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Item 1. Financial Statements

2022-04-27 compared with 2022-01-27 · 161 added, 138 removed, 428 unchanged (41% of the section changed)

36 unchanged sentences

Common stock ($ 0.01 par value;

200,000 shares authorized, 88,857 shares issued and 26,509 and 27,568 shares outstanding at December 31, 2021 and September 30, 2021, respectively)

200,000 shares authorized, 88,857 shares issued and 25,982 and 27,568 shares outstanding at March 31, 2022 and September 30, 2021, respectively)

Additional paid-in-capital 1,242,280 1,237,348

Treasury stock, at cost ( 62,348 and 61,289 shares at December 31, 2021 and September 30, 2021, respectively)

Treasury stock, at cost ( 62,875 and 61,289 shares at March 31, 2022 and September 30, 2021, respectively)

( 4,599,242 ) ( 3,857,855 )

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Quarter Ended December 31,

Quarter Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(In thousands, except per share data)

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Interest expense, net ( 17,211 ) ( 9,943 ) ( 29,406 ) ( 19,584 )

Other income, net 1,429 2,880

Other income (expense), net ( 2,361 ) 568 ( 932 ) 3,448

Income before income taxes 132,485 91,824 237,305 179,784

Income tax provision 19,861 1,468

Provision for income taxes 28,102 23,150 47,963 24,618

Net income 104,383 68,674 189,342 155,166

Other comprehensive gain (loss):

Other comprehensive income (loss):

Foreign currency translation adjustments ( 3,207 ) ( 1,846 ) ( 5,345 ) 15,202

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(In thousands) Shares Par Value

Balance at September 30, 2021 27,568 $ 276 $ 1,237,348 $ ( 3,857,855 ) $ 2,585,143 $ ( 75,854 ) $ ( 110,942 )

Balance at December 31, 2021 26,509 $ 265 $ 1,208,365 $ ( 4,339,039 ) $ 2,670,102 $ ( 77,992 ) $ ( 538,299 )

Share-based compensation — — 27,936 — — — 27,936

3 unchanged sentences

Foreign currency translation adjustments — — — — — ( 3,207 ) ( 3,207 )

Balance at March 31, 2022 25,982 $ 260 $ 1,242,280 $ ( 4,599,242 ) $ 2,774,485 $ ( 81,199 ) $ ( 663,416 )

Common Stock Additional

Paid-in-Capital Treasury Stock Retained Earnings Accumulated Other

Comprehensive Loss Total

Stockholders’ Equity

(In thousands) Shares Par Value

Balance at December 31, 2020 29,236 $ 292 $ 1,145,893 $ ( 3,035,668 ) $ 2,279,551 $ ( 65,947 ) $ 324,121

Share-based compensation — — 28,206 — — — 28,206

Issuance of treasury stock under employee stock plans 34 — 7,593 1,766 — — 9,359

Repurchases of common stock ( 441 ) ( 4 ) — ( 205,207 ) — — ( 205,211 )

Net income — — — — 68,674 — 68,674

Foreign currency translation adjustments — — — — — ( 1,846 ) ( 1,846 )

Balance at March 31, 2021 28,829 $ 288 $ 1,181,692 $ ( 3,239,109 ) $ 2,348,225 $ ( 67,793 ) $ 223,303

Common Stock Additional

1 unchanged sentence

Comprehensive Loss Total

Stockholders’ Deficit

(In thousands) Shares Par Value

Balance at September 30, 2021 27,568 $ 276 $ 1,237,348 $ ( 3,857,855 ) $ 2,585,143 $ ( 75,854 ) $ ( 110,942 )

Share-based compensation — — 57,814 — — — 57,814

Issuance of treasury stock under employee stock plans 237 2 ( 52,882 ) 16,148 — — ( 36,732 )

Repurchases of common stock ( 1,823 ) ( 18 ) — ( 757,535 ) — — ( 757,553 )

Net income — — — — 189,342 — 189,342

Foreign currency translation adjustments — — — — — ( 5,345 ) ( 5,345 )

Balance at March 31, 2022 25,982 $ 260 $ 1,242,280 $ ( 4,599,242 ) $ 2,774,485 $ ( 81,199 ) $ ( 663,416 )

Common Stock Additional

Paid-in-Capital Treasury Stock Retained Earnings Accumulated Other

Comprehensive Loss Total

Stockholders’ Equity

6 unchanged sentences

Foreign currency translation adjustments — — — — — 15,202 15,202

Balance at December 31, 2020 29,236 $ 292 $ 1,145,893 $ ( 3,035,668 ) $ 2,279,551 $ ( 65,947 ) $ 324,121

Balance at March 31, 2021 28,829 $ 288 $ 1,181,692 $ ( 3,239,109 ) $ 2,348,225 $ ( 67,793 ) $ 223,303

See accompanying notes.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter Ended December 31,

Six Months Ended March 31,

(In thousands)

7 unchanged sentences

Non-cash operating lease costs 8,166 8,005

Provision for doubtful accounts, net 325 219

Net loss on sales and abandonment of property and equipment 51 62

Provision for doubtful accounts 650 266

Gains on product line asset sales and business divestiture — ( 7,334 )

Net loss on sales and abandonment of property and equipment 166 96

Changes in operating assets and liabilities:

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Effect of exchange rate changes on cash ( 1,793 ) 4,021

Decrease in cash and cash equivalents ( 33,197 ) ( 12,732 )

Increase (decrease) in cash and cash equivalents ( 21,135 ) 40,442

Cash and cash equivalents, beginning of period 195,354 157,394

1 unchanged sentence

Supplemental disclosures of cash flow information:

Cash paid for income taxes, net of refunds of $ 72 and $ 221 during the quarters ended December 31, 2021 and 2020, respectively

Cash paid for income taxes, net of refunds of $ 1,003 and $ 288 during the six-month periods ended March 31, 2022 and 2021, respectively

$ 30,788 $ 18,131

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All intercompany accounts and transactions have been eliminated.

During the fourth quarter of our fiscal 2021, we consolidated our operating segment structure from three to two by merging Applications and Decision Management Software segments into the new Software segment.

During the fourth quarter of fiscal 2021, 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.

Refer to Note 18 - Segment Reporting to the consolidated financial statements included in Part II.

Refer to Note 18 - Segment Information to the consolidated financial statements included in Part II.

Item 8 of our 2021 Annual Report on Form 10-K for further information.

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Early adoption is permitted.

We do not believe that adoption of ASU 2021-08 will have a significant impact on our consolidated financial statements.

We do not believe that adoption of ASU 2021-08 will have a significant impact on our condensed consolidated financial statements.

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

3 unchanged sentences

• Level 1 - uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.

Our Level 1 assets were comprised of money market funds and certain marketable securities and our Level 1 liabilities included senior notes as of December 31, 2021 and September 30, 2021.

Our Level 1 assets were comprised of money market funds and certain marketable securities and our Level 1 liabilities included senior notes as of March 31, 2022 and September 30, 2021.

• Level 2 - uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data.

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and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data.

We did not have any assets or liabilities that are valued using inputs identified under a Level 2 hierarchy as of December 31, 2021 and September 30, 2021.

We did not have any assets or liabilities that are valued using inputs identified under a Level 2 hierarchy as of March 31, 2022 and September 30, 2021.

• Level 3 - uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment.

Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation.

We did not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy as of December 31, 2021 and September 30, 2021.

The following tables represent financial assets that we measured at fair value on a recurring basis at December 31, 2021 and September 30, 2021:

December 31, 2021 Active Markets for

We did not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy as of March 31, 2022 and September 30, 2021.

The following tables represent financial assets that we measured at fair value on a recurring basis at March 31, 2022 and September 30, 2021:

March 31, 2022 Active Markets for

Identical Instruments

(Level 1) Fair Value as of

December 31, 2021

March 31, 2022

(In thousands)

Cash equivalents (1)

$ 50,194 $ 50,194

Marketable securities (2)

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Total $ 32,078 $ 32,078

(1) Included in cash and cash equivalents on our condensed consolidated balance sheets at December 31, 2021 and September 30, 2021.

Not included in these tables are cash deposits of $ 162.0 million and $ 195.2 million at December 31, 2021 and September 30, 2021, respectively.

(1) Included in cash and cash equivalents on our condensed consolidated balance sheets at March 31, 2022 and September 30, 2021.

Not included in these tables are cash deposits of $ 124.0 million and $ 195.2 million at March 31, 2022 and September 30, 2021, respectively.

(2) Represents securities held under a supplemental retirement and savings plan for certain officers and senior management employees, which are distributed upon termination or retirement of the employees.

Included in marketable securities on our condensed consolidated balance sheets at December 31, 2021 and September 30, 2021.

Included in marketable securities on our condensed consolidated balance sheets at March 31, 2022 and September 30, 2021.

See Note 7 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 quarters ended December 31, 2021 and 2020.

There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the quarters and six-month periods ended March 31, 2022 and 2021.

Derivative Financial Instruments

We use derivative instruments to manage risks caused by fluctuations in foreign exchange rates.

The primary objective of our derivative instruments is to protect the value of foreign-currency-denominated receivable and cash balances from the effects of volatility in foreign exchange rates that might occur prior to conversion to their respective functional currencies.

We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates.

We routinely enter into contracts to offset exposures denominated in the British pound, Euro, and Singapore dollar.

Foreign currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the effects of changes in foreign exchange rates reported in other income, net.

The forward contracts are not designated as hedges and are marked to market through other income, net.

The forward contracts are not designated as hedges and are marked to market through other income (expense), net.

Fair value changes in the forward contracts help mitigate the changes in the value of the remeasured receivable and cash balances attributable to changes in foreign exchange rates.

The forward contracts are short-term in nature and typically have average maturities at inception of less than three months .

The following tables summarize our outstanding foreign currency forward contracts, by currency, at December 31, 2021 and September 30, 2021:

December 31, 2021

The following tables summarize our outstanding foreign currency forward contracts, by currency, at March 31, 2022 and September 30, 2021:

March 31, 2022

Contract Amount Fair Value

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

The foreign currency forward contracts were entered into on December 31, 2021 and September 30, 2021, respectively;

The foreign currency forward contracts were entered into on March 31, 2022 and September 30, 2021, respectively;

therefore, their fair value was $ 0 on each of these dates.

Gains on derivative financial instruments were recorded in our condensed consolidated statements of income and comprehensive income as a component of other income, net, and consisted of the following:

Quarter Ended December 31,

Gains (losses) on derivative financial instruments were recorded in our condensed consolidated statements of income and comprehensive income as a component of other income (expense), net, and consisted of the following:

Quarter Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(In thousands)

Gains on foreign currency forward contracts $ 562 $ 1,686

Gains (losses) on foreign currency forward contracts $ ( 576 ) $ 1,229 $ ( 14 ) $ 2,915

Goodwill and Intangible Assets

1 unchanged sentence

Amortization expense consisted of the following:

Quarter Ended December 31,

Quarter Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(In thousands)

3 unchanged sentences

Total $ 543 $ 945 $ 1,087 $ 1,882

Estimated future intangible asset amortization expense associated with intangible assets existing at December 31, 2021 was as follows:

Estimated future intangible asset amortization expense associated with intangible assets existing at March 31, 2022 was as follows:

Year Ending September 30, (In thousands)

2022 (excluding the quarter ended December 31, 2021) $ 1,541

2022 (excluding the six months ended March 31, 2022) $ 990

Total $ 3,007

The following table summarizes changes to goodwill during the quarter ended December 31, 2021, both in total and as allocated to our segments:

The following table summarizes changes to goodwill during the six months ended March 31, 2022, both in total and as allocated to our segments.

We have not recognized any goodwill impairment losses to date.

Scores Software Total

2 unchanged sentences

Foreign currency translation adjustment — ( 4,441 ) ( 4,441 )

Balance at December 31, 2021 $ 146,648 $ 640,611 $ 787,259

Balance at March 31, 2022 $ 146,648 $ 637,096 $ 783,744

Composition of Certain Financial Statement Captions

The following table presents the composition of property and equipment, net and other assets at December 31, 2021 and September 30, 2021:

The following table presents the composition of property and equipment, net at March 31, 2022 and September 30, 2021:

2022 September 30,

4 unchanged sentences

Total $ 22,897 $ 27,913

Other assets:

Long-term receivables $ 30,297 $ 37,452

Prepaid commissions 45,998 44,932

Other 11,690 13,201

Total $ 87,985 $ 95,585

Revolving Line of Credit

Revolving Line of Credit and Term Loan

We have a $ 600 million unsecured revolving line of credit with a syndicate of banks that expires on August 19, 2026 .

Borrowings under the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of our common stock.

Interest on amounts borrowed under the credit facility is based on (i) an adjusted base rate, which is the greater of (a) the prime rate, (b) the Federal Funds rate plus 0.500 %, and (c) the one-month LIBOR rate plus 1.000 %, plus, in each case, an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin.

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, (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.

In addition, we must pay credit facility fees.

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;

The credit facility contains certain restrictive covenants including a maximum consolidated leverage ratio of 3.50 , subject to a step up to 4.00 following certain permitted acquisitions;

and a minimum interest coverage ratio of 3.00 .

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

On October 20, 2021, we amended our credit agreement to provide for the issuance of a $ 300 million term loan, increasing the total capacity of the agreement to $ 900 million.

In addition, we have a term loan in an initial principal amount of $ 300 million.

The term loan is subject to the same pricing and covenants as the revolving line of credit and matures at the expiration of the facility on August 19, 2026.

The term loan requires principal payments in consecutive quarterly installments of $ 3.75 million on the last business day of each quarter, commencing on March 31, 2022.

As of December 31, 2021, we had $ 50.0 million in borrowings outstanding under the revolving credit facility at a weighted-average interest rate of 1.352 %, and $ 300.0 million in outstanding balance of the term loan at an interest rate of 1.354 %, of which $ 285.0 million was classified as a long-term liability and recorded in long-term debt within the accompanying condensed consolidated balance sheets.

We were in compliance with all financial covenants under this credit facility as of December 31, 2021.

The term loan requires principal payments in consecutive quarterly installments of $ 3.75 million on the last business day of each quarter.

As of March 31, 2022, we had $ 215.0 million in borrowings outstanding under the revolving credit facility at a weighted-average interest rate of 1.932 %, and $ 296.3 million in outstanding balance of the term loan at an interest rate of 1.955 %, of which $ 381.3 million was classified as a long-term liability and recorded in long-term debt within the accompanying condensed consolidated balance sheets.

We were in compliance with all financial covenants under this credit facility as of March 31, 2022.

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

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

The following table presents the face values and fair values for the Senior Notes at December 31, 2021 and September 30, 2021:

December 31, 2021 September 30, 2021

The following table presents the face values and fair values for the Senior Notes at March 31, 2022 and September 30, 2021:

March 31, 2022 September 30, 2021

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

3 unchanged sentences

Total $ 1,300,000 $ 1,287,875 $ 750,000 $ 810,000

(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $ 15.8 million and $ 9.0 million at December 31, 2021 and September 30, 2021, respectively.

(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $ 15.7 million and $ 9.0 million at March 31, 2022 and September 30, 2021, respectively.

Revenue from Contracts with Customers

1 unchanged sentence

The following tables provide information about disaggregated revenue by primary geographical market:

Quarter Ended December 31, 2021

Quarter Ended March 31, 2022

Scores Software Total Percentage

4 unchanged sentences

Total $ 183,742 $ 173,453 $ 357,195 100 %

Quarter Ended December 31, 2020

Quarter Ended March 31, 2021

Scores Software Total Percentage

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Total $ 168,719 $ 162,642 $ 331,361 100 %

Six Months Ended March 31, 2022

Scores Software Total Percentage

(Dollars in thousands)

Americas $ 340,803 $ 203,849 $ 544,652 80 %

Europe, Middle East and Africa 2,745 71,526 74,271 11 %

Asia Pacific 9,681 50,952 60,633 9 %

Total $ 353,229 $ 326,327 $ 679,556 100 %

Six Months Ended March 31, 2021

Scores Software Total Percentage

(Dollars in thousands)

Americas $ 302,500 $ 207,696 $ 510,196 79 %

Europe, Middle East and Africa 7,355 87,868 95,223 15 %

Asia Pacific 3,515 34,841 38,356 6 %

Total $ 313,370 $ 330,405 $ 643,775 100 %

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

Quarter Ended December 31, Percentage of revenues

Quarter Ended March 31, Percentage of revenues Six Months Ended March 31, Percentage of revenues

2022 2021 2022 2021 2022 2021 2022 2021

2 unchanged sentences

SaaS software 71,129 62,120 48 % 49 % 140,172 122,093 51 % 48 %

Total $ 126,338 $ 126,455 100 % 100 %

Total on-premises and SaaS software $ 149,088 $ 125,551 100 % 100 % $ 275,426 $ 252,006 100 % 100 %

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

Quarter Ended December 31, Percentage of revenues

Quarter Ended March 31, Percentage of revenues Six Months Ended March 31, Percentage of revenues

2022 2021 2022 2021 2022 2021 2022 2021

2 unchanged sentences

Non-platform software 109,286 110,239 73 % 88 % 213,552 222,569 78 % 88 %

Total $ 126,338 $ 126,455 100 % 100 %

Total on-premises and SaaS software $ 149,088 $ 125,551 100 % 100 % $ 275,426 $ 252,006 100 % 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.

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

Quarter Ended December 31, Percentage of revenues

Quarter Ended March 31, Percentage of revenues Six Months Ended March 31, Percentage of revenues

2022 2021 2022 2021 2022 2021 2022 2021

(Dollars in thousands)

Software recognized at a point time (1)

Software recognized at a point in time (1)

$ 26,540 $ 11,844 18 % 9 % $ 33,699 $ 24,738 12 % 10 %

1 unchanged sentence

122,548 113,707 82 % 91 % 241,727 227,268 88 % 90 %

Total $ 126,338 $ 126,455 100 % 100 %

Total on-premises and SaaS software $ 149,088 $ 125,551 100 % 100 % $ 275,426 $ 252,006 100 % 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.

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

Quarter Ended December 31, Percentage of revenues

Quarter Ended March 31, Percentage of revenues Six Months Ended March 31, Percentage of revenues

2022 2021 2022 2021 2022 2021 2022 2021

4 unchanged sentences

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 % and 34 % of our total revenues in the quarters ended December 31, 2021 and 2020, respectively, with two consumer reporting agencies each contributing more than 10% of our total revenues in each of the quarters ended December 31, 2021 and 2020.

Revenues collectively generated by agreements with these customers accounted for 39 % of our total revenues in each of the quarters ended March 31, 2022 and 2021, with all three consumer reporting agencies each contributing more than 10% of our total revenues in each of the quarters ended March 31, 2022 and 2021.

Revenues collectively generated by agreements with these customers accounted for 38 % and 37 % of our total revenues in the six months ended March 31, 2022 and 2021, respectively, with two and three consumer reporting agencies each contributing more than 10% of our total revenues in the six months ended March 31, 2022 and 2021, respectively.

Contract Balances

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We record deferred revenue when the payment is made or due before we satisfy a performance obligation.

Receivables at December 31, 2021 and September 30, 2021 consisted of the following:

December 31, 2021 September 30, 2021

Receivables at March 31, 2022 and September 30, 2021 consisted of the following:

March 31, 2022 September 30, 2021

(In thousands)

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Short-term receivables (*) $ 273,356 $ 312,107

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

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

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:

Quarter Ended December 31,

(In thousands)

Six Months Ended March 31,

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

1 unchanged sentence

Increases due to billings, excluding amounts recognized as revenue during the period 66,292 78,945

Reclassified as liabilities related to assets held for sale — ( 16,508 )

Deferred revenues, ending balance (*) $ 106,895 $ 108,978

(*) Deferred revenues at December 31, 2021 included current portion of $ 98.4 million and long-term portion of $ 4.9 million that were recorded in deferred revenue and other liabilities, respectively, within the condensed consolidated balance sheets.

(*) Deferred revenues at March 31, 2022 included current portion of $ 102.5 million and long-term portion of $ 4.4 million that were recorded in deferred revenue and other liabilities, respectively, within the condensed consolidated balance sheets.

Deferred revenues 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 condensed consolidated balance sheets.

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• 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 $ 270.6 million as of December 31, 2021, approximately 50 % of which we expect to recognize over the next 16 months and the remainder thereafter.

Revenue allocated to remaining performance obligations was $ 291.7 million as of March 31, 2022, approximately 52 % of which we expect to recognize over the next 16 months and the remainder thereafter.

Revenue allocated to remaining performance obligations was $ 289.0 million as of September 30, 2021.

Effective Tax Rate

The effective income tax rate was 18.9 % and 1.7 % during the quarters ended December 31, 2021 and 2020, respectively.

The effective income tax rate was 21.2 % and 25.2 % during the quarters ended March 31, 2022 and 2021, respectively, and 20.2 % and 13.7 % during the six months ended March 31, 2022 and 2021, respectively.

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

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

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

The effective tax rates for the six months ended March 31, 2022 and 2021 were both favorably impacted by the recording of excess tax benefits relating to stock awards.

The impact is dependent upon grants of share-based compensation and the future stock price in relation to the fair value of awards on the grant date.

The decrease in stock price for awards that vested in December 2021 resulted in a decreased net excess tax benefit for the quarter ended December 31, 2021.

The total unrecognized tax benefit for uncertain tax positions was estimated to be $ 11.8 million and $ 10.9 million at December 31, 2021 and September 30, 2021, respectively.

The decrease in stock price for awards that vested in December 2021 has resulted in a decreased net excess tax benefit for the six months ended March 31, 2022, as compared to the six months ended March 31, 2021.

The total unrecognized tax benefit for uncertain tax positions was estimated to be $ 13.2 million and $ 10.9 million at March 31, 2022 and September 30, 2021, respectively.

We recognize interest expense related to unrecognized tax benefits and penalties as part of the provision for income taxes in our condensed consolidated statements of income and comprehensive income.

We accrued interest of $ 0.5 million and $ 0.4 million related to unrecognized tax benefits as of December 31, 2021 and September 30, 2021, respectively.

Share-Based Employee Benefit Plans

We maintain the 2021 Long-Term Incentive Plan (the “2021 Plan”) under which we grant 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, are eligible to receive awards under the 2021 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.

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 have up to 15 % of their eligible pay withheld through payroll deductions to purchase FICO common stock during semi-annual offering periods.

The purchase price of the stock is 85 % of the closing sales price of FICO common stock on the last trading day of each offering period.

Offering period means the approximately six-month long 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.

Stock Options

The following table summarizes option activity during the quarter ended December 31, 2021:

Shares Weighted-average Exercise Price Weighted-average Remaining Contractual Term Aggregate Intrinsic Value

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

Outstanding at September 30, 2021

Granted 9 407.49

Exercised ( 7 ) 72.06

Outstanding at December 31, 2021

228 $ 218.30 3.44 $ 50,094

Exercisable at December 31, 2021

179 $ 183.75 2.94 $ 45,033

Vested or expected to vest at December 31, 2021

226 $ 216.50 3.42 $ 50,006

Restricted Stock Units

The following table summarizes restricted stock unit activity during the quarter ended December 31, 2021:

Shares Weighted-average Grant-date Fair Value

(In thousands)

Outstanding at September 30, 2021

Granted 184 407.25

Released ( 210 ) 268.95

Forfeited ( 24 ) 358.29

Outstanding at December 31, 2021

Performance Share Units

The following table summarizes performance share unit activity during the quarter ended December 31, 2021:

Shares Weighted-average Grant-date Fair Value

(In thousands)

Outstanding at September 30, 2021

Granted 43 407.49

Released ( 64 ) 344.62

Outstanding at December 31, 2021

Market Share Units

The following table summarizes market share unit activity during the quarter ended December 31, 2021:

Shares Weighted-average Grant-date Fair Value

(In thousands)

Outstanding at September 30, 2021

Granted 50 493.66

Released ( 19 ) 206.71

Outstanding at December 31, 2021

Employee Stock Purchase Plan

As the 2019 Purchase Plan has semi-annual offering periods with shares purchased on the last trading day in the months of February and August, no shares were purchased during the quarter ended December 31, 2021 .

We accrued interest of $ 0.6 million and $ 0.4 million related to unrecognized tax benefits as of March 31, 2022 and September 30, 2021, respectively.

Earnings per Share

The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) for the quarters ended December 31, 2021 and 2020:

Quarter Ended December 31,

The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) for the quarters and six-month periods ended March 31, 2022 and 2021:

Quarter Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(In thousands, except per share data)

11 unchanged sentences

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 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.

13 unchanged sentences

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

The following tables summarize segment information for the quarters ended December 31, 2021 and 2020:

Quarter Ended December 31, 2021

The following tables summarize segment information for the quarters and six-month periods ended March 31, 2022 and 2021:

Quarter Ended March 31, 2022

Scores Software Unallocated

12 unchanged sentences

Unallocated interest expense, net ( 17,211 )

Unallocated other expense, net ( 2,361 )

Income before income taxes $ 132,485

Depreciation expense $ 189 $ 3,807 $ 28 $ 4,024

Quarter Ended March 31, 2021

Scores Software Unallocated

Expenses Total

(In thousands)

Segment revenues:

On-premises and SaaS software $ — $ 125,551 $ — $ 125,551

Professional services — 37,091 — 37,091

Scores 168,719 — — 168,719

Total segment revenues 168,719 162,642 — 331,361

Segment operating expense ( 22,177 ) ( 145,442 ) ( 33,392 ) ( 201,011 )

Segment operating income $ 146,542 $ 17,200 $ ( 33,392 ) 130,350

Unallocated share-based compensation expense ( 28,206 )

Unallocated amortization expense ( 945 )

Operating income 101,199

Unallocated interest expense, net ( 9,943 )

Unallocated other income, net 568

1 unchanged sentence

Depreciation expense $ 167 $ 5,012 $ 45 $ 5,224

Quarter Ended December 31, 2020

Six Months Ended March 31, 2022

Scores Software Unallocated

10 unchanged sentences

Unallocated amortization expense ( 1,087 )

Operating income 267,643

Unallocated interest expense, net ( 29,406 )

Unallocated other expense, net ( 932 )

Income before income taxes $ 237,305

Depreciation expense $ 381 $ 7,684 $ 57 $ 8,122

Six Months Ended March 31, 2021

Scores Software Unallocated

Expenses Total

(In thousands)

Segment revenues:

On-premises and SaaS software $ — $ 252,006 $ — $ 252,006

Professional services — 78,399 — 78,399

Scores 313,370 — — 313,370

Total segment revenues 313,370 330,405 — 643,775

Segment operating expense ( 43,803 ) ( 292,521 ) ( 63,645 ) ( 399,969 )

Segment operating income $ 269,567 $ 37,884 $ ( 63,645 ) 243,806

Unallocated share-based compensation expense ( 53,338 )

Unallocated amortization expense ( 1,882 )

Unallocated gains on product line asset sales and business divestiture 7,334

10 unchanged sentences

For legal proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable), we have determined we do not have material exposure on an aggregate basis.

Subsequent Events

In January 2022, our Board of Directors approved a new stock repurchase program following the completion of the previous stock repurchase program.

The new program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $ 500.0 million in the open market or in negotiated transactions.

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 1. Financial Statements