Military Lending Act, and the Credit Repair Organizations Act);

• Use of data by creditors and consumer reporting agencies (e.g., the U.S.

Fair Credit Reporting Act);

Fair Credit Reporting Act and similar state laws);

• Special requirements that may apply when we provide services directly or indirectly to U.S.

federal, state and local government agencies (e.g., the Privacy Act of 1974, the Internal Revenue Service’s Publication 4812 and the Federal Acquisition Regulation);

• Laws and regulations that limit the use of credit scoring models (e.g., state “mortgage trigger” or “inquiries” laws, state insurance restrictions on the use of credit-based insurance scores, and the E.U.

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• Fair lending laws (e.g., the Equal Credit Opportunity Act and Regulation B, and the Fair Housing Act);

Financial Services Modernization Act of 1999, also known as the Gramm Leach Bliley Act;

the General Data Protection Regulation (the “GDPR”) and country-specific data protection laws enacted to supplement the GDPR;

Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act;

• The Cybersecurity Act of 2015;

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the Clarifying Lawful Overseas Use of Data Act;

and identity theft, file freezing, security breach notification and similar state privacy laws);

• Extension of credit to consumers through the Electronic Fund Transfers Act and Regulation E, as well as non‑governmental VISA and MasterCard electronic payment standards;

and identity theft, file freezing, and similar state privacy laws;

• Laws and regulations related to extension of credit to consumers through the Electronic Fund Transfers Act and Regulation E, as well as non‑governmental VISA and MasterCard electronic payment standards;

• Laws and regulations applicable to secondary market participants (e.g., Fannie Mae and Freddie Mac) that could have an impact on our scoring products and revenues, including 12 CFR Part 1254 (Validation and Approval of Credit Score Models) issued by the Federal Housing Finance Agency in accordance with Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (Public Law 115-174), and any regulations, standards or criteria established pursuant to such laws or regulations;

• Laws and regulations applicable to our customer communication clients and their use of our products and services (e.g., the Telemarketing Sales Rule, Telephone Consumer Protection Act and regulations promulgated thereunder);

• Laws and regulations applicable to our insurance clients and their use of our insurance products and services;

• Laws and regulations governing the use of the Internet and social media, telemarketing, advertising, endorsements and testimonials;

• Anti-money laundering laws and regulations (e.g., the Bank Secrecy Act and the USA PATRIOT Act);

• Laws and regulations restricting transactions with sanctioned parties and regarding export controls as they apply to FICO products delivered in non-U.S.

countries (e.g., Office of Foreign Asset Control sanctions and Export Administration Regulations);

• Anti-bribery and corruption laws and regulations (e.g., the Foreign Corrupt Practices Act and the UK Bribery Act 2010);

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• Regulatory requirements for managing third parties (e.g., vendors, contractors, suppliers and distributors).

• Anti-money laundering laws and regulations (e.g., the Bank Secrecy Act and the USA PATRIOT Act);

• Laws and regulations regarding export controls as they apply to FICO products delivered in non-U.S.

countries (e.g., Office of Foreign Asset Control sanctions, and Export Administration Regulations).

In addition, many U.S.

and foreign jurisdictions have passed, or are currently contemplating, a variety of consumer protection, privacy, and data security laws and regulations that may relate to our business or affect the demand for our products and services.

For example, the GDPR became effective on May 25, 2018 and imposes, among other things, strict obligations and restrictions on the ability to collect, analyze and transfer European Union (“E.U.”) personal data, a requirement for prompt notice of data breaches in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual revenue).

For example, the U.K and E.U.

GDPR impose, among other things, strict obligations and restrictions on the ability to collect, analyze and transfer U.K.

personal data, a requirement for prompt notice of data breaches in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual revenue under the E.U.

GDPR and up to the greater of 17.5 million Pounds or 4% of annual global turnover under the U.K.

A decision in July 2020 by the Court of Justice of the European Union ( i.e.

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In June 2021, the European Commission issued new standard contractual clauses (“SCCs”) governing cross-border data transfers and data exchanges among controllers and processors, which reflect more recent data protection laws, such as the GDPR, and account for the analysis in the Schrems II decision.

We will be required to transition to the new SCCs, which may involve interpretive issues and may have an adverse impact on cross-border transfers of personal data, may subject us to additional scrutiny from E.U.

Our transition to the new SCCs, which may involve interpretive issues and may have an adverse impact on cross-border transfers of personal data, may subject us to additional scrutiny from E.U.

regulators or may increase our costs of compliance.

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The California Consumer Privacy Act of 2018 (“CCPA”) gives California residents certain privacy rights in the collection and disclosure of their personal information and requires businesses to make certain disclosures and take certain other acts in furtherance of those rights.

A new privacy law, the California Privacy Rights Act, passed via a ballot referendum in November 2020, and will revise and expand the scope of the CCPA.

states have considered and/or enacted similar privacy laws.

Additionally, effective starting January 1, 2023, the California Privacy Rights Act (the “CPRA”) will revise and significantly expand the scope of the CCPA.

The CPRA also creates a new California data protection agency authorized to implement and enforce the CCPA and the CPRA, which could result in increased privacy and information security enforcement.

states have considered and/or enacted similar privacy laws, including Virginia and Colorado, which passed new consumer privacy laws in 2021.

The costs and other burdens of compliance with privacy and data security laws and regulations could negatively impact the use and adoption of our solutions and reduce overall demand for them.

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This makes forecasting of revenues in any given period more difficult.

As a result of our sales approach and lengthening sales cycles, revenues and operating results may vary significantly from period to period.

For example, the sales cycle for our products typically ranges from 60 days to 18 months, which may be further extended as a result of COVID-19.

For example, the sales cycle of our products can extend to greater than a year and as a result, revenues and operating results may vary significantly from period to period.

Customers are often cautious in making decisions to acquire our products because purchasing our products typically involves a significant commitment of capital and may involve shifts by the customer to a new software and/or hardware platform or changes in the customer’s operational procedures.

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Any publicly-stated revenue or earnings projections are subject to this risk.

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

Under business combination accounting standards, we recognize the identifiable assets acquired and the liabilities assumed in acquired companies generally at their acquisition-date fair values and separately from goodwill.

Goodwill is measured as the excess amount of consideration transferred, which is also generally measured at fair value, and the net of the amounts of the identifiable assets acquired and the liabilities assumed as of the acquisition date.

Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain.

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

• impairment of goodwill or intangible assets, or a reduction in the useful lives of intangible assets acquired;

• amortization of intangible assets acquired;

• identification of, or changes to, assumed contingent liabilities, both income tax and non-income tax related, after our final determination of the amounts for these contingencies or the conclusion of the measurement period (generally up to one year from the acquisition date), whichever comes first;

• costs incurred to combine the operations of companies we acquire, such as transitional employee expenses and employee retention, redeployment or relocation expenses;

• charges to our operating results to maintain certain duplicative pre-merger activities for an extended period of time or to maintain these activities for a period of time that is longer than we had anticipated, charges to eliminate certain duplicative pre-merger activities, and charges to restructure our operations or to reduce our cost structure;

• charges to our operating results resulting from expenses incurred to effect the acquisition.

Substantially all of these costs will be accounted for as expenses that will decrease our net income and earnings per share for the periods in which those costs are incurred.

Charges to our operating results in any given period could differ substantially from other periods based on the timing and size of our future acquisitions and the extent of integration activities.

A more detailed discussion of our accounting for business combinations and other items is presented in the “Critical Accounting Policies and Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (Part I, Item 2).

General Risk Factors

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

The market price of our common stock has been volatile and may continue to be subject to wide fluctuations due to a number of factors, including variations in our revenues and operating results.

We believe that you should not rely on period-to-period comparisons of financial results as an indication of future performance.

Because many of our operating expenses are fixed and will not be affected by short-term fluctuations in revenues, short-term fluctuations in revenues may significantly impact operating results.

Additional factors that may cause our stock price to fluctuate include the following:

Our financial results and key metrics fluctuate within each quarter and from quarter to quarter, making our future revenue, annual recurring revenue (“ARR”), and financial results difficult to predict, which may cause us to miss analyst expectations and may cause the price of our common stock to decline.

Our quarterly financial results and key metrics have fluctuated in the past and will continue to do so in the future, and therefore period-to-period comparisons should not be relied upon as an indication of future performance.

These fluctuations could cause our stock price to change significantly or experience declines.

We also may provide investors with quarterly and annual financial forward-looking guidance that could prove to be inaccurate as a result of these fluctuations and other factors.

In addition to the other risks described in these risk factors, some of the factors that could cause our financial results and key metrics to fluctuate include:

• variability in demand from our existing customers;

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• timing of orders for and deliveries of software systems.

In addition, the financial markets have at various times experienced significant price and volume fluctuations that have particularly affected the stock prices of many technology companies and financial services companies, and these fluctuations sometimes have been unrelated to the operating performance of these companies.

Our operating expenses are based in part on our expectations for future revenue and many are fixed and cannot be quickly adjusted as revenue changes.

Accordingly, any revenue shortfall below expectations has had, and in the future could have, an immediate and significant adverse effect on our operating results and profitability.

Greater than anticipated expenses or a failure to maintain rigorous cost controls would also negatively affect profitability.

General Risk Factors

Our stock price has been subject to fluctuations, and will likely continue to be subject to fluctuations, or may decline, regardless of our operating performance.

Our stock price has been subject to fluctuations due to a number of factors, including variations in our revenues and operating results.

The financial markets have at various times experienced significant price and volume fluctuations that have particularly affected the stock prices of many technology companies and financial services companies, and these fluctuations sometimes have been unrelated to the operating performance of these companies.

Broad market fluctuations, as well as industry-specific and general economic conditions, may negatively affect our business and require us to record an impairment charge related to goodwill, which could adversely affect our results of operations, stock price and business.

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Significant judgment is required in determining our worldwide provision for income taxes.

Our future effective tax rates could be adversely affected by changes in tax laws, by our ability to generate taxable income in foreign jurisdictions in order to utilize foreign tax losses, and by the valuation of our deferred tax assets.

Our future effective tax rates could be adversely affected by changes in tax laws (including any changes that result from the comprehensive corporate tax reform proposed by the current administration), by our ability to generate taxable income in foreign jurisdictions in order to utilize foreign tax losses, and by the valuation of our deferred tax assets.

In addition, we are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities.

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

What changed 10-Q

Item 1A. Risk Factors