What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-11-06 compared with 2023-11-08 · 118 added, 144 removed, 323 unchanged (45% of the section changed)

13 unchanged sentences

In fiscal 2024, our B2B scoring solutions, including the flagship FICO ® Score, continued to be the standard measure of consumer credit risk in the U.S.

We continued to promote adoption of our most predictive scores, FICO ® Score 10 and 10 T.

Internationally, we launched FICO ® Score 10 in Canada, FICO ® Score 6 in South Africa, and FICO ® Score 4 and FICO ® Extended Score 4 in Mexico, further expanding our financial inclusion initiatives.

We also remained committed to expanding usage of the FICO ® Resilience Index, a complement to FICO Scores that identifies consumers who are more resilient to economic stress relative to other consumers within the same FICO Score bands.

We continued to develop scores that use alternative data to enhance conventional credit bureau data and generate scores for otherwise un-scorable consumers.

During fiscal 2023, we continued to advance and drive growth through our platform-first, cloud delivered strategy in our Software segment.

This strategic focus has led us to exit non-strategic products and services in the past few years, allowing us to dedicate our resources to expanding the capabilities and market penetration of FICO ® Platform.

We also continued our transition from private data centers to external service providers to host our technology infrastructure.

We also continued to enhance stockholder value by returning cash to stockholders through our stock repurchase programs.

The adoption of our most predictive scores, FICO ® Score 10 and 10 T, gained increased traction for non-conforming mortgages and will be implemented for conforming mortgages based on the timeline set forth by the Federal Housing Finance Agency for enterprise credit scoring requirements.

We continued the expansion of our financial inclusion initiatives through the FICO ® Educational Analytics Challenge, a program created to help promote diversity in data science, engineering, and technology at Historically Black Colleges and Universities.

Additionally, we host free Score A Better Future TM financial education workshops for students and adults from traditionally underserved communities.

Internationally, we launched a FICO Score based on Ukrainian Bureau of Credit Histories data, an innovative score to help Ukrainians gain credit access in Poland.

We also remained committed to expanding usage of the FICO ® Resilience Index, a complement to FICO Scores that more precisely predicts a borrower’s resilience to future economic disruptions, helping lenders manage latent risk.

We continued to develop alternative data scores, including trended data cash flow attributes, to help lenders identify credit borrowers with positive financial profiles that extend beyond their traditional credit reports as well as offer credit score layering leveraging UltraFICO ® Score and FICO ® Score XD to help broaden accessibility and extend financial inclusion to borrowers with limited credit history.

During fiscal 2024, the strategy for our Software segment was to continue to advance and drive growth through our platform-first, cloud delivered products.

A significant portion of our short-term opportunity remains in North America, where financial institutions are focused on digital transformation and understand the value of FICO ® Platform.

We have also expanded our FICO Platform reach both by geography and customer type in order to enable organizations to operationalize analytics, and to power customer connections and decision making at scale.

We continue to innovate and bring new capabilities to FICO Platform, demonstrating its value with new customers and expanding use cases with existing customers.

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

During fiscal 2024, we repurchased 0.6 million shares at a total repurchase price of $833.3 million.

Highlights from Fiscal 2024

• Total revenue was $1.5 billion during fiscal 2023, a 10% increase from fiscal 2022.

• Annual Recurring Revenue for our Software segment as of September 30, 2023 was $669.4 million, a 22% increase from September 30, 2022.

• Dollar-Based Net Retention Rate for our Software segment during the fourth quarter of fiscal 2023 was 120%.

• Total revenues were $1.7 billion during fiscal 2024, a 13% increase from fiscal 2023.

• Revenues for our Scores segment were $919.7 million during fiscal 2024, a 19% increase from fiscal 2023.

• Annual Recurring Revenue for our Software segment as of September 30, 2024 was $721.2 million, an 8% increase from September 30, 2023.

• Dollar-Based Net Retention Rate for our Software segment was 106% as of September 30, 2024.

• Operating income was $733.6 million during fiscal 2024, a 14% increase from fiscal 2023.

3 unchanged sentences

• Cash and cash equivalents were $150.7 million as of September 30, 2024, compared with $136.8 million as of September 30, 2023.

• Total debt balance was $1.9 billion as of September 30, 2023 and September 30, 2022.

• Total share repurchases during fiscal 2023 were $407.3 million, compared with $1.1 billion during fiscal 2022.

• Total debt balance was $2.2 billion as of September 30, 2024, compared with $1.9 billion as of September 30, 2023.

• Total share repurchases during fiscal 2024 were $833.3 million, compared with $407.3 million during fiscal 2023.

Key performance metrics for Software segment

Annual Contract Value Bookings (“ACV Bookings”)

Management regards ACV Bookings as an important indicator of future revenues, but they are not comparable to, nor are they a substitute for, an analysis of our revenues and other U.S.

Management regards ACV Bookings as an important indicator of future revenues, but it is not comparable to, nor is it a substitute for, an analysis of our revenues and other U.S.

generally accepted accounting principles (“U.S.

7 unchanged sentences

Differences between estimates and actual results occur due to variability in the estimated usage.

This variability can be the result of the economic trends in our customers’ industries;

individual performance of our customers relative to their competitors;

and regulatory and other factors that affect the business environment in which our customers operate.

This variability can be the result of the economic trends in our customers’ industries, individual performance of our customers relative to their competitors, and regulatory and other factors that affect the business environment in which our customers operate.

For the periods presented, ACV Bookings related to estimates of future usage-based fees was approximately 30% of the total ACV Bookings amount on an annualized basis.

Differences between the initial estimates of future usage-based fees and actual results historically have not been material and we do not currently expect that they will be materially different in the future.

We disclose estimated revenue expected to be recognized in the future related to remaining performance obligations in Note 9 to the accompanying consolidated financial statements.

However, we believe ACV Bookings is a more meaningful measure of our business as it includes estimated revenues and future billings excluded from Note 11, such as usage-based fees and guaranteed minimums derived from our on-premises software licenses, among others.

However, we believe ACV Bookings is a useful supplemental measure of our business as it includes estimated revenues and future billings excluded from Note 9, such as usage-based fees and guaranteed minimums derived from our on-premises software licenses, among others.

The following table summarizes our ACV Bookings during the periods indicated:

3 unchanged sentences

Total on-premises and SaaS software $ 22.1 $ 28.0 $ 84.7 $ 93.9

$ 28.0 $ 29.2 $ 93.9 $ 84.5

(*) During fiscal 2023, we sold certain assets related to our Siron compliance business.

The amounts above exclude this product line for all periods presented.

(*) We sold certain assets related to our Siron compliance business during the quarter ended December 31, 2022, and the amount above excludes this product line for the year ended September 30, 2023.

Annual Recurring Revenue (“ARR”)

Accounting Standards Codification Topic 606, Revenue from Contacts with Customers, requires us to recognize a significant portion of revenue from our on-premises software subscriptions at the point in time when the software is first made available to the customer, or at the beginning of the subscription term, despite the fact that our contracts typically call for billing these amounts ratably over the life of the subscription.

Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, requires us to recognize a significant portion of revenue from our on-premises software subscriptions at the point in time when the software is first made available to the customer, or at the beginning of the subscription term, despite the fact that our contracts typically call for billing these amounts ratably over the life of the subscription.

The remaining portion of our on-premises software subscription revenue including maintenance and usage-based fees are recognized over the life of the contract.

5 unchanged sentences

We calculate ARR as the quarterly recurring revenue run-rate multiplied by four.

The following table summarizes our ARR for on-premises and SaaS software at each of the dates presented:

December 31, 2021 March 31, 2022 June 30,

2022 September 30, 2022 December 31, 2022 March 31, 2023 June 30,

The following table summarizes our ARR for on-premises and SaaS software exiting each of the dates presented:

December 31, 2022 ( * )

March 31, 2023 June 30,

2023 September 30, 2023 December 31,

2023 March 31,

2024 June 30,

2024 September 30, 2024

1 unchanged sentence

Platform $ 132.8 $ 152.5 $ 164.1 $ 173.2 $ 190.3 $ 201.4 $ 215.1 $ 227.0

$ 90.9 $ 95.4 $ 107.2 $ 113.1 $ 132.8 $ 152.5 $ 164.1 $ 173.2

Non-Platform 450.1 461.0 481.8 496.2 497.4 495.6 494.5 494.2

6 unchanged sentences

Total 11 % 17 % 20 % 22 % 18 % 14 % 10 % 8 %

(*) During fiscal 2023, we sold certain assets related to our Siron compliance business.

The amounts and percentages above exclude this product line at all dates presented.

(**) 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.

(*) We sold certain assets related to our Siron compliance business during the quarter ended December 31, 2022, and the amounts and percentages above exclude this product line at December 31, 2022.

Dollar-Based Net Retention Rate (“DBNRR”)

5 unchanged sentences

Our DBNRR may increase or decrease from period to period as a result of various factors, including the timing of new sales and customer renewal rates.

The following table summarizes our DBNRR for on-premises and SaaS software for each of the periods presented:

Quarter Ended

The following table summarizes our DBNRR for on-premises and SaaS software exiting each of the dates presented:

December 31, 2022 (*) March 31, 2023 June 30,

2022 September 30, 2022 December 31, 2022 March 31, 2023 June 30,

2023 September 30, 2023 December 31,

2023 March 31,

2024 June 30,

2024 September 30, 2024

2 unchanged sentences

Total 110 % 114 % 117 % 120 % 114 % 112 % 108 % 106 %

(*) During fiscal 2023, we sold certain assets related to our Siron compliance business.

The percentages above exclude this product line for all periods presented.

(*) We sold certain assets related to our Siron compliance business during the quarter ended December 31, 2022, and the percentages above exclude this product line at December 31, 2022.

RESULTS OF OPERATIONS

18 unchanged sentences

Scores segment revenues increased $145.8 million in fiscal 2024 from 2023 due to an increase of $150.8 million in our business-to-business scores revenue, partially offset by a decrease of $5.0 million in our business-to-consumer revenue.

The increase in business-to-business scores revenue was primarily attributable to a higher unit price, partially offset by a decrease in mortgage originations volume.

The increase in business-to-business scores revenue was primarily attributable to a higher unit price, partially offset by a decrease in volume of mortgage originations.

The decrease in business-to-consumer revenue was primarily attributable to a decrease in direct sales generated from the myFICO.com website.

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

Year Ended September 30, Period-to-Period Change Period-to-Period

6 unchanged sentences

Total $ 797,876 $ 739,729 $ 670,627 58,147 69,102 8 % 10 %

The following table provides information about disaggregated revenue for on-premises and SaaS software within our Software segment by timing of revenue recognition:

Year Ended September 30, Period-to-Period Change Period-to-Period

6 unchanged sentences

635,056 567,339 489,104 67,717 78,235 12 % 16 %

Total on-premises and SaaS software

$ 711,340 $ 640,182 $ 564,751 $ 71,158 75,431 11 % 13 %

2 unchanged sentences

Software segment revenues increased $58.1 million in fiscal 2024 from 2023 due to a $71.2 million increase in on-premises and SaaS software revenue, partially offset by a $13.0 million decrease in services revenue.

The increase in our on-premises and SaaS software revenue was primarily attributable to an increase in revenue recognized over the contract term largely driven by SaaS growth.

The increase in our on-premises and SaaS software revenue was primarily attributable to an increase in revenue recognized over time largely driven by SaaS growth for our Platform products.

The decrease in professional services revenue was primarily attributable to our strategy to emphasize higher-margin software over professional services.

Operating Expenses and Other Income (Expense), Net

10 unchanged sentences

Amortization of intangible assets 917 1,100 2,061 (183) (961) (17) % (47) %

Restructuring charges — — 7,957 — (7,957) — % (100) %

Gains on product line asset sales and business divestiture (1,941) — (100,139) (1,941) 100,139 — % (100) %

Gain on product line asset sale — (1,941) — 1,941 (1,941) (100) % — %

Total operating expenses 983,897 870,727 834,856 113,170 35,871 13 % 4 %

15 unchanged sentences

Amortization of intangible assets — % — % — %

Restructuring charges — % — % 1 %

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

Gain on product line asset sale — % — % — %

Total operating expenses 57 % 58 % 61 %

13 unchanged sentences

and outside services.

The fiscal 2023 over 2022 increase in cost of revenues of $8.9 million was primarily attributable to a $23.4 million increase in personnel and labor costs, partially offset by a $12.9 million decrease in infrastructure and facilities costs, and a $3.9 million decrease in direct materials costs.

The increase in personnel and labor costs was primarily attributable to increases in employee time allocated to cost of revenues, increased stock-based compensation expense, increased incentive expense and increased headcount.

The decrease in infrastructure and facilities costs was primarily attributable to a one-time reimbursement from a third-party data center provider for implementation costs previously incurred.

The decrease in direct materials costs was primarily attributable to a decrease in credit bureau data costs associated with decreased business-to-consumer scoring solutions revenue through the myFICO.com website.

Cost of revenues as a percentage of revenues decreased to 21% during fiscal 2023 from 22% during fiscal 2022, primarily due to increased sales of our higher margin Scores products and the one-time reimbursement from a third-party data center provider for implementation costs previously incurred.

The fiscal 2024 over 2023 increase in cost of revenues of $37.2 million was primarily attributable to an $18.1 million increase in infrastructure and facilities costs, a $12.4 million increase in personnel and labor costs, a $4.3 million increase in direct materials costs, and a $2.4 million increase in outside services costs.

The increase in infrastructure and facilities costs was primarily attributable to an increase in third-party data center hosting costs, a prior year one-time reimbursement from a third-party data center provider for implementation costs previously incurred, and an increase in software royalty costs.

The increase in personnel and labor costs was primarily attributable to increased market base-pay adjustments and increased share-based compensation expense.

The increase in direct materials costs was primarily attributable to increased telecommunications expenses to support FICO ® Customer Communications Services revenue.

The increase in outside services costs was primarily attributable to increased consulting costs.

Cost of revenues as a percentage of revenues decreased to 20% during fiscal 2024 from 21% during fiscal 2023, primarily due to increased sales of our higher-margin Scores products.

Research and Development

Research and development expenses include personnel and related overhead costs incurred in the development of new products and services, including research of mathematical and statistical models and development of new versions of Software products.

The fiscal 2023 over 2022 increase in research and development expenses of $13.2 million was primarily attributable to a $10.7 million increase in personnel and labor costs as a result of increases in time allocated to research and development activities, and a $1.4 million increase in infrastructure and facilities costs primarily attributable to increased third-party data center hosting fees and SaaS costs.

Research and development expenses as a percentage of revenues remained consistent at 11% during fiscal 2023 and 2022.

The fiscal 2024 over 2023 increase in research and development expenses of $12.0 million was primarily attributable to an $8.2 million increase in personnel and labor costs, as a result of increases in share-based compensation expense, headcount, and incentive expense, a $2.4 million increase in infrastructure and facilities costs primarily attributable to increased third-party data center hosting costs, and a $1.8 million increase in consulting costs.

Research and development expenses as a percentage of revenues decreased to 10% during fiscal 2024 from 11% during fiscal 2023.

Selling, General and Administrative

6 unchanged sentences

and business development expenses.

The fiscal 2023 over 2022 increase in selling, general and administrative expenses of $16.7 million was primarily attributable to a $10.9 million increase in personnel and labor costs, a $5.2 million increase in marketing and business development costs, a $3.3 million increase in travel costs, and a $2.2 million increase in outside services expenses, partially offset by a $4.9 million decrease in infrastructure and facilities costs.

The increase in personnel and labor costs was primarily a result of increased fringe benefit costs related to our supplemental retirement and savings plan.

The increases in marketing, business development and travel costs were primarily attributable to increased costs for a company-wide marketing event held during both fiscal 2023 and 2022, with higher costs incurred for the fiscal 2023 event due to the increased scope of the event.

In addition, as COVID-19 related restrictions have been relaxed, we held more corporate events, increased advertising and promotional expenses and increased travel costs.

The increase in outside services expenses was primarily attributable to increased legal expenses.

The decrease in infrastructure and facilities costs was primarily attributable to a decrease in software royalty fees and maintenance allocated to selling, general and administrative expenses, and a favorable adjustment from the termination of an office lease related to our consolidation of office space.

Selling, general and administrative expenses as a percentage of revenues decreased to 26% during fiscal 2023 from 28% during fiscal 2022.

The fiscal 2024 over 2023 increase in selling, general and administrative expenses of $62.3 million was primarily attributable to a $38.6 million increase in personnel and labor costs, a $6.0 million increase in outside services costs, a $5.5 million increase in advertising and other promotional costs, a $4.9 million increase in non-income tax costs, a $3.7 million increase in travel costs, and a $2.6 million increase in infrastructure and facilities costs.

The increase in personnel and labor costs was primarily attributable to increased share-based compensation expense, increased headcount, market base-pay adjustments, increased fringe benefit costs related to our supplemental retirement and savings plan, and increased incentive expense.

The increase in outside services costs was primarily attributable to increased legal and consulting expenses.

The increase in advertising and other promotional expenses was primarily attributable to increased costs for advertising campaigns and corporate events.

The increase in non-income tax costs was primarily attributable to a tax law change related to transfer pricing effective in fiscal 2024 that impacted a non-U.S.

The increase in travel costs was primarily attributable to promotional and corporate events.

The increase in infrastructure and facilities costs was primarily attributable to the impact of a favorable adjustment in the prior year from the termination of an office lease.

Selling, general and administrative expenses as a percentage of revenues increased to 27% during fiscal 2024 from 26% during fiscal 2023.

Amortization of Intangible Assets

2 unchanged sentences

Amortization expense was $0.9 million and $1.1 million for fiscal 2024 and 2023, respectively.

Restructuring Charges

There were no restructuring charges incurred during fiscal 2023 and 2022.

Gains on Product Line Asset Sales and Business Divestiture

The $1.9 million gain on product line asset sale during fiscal 2023 was attributable to the sale of certain assets related to our Siron compliance business in December 2022.

Gain on Product Line Asset Sale

The $1.9 million gain on product line asset sale during fiscal 2023 was attributable to the sale of certain assets related to our Siron compliance business.

Interest Expense, Net

Interest expense includes interest on the senior notes issued in December 2021, December 2019, and May 2018, as well as interest and credit agreement fees on the revolving line of credit and term loan.

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

The fiscal 2023 from 2022 increase in net interest expense of $26.6 million was primarily attributable to a higher average outstanding debt balance, as well as a higher average interest rate on our revolving line of credit and term loan during fiscal 2023.

The fiscal 2024 from 2023 increase in net interest expense of $10.1 million was primarily attributable to a higher average interest rate and higher average outstanding balance of borrowings under our credit agreement during fiscal 2024.

Other Income (Expense), Net

Other income (expense), net consists primarily of unrealized investment gains/losses and realized gains/losses on certain investments classified as trading securities, exchange rate gains/losses resulting from remeasurement of foreign-currency-denominated receivable and cash balances held by our various reporting entities into their respective functional currencies at period-end market rates, net of the impact of offsetting foreign currency forward contracts, and other non-operating items.

The fiscal 2023 over 2022 change in other income (expense), net of $8.5 million, from $2.1 million in other expense, net to $6.3 million in other income, net, was primarily attributable to net unrealized gains on investments classified as trading securities in our supplemental retirement and savings plan in the current year compared to losses in the prior year, partially offset by an increase in foreign currency exchange losses.

The fiscal 2024 over 2023 increase in other income, net of $7.7 million was primarily attributable to an increase in net unrealized and realized gains on investments classified as trading securities in our supplemental retirement and savings plan and a decrease in foreign currency exchange losses.

Provision for Income Taxes

Our effective tax rates were 22.4%, 20.7% and 17.1% in fiscal 2023, 2022 and 2021, respectively.

The increase in our effective tax rate in fiscal 2023 compared to fiscal 2022 was due to the increase in pretax income overall, in addition to a one-time increase related to the divestiture of a non-U.S.

Our effective income tax rates were 20.1%, 22.4% and 20.7% in fiscal 2024, 2023 and 2022, respectively.

The decrease in our effective tax rate in fiscal 2024 compared to fiscal 2023 was due to an increase in excess tax benefits related to share-based compensation.

Operating Income

11 unchanged sentences

Unallocated amortization expense (917) (1,100) (2,061) 183 961 (17) % (47) %

Unallocated restructuring charges — — (7,957) — 7,957 — % (100) %

Gains on product line asset sales and business divestiture 1,941 — 100,139 1,941 (100,139) — % (100) %

Gain on product line asset sale — 1,941 — (1,941) 1,941 (100) % — %

Operating income $ 733,629 $ 642,830 $ 542,414 90,799 100,416 14 % 19 %

11 unchanged sentences

Segment operating income $ 257,529 $ 241,191 $ 183,122 32 % 33 % 27 %

The fiscal 2023 over 2022 increase in operating income of $100.4 million was primarily attributable to a $136.3 million increase in segment revenues, partially offset by a $16.5 million increase in segment operating expenses, a $13.8 million increase in corporate expenses, and an $8.5 million increase in share-based compensation cost.

The fiscal 2024 over 2023 increase in operating income of $90.8 million was primarily attributable to a $204.0 million increase in segment revenues, partially offset by a $55.3 million increase in segment operating expenses, a $30.5 million increase in corporate expenses, and a $25.6 million increase in share-based compensation cost.

At the segment level, the $118.1 million increase in segment operating income was the result of a $132.3 million increase in our Scores segment operating income and a $16.3 million increase in our Software segment operating income, partially offset by a $30.5 million increase in corporate expenses.

2 unchanged sentences

The $16.3 million increase in our Software segment operating income was attributable to a $58.1 million increase in segment revenue, partially offset by a $41.8 million increase in segment operating expenses.

Segment operating income as a percentage of segment revenue for Software increased to 33% from 27%, primarily attributable to an increase in software revenue recognized over the contract term due to SaaS growth, a one-time reimbursement from a third-party data center provider for implementation costs previously incurred, and a decrease in sales of our lower-margin professional services.

Segment operating income as a percentage of segment revenue for Software decreased to 32% from 33%, primarily attributable to a prior year one-time reimbursement from a third-party data center provider for implementation costs previously incurred, partially offset by a decrease in sales of our lower-margin professional services.

CAPITAL RESOURCES AND LIQUIDITY

As of September 30, 2024, we had $150.7 million in cash and cash equivalents, which included $124.4 million held by our foreign subsidiaries.

We believe our cash and cash equivalents balances, including those held by our foreign subsidiaries, as well as available borrowings from our $600 million revolving line of credit and anticipated cash flows from operating activities, will be sufficient to fund our working and other capital requirements for at least the next 12 months and thereafter for the foreseeable future, including the $15.0 million principal payments on our term loan due over the next 12 months.

Under our current financing arrangements, we have no other significant debt obligations maturing over the next twelve months.

19 unchanged sentences

Net cash provided by operating activities totaled $633.0 million in fiscal 2024 compared to $468.9 million in fiscal 2023.

The $40.6 million decrease was attributable to a $68.9 million decrease in non-cash items and a $27.5 million decrease that resulted from timing of receipts and payments in our ordinary course of business, partially offset by a $55.8 million increase in net income.

The $164.1 million increase was attributable to an $83.4 million increase in net income, a $43.0 million increase that resulted from timing of receipts and payments in our ordinary course of business, and a $37.7 million increase in non-cash items.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $28.0 million in fiscal 2024 compared to $16.0 million in fiscal 2023.

The $10.3 million increase was primarily attributable to an $8.4 million decrease in cash proceeds from the product line asset sales, net of cash transferred and a $3.0 million decrease in proceeds from sale of marketable securities.

The $12.0 million increase was attributable to a $16.7 million increase in capitalized internal-use software costs and a $4.6 million increase in purchases of property and equipment, partially offset by a $6.1 million decrease in cash transferred, net of proceeds, from a product line asset sale and a $3.2 million increase in proceeds from sales, net of purchases, of marketable securities.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $592.9 million in fiscal 2024 compared to $455.0 million in fiscal 2023.

The $92.2 million decrease was primarily attributable to a $698.7 million decrease in repurchases of common stock and an $8.8 million decrease in payments on debt issuance costs, partially offset by a $550.0 million decrease in proceeds from the issuance of senior notes, a $45.8 million decrease in proceeds, net of payments, on our revolving line of credit and term loan, and a $25.7 million increase in taxes paid related to net share settlement of equity awards.

The $137.9 million increase was primarily attributable to a $416.2 million increase in repurchases of common stock and a $62.5 million increase in taxes paid related to net share settlement of equity awards, partially offset by a $340.0 million increase in proceeds, net of payments, on our revolving line of credit and term loans.

Repurchases of Common Stock

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

This 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.

As of September 30, 2023, we had $120.5 million remaining under our current stock repurchase program.

During fiscal 2023 and 2022, we expended $407.3 million and $1.1 billion, respectively, under our current and previously authorized stock repurchase programs.

Revolving Line of Credit and Term Loan

We have a $600 million unsecured revolving line of credit and a $300 million unsecured term loan with a syndicate of banks that mature on August 19, 2026.

Borrowings under the revolving line of credit and term loan 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.

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

In November 2022, we amended our credit agreement to replace the LIBOR reference rate with the Secured Overnight Financing Rate (“SOFR”) reference rate.

Interest rates on amounts borrowed under the revolving line of credit and term loan are based on (i) an adjusted base rate, which is the greatest of (a) the prime rate, (b) the Federal Funds rate plus 0.5%, and (c) one-month adjusted term SOFR rate plus 1%, plus, in each case, an applicable margin, or (ii) an adjusted term SOFR rate plus an applicable margin.

In January 2024, our Board of Directors approved a stock repurchase program (the “January 2024 program”), replacing our previously authorized October 2022 stock repurchase program, which was terminated prior to its expiration.

The January 2024 program was open-ended and authorized repurchases of shares of our common stock from time to time up to an aggregate cost of $500.0 million in the open market or in negotiated transactions.

In July 2024, our Board of Directors approved a new stock repurchase program (the “July 2024 program”), replacing the January 2024 program, which was terminated prior to its expiration and under which $29.6 million was remaining for repurchase at the time of termination.

The July 2024 program is open-ended and authorizes repurchases of shares of our common stock from time to time up to an aggregate cost of $1.0 billion in the open market or in negotiated transactions.

The July 2024 program remains in effect until the total authorized amount is expended or until further action by our Board of Directors.

As of September 30, 2024, we had $760.5 million remaining under the July 2024 program.

During fiscal 2024 and 2023, we expended $833.3 million and $407.3 million, respectively, under the July 2024 program and previously authorized stock repurchase programs, as applicable.

Revolving Line of Credit and Term Loans

We have a $600 million unsecured revolving line of credit and a $300 million unsecured term loan (the “$300 Million Term Loan”) with a syndicate of banks that mature on August 19, 2026.

Borrowings under the revolving line of credit and the $300 Million Term Loan 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.

The $300 Million Term Loan requires principal payments in consecutive quarterly installments of $3.75 million on the last business day of each quarter.

Interest rates on amounts borrowed under the revolving line of credit and the $300 Million Term Loan are based on (i) an adjusted base rate, which is the greatest of (a) the prime rate, (b) the Federal Funds rate plus 0.5%, and (c) one-month adjusted term Secured Overnight Financing Rate (“SOFR”) plus 1%, plus, in each case, an applicable margin, or (ii) an adjusted term SOFR plus an applicable margin (or, if such rate is no longer available, a successor benchmark rate determined in accordance with the terms of the credit agreement) .

Adjusted term SOFR is defined as term SOFR for the relevant interest period plus a SOFR adjustment of 0.10% per annum.

The applicable margin for base rate borrowings and for SOFR borrowings is determined based on our consolidated leverage ratio.

1 unchanged sentence

In addition, we must pay certain credit facility fees.

The revolving line of credit and term loan contain certain restrictive covenants including a maximum consolidated leverage ratio of 3.5 to 1.0, subject to a step up to 4.0 to 1.0 following certain permitted acquisitions and subject to certain conditions, and a minimum interest coverage ratio of 3.0 to 1.0.

The revolving line of credit and the $300 Million Term Loan contain certain restrictive covenants including a maximum consolidated leverage ratio of 3.5 to 1.0, subject to a step up to 4.0 to 1.0 following certain permitted acquisitions and subject to certain conditions, and a minimum interest coverage ratio of 3.0 to 1.0.

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

As of September 30, 2023, we had $300.0 million in borrowings outstanding under the revolving line of credit at a weighted-average interest rate of 6.678%, of which $35.0 million was classified as a current liability and $265.0 million was classified as a long-term liability.

In addition, as of September 30, 2023, we had $273.8 million in outstanding balance under the term loan at an interest rate of 6.752%, of which $15.0 million was classified as a current liability and $258.8 million was classified as a long-term liability.

The current and long-term revolving line of credit and term loan liabilities were recorded in current maturities on debt and long-term debt, respectively, within the accompanying consolidated balance sheets.

We were in compliance with all financial covenants under this credit agreement as of September 30, 2023.

On June 13, 2024, we amended our credit agreement to provide for the issuance of a new $450 million unsecured term loan (the “$450 Million Term Loan”) with a syndicate of banks, increasing the total capacity of the credit agreement to $1.35 billion.

The $450 Million Term Loan is subject to the same interest rate provisions and covenants as the revolving line of credit and the $300 Million Term Loan, and matures on August 19, 2026.

We have no obligation to make scheduled principal payments on the $450 Million Term Loan prior to the maturity date, but may prepay the $450 Million Term Loan, without premium or penalty, in whole or in part.

As of September 30, 2024, we had $210.0 million in borrowings outstanding under the revolving line of credit at a weighted-average interest rate of 6.396%, $258.8 million in outstanding balance of the $300 Million Term Loan at an interest rate of 6.344%, and $450.0 million in outstanding balance of the $450 Million Term Loan at an interest rate of 6.281%.

We were in compliance with all financial covenants under the credit agreement as of September 30, 2024.

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

13 unchanged sentences

$ — $ 400,000 $ — $ 900,000 $ — $ — $ 1,300,000

Revolving line of credit and term loan (1)

Revolving line of credit and term loans (1)

15,000 903,750 — — — 918,750

1 unchanged sentence

Operating lease obligations 13,378 9,805 5,618 4,439 2,626 2,039 37,905

Finance lease obligations 3,625 3,625 3,625 441 — — 11,316

Purchase obligations (2)

$ 62,271 57,835 2,594 — — — 122,700

Unrecognized tax benefits (3)

1 unchanged sentence

Total commitments $ 151,274 $ 1,432,015 $ 47,837 $ 940,880 $ 2,626 $ 2,039 $ 2,596,550

(1) Represents the unpaid principal payments due under the Senior Notes, revolving line of credit, and term loan.

(1) Represents the unpaid principal payments due under the Senior Notes, revolving line of credit, and term loans.

(2) Represents purchase obligations primarily consisting of commitments to purchase certain services.

For services that have been delivered under these arrangements as of September 30, 2024, we recorded related liabilities within accounts payable or other accrued liabilities on our consolidated balance sheet, which are excluded from the purchase obligations amount.

(3) Represents unrecognized tax benefits related to uncertain tax positions.

As we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related balances have not been reflected in the section of the table showing payment by fiscal year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in conformity with U.S.

4 unchanged sentences

Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.

While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included elsewhere in this report, we believe the following discussion addresses our most critical accounting estimates, which involve significant subjectivity and judgment, and changes to such estimates or assumptions could have a material impact on our financial condition or operating results.

While our significant accounting policies are more fully described in Note 1 and Note 9 to our consolidated financial statements included elsewhere in this report, we believe the following accounting policies require the most critical accounting estimates, which involve significant subjectivity and judgment, and changes to such estimates or assumptions could have a material impact on our financial condition or operating results.

Therefore, we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results.

Revenue Recognition

Contracts with Customers

Our revenue is primarily derived from on-premises software and SaaS subscriptions, professional services and scoring services.

For contracts with customers that contain various combinations of products and services, we evaluate whether the products or services are distinct — distinct products or services will be accounted for as separate performance obligations, while non-distinct products or services are combined with others to form a single performance obligation.

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

Revenue is recognized when control of the promised goods or services is transferred to our customers.

Our on-premises software is primarily sold on a subscription basis, which includes a term-based license and post-contract support or maintenance, both of which generally represent distinct performance obligations and are accounted for separately.

The transaction price is either a fixed fee, or a usage-based fee — sometimes subject to a guaranteed minimum.

When the amount is fixed, including the guaranteed minimum in a usage-based fee, license revenue is recognized at the point in time when the software is made available to the customer.

Maintenance revenue is recognized ratably over the contract period as customers simultaneously consume and receive benefits.

Any usage-based fees not subject to a guaranteed minimum or earned in excess of the minimum amount are recognized when the subsequent usage occurs.

We occasionally sell software arrangements consisting of on-premises perpetual licenses and maintenance.

License revenue is recognized at a point in time when the software is made available to the customer and maintenance revenue is recognized ratably over the contract term.

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 fee in excess of the minimum threshold;

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

The nature of our SaaS arrangements is to provide continuous access to our hosted solutions in the cloud, i.e., a stand-ready obligation that comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service).

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.

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

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.

Revenue on fixed-price services is recognized using an input method based on labor hours expended, which we believe provides a faithful depiction of the transfer of services.

Revenue on services provided on a time and materials basis is recognized by applying the “right-to-invoice” practical expedient as the amount to which we have a right to invoice the customer corresponds directly with the value of our performance to the customer.

Our scoring services include both business-to-business and business-to-consumer offerings.

Our business-to-business scoring services typically include a license that grants consumer reporting agencies the right to use our scoring solutions in exchange for a usage-based royalty.

Revenue is generally recognized when the usage occurs.

Business-to-consumer offerings provide consumers with access to their FICO ® Scores and credit reports, as well as other value-add services.

These are provided as either a one-time or ongoing subscription service renewed monthly or annually, all with a fixed consideration.

The nature of the subscription service is a stand-ready obligation to generate credit reports, provide credit monitoring, and other services for our customers, which comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service).

Revenue from one-time or monthly subscription services is recognized during the period when service is performed.

Revenue from annual subscription services is recognized ratably over the subscription period.

Significant Judgments

For our SaaS subscriptions, 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.

Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur.

Variable consideration is estimated based on either the expected value or the most likely amount method depending on which method we expect to better predict the amount of consideration to which we will be entitled.

Our estimates of variable consideration are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us at contract inception and require judgment.

For the periods presented, we have not experienced significant changes to our estimates and judgments related to variable consideration in our contracts.

For our professional services, significant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts with a fixed consideration, in which we measure progress using an input method based on labor hours expended.

In order to estimate the total hours of the project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others.

For certain complex projects, due to the risks and uncertainties inherent with the estimation process and factors relating to the assumptions, actual progress may differ due to the change in estimated total hours.

Adjustments to estimates are made in the period in which the facts requiring such revisions become known and, accordingly, recognized revenues are subject to revisions as the contract progresses to completion.

For the periods presented, we have not experienced significant changes to our estimates and judgments related to the timing of satisfaction of our professional services.

Our contracts with customers often include promises to transfer multiple products and services to a customer.

2 unchanged sentences

In rare instances, contracts may include significant modification or customization of the software of SaaS service and will result in the combination of software or SaaS service and implementation service as one performance obligation.

We determine the SSPs using data from our historical standalone sales, or, in instances where such information is not available (such as when we do not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others.

For the periods presented, we have not experienced significant changes to our estimates and judgments related to the identification of performance obligations for our contracts.

We determine the standalone selling prices (“SSP”) using data from our historical standalone sales, or, in instances where such information is not available (such as when we do not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others.

When the selling price of a product or service is highly variable, we may use the residual approach to determine the SSP of that product or service.

Significant judgment may be required to determine the SSP for each distinct performance obligation when it involves the consideration of many market conditions and entity-specific factors discussed above.

Significant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts with a fixed consideration, in which we measure progress using an input method based on labor hours expended.

In order to estimate the total hours of the project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others.

Capitalized Commission Costs

We capitalize incremental commission fees paid as a result of obtaining customer contracts.

Capitalized commission costs are amortized on a straight-line basis over ten years — determined using a portfolio approach — based on the transfer of goods or services to which the assets relate, taking into consideration both the initial and future contracts as we do not typically pay a commission on a contract renewal.

The amortization costs are included in selling, general, and administrative expenses of our consolidated statements of income and comprehensive income.

We apply a practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less.

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

For the periods presented, we have not experienced significant changes to our estimates and judgments related to the determination of our SSPs.

Goodwill and Other Long-Lived Assets - Impairment Assessment

9 unchanged sentences

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 2022 and 2023, 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 than 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 and 2023.

Our other long-lived assets are assessed for potential impairment when there is evidence that events and circumstances related to our financial performance and economic environment indicate the carrying amount of the assets may not be recoverable.

3 unchanged sentences

Should different conditions prevail, material write downs of our other long-lived assets could occur.

We did not recognize any impairment charges on other long-lived assets in fiscal 2023 and 2022.

As discussed above, while we believe that the assumptions and estimates utilized were appropriate based on the information available to management, different assumptions, judgments and estimates could materially affect our impairment assessments for our goodwill and other long-lived assets.

Historically, there have been no significant changes in our estimates or assumptions that would have had a material impact for our goodwill or other long-lived assets impairment assessment.

For the periods presented, we have not experienced significant changes to our estimates and judgments related to our goodwill or other long-lived assets impairment assessment.

We believe our projected operating results and cash flows would need to be significantly less favorable to have a material impact on our impairment assessment.

5 unchanged sentences

These assumptions and judgments include estimating the volatility of our stock price, expected dividend yield, employee turnover rates and employee stock option exercise behaviors.

Historically, there have been no material changes in our estimates or assumptions.

We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions.

For the periods presented, we have not experienced significant changes to our estimates and judgments related to the fair value of our awards.

See Note 12 to the accompanying consolidated financial statements for further discussion of our share-based employee benefit plans.

24 unchanged sentences

Revisions in the estimates of the potential liabilities could have a material impact on our consolidated financial position or consolidated results of operations.

Historically, there have been no material changes in our estimates or assumptions.

We do not believe there is a reasonable likelihood there will be a material change in the future estimates.

For the periods presented, we have not experienced significant changes to our estimates and judgments related to the assessment of likelihood and in the determination of a range of potential losses.

New Accounting Pronouncements

For information about recent accounting pronouncements not yet adopted and the impact on our consolidated financial statements, refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 1, Nature of Business and Summary of Significant Accounting Policies, in our accompanying Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

For information about recent accounting pronouncements recently adopted and not yet adopted and the impact on our consolidated financial statements, refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 1, Nature of Business and Summary of Significant Accounting Policies, in our accompanying Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

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 7. Management’s Discussion and Analysis