What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-11-09 compared with 2021-11-10 · 244 added, 288 removed, 1021 unchanged (34% of the section changed)

30 unchanged sentences

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) 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.

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.

Revenue Recognition – Contracts with Customers – Refer to Note 1 and Note 11 to the financial statements

Critical Audit Matter Description

The Company recognizes revenue when control of the promised goods or services in a contract is transferred to the customer, in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.

The Company’s 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.

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;

or usage or transaction-based variable amount not subject to a minimum threshold.

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

The Company’s revenue is primarily derived from on-premises software and software-as-a-service (SaaS) subscriptions, professional services, and scoring services.

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 SaaS products, the Company estimates the total variable consideration at contract inception — subject to any constraints that may apply — and updates the estimates as new information becomes available and recognizes the amount ratably over the SaaS service period, unless the Company determines it is appropriate to allocate the variable amount to each distinct service period and recognize revenue as each distinct service period is performed.

For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative standalone selling price (SSP) basis.

The Company determines the SSP using data from historical standalone sales, or, in instances where such information is not available, the Company considers factors such as the stated contract prices, their overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others.

The Company determines the SSP using data from historical standalone sales, or, in instances where such information is not available (such as when the Company does not sell the product or service separately), the Company considers factors such as the stated contract prices, overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others.

Given the complexity of certain of the Company’s contracts, together with the judgment involved in identifying performance obligations, estimating variable consideration, and determining SSP, auditing the related revenue required both extensive audit effort due to the volume and complexity of the contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures .

How the Critical Audit Matter Was Addressed in the Audit

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:

Our audit procedures related to revenue recognition over 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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Total assets $ 1,442,034 $ 1,567,776

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’ Deficit

Current liabilities:

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Commitments and contingencies

Stockholders’ equity (deficit):

Stockholders’ deficit:

Preferred stock ($ 0.01 par value;

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200,000 shares authorized, 88,857 shares issued and 25,154 and 27,568 shares outstanding at September 30, 2022 and September 30, 2021, respectively)

Paid-in-capital 1,237,348 1,218,583

Additional paid-in-capital 1,299,588 1,237,348

Treasury stock, at cost ( 63,703 and 61,289 shares at September 30, 2022 and September 30, 2021, respectively)

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Accumulated other comprehensive loss ( 124,702 ) ( 75,854 )

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

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

Total stockholders’ deficit ( 801,947 ) ( 110,942 )

Total liabilities and stockholders’ deficit $ 1,442,034 $ 1,567,776

See accompanying notes.

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Interest expense, net ( 68,967 ) ( 40,092 ) ( 42,177 )

Other income, net 7,745 3,208 2,276

Other income (expense), net ( 2,138 ) 7,745 3,208

Income before income taxes 471,309 473,142 257,000

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Comprehensive income $ 324,693 $ 399,225 $ 243,501

Basic earnings per share $ 13.65 $ 8.13 $ 6.63

Earnings per share:

Basic $ 14.34 $ 13.65 $ 8.13

Diluted $ 14.18 $ 13.40 $ 7.90

Shares used in computing basic earnings per share:

Diluted earnings per share $ 13.40 $ 7.90 $ 6.34

Shares used in computing diluted earnings per share 29,260 29,932 30,294

Basic 26,042 28,734 29,067

Diluted 26,347 29,260 29,932

See accompanying notes.

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Years Ended September 30, 2022, 2021 and 2020

Stock Accumulated

Stock Additional

Paid-in-Capital Treasury

Stock Retained

Earnings Accumulated

Comprehensive

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(In thousands) Shares Par

Value Paid-in-

Capital Treasury

Stock Retained

Balance at September 30, 2019 28,944 $ 289 $ 1,225,365 $ ( 2,802,450 ) $ 1,956,648 $ ( 90,085 ) $ 289,767

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Deferred income taxes 7,816 ( 5,955 ) ( 8,639 )

Net (gain) loss on marketable securities 9,269 ( 4,569 ) ( 2,071 )

Non-cash operating lease costs 15,922 16,102 20,011

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Provision of doubtful accounts 2,800 652 3,199

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

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 ) —

Net loss on sales and abandonment of property and equipment 193 333 5,249

Changes in operating assets and liabilities:

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

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

Net cash provided by (used in) investing activities ( 5,671 ) 137,850 ( 24,583 )

Cash flows from financing activities:

Proceeds from revolving line of credit 682,000 263,000 229,000

Payments on revolving line of credit ( 259,000 ) ( 513,000 ) ( 141,000 )

Proceeds from revolving line of credit and term loan 1,039,000 682,000 263,000

Payments on revolving line of credit and term loan ( 988,250 ) ( 259,000 ) ( 513,000 )

Proceeds from issuance of senior notes 550,000 — 350,000

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Effect of exchange rate changes on cash ( 18,766 ) ( 136 ) 59

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

Increase (decrease) in cash and cash equivalents ( 62,152 ) 37,960 50,968

Cash and cash equivalents, beginning of year 195,354 157,394 106,426

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Fair Isaac Corporation

Fair Isaac Corporation (“FICO”), a Delaware corporation, was founded in 1956 on the premise that data, used intelligently, can improve business decisions.

Fair Isaac Corporation (NYSE:

FICO) (together with its consolidated subsidiaries, the “Company,” which may also be referred to in this report as “we,” “us,” “our,” or “FICO”) is a leading applied analytics company.

We were founded in 1956 on the premise that data, used intelligently, can improve business decisions.

Today, FICO’s software and the widely used FICO ® Score operationalize analytics, enabling thousands of businesses in nearly 120 countries to uncover new opportunities, make timely decisions that matter, and execute them at scale.

Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, automotive companies, public agencies, and organizations in other industries.

Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, automotive lenders, consumer reporting agencies, public agencies, and organizations in other industries.

We also serve consumers through online services that enable people to access and understand their FICO Scores — the standard measure in the U.S.

of consumer credit risk — empowering them to increase financial literacy and manage their financial health.

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

Principles of Consolidation and Basis of Presentation

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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

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labor hours in connection with fixed-fee service contracts;

the amount of our tax provision and the realizability of deferred tax assets.

the amount of our tax provision;

and the realizability of deferred tax assets.

We also use estimates in determining the remaining economic lives and carrying values of acquired intangible assets, property and equipment, and other long-lived assets.

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Actual results may differ from our estimates.

As the impact of the COVID-19 pandemic continues to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment.

These estimates and assumptions may change in future periods and will be recognized in the consolidated financial statements as new events occur and additional information becomes known.

To the extent our actual results differ materially from those estimates and assumptions, our future financial statements could be affected.

For more information, see Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.

Cash and Cash Equivalents

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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 value of certain of our financial instruments, including cash and cash equivalents, receivables, other current assets, accounts payable, accrued compensation and employee benefits, other accrued liabilities and amounts outstanding under our revolving line of credit and term loan, approximate their carrying amounts because of the short-term maturity of these instruments.

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

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

Trading securities are carried at fair value with unrealized gains or losses included in income (expense).

Trading securities are carried at fair value with unrealized gains or losses included in other income (expense).

Available-for-sale securities are carried at fair value measurements using quoted prices in active markets for identical assets or liabilities with unrealized gains or losses included in accumulated other comprehensive income (loss).

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These investments are recorded at cost, less impairment (if any) plus or minus adjustments for observable price changes.

The carrying value of these investments was $ 1.3 million and $ 1.1 million at September 30, 2021 and 2020, respectively, and they are reported in other assets on our consolidated balance sheets.

The carrying value of these investments was $ 1.1 million and $ 1.3 million at September 30, 2022 and 2021, respectively, and they were reported in other assets on our consolidated balance sheets.

At September 30, 2022, we reviewed the carrying value of these investments and concluded that they were not impaired and as of that date, we were unable to exercise significant influence over the investees.

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useful life or lease term

Equipment under capital lease Shorter of estimated

Equipment under finance lease Shorter of estimated

useful life or lease term

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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.

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.

We have determined that our reporting units are the same as our reportable segments.

When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value, referred to as a “step zero” approach.

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

After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of any of our reporting units was less their carrying amounts.

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

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

We performed a step one quantitative impairment test on the Software and Scores reporting units before and immediately following the change in reporting units.

There was a substantial excess of fair value over carrying value for the reporting units and we determined goodwill was not impaired for any of our reporting units before or after the change for fiscal 2021.

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

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.

For fiscal 2022, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment.

After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of either of our reporting units was less their carrying amounts.

Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for either of our reporting units for fiscal 2022.

FAIR ISAAC CORPORATION

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Revenues and expenses are translated at average rates of exchange prevailing during the period.

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

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

FAIR ISAAC CORPORATION

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The change in value from this remeasurement is reported as a foreign exchange gain or loss for that period in other income, net in the accompanying consolidated statements of income and comprehensive income.

We recorded transactional foreign exchange losses of $ 0.0 million , $ 1.0 million and $ 0.0 million during fiscal 2021, 2020 and 2019, respectively.

We recorded transactional foreign exchange gains (losses) of $ 1.9 million, $ 0.0 million and $( 1.0 ) million during fiscal 2022, 2021 and 2020, respectively.

Share-Based Compensation

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New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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 (“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.

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.

2016-13, Financial Instruments—Credit Losses (Topic 326):

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

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.

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 2021 and 2020.

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

for $ 18.6 million in cash.

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 Software segment that is deductible for t ax purposes.

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2021-08, “ Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ” (“ASU 2021-08”).

ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under Accounting Standards Codification Topic 606, Revenue from Contacts with Customers , in order to align the recognition of a contract liability with the definition of a performance obligation.

The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which means that it will be effective for our fiscal year beginning October 1, 2023.

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 expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements.

Business Divestitures

During fiscal 2021, we sold our Collections and Recovery (“C&R”) business to Jonas Collections and Recovery Inc.

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

In addition during fiscal 2021, we sold all assets related to our cyber risk score operations and we sold certain assets related to our Software operations to an affiliated joint venture in China.

The gains recognized from these sales were $ 100.1 million, which were recorded in gains on product line asset sales and business divestiture within the accompanying consolidated statements of income and comprehensive income.

The C&R business and the assets sold were part of our Software segment.

FAIR ISAAC CORPORATION

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Years Ended September 30, 2022, 2021 and 2020

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

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Total $ 133,202 $ 133,202 $ 195,354 $ 195,354

Long-term Marketable Securities:

Marketable Securities:

Marketable securities $ 25,956 $ 24,515 $ 23,836 $ 31,884

The assets included in marketable securities represent long-term marketable equity securities held under a supplemental retirement and savings plan for certain officers and senior management employees, which are distributed upon termination or retirement of the employees.

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

Our Level 1 assets are comprised of money market funds and certain marketable securities.

We did not have any liabilities that are valued using inputs identified under a Level 1 hierarchy as of September 30, 2021 and 2020.

Our Level 1 assets were comprised of money market funds and certain marketable securities and our Level 1 liabilities included senior notes as of September 30, 2022 and 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 that are valued using inputs identified under a Level 2 hierarchy as of September 30, 2021 and 2020.

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

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

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

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

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

September 30, 2022 Active Markets for

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Cash equivalents (1)

$ 19,314 $ 19,314

Marketable securities (2)

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Total $ 43,829 $ 43,829

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

September 30, 2021 Active Markets for

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Cash equivalents (1)

$ 35,275 $ 35,275

Marketable securities (2)

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

Not included in this table are cash deposits of $ 195.2 million and $ 122.1 million at September 30, 2021 and 2020, respectively.

Not included in these tables are cash deposits of $ 113.9 million and $ 195.2 million at September 30, 2022 and 2021, respectively.

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

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

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

See Note 9 for the fair value of our senior notes.

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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 .

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

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

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Singapore dollar (SGD) SGD 6,169 $ 4,300 —

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

September 30, 2021

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

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.

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

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

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

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

These amounts are shown below for the years ended September 30, 2022, 2021 and 2020:

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Amount Accumulated

Amortization Net Average

Amortization Net Weighted Average

Life in Years Gross

Amount Accumulated

Amortization Net Average

Amortization Net Weighted Average

Life in Years

(In thousands, except average life)

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Customer contracts and relationships 3,000 ( 1,900 ) 1,100 5 13,719 ( 11,037 ) 2,682 9

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

$ 70,760 $ ( 68,743 ) $ 2,017 5 $ 85,527 $ ( 81,428 ) $ 4,099 6

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Amortization expense associated with our intangible assets is reflected as a separate operating expense caption — amortization of intangible assets — and is excluded from cost of revenues and selling, general and administrative expenses within the accompanying consolidated statements of income and comprehensive income.

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Total $ 2,061 $ 3,255 $ 4,993

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

Year Ending September 30,

Estimated future intangible asset amortization expense associated with intangible assets existing at September 30, 2022, was as follows:

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

Year Ending September 30, (In thousands)

Total $ 2,017

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

The following table summarizes changes to goodwill during fiscal 2022 and 2021, both in total and as allocated to our segments.

We have not recognized any goodwill impairment losses to date.

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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

Foreign currency translation adjustment — ( 27,118 ) ( 27,118 )

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

Balance at September 30, 2022 $ 146,648 $ 614,419 $ 761,067

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Composition of Certain Financial Statement Captions

The following table presents the composition of property and equipment, net and other assets at September 30, 2021 and 2020:

The following table presents the composition of property and equipment, net and other accrued liabilities at September 30, 2022 and 2021:

September 30,

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Leasehold improvements 21,286 22,068

Equipment under capital lease — 6,489

accumulated depreciation and amortization ( 94,831 ) ( 97,053 )

Total $ 17,580 $ 27,913

Other assets:

Long-term receivables $ 37,452 $ 54,074

Prepaid commissions 44,932 38,579

Others 13,201 12,632

Other accrued liabilities:

Interest payable $ 21,314 $ 12,241

Current operating leases 19,369 22,074

Other 25,565 45,220

Total $ 66,248 $ 79,535

Revolving Line of Credit

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 .

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 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.

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.

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.

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 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 customary affirmative and negative covenants, including certain events of default, typical of unsecured obligations.

FAIR ISAAC CORPORATION

1 unchanged sentence

Years Ended September 30, 2022, 2021 and 2020

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

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

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

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

As of September 30, 2022, we had $ 280.0 million in borrowings outstanding under the revolving credit facility at a weighted-average interest rate of 4.479 % and $ 288.8 million in outstanding balance of the term loan at an interest rate of 4.283 %, of which $ 538.8 million was classified as a long-term liability and recorded in long-term debt within the accompanying consolidated balance sheets.

We were in compliance with all financial covenants under this credit facility as of September 30, 2022.

Future principal payments for the term loan are as follows:

Year Ending September 30, (In thousands)

2023 $ 15,000

Total $ 288,750

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”).

The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00 % per annum and will mature on June 15, 2028 .

On December 17, 2021, we issued $ 550 million of additional senior notes of the same class as the 2019 Senior Notes in a private offering to qualified institutional investors (the “2021 Senior Notes,” and collectively with the 2018 Senior Notes and the 2019 Senior Notes, the “Senior Notes”).

The 2021 Senior Notes require interest payments semi-annually at a rate of 4.00 % per annum and will mature on June 15, 2028 , the same date as the 2019 Senior Notes.

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

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

September 30, 2022 September 30, 2021

2 unchanged sentences

The 2018 Senior Notes $ 400,000 $ 381,500 $ 400,000 $ 453,000

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

The 2019 Senior Notes and the 2021 Senior Notes 900,000 767,250 350,000 357,000

Total $ 1,300,000 $ 1,148,750 $ 750,000 $ 810,000

(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $ 14.3 million and $ 9.0 million at September 30, 2022 and 2021, respectively.

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

Year Ending September 30,

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

Future principal payments for the Senior Notes are as follows:

Year Ending September 30, (In thousands)

Thereafter 900,000

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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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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;

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 fee in excess of the minimum threshold;

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

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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.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

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.

Professional services are sold either standalone, or together with other products or services and generally represent distinct performance obligations.

The transaction price can be a fixed amount or a variable amount based upon the time and materials expended.

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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.

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Total $ 706,643 $ 670,627 $ 1,377,270 100 %

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Year Ended September 30, 2021

13 unchanged sentences

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

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

Year Ended September 30, Percentage of revenues

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SaaS software 284,102 251,436 237,044 50 % 49 % 41 %

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

Total on-premises and SaaS software $ 564,751 $ 517,888 $ 584,576 100 % 100 % 100 %

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

3 unchanged sentences

Platform software ( * )

$ 116,252 $ 66,884 $ 65,665 21 % 13 % 11 %

Non-Platform software 448,499 451,004 518,911 79 % 87 % 89 %

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

Total on-premises and SaaS software $ 564,751 $ 517,888 $ 584,576 100 % 100 % 100 %

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

These standards encompass shared security context and access using FICO standard application programming interfaces.

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

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(Dollars in thousands)

Software recognized at a point time (1)

Software recognized at a point in time (1)

$ 75,647 $ 59,024 $ 127,666 13 % 11 % 22 %

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489,104 458,864 456,910 87 % 89 % 78 %

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

Total on-premises and SaaS software $ 564,751 $ 517,888 $ 584,576 100 % 100 % 100 %

(1) Includes license portion of our on-premises subscription software and perpetual license, both of which are recognized when the software is made available to the customer, or at the start of the subscription.

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Total $ 706,643 $ 654,147 $ 528,547 100 % 100 % 100 %

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

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.

Revenues collectively generated by agreements with these customers accounted for 39 %, 38 % and 33 % of our total revenues in fiscal 2022, 2021 and 2020, respectively, with two consumer reporting agencies each contributing more than 10% of our total revenues in fiscal 2022 and 2021, and one contributing more than 10% of our total revenues in fiscal 2020.

At September 30, 2022, no individual customer accounted for 10% or more of total consolidated receivables.

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

Contract Balances

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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, 2022 and 2021 consisted of the following:

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long-term receivables ( * )

( 42,109 ) ( 37,452 )

Short-term receivables ( * )

$ 322,410 $ 312,107

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

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Deferred revenues, ending balance ( * )

(*) 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.

$ 126,560 $ 110,763

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

(*) Deferred revenues at September 30, 2022 included current portion of $ 120.0 million and long-term portion of $ 6.6 million that were recorded in deferred revenue and other liabilities, respectively, within the 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 consolidated balance sheets.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days.

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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

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• 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 $ 357.4 million as of September 30, 2022, approximately 52 % of which we expect to recognize over the next 18 months and the remainder thereafter.

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

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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.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

Capitalized Commission Costs

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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

There were no restructuring and impairment charges incurred during fiscal 2022.

During fiscal 2021, we incurred restructuring charges of $ 8.0 million in employee separation costs due to the elimination of 160 positions throughout the Company.

Cash payments for all the employee separation costs will be paid by the end of our fiscal 2022.

Cash payments for all the employee separation costs were fully paid before the end of our fiscal 2022.

There were no impairment charges incurred during fiscal 2021.

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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

(In thousands)

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

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)

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

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.

The following tables summarize our restructuring accruals for employee separation.

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

FAIR ISAAC CORPORATION

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Years Ended September 30, 2022, 2021 and 2020

Year Ended September 30,

(In thousands)

Restructuring accrual, beginning balance $ 7,856 $ 8,191

Expense additions — 7,956

Cash payments ( 7,856 ) ( 8,291 )

Restructuring accrual, ending balance $ — $ 7,856

The provision for income taxes was as follows during fiscal 2022, 2021 and 2020:

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Foreign withholding tax and related foreign tax credits are included in current tax expense above.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

Deferred tax assets and liabilities at September 30, 2022 and 2021 were as follows:

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Based upon the level of historical taxable income and projections for future taxable income over the periods that the deferred tax assets will reverse, management believes it is more likely than not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowance at September 30, 2022.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

As of September 30, 2022, we had available U.S.

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

federal net operating loss (“NOL”) carryforwards of approximately $ 5.4 million.

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 $ 29.2 million of foreign NOL includes $ 4.9 million related to China and $ 18.1 million related to Germany.

Due to a limited ability to utilize the China and Germany NOLs, a full valuation allowance has been recorded on the China and Germany NOLs, resulting in no tax benefit.

Utilization of the U.S.

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however, based on enacted law and expected future cash taxes, we have recorded a valuation allowance of $ 16.0 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.

There is approximately $ 0.6 million of foreign tax credit carryforwards.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

A reconciliation of the provision for income taxes, with the amount computed by applying the U.S.

11 unchanged sentences

Excess tax benefits relating to share-based compensation 702 ( 15,573 ) ( 45,086 )

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

GILTI, FDII, BEAT and FTC ( 2,491 ) ( 4,958 ) 7,136

Other 6,865 ( 4,120 ) ( 7 )

Recorded income tax provision $ 97,768 $ 81,058 $ 20,589

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.

The increase in our income tax provision in fiscal 2022 compared to fiscal 2021 was due to a decrease in excess tax benefits related to share-based compensation.

The increase in our income tax provision in fiscal 2021 compared to fiscal 2020 was due to an increase in pretax book income, of which a large amount was due to the gain on divestiture of C&R business, as well as a decrease in excess tax benefits related to share-based compensation.

As of September 30, 2022, we had approximately $ 73.7 million of unremitted earnings of non-U.S.

subsidiaries.

The Company generates substantial cash flow in the U.S.

and does not have a current need for the cash to be returned to the U.S.

from the foreign entities.

The Company has not provided deferred tax liabilities for foreign withholding taxes and certain state income taxes on the undistributed earnings and profits from certain non-U.S.

subsidiaries that will be permanently reinvested outside the United States.

In the event these earnings are later remitted to the U.S., any estimated withholding tax and state income tax due upon remittance of those earnings is expected to be immaterial to the income tax provision.

For jurisdictions not permanently reinvested, the Company expects the net impact of any future repatriations to be immaterial to the Company’s overall tax liability.

Unrecognized Tax Benefit for Uncertain Tax Positions

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federal, state, local, or foreign income tax examinations for fiscal years prior to 2019.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

9 unchanged sentences

Gross unrecognized tax benefits at end of year $ 12,980 $ 10,897 $ 7,994

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

We had $ 13.0 million of total unrecognized tax benefits as of September 30, 2022, including $ 12.3 million of tax benefits that, if recognized, would impact the effective tax rate.

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Description of Stock Option and Share Plans

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.

We maintain the 2021 Long-Term Incentive Plan (the “2021 Plan”).

Under the terms of the 2021 Plan, the pool of shares available for issuance may be used for all types of equity awards available under the 2021 Plan, which include stock options, stock appreciation rights, restricted stock awards, stock unit awards and other share-based awards.

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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.

In general, stock option awards and stock unit awards not subject to market or performance conditions vest annually over four years .

Stock unit awards subject to market or performance conditions generally vest annually over three years based on the achievement of specified criteria.

At September 30, 2022, there were 5,270,822 shares available for issuance as new awards under the 2021 Plan.

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At September 30, 2022, there were 874,772 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.

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

Share-Based Compensation Expense and Related Income Tax Benefits

We recorded share-based compensation expense of $ 112.5 million, $ 93.7 million and $ 83.0 million in fiscal years 2021, 2020 and 2019, respectively.

We recorded share-based compensation expense of $ 115.4 million, $ 112.5 million and $ 93.7 million in fiscal 2022, 2021 and 2020, respectively.

The total tax benefit related to this share-based compensation expense was $ 13.5 million, $ 14.0 million and $ 13.2 million in fiscal 2022, 2021 and 2020, respectively.

3 unchanged sentences

In fiscal 2022 we received $ 3.2 million in cash from stock option exercises, with the tax benefit realized for the tax deductions from these exercises of $ 3.4 million.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

Share-Based Activity

10 unchanged sentences

Weighted-average expected dividend yield — % — % — %

Expected Volatility.

We estimate the volatility of our common stock at the date of grant based on a combination of the implied volatility of publicly traded options on our common stock and our historical volatility rate.

Expected Term.

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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.

Consequently, we used an expected dividend yield of zero in the years presented.

Expected Volatility.

We estimate the volatility of our common stock at the date of grant based on a combination of the implied volatility of publicly traded options on our common stock and our historical volatility rate.

Risk-Free Interest Rate.

The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our employee options.

We have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future.

Consequently, we used an expected dividend yield of zero in the years presented.

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 2022:

11 unchanged sentences

Vested or expected to vest at September 30, 2022 207 $ 246.35 3.27 $ 36,344

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, 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 weighted-average fair value of options granted was $ 134.91 , $ 139.11 and $ 99.30 during fiscal 2022, 2021 and 2020, respectively.

The aggregate intrinsic value of options outstanding at September 30, 2022 was calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the 180,000 outstanding options that had exercise prices lower than the $ 412.01 market price of our common stock at September 30, 2022.

The total intrinsic value of options exercised was $ 14.5 million, $ 15.8 million and $ 132.6 million during fiscal 2022, 2021 and 2020, respectively, determined as of the date of exercise.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

Restricted Stock Units

9 unchanged sentences

Outstanding at September 30, 2022 415 $ 398.07

The weighted-average fair value of the RSUs granted were $ 505.70 , $ 356.66 and $ 206.29 during fiscal 2021, 2020 and 2019, respectively.

The weighted-average fair value of the RSUs granted was $ 416.62 , $ 505.70 and $ 356.66 during fiscal 2022, 2021 and 2020, respectively.

The total intrinsic value of the RSUs that vested was $ 97.3 million, $ 156.6 million and $ 159.0 million during fiscal 2022, 2021 and 2020, respectively, determined as of the date of vesting.

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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 2022:

4 unchanged sentences

Released ( 64 ) 344.62

Forfeited ( 2 ) 354.18

Outstanding at September 30, 2022 144 $ 432.73

The weighted-average fair value of the PSUs granted were $ 506.91 , $ 354.18 and $ 185.05 during fiscal 2021, 2020 and 2019, respectively.

The weighted-average fair value of the PSUs granted was $ 407.49 , $ 506.91 and $ 354.18 during fiscal 2022, 2021 and 2020, respectively.

The total intrinsic value of the PSUs that vested was $ 25.9 million, $ 34.7 million and $ 36.5 million during fiscal 2022, 2021 and 2020, respectively, determined as of the date of vesting.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

Market Share Units

14 unchanged sentences

The correlation between FICO and the Russell 3000 Index was determined based on historical daily stock price movements for the three years preceding the grant date.

Because we have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future, we used an expected dividend yield of zero.

The risk-free rate was determined based on U.S.

Treasury zero-coupon yields over the three-year performance period.

The following table summarizes the MSUs activity during fiscal 2022:

4 unchanged sentences

Released ( 19 ) 206.71

Forfeited ( 2 ) 467.87

Outstanding at September 30, 2022 92 $ 586.91

The weighted-average fair value of the MSUs granted were $ 471.16 , $ 249.13 and $ 169.46 during fiscal 2021, 2020 and 2019, respectively.

The weighted-average fair value of the MSUs granted was $ 493.66 , $ 471.16 and $ 249.13 during fiscal 2022, 2021 and 2020, respectively.

The total intrinsic value of the MSUs that vested was $ 7.8 million, $ 34.5 million and $ 44.6 million during fiscal 2022, 2021 and 2020, respectively, determined as of the date of vesting.

Employee Stock Purchase Plan

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

During fiscal 2022, a total of 32,528 shares of our common stock with a weighted-average purchase price of $ 393.95 per share were issued under the 2019 Purchase Plan.

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

FAIR ISAAC CORPORATION

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Years Ended September 30, 2022, 2021 and 2020

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

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(In thousands, except per share data)

Numerator for basic and diluted earnings per share — net income $ 392,084 $ 236,411 $ 192,124

Numerator for diluted and basic earnings per share:

Net income $ 373,541 $ 392,084 $ 236,411

Denominator — share:

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Diluted $ 14.18 $ 13.40 $ 7.90

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

The computation of diluted EPS excludes options to purchase approximately 32,000 , 12,000 , and 10,000 shares of common stock for fiscal 2022, 2021 and 2020, respectively, because the exercise prices of the options exceeded the average market price of our common stock in these fiscal years and their inclusion would be antidilutive.

Segment Information

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:

We are organized into two reportable segments:

Scores and Software.

Although we sell solutions and services into a large number of end user product and industry markets, our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance.

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.

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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.

Our chief operating decision maker (“CODM”), who is our Chief Executive Officer, evaluates segment financial performance based on segment revenues and segment operating income.

Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, IT infrastructure, consulting, travel and depreciation.

Indirect costs are allocated to the segments generally based on relative segment revenues, fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable.

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These income and expense items are not allocated because they are not considered in evaluating the segment’s operating performance.

Our Chief Executive Officer does not evaluate the financial performance of each segment based on its respective assets or capital expenditures;

Our CODM does not evaluate the financial performance of each segment based on its respective assets or capital expenditures;

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

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

The following tables summarize segment information for fiscal 2022, 2021 and 2020:

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Unallocated amortization expense ( 2,061 )

Unallocated restructuring and impairment charges ( 7,957 )

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

Operating income 542,414

Unallocated interest expense, net ( 68,967 )

Unallocated other income, net 7,745

Unallocated other expense, net ( 2,138 )

Income before income taxes $ 471,309

Depreciation expense $ 723 $ 14,412 $ 107 $ 15,242

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

Year Ended September 30, 2021

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Unallocated restructuring and impairment charges ( 7,957 )

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

Operating income 505,489

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

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

Year Ended September 30, 2020

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Unallocated amortization expense ( 4,993 )

Unallocated restructuring and impairment charges ( 45,029 )

Operating income 295,969

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

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

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

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We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.

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

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2022, 2021 and 2020

The following table presents the lease balances within the accompanying consolidated balance sheets as of September 30, 2022 and 2021:

Balance Sheet Location September 30,

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Operating leases Operating lease right-of-use assets $ 36,688 $ 47,275

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

Total lease assets $ 47,275 $ 62,677

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

Current operating leases Other accrued liabilities $ 19,369 $ 22,074

Non-current operating leases Operating lease liabilities 39,192 53,670

Total lease liabilities $ 58,561 $ 75,744

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

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended September 30, 2021, 2020 and 2019

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

Year Ended September 30,

2022 2021 2020

(In thousands)

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Total lease cost $ 20,718 $ 21,012 $ 30,323

The following table presents weighted-average remaining lease term and weighted-average discount rates related to our operating and finance leases:

The following table presents weighted-average remaining lease term and weighted-average discount rates related to our operating leases:

September 30,

Operating lease:

Weighted-average remaining lease term (in months) 47 53

Weighted-average discount rate 4.01 % 3.64 %

Finance lease:

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

Weighted-average discount rate — % 2.56 %

FAIR ISAAC CORPORATION

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Year Ended September 30,

2022 2021 2020

(In thousands)

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Finance leases — — 1,387

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

(In thousands) Operating Leases

Future lease payments under our non-cancellable operating leases as of September 30, 2022 were as follows:

(In thousands)

Fiscal 2023 $ 21,306

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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 .

In October 2022, our Board of Directors approved a new stock repurchase program replacing 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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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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-K

Item 8. Financial Statements and Supplementary Data