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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-11689
Fair Isaac Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
181 Metro Drive, Suite 700
San Jose, California
(Address of principal executive offices)
94-1499887
(I.R.S. Employer
Identification No.)
95110-1346
(Zip Code)
Registrant’s telephone number, including area code:
408-535-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Common Stock, $0.01 par value per share
Trading Symbol(s)
FICO
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-
T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act:
Large Accelerated Filer
Non-Accelerated Filer
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☐
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
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☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☒
☐
Yes
No
As of March 31, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $7,095,692,430 based on the last
transaction price as reported on the New York Stock Exchange on such date. This calculation does not reflect a determination that certain persons are affiliates of the
registrant for any other purposes.
The number of shares of common stock outstanding on October 30, 2020 was 29,098,177 (excluding 59,758,606 shares held by the Company as treasury stock).
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Portions of the Registrant’s definitive proxy statement relating to its 2021 Annual Meeting of Stockholders (“2021 Proxy Statement”) are incorporated by reference
into Part III of this Annual Report on Form 10-K where indicated. The 2021 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120
days after the end of the fiscal year to which this report relates.
DOCUMENTS INCORPORATED BY REFERENCE
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TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
Signatures
PART IV
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31
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52
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FORWARD LOOKING STATEMENTS
Statements contained in this report that are not statements of historical fact should be considered forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). In addition, certain statements in our future filings with the Securities and Exchange
Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact
constitute forward-looking statements within the meaning of the PSLRA. Examples of forward-looking statements include, but are not limited to:
(i) projections of revenue, income or loss, expenses, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other
statements concerning future financial performance; (ii) statements of our plans and objectives by our management or Board of Directors, including those
relating to products or services, research and development, and the sufficiency of capital resources; (iii) statements of assumptions underlying such
statements, including those related to economic conditions; (iv) statements regarding results of business combinations; (v) statements regarding business
relationships with vendors, customers or collaborators, including the proportion of revenues generated from international as opposed to domestic
customers; and (vi) statements regarding products, their characteristics, performance, sales potential or effect in the hands of customers. Words such as
“believes,” “anticipates,” “expects,” “intends,” “targeted,” “should,” “potential,” “goals,” “strategy,” “outlook,” “plan,” “estimated,” ”will,”
variations of these terms and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such
statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements.
Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in
Item 1A of Part I, “Risk Factors,” below (including the impact of COVID-19 on macroeconomic conditions and our business, operations and personnel).
The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and
investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these
risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance.
Such forward-looking statements speak only as of the date on which statements are made, and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or
circumstances. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the
SEC, including our Quarterly Reports on Forms 10-Q and Current Reports on Form 8-K to be filed by us in fiscal 2021.
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Item 1. Business
PART I
GENERAL
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,” and “FICO”) provides products, solutions and services that enable businesses to automate, improve and connect decisions to enhance business
performance. Our predictive analytics, which includes the industry-standard FICO® Score, and our decision management systems leverage the use of big
data and mathematical algorithms to predict consumer behavior and power hundreds of billions of customer decisions each year.
We were founded in 1956 on the premise that data, used intelligently, can improve business decisions. Today, we help thousands of companies in over
120 countries use our decision management technology to target and acquire customers more efficiently, increase customer value, reduce fraud and credit
losses, lower operating expenses, and enter new markets more profitably. Most leading banks and credit card issuers rely on our solutions, as do insurers,
retailers, telecommunications providers, automotive companies, pharmaceutical companies, healthcare organizations, 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 manage their financial health.
More information about us can be found on our website, www.fico.com. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, as well as amendments to those reports, available free of charge through our website as soon as reasonably practicable
after we electronically file them with the SEC. References to our website address in this report do not constitute an incorporation by reference. Information
on our website is not part of this report.
PRODUCTS AND SERVICES
We use analytics to help businesses automate, improve and connect decisions across their enterprise, an approach we commonly refer to as decision
management. Most of our solutions address customer engagement, including customer acquisition, customer onboarding, customer servicing and
management, and customer protection. We also help businesses improve non-customer decisions such as transaction and claims processing. Our solutions
enable users to make decisions that are more precise, consistent and agile, and that systematically advance business goals. This helps our clients reduce the
cost of doing business and losses from risks and fraud, while helping increase revenues, profitability, and customer loyalty.
Our Segments
We categorize our products and services into the following three operating segments:
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Applications. This segment includes pre-configured decision management applications designed for a specific type of business problem or process
— such as marketing, account origination, customer management, fraud, financial crimes compliance, collections and insurance claims
management — as well as associated professional services. These applications are available to our customers as on-premises software, and many
are available as hosted, software-as-a-service (“SaaS”) applications through the FICO® Analytic Cloud or Amazon Web Services (“AWS”).
Scores. This segment includes our business-to-business scoring solutions and services, our business-to-consumer scoring solutions and services
including myFICO® solutions for consumers, and associated professional services. Our scoring solutions give our clients access to analytics that
can be easily integrated into their transaction streams and decision-making processes. Our scoring solutions are distributed through major credit
reporting agencies worldwide, as well as services through which we provide our scores to clients directly.
Decision Management Software. This segment is composed of analytic and decision management software tools that clients can use to create their
own custom decision management applications, our FICO® Decision Management Suite, as well as associated professional services. Decision
management software is currently delivered as part of the FICO® Platform and is increasingly being adopted to connect decisioning solutions or
previously disconnected use cases. These tools are available to our customers as on-premises software, through the FICO® Analytic Cloud or
AWS.
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Our Solutions
Our solutions involve four fundamental disciplines:
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Analytics, which include predictive analytics that identify risks and opportunities associated with individual customers, prospects and transactions,
in order to detect patterns such as risk, fraud or profitability, as well as optimization analytics that are used to mathematically improve the design of
decision logic or “strategies.”
Data management and transaction profiling that bring extensive consumer information to every decision.
Software such as decision management systems that author and implement business rules, models and decision strategies, often in a real-time
environment, as well as software for managing customer engagement. This software is increasingly deployed as a platform solution that enables
previously disparate use cases to be connected in a manner that provides a centralized or 360-degree view of a customer’s journey through
traditionally siloed client offerings.
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Consulting services that help clients make the most of investments in FICO applications, tools and scores in the shortest possible time.
All of our solutions are designed to help businesses make decisions that are faster, more precise, more consistent and more agile, while reducing costs
and risks incurred in making decisions. In addition, we offer our clients a portfolio of applications, tools and services in the cloud, which allow them to
create, customize, deploy and manage powerful analytic services.
Applications
We develop industry-tailored decision management applications, which apply analytics, data management and decision management software to specific
business challenges and processes. Our applications primarily serve clients in the banking, insurance, telecommunications, healthcare, retail and public
sectors. During fiscal 2020, we continued to expand our product offerings for the FICO® Analytic Cloud and AWS, resulting in increased sales
opportunities by accommodating customers that can benefit from the power, flexibility and modularity of these solutions. Within our Applications segment
our fraud solutions accounted for 15%, 18% and 17% of total revenues in each of fiscal 2020, 2019 and 2018, respectively, and our customer
communication services accounted for 8%, 9% and 10% of total revenues in each of these periods, respectively.
Origination Applications
We provide solutions that enable banks, credit unions, finance companies, alternative peer-to-peer and online lenders, auto lenders, and other companies
to automate and improve the processing of requests for credit or service. These solutions increase the speed and efficiency with which requests are handled,
reduce losses, and increase approval rates through analytics that assess applicant risk and reduce the need for manual review by loan officers.
FICO® Origination Manager, an application-to-decision processing solution, is available both on-premises and in the FICO® Analytic Cloud, and we
plan to make it available in the AWS cloud in fiscal 2021 with the launch of FICO® Origination Manager 5.0.
Other solutions include the web-based FICO® LiquidCredit® service, which is primarily focused on credit decisions and offered largely to mid-tier
banking institutions. FICO® Small Business Scoring Service℠ (SBSS) is recognized as the industry leader in assessing the risk of U.S. small business
credit applicants. SBSS is delivered via our LiquidCredit service infrastructure and it brings the speed of consumer lending to small business lending
decisions. With SBSS, clients can typically make decisions in hours rather than days to improve customer satisfaction and help attract more small
businesses.
Delivered as a cloud service, FICO® Origination Manager Essentials offers mid-market organizations the ability to inexpensively set up and process
small business applications quickly, without a long or difficult implementation process. Origination Manager Essentials will be phased out in August 2021.
To support origination, we also offer custom and consortium-based credit risk and application fraud models.
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Customer Management Applications
Our customer portfolio management products and services enable businesses to automate and improve risk-based decisions for their existing customers.
These solutions help businesses apply advanced analytics in account and customer decisions to increase portfolio revenue, decrease risk exposure and
losses, and reduce customer attrition, while improving operational efficiencies.
We provide customer portfolio management solutions for banking, telecommunications and retail. FICO® TRIAD® Customer Manager, a leading credit
management system, is available both on-premises and in the FICO® Analytic Cloud. FICO® Strategy Director is the newest, more flexible customer
management application available on the FICO Analytic Cloud and AWS. These solutions enable businesses to rapidly adapt to changing business and
internal conditions by designing and testing new strategies in a “champion/challenger” environment. The current versions enable users to manage risk and
communications at both the account and customer level from a single platform.
We market and sell FICO® TRIAD® Customer Manager and FICO® Strategy Director software licenses, maintenance, consulting services, and strategy
design and evaluation. Additionally, we provide TRIAD and Strategy Director services and similar credit account management services through third-party
credit card processors worldwide, including two of the largest processors in the U.S.
Fraud Protection and Compliance Applications
Our fraud protection and compliance products improve our clients’ profitability by providing protections across the customer lifecycle from account
origination to digital customer interactions—such as online or mobile logins—to non-monetary transactions—such as address changes or pin changes—to
payment transactions. Our fraud and financial crimes solutions analyze activity in real time and generate recommendations for immediate action. These
defenses are critical to stopping synthetic identity fraud, first-party fraud, and third-party fraud, as well as identifying money laundering activity to help our
clients stay compliant and secure while safeguarding the customer experience.
Our fraud solutions are designed to detect and prevent a wide variety of risk types. By looking across products and channels—including real-time
payments, peer-to-peer transactions, digital payments, card payments (credit, debit, prepaid), and deposits—FICO helps financial institutions reduce losses
and damaged customer relationships caused by fraud and related criminal behavior. FICO fraud solutions also help protect retailers, insurance companies
and government agencies.
Our leading fraud detection solution is the FICO® Falcon® Platform, which is recognized as a global leader in fraud detection. The Falcon Platform
examines transactional, account, customer, device and merchant data to detect a wide range of fraud indicators quickly and accurately by utilizing artificial
intelligence technology. It analyzes transactions in real time, assesses the risk of fraud in a fraud score, and provides the ability for user-defined variables
and rules strategies to be used in conjunction with the fraud score to prevent fraud while expediting legitimate transactions. Adaptive analytics, a form of
self-learning models, can also be employed to accelerate our customers’ response to evolving fraud tactics.
FICO® Fraud Predictor with Merchant Profiles is used in conjunction with the FICO® Falcon® Platform to improve fraud detection rates through the
inclusion of merchant profiles, which is especially important for online transactions. Merchant profiles are built using fraud and transactional data that
include characteristics revealing which merchants have a history of higher fraud volumes, and which purchase types and ticket sizes have most often been
fraudulent at a particular merchant, among others.
FICO® Falcon® Compromise Manager is used in conjunction with the FICO® Falcon® Platform to identify point-of-sale and e-commerce card
compromises with analytically derived recommended actions—such as card block and reissue, or watch-listing—to optimize loss prevention. Separately,
the FICO® Card Alert Service prevents ATM debit fraud by identifying counterfeit or compromised payment cards and reporting them to issuers. The
service analyzes daily transactions from participating networks and uses this data to identify common points of compromise and suspect cards most likely
to incur fraud.
We offer a wide range of solutions focused on preventing and detecting identity fraud. In August 2019, we introduced our identity proofing and user
authentication solutions, FICO® Falcon® Identity Proofing and FICO® Falcon® Authentication Suite. Identity proofing is the digital process of onboarding
new customers without requiring face-to-face verification. The technology provides an extra layer of security that is easy to use with minimal customer
inconvenience, thereby preventing fraud as well as ensuring regulatory compliance standards such as e-KYC are met. User authentication is the real-time
corroboration of an identity previously established to enable access to an electronic or digital asset. As an authentication hub, our technology includes
multifactor, biometric, and behavioral (user and device-based) capabilities. By bringing digital identity verification into our broader portfolio, we give our
clients the ability to strengthen fraud and financial crimes defenses with more contextual data and decisioning.
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FICO® Application Fraud Manager helps businesses prevent both first- and third-party fraud during the application process. By preventing fraud prior
to account origination, we help our customers avoid future losses as well as unnecessary collections costs. FICO® Identity Resolution Engine helps
organizations detect and investigate organized criminal behavior using graph analytics to identify entities and their connections across federated data
sources.
We also offer a comprehensive modular set of compliance solutions to fight money-laundering, terrorist financing, and to fulfill custom requirements for
governance, risk and compliance. Solutions include, but are not limited to, Know Your Customer (“KYC”), Anti-Money Laundering (“AML”), and
Sanctions Screening.
In September 2019, FICO introduced FICO® Falcon® X, a unified platform for the detection and investigation of both fraud and financial crimes. We
also announced FICO® Analytics Workbench™—Falcon Edition, which allows banks’ data science teams to develop machine learning models using open
source libraries, as well as FICO machine learning libraries, and then deploy the models on Falcon X for operational use.
Prior to October 2020, when we divested this business, the FICO® Cyber Risk Score was part of the FICO® Enterprise Security Suite and it provided an
empirically derived score that conveyed the security posture of an organization and the likelihood of a material data breach in the following twelve months.
The score was used by customers to manage the cyber risk of an enterprise, assess third-party risk that may be introduced by third- and fourth-party
partners and suppliers, and provide an effective tool for cyber insurance underwriting.
Collections & Recovery Applications
FICO® Debt Manager™, FICO® Debt Manager™ Pro, FICO® Debt Manager™ Pro Plus, FICO® PlacementsPlus® service, FICO® Network and FICO®
Placement OptimizerSM solution (collectively, the “FICO Debt Management Solutions”) automate the full cycle of collections and recovery, including early
collections, late collections, asset disposal, agency placement and optimization, recovery, litigation, bankruptcy, asset management and residual balance
recovery. PlacementsPlus service facilitates control over the distribution and management of accounts to agencies, attorneys, debt buyers and internal
recovery departments. FICO Network provides creditors with a single, secure and compliant channel to exchange data with collection agencies, credit
bureaus, debt buyers, attorneys, and other vendors. Placement Optimizer maximizes the effectiveness of the placement strategy once accounts are
outsourced. FICO Debt Management Solutions also include assessments, models and scores, predictive analytics, advanced customer engagement and
optimization. FICO® Debt Manager™ is available both on premises and in the FICO® Analytic Cloud.
Customer Communication Services
FICO® Customer Communication Services is an intelligent omnichannel digital communication manager for executing customer lifecycle decisions. It
enables businesses to automate individualized dialogues with the consistency and regulatory compliance of their human agents. With Customer
Communication Services, businesses can be available 24/7 for one-way or two-way communication through any channel consumers choose. Customers can
rapidly launch mobile alerts, messaging, virtual agents, self-service options and other auto-resolution capabilities. It helps make the full customer journey
—account origination and onboarding, customer management account notifications and engagement campaigns, fraud management and debt collection—
more digital and raises the level of data-driven intelligence behind lifecycle communications. In addition to its own rules-based communication logic and
embedded rules engine, Customer Communication Services can execute complex multi-step strategies shaped by risk-based segmentation, predictive
scores, machine learning insights and mathematical optimization.
Marketing Applications
FICO® Marketing Solutions Suite is made up of products, capabilities and services designed to integrate the technology and analytic services needed to
perform context-sensitive customer acquisition, cross-selling and retention programs and deliver mathematically optimized offers. The Marketing Solutions
Suite enables companies that offer multiple products and use multiple channels (companies such as large financial institutions, consumer branded goods
companies, pharmaceutical companies, retail merchants and hospitality companies) to execute more efficient and profitable customer interactions. Services
offered in our marketing solutions include customer data integration services; services that enable real-time marketing through direct consumer interaction
channels; campaign management, messaging and optimization services; interactive tools that automate the design, execution and collection of customer
response data across multiple channels; and customer data collection, management and profiling services.
Analytic Services
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We perform custom analytics (descriptive, predictive and prescriptive) as well as decision modeling and related analytic and machine learning projects
for clients in multiple industries. This enables them to improve critical business processes and operationalize analytics across the customer lifecycle. We do
so with our advanced analytic methodologies and domain expertise to solve risk management, fraud, marketing and other challenges for a single business,
using that business’s unique data and industry position to develop a highly customized solution. Most of this work falls under predictive analytics, decision
modeling and optimization, which provide greater insight into customer preferences, predict future customer behavior and operationalize these analytics.
Within decision analysis and optimization, we apply data and proprietary algorithms to design customer treatment strategies and improve business
outcomes.
Scores
Our FICO® Scores are used in the majority of U.S. credit decisions, by nearly all of the major banks, credit card organizations, mortgage lenders and
auto loan originators. These credit scores, developed based on third-party data, provide a consistent and objective measure of an individual’s credit risk.
Credit grantors use our FICO® Scores in a variety of ways: to prescreen candidates for marketing programs; to evaluate applicants for new credit; and to
manage existing customer accounts. FICO® Score is a three-digit score ranging from 300-850. They are calculated by running data from the three U.S.
national credit reporting agencies, Experian, TransUnion and Equifax, through one of several proprietary scoring models developed by FICO. Lenders
generally pay the credit reporting agencies scoring fees based on usage, and the credit reporting agencies pay an associated fee to us. FICO® Score 10 and
FICO® Score 10 T, the most recent versions of the FICO® Score, are anticipated to be released at the three U.S. national credit reporting agencies by the
end of calendar year 2020.
While the core FICO® Score is the foundation of our scoring portfolio, we offer a number of other broad-based scores, including several specific FICO®
Industry Scores. We also develop various custom scores for our financial services clients. Additionally, we continue to innovate by investing in the
development of scores that can help expand the scorable population using alternative credit data. FICO® Score XD looks at public records and property
data, and a consumer’s history with mobile, landline phone and cable payments, to generate scores on the same 300-850 scale as standard FICO® Scores.
FICO® Score XD is available to lenders from LexisNexis Risk Solutions and Equifax. The UltraFICO™ Score considers consumer permissioned data from
accounts such as checking, savings, or money market accounts. Incorporating consumer contributed data is a unique approach to helping empower
consumers to establish or improve their creditworthiness by using data that reflects sound financial activity but that is not part of a traditional credit report.
This can help consumers qualify for the credit they seek under more competitive terms. This approach is particularly helpful for consumers who may have
very sparse or inactive credit files and are seeking a path toward greater financial inclusion in mainstream banking.
Outside the U.S., we offer FICO® Scores, including scores using alternative data, for consumers, and in some cases for small and medium enterprises,
through credit reporting agencies. We also have installed client-specific versions of the FICO® Score in over ten countries. Like FICO® Scores in the U.S.,
these scores help lenders in multiple countries leverage the FICO® Score’s predictive analysis to assess the risk of marketing prospects and credit
applicants. FICO® Scores are in use or being implemented in 30 different countries across five continents outside the U.S.
We also have scoring systems for insurance underwriters and marketers. Our FICO® Insurance Scores use the same underlying statistical technology as
our FICO® Scores, but are designed to predict future personal auto and homeowner insurance losses for new applicants and existing policyholders. Our
insurance scores are available to the insurance industry throughout the U.S.
During fiscal 2020, we announced the launch of the FICO® Resilience Index, a new analytic tool designed to complement FICO® Score models by
identifying those consumers who are most resilient to economic stress relative to other consumers within the same FICO® Score bands. FICO® Resilience
Index would enable industry participants to more precisely assess credit risk and extend credit to more consumers throughout the economic cycle by
managing the risk that emerges during periods of economic stress.
We also provide FICO® Score based products, education and information on FICO® Scores to consumers. They are distributed directly by us through
our myFICO® service and through licensed distribution partners, including Experian and certain lenders, for use in customer and non-customer programs.
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The myFICO® products and subscription offerings are available online at www.myfico.com. Consumers can use the myFICO.com website to purchase
their FICO® Scores, including credit reports associated with the scores, explanations of the factors affecting their scores, and customized information on
how to manage their scores. We make available the 28 most widely used versions of the FICO® Score from the three major U.S. credit bureaus through our
myFICO® service, representing approximately 95% of all FICO® Scores sold and used by lenders. Customers can use products to simulate how taking
specific actions could affect their FICO® Score 8. Consumers can also subscribe to monitoring services, which deliver alerts via email and text when
changes to a user’s FICO® Scores or other credit report content are detected. In addition, consumers can purchase identity theft monitoring products that
alert consumers of potential risks of identity fraud with comprehensive detection and identity restoration services.
Decision Management Software
We provide an analytics and decision management platform that businesses use to build their own tailored, analytically-powered decision management
applications. The FICO® Decision Management Platform adds scalable and flexible decision management capabilities to virtually any application or
operational system. Together, these tools are sold as licensed software or as a SaaS offering in the cloud, and can be used standalone, or in conjunction with
third-party solutions, to advance a client’s decision management initiatives. We use these tools as foundational components for our own decision
management solutions, described above in the “Applications” section, enhancing the cross-compatibility and extensibility of all of the software solutions
we build and deliver. We also partner with third-party providers within given industry markets and with major software companies to embed our tools and
other FICO Decision Management Platform components within their existing applications.
During fiscal 2020, FICO continued to enhance the FICO® Decision Management Platform and related services for building, extending, deploying and
scaling decision management applications and solutions. These services are collectively referred to as the FICO® Decision Management Suite, and include
capabilities for authoring, customizing, executing, and managing predictive analytic, decisioning, and optimization components and services; developing,
orchestrating and publishing analytics-powered applications; and visualizing, analyzing and reporting data trends. Component capabilities include:
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FICO® Decision Management Platform, which connects, executes and powers proprietary platform services that dramatically improve
performance, data interchange, model tracking and user collaboration;
FICO® Decision Modeler, the core decision rules modeling tool, which enables users to flexibly author and manage decision rules and strategies;
FICO® Analytics Workbench™, the consolidated predictive analytics modeling authoring tool, with data wrangling, machine learning and
explainable AI;
FICO® Applications Workbench, an agile application UI builder, which leverages platform services to speed time to application deployment;
FICO® Strategy Director, which helps organizations proactively manage consumer accounts to increase revenue, decrease risk and improve
customer retention;
FICO® Decision Central™ (formerly known as Model Central), a solution which enables users to monitor, manage, measure and control the
deployment and performance of all decision assets including analytic models and rules-based decision strategies;
FICO® Xpress Optimization, an optimization modeling suite which includes both the solver technology, Mosel, as well as a general-purpose
optimization solver, Xpress Insight; and
FICO® Decision Management Platform Streaming, a real-time and batch data ingestion solution that uniquely delivers in-stream analytics for real-
time data insights and complex event processing.
The FICO® Decision Management Suite enables FICO’s clients to combine big data, predictive analytics and decision execution together in an easy-to-
use, integrated development and deployment environment. It enables organizations to rapidly create innovative analytic applications; dramatically increase
developer and business user productivity with support for a broad range of analytic and decision tools; and execute decisions in real time. It also empowers
business analysts and other domain experts to modify systems without IT involvement, providing organizations with the agility they need to rapidly
respond to customer, regulatory and business changes.
In addition, FICO offers certain decision management software tools for use outside of the context of the FICO Decision Management Platform,
including:
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Rules Management. The FICO® Blaze Advisor® decision rules management system is used to design, develop, execute and maintain rules-based
business applications. The Blaze Advisor system enables business users to propose and preview the impact of changes to decisioning logic, to review and
approve proposed changes, and to commit those changes to production decisioning, all without demanding IT cycles. The Blaze Advisor system is sold as
an end-user tool and is also the rules engine within several of our decision management applications. The Blaze Advisor system, available in six languages,
is a multi-platform solution that: embeds rules management within existing applications; supports Web Services and service-oriented architecture, Java 2
Enterprise Edition platforms, and COBOL for z/OS mainframes; and is the first rules engine to support Java and COBOL deployment of the same rules. It
also incorporates the exclusive Rete III rules execution technology, which improves the efficiency and speed with which the Blaze Advisor system is able
to process and execute complex, high-volume decision rules.
Predictive Modeling. FICO® Decision Central™ is a comprehensive offering to help banks and other organizations-including insurance, retail and health
care companies-streamline their predictive and decision model governance and meet stricter regulations for model management. It complements FICO®
Analytics Workbench™, which enables the user to develop and deploy sophisticated predictive models for use in automated decisions. This software is
based on the methodology and tools FICO uses to build both client-level and industry-level predictive models, which it developed from countless client
engagements. The predictive models and strategies produced can be embedded in custom production applications, the FICO® Platform, or one of our
decision management applications. FICO® Analytics Workbench is available for on-premises or cloud implementation.
Optimization. FICO® Xpress Optimization provides operations research professionals with world-class solvers and high-productivity tools to quickly
design and deliver custom, mathematically optimal solutions for a wide range of industry problems. Xpress includes a powerful modeling and
programming language, with robust scalability, to quickly model and solve even the largest optimization problems. Xpress tools are licensed to end users,
consultants and independent software vendors in several industries, and are a core component within FICO® Decision Optimizer. Decision Optimizer is a
software tool that enables complex, large-scale optimizations involving dozens of networked action-effect models, and enables exploration and simulation
of many optimized scenarios along an efficient frontier of options. The data-driven strategies produced by these tools can be executed by the FICO® Blaze
Advisor® system or one of our Decision Management applications. FICO’s solution for creating or executing optimization solutions is available on-
premises or in the cloud.
The market for our advanced solutions is intensely competitive and is constantly changing. Our competitors vary in size and in the scope of the products
and services they offer. We encounter competition from a number of sources, including:
COMPETITION
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in-house analytic and systems developers;
scoring model builders;
enterprise resource planning and customer relationship management packaged solutions providers;
business intelligence solutions providers;
business process management and decision rules management providers;
providers of credit reports and credit scores;
providers of automated application processing services;
data vendors;
neural network developers and artificial intelligence system builders;
third-party professional services and consulting organizations;
providers of account/workflow management software;
software companies supplying predictive analytic modeling, rules, or analytic development tools; collections and recovery solutions providers;
entity resolution and social network analysis solutions providers; and
providers of cloud-based customer engagement and risk management solutions.
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We believe our competitors are presently unable to provide the mix of products, expertise in predictive analytics and integration with decision
management software, and enhanced customer management capabilities that we are able to deliver. However, certain competitors may have larger shares of
particular geographic or product markets than we do.
Applications
The competition for our Applications varies by both application and industry.
In the marketing services market, we compete with Pegasystems, Equifax, Experian, SAS, Adobe and Salesforce, among others. We also compete with
traditional advertising agencies and companies’ internal information technology and analytics departments.
In the customer origination market, we compete with Experian, Equifax, Moody’s, Meridian Link, and CGI, among others.
In the customer strategy management market, we compete with Experian and SAS, among others.
In the fraud and financial crimes market for banking, we compete primarily with Nice Actimize, Experian, BAE Systems Applied Intelligence, SAS,
ACI Worldwide, IBM, Feedzai and Featurespace.
In the collections and recovery market, we compete with both outside suppliers and in-house scoring and computer systems departments for software
and ASP servicing. Major competitors include CGI, the three major U.S. credit reporting agencies and various boutique firms.
Scores
In this segment, we compete with both outside suppliers and in-house analytics departments for scoring business. Primary competitors among outside
suppliers of scoring models are the three major credit reporting agencies in the U.S. and Canada, which are also our partners in offering our scoring
solutions, and VantageScore (a joint venture entity established by the major U.S. credit reporting agencies). Additional competitors include CRIF and other
credit reporting agencies outside the U.S., and other data providers like LexisNexis and ChoicePoint, some of which also are among our partners.
For our “direct-to-consumer” services that deliver credit scores, credit reports and consumer credit education services, we compete with other direct to
consumer credit and identity services.
Decision Management Software
Our primary competitors in this segment include IBM, Experian, SAS, Pegasystems and Gurobi, along with a number of smaller, specialized vendors
providing industry-specific solutions.
Competitive Factors
We believe the principal competitive factors affecting our markets include: technical performance; access to unique proprietary databases; availability in
SaaS format; product attributes like adaptability, scalability, interoperability, functionality and ease-of-use; product price; customer service and support; the
effectiveness of sales and marketing efforts; existing market penetration; and reputation. Although we believe our products and services compete favorably
with respect to these factors, we may not be able to maintain our competitive position against current and future competitors.
MARKETS AND CUSTOMERS
Our products and services serve clients in multiple industries, including primarily banking, insurance, retail, healthcare and public agencies. End users
of our products include 96 of the 100 largest financial institutions in the U.S., and two-thirds of the largest 100 banks in the world. Our clients also include
more than 600 insurers, including nine of the top ten U.S. property and casualty insurers; more than 300 retailers and general merchandisers; more than 200
government or public agencies; and more than 200 healthcare and pharmaceuticals companies, including nine of the world’s top ten pharmaceuticals
companies. Eight of the top ten companies on the 2020 Fortune 500 list use one or more of our solutions. In addition, our consumer services are marketed
to an estimated 200 million U.S. consumers whose credit relationships are reported to the three major U.S. credit reporting agencies.
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In the U.S., we market our products and services primarily through our own direct sales organization that is organized around vertical markets. Sales
groups are based in our headquarters and in field offices strategically located both in and outside the U.S. We also market our products through indirect
channels, including alliance partners and other resellers.
Our scores are marketed and sold through credit reporting agencies. During fiscal 2020, 2019 and 2018, revenues generated from our agreements with
Experian, TransUnion and Equifax collectively accounted for 32%, 29% and 25% of our total revenues, respectively.
Outside the U.S., we market our products and services primarily through our subsidiary sales organizations. Our subsidiaries license and support our
products in their local countries as well as within other foreign countries where we do not operate through a direct sales subsidiary. We also market our
products through resellers and independent distributors in international territories not covered by our subsidiaries’ direct sales organizations.
Our largest market segments outside the U.S. are the United Kingdom and Canada. In addition, we have delivered products to users in more than 120
countries.
TECHNOLOGY
We specialize in analytics software and decision management technologies that analyze data and drive decision strategies and customer engagement. We
maintain active research in a number of fields for the purposes of deriving greater insight and predictive value from data, making various forms of data
more usable and valuable to the model-building process, and automating and applying analytics to the various business processes involved in making high-
volume decisions in real time.
We are widely recognized as a leader in predictive analytics due to our pioneering work in credit scoring and fraud detection. We believe that our tools
and processes are among the very best commercially available, and that we are uniquely able to integrate advanced analytic, software and data technologies
into mission-critical business solutions that offer superior returns on investment.
In fiscal 2020, we continued to make progress with our FICO® Decision Management Suite and FICO® Decision Management Platform initiatives.
Most significantly for the fiscal year, we added new Platform Service functionality to provide cross-application enablement of centralized services (for
example, enabling authentication, provisioning, data ingestion, and similar functions). We have seen initial success in delivering platform-centric solutions
that provide unique value to enterprise clients in tracking and visualizing a buyer’s journey across otherwise siloed offerings.
In addition, we continue to expand the integration of capabilities that make many of our software solutions, which were previously available only as on-
premises software installations, into SaaS solutions hosted on the FICO® Analytic Cloud and/or in AWS. The FICO® Decision Management Suite enables
clients to use FICO tools, along with rapid application development tools and visualization tools, to quickly develop their own decision management
applications and services. We continue to add functionality to the platform as well as host additional FICO applications in the cloud. These ongoing
initiatives are driven by enhancing our core technical capabilities listed below, and extending them through partnerships with other technology providers as
well as through employing open source software.
Principal Areas of Expertise
Predictive Modeling. Predictive modeling identifies and mathematically represents underlying relationships in historical data in order to explain the data
and make predictions or classifications about future events. Our models summarize large quantities of data to amplify its value. Predictive models typically
analyze current and historical data on individuals to produce easily understood metrics such as scores. These scores rank-order individuals by likely future
performance, e.g., their likelihood of making credit payments on time, or of responding to a particular offer for services. We also include in this category
models that detect the likelihood of a transaction being fraudulent. Our predictive models are frequently operationalized in mission-critical transactional
systems and drive decisions and actions in near real time. A number of analytic methodologies underlie our products in this area. These include proprietary
applications of both linear and nonlinear mathematical programming algorithms, in which one objective is optimized within a set of constraints, and
advanced neural systems, which learn complex patterns from large data sets to predict the probability that a new individual will exhibit certain behaviors of
business interest. We also apply various related statistical techniques for analysis and pattern detection within large datasets, and have enhanced our
abilities to derive insights and predictive variables from various forms of so-called big data, including unstructured data, such as text. We have enhanced
our predictive analytic capabilities to include the development of machine learning algorithms and artificial intelligence. FICO has focused on making
artificial intelligence explainable to auditors, developers and decision makers so that it can be deployed responsibly.
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Decision Analysis and Optimization. Decision analysis refers to the broad quantitative field that deals with modeling, analyzing and optimizing
decisions made by individuals, groups and organizations. Whereas predictive models analyze multiple aspects of individual behavior to forecast future
behavior, decision analysis analyzes multiple aspects of a given decision to identify the most effective action to take to reach a desired result. We have
developed an integrated approach to decision analysis that incorporates the development of a decision model that mathematically maps the entire decision
structure; proprietary optimization technology that identifies the most effective strategies, given both the performance objective and constraints; the
development of designed testing required for active, continuous learning; and the robust extrapolation of an optimized strategy to a wider set of scenarios
than historically encountered. Our optimization capabilities also include a proprietary mathematical modeling and programming language, an easy-to-use
development environment, and a state-of-the-art set of optimization algorithms.
Transaction Profiling. Transaction profiling is a patent-protected technique used to extract meaningful information and reduce the complexity of
transaction data used in modeling. Many of our products operate using transactional data, such as credit card purchase transactions, or other types of data
that change over time. In its raw form, this data is very difficult to use in predictive models for several reasons. First, an isolated transaction contains very
little information about the behavior of the individual who generated the transaction. In addition, transaction patterns change rapidly over time. Finally, this
type of data can often be highly complex. To overcome these issues, we have developed a set of techniques that transform raw transactional data into a
mathematical representation that reveals latent information, and which make the data more usable by predictive models. This profiling technology
accumulates data across multiple transactions of many types to create and update profiles of transaction patterns. These profiles enable our neural network
models to efficiently and effectively make accurate assessments of, for example, fraud risk and credit risk within real-time transaction streams.
Customer Data Integration. Decisions made on customers or prospects can benefit from data stored in multiple sources, both inside and outside the
enterprise. We have focused on developing data integration processes that are able to assemble and integrate those disparate data sources into a unified
view of the customer or household, through the application of persistent keying technology. This data can include structured or unstructured data. Recent
innovations include a solution that can integrate multiple data sources in real time and make them available for analysis and decisions.
Decision Management Software. In order to make a decision strategy operational, various steps and rules need to be programmed or exported into the
business's software infrastructure, where they can communicate with front-end, customer-facing systems and back-end systems such as billing systems. We
have developed software systems, sometimes known as decision engines and decision rules management systems, which perform the necessary functions to
execute a decision strategy. Our software includes very efficient programs for these functions, facilitating, for example, business user definition of
extremely complex decision strategies using graphical user interfaces; simultaneous testing of hundreds of decision strategies in “champion/challenger”
(test/control) mode; high-volume processing and analysis of transactions in real time; integration of multiple data sources; and execution of predictive
models for improved behavior forecasts and finer segmentation. Decision management software is an integral part of our decision management
applications, described earlier.
Customer Engagement. We have advanced technology for customer engagement, which enables the execution of decisions and customer contact
through SMS, email, automated voice, mobile applications and other channels. This technology enables FICO to extend decision management beyond the
rendering of the decision to the final resolution with a customer, using the most effective method of communication for a given event and customer.
Integrating this technology with our decision management systems has proven to decrease costs, improve staff efficiency, increase customer satisfaction
and improve the return from marketing, fraud and collections activities.
Network Analytics. We have advanced technology for identity resolution and network analysis, which enables users to understand the relationships
between their organization, customers, events, and third-party actors. Businesses can perform real-time searches across their enterprise data to find, match,
and link similar entities and uncover hidden relationships between people, places and things. This technology complements FICO’s capabilities in the area
of fraud and financial crime analytics.
Identity and Authentication. We have advanced technology for digital identity verification and authentication. As part of a unified digital identity suite,
this technology provides a mobile and seamless method for validating identities during the customer onboarding process, and enrolling them as trusted
entities for multifactor, biometric and behavioral authentication across digital interactions. It also helps organizations take a balanced approach to security
and the user experience, providing easy-to-use, integrated security across the customer lifecycle.
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PRODUCT PROTECTION AND TRADEMARKS
We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality agreements and procedures to protect our
proprietary rights.
We retain the title to and protect the suite of models and software used to develop scoring models as a trade secret. We also restrict access to our
source code and limit access to and distribution of our software, documentation and other proprietary information. We have generally relied upon the laws
protecting trade secrets and upon contractual nondisclosure safeguards and restrictions on transferability to protect our software and proprietary interests in
our product and service methodology and know-how. Our confidentiality procedures include invention assignment and proprietary information agreements
with our employees and independent contractors, and nondisclosure agreements with our distributors, strategic partners and customers. We also claim
copyright protection for certain proprietary software and documentation.
We have patents on many of our technologies and have patent applications pending on other technologies. The patents we hold may not be upheld as
valid and may not prevent the development of competitive products. In addition, patents may never be issued on our pending patent applications or on any
future applications that we may submit. We currently hold 184 U.S. and 16 foreign patents with 102 applications pending.
Despite our precautions, it may be possible for competitors or users to copy or reproduce aspects of our software or to obtain information that we
regard as trade secrets. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the U.S. Patents
and other protections for our intellectual property are important, but we believe our success and growth will depend principally on such factors as the
knowledge, ability, experience and creative skills of our personnel, new products, frequent product enhancements and name recognition.
We have developed technologies for research projects conducted under agreements with various U.S. government agencies or their subcontractors.
Although we have acquired commercial rights to these technologies, the U.S. government typically retains ownership of intellectual property rights and
licenses in the technologies that we develop under these contracts. In some cases, the U.S. government can terminate our rights to these technologies if we
fail to commercialize them on a timely basis. In addition, under U.S. government contracts, the government may make the results of our research public,
which could limit our competitive advantage with respect to future products based on funded research.
We have used, registered and/or applied to register certain trademarks and service marks for our technologies, products and services. We currently
have 34 trademarks registered in the U.S. and select foreign countries.
PERSONNEL
As of September 30, 2020, we employed 4,003 persons worldwide. Of these, 175 full-time employees were located in our San Jose, California office,
404 full-time employees were located in our San Diego, California office, 170 full-time employees were located in our Roseville, Minnesota office, 166
full-time employees were located in our San Rafael, California office, 129 full-time employees were located in our Fairfax, Virginia office, 1,178 full-time
employees were located in our India-based offices and 379 full-time employees were located in our United Kingdom-based offices. None of our employees
are covered by a collective bargaining agreement other than to the extent mandated by applicable law in certain foreign jurisdictions, and no work
stoppages were experienced during fiscal 2020.
Information regarding our executive officers is included in Item 10, Directors, Executive Officers and Corporate Governance, of this Annual Report
on Form 10-K.
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Item 1A. Risk Factors
Business, Market and Strategy Risks
The effects of the COVID-19 pandemic have negatively affected how we and our customers are operating our businesses. The duration of these
effects, and the extent to which they will impact our future revenues, results of operations and overall financial performance, remain uncertain.
The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected the global economy, leading to reduced consumer
spending and lending activities and disruptions and volatility in the global capital markets. COVID-19 has caused shutdowns to businesses and cities
worldwide and has disrupted supply chains, business operations, travel, and consumer confidence.
As a result of the COVID-19 pandemic, we have temporarily closed the majority of our offices (including our corporate headquarters in the United
States) and implemented travel restrictions, both of which have disrupted how we operate our business. Due in part to anticipated post-pandemic workforce
patterns, we have permanently closed certain non-core offices, reduced certain other office space and reduced our global workforce. Our operations may be
further negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many cities,
counties, states, and countries may continue to impose a wide range of restrictions on our employees’, partners’ and customers’ physical movement to limit
the spread of COVID-19. We have postponed, canceled or shifted certain of our customer, employee or industry events to virtual-only experiences and may
continue to do so in the future. If the COVID-19 pandemic has a substantial impact on our employees’, partners’ or customers’ productivity or ability to
collaborate, our results of operations and overall financial performance may be harmed.
The situation surrounding the COVID-19 pandemic is constantly evolving and both the short-term and long-term effects remain unknown. Our
customers, and therefore our business and revenues, are sensitive to negative changes in general economic conditions and lending activities. The COVID-
19 pandemic may affect the rate of spending on our solutions and could adversely affect our customers’ ability or willingness to purchase our products and
services, cause prospective customers to change product selections or term commitments, delay or cancel their purchasing decisions, extend sales cycles,
and potentially increase payment defaults, all of which could adversely affect our future revenues, results of operations and overall financial performance.
We have seen evidence that COVID-19 has adversely affected certain segments and originations volume, which may impact future revenue. We are unable
to accurately predict the complete impact that COVID-19 will have on our future results of operations, financial condition, liquidity and cash flows due to
numerous uncertainties, including the severity and transmission rate of the virus, the duration of the outbreak, the extent and effectiveness of containment
actions, the effectiveness of any medical treatment and prevention options, and the impact of these and other factors on us, our employees, customers,
partners and vendors, and on worldwide and U.S. economic conditions. If we are not able to respond to and manage these impacts effectively, our business
may be harmed to a material extent.
We continue to expand the pursuit of our Decision Management strategy, and we may not be successful, which could cause our growth prospects and
results of operations to suffer.
We continue to expand the pursuit of our business objective to become a leader in helping businesses automate and improve decisions across their
enterprises, an approach that we commonly refer to as Decision Management, or “DM.” We have increasingly focused our DM strategy on bringing our
Decision Management assets together in a flexible, extensible, and cloud-native platform approach (the FICO Decision Management Platform). Our DM
strategy is designed to enable us to increase our business by selling multiple connectable and extensible DM products to clients, as well as to enable the
development of custom client solutions and to allow our clients to more easily expand their usage and the use cases they enable over time. The market may
be unreceptive to our general DM business approach, including being unreceptive to our cloud-based offerings, unreceptive to purchasing multiple products
from us, or unreceptive to our customized solutions. As we continue to pursue our DM strategy, we may experience volatility in our revenues and operating
results caused by various factors, including differences in revenue recognition treatment between our cloud-based offerings and on-premise software
licenses, the timing of investments and other expenditures necessary to develop and operate our cloud-based offerings, and the adoption of new sales and
delivery methods. If our DM strategy is not successful, we may not be able to grow our business, growth may occur more slowly than we anticipate, or our
revenues and profits may decline.
We derive a substantial portion of our revenues from a small number of products and services, and if the market does not continue to accept these
products and services, our revenues will decline.
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We expect that revenues derived from our scoring solutions, fraud solutions, customer communication services, customer management solutions and
decision management software will continue to account for a substantial portion of our total revenues for the foreseeable future. Our revenues will decline
if the market does not continue to accept these products and services. Factors that might affect the market acceptance of these products and services include
the following:
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changes in the business analytics industry;
changes in technology;
our inability to obtain or use key data for our products;
saturation or contraction of market demand;
loss of key customers;
industry consolidation;
failure to successfully adopt cloud-based technologies;
our inability to obtain regulatory approvals for our products and services, including credit score models;
the increasing availability of free or relatively inexpensive consumer credit, credit score and other information from public or commercial sources;
failure to execute our selling approach; and
inability to successfully sell our products in new vertical markets.
Our revenues depend, to a great extent, upon conditions in the banking (including consumer credit) industry. If our clients’ industry experiences
uncertainty, it will likely harm our business, financial condition or results of operations.
During fiscal 2020, 86% of our revenues were derived from sales of products and services to the banking industry. Periods of global economic
uncertainty experienced in the past have produced substantial stress, volatility, illiquidity and disruption of global credit and other financial markets,
resulting in the bankruptcy or acquisition of, or government assistance to, several major domestic and international financial institutions. The potential for
future stress and disruptions, including in connection with the COVID-19 pandemic, presents considerable risks to our businesses and operations. These
risks include potential bankruptcies or credit deterioration of financial institutions, many of which are our customers. Such disruption would result in a
decline in the revenue we receive from financial and other institutions. In addition, if consumer demand for financial services and products and the number
of credit applications decrease, the demand for our products and services could also be materially reduced. These types of disruptions could lead to a
decline in the volumes of services we provide our customers and could negatively impact our revenue and results of operations.
While the rate of account growth in the U.S. bankcard industry has been slow and many of our large institutional customers have consolidated in recent
years, we have generated most of our revenue growth from our bankcard-related scoring and account management businesses by selling and cross-selling
our products and services to large banks and other credit issuers. As the banking industry continues to experience contraction in the number of participating
institutions, we may have fewer opportunities for revenue growth due to reduced or changing demand for our products and services that support customer
acquisition programs of our customers. In addition, industry contraction could affect the base of recurring revenues derived from contracts in which we are
paid on a per-transaction basis as formerly separate customers combine their operations under one contract. There can be no assurance that we will be able
to prevent future revenue contraction or effectively promote future revenue growth in our businesses.
While we are attempting to expand our sales of consumer credit and banking products and services into international markets, the risks are greater as
these markets are also experiencing substantial disruption and we are less well-known in them.
We rely on relatively few customers, as well as our contracts with the three major credit reporting agencies, for a significant portion of our revenues
and profits. Many of our customers are significantly larger than we are and may have greater bargaining power. The businesses of our largest
customers depend, in large part, on favorable macroeconomic conditions. If these customers are negatively impacted by weak global economic
conditions, global economic volatility or the terms of these relationships otherwise change, our revenues and operating results could decline.
Most of our customers are relatively large enterprises, such as banks, payment card processors, insurance companies, healthcare firms,
telecommunications providers, retailers and public agencies. As a result, many of our customers and potential customers are significantly larger than we are
and may have sufficient bargaining power to demand reduced prices and favorable nonstandard terms.
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In addition, the U.S. and other key international economies are experiencing and have experienced in the past a downturn in which economic activity
was impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit,
equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy. The potential for economic disruption presents
considerable risks to our business, including potential bankruptcies or credit deterioration of financial institutions with which we have substantial
relationships. Such disruption, whether arising in connection with the current COVID-19 pandemic or otherwise, could result in a decline in the volume of
transactions that we execute for our customers.
We also derive a substantial portion of our revenues and operating income from our contracts with the three major credit reporting agencies, Experian,
TransUnion and Equifax, and other parties that distribute our products to certain markets. The loss of or a significant change in a relationship with one of
these credit reporting agencies with respect to their distribution of our products or with respect to our myFICO® offerings, the loss of or a significant
change in a relationship with a major customer, the loss of or a significant change in a relationship with a significant third-party distributor (including
payment card processors), or the delay of significant revenues from these sources, could have a material adverse effect on our revenues and results of
operations.
If we are unable to access new markets or develop new distribution channels, our business and growth prospects could suffer.
We expect that part of the growth that we seek to achieve through our DM strategy will be derived from the sale of DM products and service solutions in
industries and markets we do not currently serve. We also expect to grow our business by delivering our DM solutions through additional distribution
channels. If we fail to penetrate these industries and markets to the degree we anticipate utilizing our DM strategy, or if we fail to develop additional
distribution channels, we may not be able to grow our business, growth may occur more slowly than we anticipate, or our revenues and profits may decline.
If we are unable to develop successful new products or if we experience defects, failures and delays associated with the introduction of new products,
our business could suffer serious harm.
Our growth and the success of our DM strategy depend upon our ability to develop and sell new products or suites of products, including the
development and sale of our cloud-based product offerings. If we are unable to develop new products, or if we are not successful in introducing new
products, we may not be able to grow our business or growth may occur more slowly than we anticipate. In addition, significant undetected errors or delays
in new products or new versions of products may affect market acceptance of our products and could harm our business, financial condition or results of
operations. In the past, we have experienced delays while developing and introducing new products and product enhancements, primarily due to difficulties
developing models, acquiring data, and adapting to particular operating environments or certain client or other systems. We have also experienced errors or
“bugs” in our software products, despite testing prior to release of the products. Software errors in our products could affect the ability of our products to
work with other hardware or software products, could delay the development or release of new products or new versions of products, and could adversely
affect market acceptance of our products. Errors or defects in our products that are significant, or are perceived to be significant, could result in rejection of
our products, damage to our reputation, loss of revenues, diversion of development resources, an increase in product liability claims, and increases in
service and support costs and warranty claims.
Our ability to increase our revenues will depend to some extent upon introducing new products and services. If the marketplace does not accept these
new products and services, our revenues may decline.
To increase our revenues, we must enhance and improve existing products and continue to introduce new products and new versions of existing
products that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance. We
believe much of the future growth of our business and the success of our DM strategy will rest on our ability to continue to expand into newer markets for
our products and services. Such areas are relatively new to our product development and sales and marketing personnel. Products that we plan to market in
the future are in various stages of development. We cannot assure you that the marketplace will accept these products. If our current or potential customers
are not willing to switch to or adopt our new products and services, either as a result of the quality of these products and services or due to other factors,
such as economic conditions, our revenues will decrease.
If we fail to keep up with rapidly changing technologies, our products could become less competitive or obsolete.
In our markets, technology changes rapidly, and there are continuous improvements in computer hardware, network operating systems, programming
tools, programming languages, operating systems, database technologies, cloud-based technologies and the use of the Internet. If we fail to enhance our
current products and develop new products in response to changes in technology or industry standards, or if we fail to bring product enhancements or new
product developments to market quickly enough, our products could rapidly become less competitive or obsolete. Our future success will depend, in part,
upon our ability to:
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innovate by internally developing new and competitive technologies;
use leading third-party technologies effectively;
continue to develop our technical expertise;
anticipate and effectively respond to changing customer needs;
initiate new product introductions in a way that minimizes the impact of customers delaying purchases of existing products in anticipation of new
product releases; and
influence and respond to emerging industry standards and other technological changes.
Our product and pricing strategies may not be successful. If our competitors introduce new products and pricing strategies, it could decrease our
product sales and market share, or could pressure us to reduce our product prices in a manner that reduces our margins.
Demand for our products and services may be sensitive to product and pricing changes we implement, and our product and pricing strategies may not be
accepted by the market. If our customers fail to accept our product and pricing strategies, our revenues, results of operations and business may suffer. In
addition, we may not be able to compete successfully against our competitors, and this inability could impair our capacity to sell our products. The market
for business analytics is rapidly evolving and highly competitive, and we expect competition in this market to persist and intensify. Our regional and global
competitors vary in size and in the scope of the products and services they offer, and include:
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in-house analytic and systems developers;
scoring model builders;
fraud and security management providers;
enterprise resource planning, customer relationship management, and customer communication and mobility solution providers;
business intelligence solutions providers;
credit report and credit score providers;
business process management and decision rules management providers;
process modeling tools providers;
automated application processing services providers;
data vendors;
neural network developers and artificial intelligence system builders;
third-party professional services and consulting organizations;
account/workflow management software providers;
software tools companies supplying modeling, rules, or analytic development tools; collections and recovery solutions providers; entity resolution
and social network analysis solutions providers; and
cloud-based customer engagement and risk management solutions providers.
We expect to experience additional competition from other established and emerging companies, as well as from other technologies. For example, certain
of our fraud solutions products compete against other methods of preventing payment card fraud, such as payment cards that contain the cardholder’s
photograph; smart cards; cardholder verification and authentication solutions; biometric measures on devices including fingerprint and face matching; and
other card authorization techniques and user verification techniques. Many of our anticipated competitors have greater financial, technical, marketing,
professional services and other resources than we do, and industry consolidation is creating even larger competitors in many of our markets. As a result, our
competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements. They may also be able to devote
greater resources than we can to develop, promote and sell their products. Many of these companies have extensive customer relationships, including
relationships with many of our current and potential customers. Furthermore, new competitors or alliances among competitors may emerge and rapidly gain
significant market share. For example, Experian, TransUnion and Equifax have formed an alliance that has developed a credit scoring product competitive
with our products. If we are unable to respond as quickly or effectively to changes in customer requirements as our competition, our ability to expand our
business and sell our products will be negatively affected.
Our competitors may be able to sell products competitive to ours at lower prices individually or as part of integrated suites of several related products.
This ability may cause our customers to purchase products that directly compete with our products from our competitors. Price reductions by our
competitors could negatively impact our margins, and could also harm our ability to obtain new long-term contracts and renewals of existing long-term
contracts on favorable terms.
We rely on relationships with third parties for marketing, distribution and certain services. If we experience difficulties in these relationships,
including competition from these third parties, our future revenues may be adversely affected.
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Most of our products rely on distributors, and we intend to continue to market and distribute our products through existing and future distributor
relationships. Our Scores segment relies on, among others, Experian, TransUnion and Equifax. Failure of our existing and future distributors to generate
significant revenues or otherwise perform their expected services or functions, demands by such distributors to change the terms on which they offer our
products, or our failure to establish additional distribution or sales and marketing alliances, could have a material adverse effect on our business, operating
results and financial condition. In addition, certain of our distributors presently compete with us and may compete with us in the future, either by
developing competitive products themselves or by distributing competitive offerings. For example, Experian, TransUnion and Equifax have developed a
credit scoring product to compete directly with our products and are collectively attempting to sell the product. Competition from distributors or other sales
and marketing partners could significantly harm sales of our products and services.
Our acquisition activities may disrupt our ongoing business and may involve increased expenses, and we may not realize the financial and strategic
goals contemplated at the time of a transaction.
We have acquired and expect to continue to acquire companies, businesses, products, services and technologies. Acquisitions involve significant risks
and uncertainties, including:
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our ongoing business may be disrupted and our management’s attention may be diverted by acquisition, transition or integration activities;
an acquisition may not further our business strategy as we expected, we may not integrate acquired operations or technology as successfully as we
expected or we may overpay for our investments, or otherwise not realize the expected return, which could adversely affect our business or
operating results;
we may be unable to retain the key employees, customers and other business partners of the acquired operation;
we may have difficulties entering new markets where we have no or limited direct prior experience or where competitors may have stronger
market positions;
our operating results or financial condition may be adversely impacted by known or unknown claims or liabilities we assume in an acquisition or
that are imposed on us as a result of an acquisition, including claims by government agencies or authorities, terminated employees, current or
former customers, former stockholders or other third parties;
we may not realize the anticipated increase in our revenues from an acquisition for a number of reasons, including if a larger than predicted
number of customers decline to renew their contracts, if we are unable to incorporate the acquired technologies or products with our existing
product lines in a uniform manner, if we are unable to sell the acquired products to our customer base or if contract models of an acquired
company or changes in accounting treatment do not allow us to recognize revenues on a timely basis;
our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, dividend payments and retirement
of outstanding indebtedness; and
to the extent we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and
earnings per share may decrease.
Because acquisitions are inherently risky, our transactions may not be successful and may have a material adverse effect on our business, results of
operations, financial condition or cash flows. Acquisitions of businesses having a significant presence outside the U.S. will increase our exposure to the
risks of conducting operations in international markets.
There can be no assurance that strategic divestitures will provide business benefits.
As part of our strategy, we continuously evaluate our portfolio of businesses. We have previously and may in the future make other changes to our
portfolio as well, which may be material. Divestitures involve risks, including:
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disruption of our operations or businesses;
reductions of our revenues or earnings per share;
difficulties in the separation of operations, services, products and personnel;
finding a suitable purchaser;
disposing of businesses or assets at a price or on terms that are less favorable than we had anticipated, or with purchase price adjustments or the
exclusion of assets or liabilities that must be divested, managed or run off separately;
diversion of management's attention from our other businesses;
the potential loss of key personnel;
adverse effects on relationships with our suppliers or their businesses,
the erosion of employee morale or customer confidence; and
the retention of contingent liabilities related to the divested business.
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If we do not successfully manage the risks associated with divestitures, our business, financial condition, and results of operations could be adversely
affected as the potential strategic benefits may not be realized or may take longer to realize than expected.
Our reengineering efforts may cause our growth prospects and profitability to suffer.
As part of our management approach, we pursue ongoing reengineering efforts designed to grow revenues through strategic resource allocation and
improve profitability through cost reductions. For example, in September 2020, we implemented a course of action designed to reduce our operating costs
in lower value, less strategic areas of our business in order to facilitate incremental investment in higher value, more strategic areas while also reducing our
facilities footprint in light of anticipated post-pandemic workforce patterns. These and other reengineering efforts may not be successful over the long term
should we fail to reduce expenses at the anticipated level, or should we fail to increase revenues to anticipated levels or at all. If our reengineering efforts
are not successful over the long term, our revenues, results of operations and business may suffer.
We will continue to rely upon proprietary technology rights, and if we are unable to protect them, our business could be harmed.
Our success depends, in part, upon our proprietary technology and other intellectual property rights. To date, we have relied primarily on a combination
of copyright, patent, trade secret, and trademark laws, and nondisclosure and other contractual restrictions on copying and distribution, to protect our
proprietary technology. This protection of our proprietary technology is limited, and our proprietary technology could be used by others without our
consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may
not prevent the development of competitive products. Any disclosure, loss, invalidity of, or failure to protect our intellectual property could negatively
impact our competitive position, and ultimately, our business. There can be no assurance that our protection of our intellectual property rights in the U.S. or
abroad will be adequate or that others, including our competitors, will not use our proprietary technology without our consent. Furthermore, litigation may
be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others.
Such litigation could result in substantial costs and diversion of resources and could harm our business, financial condition or results of operations.
Some of our technologies were developed under research projects conducted under agreements with various U.S. government agencies or
subcontractors. Although we have commercial rights to these technologies, the U.S. government typically retains ownership of intellectual property rights
and licenses in the technologies developed by us under these contracts, and in some cases can terminate our rights in these technologies if we fail to
commercialize them on a timely basis. Under these contracts with the U.S. government, the results of research may be made public by the government,
limiting our competitive advantage with respect to future products based on our research.
Operational Risks
If our cybersecurity measures are compromised or unauthorized access to customer or consumer data is otherwise obtained, our products and services
may be perceived as not being secure, customers may curtail or cease their use of our products and services, our reputation may be damaged and we
could incur significant liabilities.
Because our business requires the storage, transmission and utilization of sensitive consumer and customer information, we will continue to routinely be
the target of attempted cybersecurity and other security threats by outside third parties, including technically sophisticated and well-resourced bad actors
attempting to access or steal the data we store. Many of our products are provided by us through the Internet. We may be exposed to additional
cybersecurity threats as we migrate our data from our legacy systems to cloud-based solutions. We operate in an environment of significant risk of
cybersecurity incidents resulting from unintentional events or deliberate attacks by third parties or insiders, which may involve exploiting highly obscure
security vulnerabilities or sophisticated attack methods. These threats include phishing attacks on our email systems and other cyber-attacks, including
state-sponsored cyber-attacks, industrial espionage, insider threats, denial-of-service attacks, computer viruses, ransomware and other malware, payment
fraud or other cyber incidents.
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Cybersecurity breaches could expose us to a risk of loss, the unauthorized disclosure of consumer or customer information, significant litigation,
regulatory fines, penalties, loss of customers or reputational damage, indemnity obligations and other liability. If our cybersecurity measures are breached
as a result of third-party action, employee error, malfeasance or otherwise, and as a result, someone obtains unauthorized access to our systems or to
consumer or customer information, sensitive data may be accessed, stolen, disclosed or lost, our reputation may be damaged, our business may suffer and
we could incur significant liability. Because the techniques used to obtain unauthorized access, disable or degrade service or to sabotage systems change
frequently and generally are not recognized until launched against a target, or even for some time after, we may be unable to anticipate these techniques,
implement adequate preventative measures or remediate any intrusion on a timely or effective basis. Because a successful breach of our computer systems,
software, networks or other technology asset could occur and persist for an extended period of time before being detected, we may not be able to
immediately address the consequences of a cybersecurity incident.
Malicious third parties may also conduct attacks designed to temporarily deny customers, distributors and vendors access to our systems and services.
Cybersecurity breaches experienced by our vendors, by our distributors, by our customers or by us may trigger governmental notice requirements and
public disclosures, which may lead to widespread negative publicity. Any such cybersecurity breach, whether actual or perceived, could harm our
reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, cause existing
customers to curtail or cease their use of our products and services, cause regulatory or industry changes that impact our products and services, or subject
us to third-party lawsuits, regulatory fines or other action or liability, all of which could materially and adversely affect our business and operating results.
In addition, the COVID-19 pandemic may cause increased cybersecurity risk, as cybercriminals attempt to capitalize from the disruption, including remote
working arrangements.
If we experience business interruptions or failure of our information technology and communication systems, the availability of our products and
services could be interrupted which could adversely affect our reputation, business and financial condition.
Our ability to provide reliable service in our businesses depends on the efficient and uninterrupted operation of our data centers, information technology
and communication systems, and increasingly those of our external service providers. As we continue to grow our SaaS business, our dependency on the
continuing operation and availability of these systems increases. Our systems and data centers, and those of our external service providers, could be
exposed to damage or interruption. These interruptions can include software or hardware malfunctions, communication failures, outages or other failures of
third party environments or service providers, fires, floods, earthquakes, pandemics (including the COVID-19 pandemic), war, terrorist acts or civil unrest,
power losses, equipment failures, computer viruses, denial-of-service or other cybersecurity attacks, employee or insider malfeasance, human error and
other events beyond our control. Although we have taken steps to prevent system failures and we have installed back-up systems and procedures to prevent
or reduce disruption, such steps may not be sufficient to prevent an interruption of services and our disaster recovery planning may not account for all
eventualities.
An operational failure or outage in any of these systems, or damage to or destruction of these systems, which causes disruptions in our services, could
result in loss of customers, damage to customer relationships, reduced revenues and profits, refunds of customer charges and damage to our brand and
reputation and may require us to incur substantial additional expense to repair or replace damaged equipment and recover data loss caused by the
interruption. Any one or more of the foregoing occurrences could have a material adverse effect on our reputation, business, financial condition, cash flows
and results of operations.
The failure to recruit and retain additional qualified personnel could hinder our ability to successfully manage our business.
Our DM strategy and our future success will depend in large part on our ability to attract and retain experienced sales, consulting, research and
development, marketing, technical support and management personnel. The complexity of our products requires highly trained personnel for research and
development and to assist customers with product installation, deployment, maintenance and support. The labor market for these individuals is very
competitive due to the limited number of people available with the necessary technical skills and understanding and may become more competitive with
general market and economic improvement. We cannot be certain that our compensation strategies will be perceived as competitive by current or
prospective employees. This could impair our ability to recruit and retain personnel. We have experienced difficulty in recruiting qualified personnel,
especially technical, sales and consulting personnel, and we may need additional staff to support new customers and/or increased customer needs. We may
also recruit skilled technical professionals from other countries to work in the U.S., and from the U.S. and other countries to work abroad. Limitations
imposed by immigration laws in the U.S. and abroad and the availability of visas in the countries where we do business could hinder our ability to attract
necessary qualified personnel and harm our business and future operating results. There is a risk that even if we invest significant resources in attempting to
attract, train and retain qualified personnel, we will not succeed in our efforts, and our business could be harmed. The failure of the value of our stock to
appreciate may adversely affect our ability to use equity and equity-based incentive plans to attract and retain personnel, and may require us to use
alternative and more expensive forms of compensation for this purpose.
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The failure to obtain certain forms of model construction data from our customers or others could harm our business.
Our business requires that we develop or obtain a reliable source of sufficient amounts of current and statistically relevant data to analyze transactions
and update our products. In most cases, these data must be periodically updated and refreshed to enable our products to continue to work effectively in a
changing environment. We do not own or control much of the data that we require, most of which is collected privately and maintained in proprietary
databases. Customers and key business partners provide us with the data we require to analyze transactions, report results and build new models. Our DM
strategy depends in part upon our ability to access new forms of data to develop custom and proprietary analytic tools. If we fail to maintain sufficient data
sourcing relationships with our customers and business partners, or if they decline to provide such data due to privacy, security, competition or regulatory
concerns, prohibitions or a lack of permission from their customers or partners, we could lose access to required data and our products, and the
development of new products, might become less effective. We could also become subject to increased legislative, regulatory or judicial restrictions or
mandates on the collection, disclosure or use of such data, in particular if such data is not collected by our providers in a way that allows us to legally use
the data. Third parties have asserted copyright and other intellectual property interests in these data, and these assertions, if successful, could prevent us
from using these data. We may not be successful in maintaining our relationships with these external data source providers or in continuing to obtain data
from them on acceptable terms or at all. Any interruption of our supply of data could seriously harm our business, financial condition or results of
operations.
Global Operational Risks
Material adverse developments in global economic conditions, or the occurrence of certain other world events, could affect demand for our products
and services and harm our business.
Purchases of technology products and services and decisioning solutions are subject to adverse economic conditions. When an economy is struggling,
companies in many industries delay or reduce technology purchases, and we experience softened demand for our decisioning solutions and other products
and services. Global economic uncertainty in the past, and currently as a result of the COVID-19 pandemic, has produced substantial stress, volatility,
illiquidity and disruption of global credit and other financial markets. The COVID-19 pandemic has adversely affected the global economy, leading to
reduced consumer spending and lending activities and disruptions and volatility in the global capital markets. The pandemic has also caused shutdowns to
businesses and cities worldwide and has disrupted supply chains, business operations, travel, and consumer confidence.
Economic uncertainty has and could continue to negatively affect the businesses and purchasing decisions of companies in the industries we serve. Such
disruptions present considerable risks to our businesses and operations. As global economic conditions experience stress and negative volatility, or if there
is an escalation in regional or global conflicts or terrorism, we will likely experience reductions in the number of available customers and in capital
expenditures by our remaining customers, longer sales cycles, deferral or delay of purchase commitments for our products and increased price competition,
which may adversely affect our business, results of operations and liquidity.
We are subject to risks and uncertainties associated with the United Kingdom’s withdrawal from the E.U., commonly referred to as “Brexit,” including
implications for the free flow of labor and goods in the United Kingdom (“U.K.”) and the E.U. and other economic, financial, legal, tax and trade
implications. Brexit could cause disruptions to and create uncertainty surrounding our business in the U.K., including affecting our relationships with our
existing and future customers, suppliers and employees, which could have an adverse effect on our business, financial results and operations. Brexit has
caused, and may continue to create, volatility in global stock markets and regional and global economic uncertainty, which may cause our customers to
closely monitor their costs and reduce their spending budget on our products and services.
As a result of these conditions, risks and uncertainties, we may need to modify our strategies, businesses or operations, and we may incur additional
costs in order to compete in a changed business environment. Given the volatile nature of the global economic environment and the uncertainties
underlying efforts to stabilize it, we may not timely anticipate or manage existing, new or additional risks, as well as contingencies or developments, which
may include regulatory developments and trends in new products and services. Our failure to do so could materially and adversely affect our business,
financial condition, results of operations and prospects.
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In operations outside the U.S., we are subject to additional risks that may harm our business, financial condition or results of operations.
A growing portion of our revenues is derived from international sales. During fiscal 2020, 32% of our revenues were derived from business outside the
U.S. As part of our growth strategy, we plan to continue to pursue opportunities outside the U.S., including opportunities in countries with economic
systems that are in early stages of development and that may not mature sufficiently to result in growth for our business. Accordingly, our future operating
results could be negatively affected by a variety of factors arising out of international commerce, some of which are beyond our control. These factors
include:
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general economic and political conditions in countries where we sell our products and services;
difficulty in staffing and efficiently managing our operations in multiple geographic locations and in various countries;
effects of a variety of foreign laws and regulations, including restrictions on access to personal information;
data privacy and consumer protection laws and regulations;
import and export licensing requirements;
longer payment cycles;
difficulties in enforcing contracts and collecting accounts receivable;
reduced protection for intellectual property rights;
currency fluctuations;
unfavorable tax rules or changes in tariffs and other trade barriers;
the presence and acceptance of varying level of business corruption in international markets;
terrorism, war, natural disasters and pandemics, including the COVID-19 pandemic; and
difficulties and delays in translating products and related documentation into foreign languages.
There can be no assurance that we will be able to successfully address each of these challenges in the near term. Additionally, some of our business will
be conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses are not currently material to our cash flows, financial
position or results of operations. However, an increase in our foreign revenues could subject us to increased foreign currency transaction risks in the future.
In addition to the risk of depending on international sales, we have risks incurred in having research and development personnel located in various
international locations. We currently have a substantial portion of our product development staff in international locations, some of which have political and
developmental risks. If such risks materialize, our business could be damaged.
Legal, Regulatory and Compliance Risks
Laws and regulations in the U.S. and abroad that apply to us or to our customers may expose us to liability, cause us to incur significant expense,
affect our ability to compete in certain markets, limit the profitability of or demand for our products, or render our products obsolete. If these laws
and regulations require us to change our products and services, it could adversely affect our business and results of operations. New legislation or
regulations, or changes to existing laws and regulations, may also negatively impact our business and increase our costs of doing business.
Laws and governmental regulation affect how our business is conducted and, in some cases, subject us to the possibility of government supervision and
future lawsuits arising from our products and services. Laws and governmental regulation also influence our current and prospective customers’ activities,
as well as their expectations and needs in relation to our products and services. Laws and regulations that may affect our business and our current and
prospective customers’ activities include, but are not limited to, those in the following significant regulatory areas:
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Use of data by creditors and consumer reporting agencies (e.g., the U.S. Fair Credit Reporting Act);
Laws and regulations that limit the use of credit scoring models (e.g., state “mortgage trigger” or “inquiries” laws, state insurance restrictions on the
use of credit-based insurance scores, and the E.U. Consumer Credit Directive);
Fair lending laws (e.g., the Equal Credit Opportunity Act and Regulation B, and the Fair Housing Act);
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Privacy and security laws and regulations that limit the use and disclosure of personally identifiable information, require security procedures, or
otherwise apply to the collection, processing, storage, use and transfer of protected data (e.g., the U.S. Financial Services Modernization Act of
1999, also known as the Gramm Leach Bliley Act; the General Data Protection Regulation (the “GDPR”) and country-specific data protection laws
enacted to supplement the GDPR; the U.S. Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information
Technology for Economic and Clinical Health Act; the Cybersecurity Act of 2015; the U.S. Department of Commerce’s National Institute of
Standards and Technology’s Cybersecurity Framework; the Clarifying Lawful Overseas Use of Data Act; and identity theft, file freezing, security
breach notification and similar state privacy laws);
Extension of credit to consumers through the Electronic Fund Transfers Act and Regulation E, as well as non‑governmental VISA and MasterCard
electronic payment standards;
Laws and regulations applicable to secondary market participants (e.g., Fannie Mae and Freddie Mac) that could have an impact on our scoring
products and revenues, including 12 CFR Part 1254 (Validation and Approval of Credit Score Models) issued by the Federal Housing Finance
Agency in accordance with Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (Public Law 115-174), and any
regulations, standards or criteria established pursuant to such laws or regulations;
Laws and regulations applicable to our customer communication clients and their use of our products and services (e.g., the Telemarketing Sales
Rule, Telephone Consumer Protection Act and regulations promulgated thereunder);
Laws and regulations applicable to our insurance clients and their use of our insurance products and services;
The application or extension of consumer protection laws, including implementing regulations (e.g., the Consumer Financial Protection Act, the
Federal Trade Commission Act, the Truth In Lending Act and Regulation Z, the Fair Debt Collection Practices Act, the Servicemembers Civil
Relief Act, the Military Lending Act, and the Credit Repair Organizations Act);
Laws and regulations governing the use of the Internet and social media, telemarketing, advertising, endorsements and testimonials;
Anti-bribery and corruption laws and regulations (e.g., the Foreign Corrupt Practices Act and the UK Bribery Act 2010);
Financial regulatory standards (e.g., Sarbanes-Oxley Act requirements to maintain and verify internal process controls, including controls for
material event awareness and notification);
Regulatory requirements for managing third parties (e.g., vendors, contractors, suppliers and distributors);
Anti-money laundering laws and regulations (e.g., the Bank Secrecy Act and the USA PATRIOT Act);
Financial regulatory reform stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act and the many regulations mandated
by that Act, including regulations issued by, and the supervisory and investigative authority of, the Consumer Financial Protection Bureau; and
Laws and regulations regarding export controls as they apply to FICO products delivered in non-U.S. countries (e.g., Office of Foreign Asset
Control sanctions, and Export Administration Regulations).
In addition, many U.S. and foreign jurisdictions have passed, or are currently contemplating, a variety of consumer protection, privacy, and data security
laws and regulations that may relate to our business or affect the demand for our products and services. For example, the GDPR became effective on May
25, 2018 and imposes, among other things, strict obligations and restrictions on the ability to collect, analyze and transfer European Union (“E.U.”)
personal data, a requirement for prompt notice of data breaches in certain circumstances, and possible substantial fines for any violations (including
possible fines for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual revenue). A decision in July 2020 by the Court
of Justice of the European Union (i.e., Schrems II), calls into question certain data transfer mechanisms between the E.U. and the U.S. The decision may
have an adverse impact on cross-border transfers of personal data, may subject us to additional scrutiny from E.U. regulators or may increase our costs of
compliance.
Brazil, India, South Africa, Japan, China, Israel, Canada, and several other countries have introduced and, in some cases, enacted, similar privacy and
data security laws. The California Consumer Privacy Act of 2018, which was enacted on June 28, 2018 and became effective on January 1, 2020, gives
California residents certain privacy rights in the collection and disclosure of their personal information and requires businesses to make certain disclosures
and take certain other acts in furtherance of those rights. The costs and other burdens of compliance with privacy and data security laws and regulations
could negatively impact the use and adoption of our solutions and reduce overall demand for them. Additionally, concerns regarding data privacy may
cause our customers, or their customers and potential customers, to resist providing the data necessary to allow us to deliver our solutions effectively. Even
the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our
solutions and any failure to comply with such laws and regulations could lead to significant fines, penalties or other liabilities. Any such decrease in
demand or incurred fines, penalties or other liabilities could have a material adverse effect on our business, results of operations, and financial condition.
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In addition to existing laws and regulations, changes in the U.S. or foreign legislative, judicial, regulatory or consumer environments could harm our
business, financial condition or results of operations. The laws and regulations above, and changes to them or their interpretation by the courts, could affect
the demand for or profitability of our products, including scoring and consumer products. New laws and regulations pertaining to our customers could
cause them to pursue new strategies, reducing the demand for our products.
If we are subject to infringement claims, it could harm our business.
We expect that products in the industry segments in which we compete, including software products, will increasingly be subject to claims of patent and
other intellectual property infringement as the number of products and competitors in our industry segments grow. We may need to defend claims that our
products infringe intellectual property rights, and as a result we may:
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incur significant defense costs or substantial damages;
be required to cease the use or sale of infringing products;
expend significant resources to develop or license a substitute non-infringing technology;
discontinue the use of some technology; or
be required to obtain a license under the intellectual property rights of the third party claiming infringement, which license may not be available or
might require substantial royalties or license fees that would reduce our margins.
Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred to as “patent trolls,” have purchased patents and
other intellectual property assets for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive
threatening letters or notices or may be the subject of claims that our solutions and underlying technology infringe or violate the intellectual property
rights of others. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management's attention
and resources, damage our reputation and brand, and cause us to incur significant expenses.
Financial Risks
Our products have long and variable sales cycles. If we do not accurately predict these cycles, we may not forecast our financial results accurately,
and our stock price could be adversely affected.
We experience difficulty in forecasting our revenues accurately because the length of our sales cycles makes it difficult for us to predict the quarter in
which sales will occur. In addition, our selling approach is complex as we look to sell multiple products and services across our customers’ organizations.
This makes forecasting of revenues in any given period more difficult. As a result of our sales approach and lengthening sales cycles, revenues and
operating results may vary significantly from period to period. For example, the sales cycle for our products typically ranges from 60 days to 18 months,
which may be further extended as a result of COVID-19. Customers are often cautious in making decisions to acquire our products because purchasing our
products typically involves a significant commitment of capital and may involve shifts by the customer to a new software and/or hardware platform or
changes in the customer’s operational procedures. This may cause customers, particularly those experiencing financial stress, to make purchasing decisions
more cautiously. Delays in completing sales can arise while customers complete their internal procedures to approve large capital expenditures and test and
accept our applications. Consequently, we face difficulty predicting the quarter in which sales to expected customers will occur and experience fluctuations
in our revenues and operating results. If we are unable to accurately forecast our revenues, our stock price could be adversely affected.
We typically have revenue-generating transactions concentrated in the final weeks of a quarter, which may prevent accurate forecasting of our
financial results and cause our stock price to decline.
Large portions of our customer agreements are consummated in the weeks immediately preceding quarter end. Before these agreements are
consummated, we create and rely on forecasted revenues for planning, modeling and earnings guidance. Forecasts, however, are only estimates and actual
results may vary for a particular quarter or longer periods of time. Consequently, significant discrepancies between actual and forecasted results could limit
our ability to plan, budget or provide accurate guidance, which could adversely affect our stock price. Any publicly-stated revenue or earnings projections
are subject to this risk.
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Charges to earnings resulting from acquisitions may adversely affect our operating results.
Under business combination accounting standards, we recognize the identifiable assets acquired and the liabilities assumed in acquired companies
generally at their acquisition-date fair values and separately from goodwill. Goodwill is measured as the excess amount of consideration transferred, which
is also generally measured at fair value, and the net of the amounts of the identifiable assets acquired and the liabilities assumed as of the acquisition date.
Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain.
After we complete an acquisition, the following factors could result in material charges and adversely affect our operating results and may adversely
affect our cash flows:
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impairment of goodwill or intangible assets, or a reduction in the useful lives of intangible assets acquired;
amortization of intangible assets acquired;
identification of, or changes to, assumed contingent liabilities, both income tax and non-income tax related, after our final determination of the
amounts for these contingencies or the conclusion of the measurement period (generally up to one year from the acquisition date), whichever
comes first;
costs incurred to combine the operations of companies we acquire, such as transitional employee expenses and employee retention, redeployment
or relocation expenses;
charges to our operating results to maintain certain duplicative pre-merger activities for an extended period of time or to maintain these activities
for a period of time that is longer than we had anticipated, charges to eliminate certain duplicative pre-merger activities, and charges to restructure
our operations or to reduce our cost structure; and
charges to our operating results resulting from expenses incurred to effect the acquisition.
Substantially all of these costs will be accounted for as expenses that will decrease our net income and earnings per share for the periods in which
those costs are incurred. Charges to our operating results in any given period could differ substantially from other periods based on the timing and size of
our future acquisitions and the extent of integration activities. A more detailed discussion of our accounting for business combinations and other items is
presented in the “Critical Accounting Policies and Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Item 7).
General Risk Factors
The occurrence of certain negative events may cause fluctuations in our stock price.
The market price of our common stock has been volatile and may continue to be subject to wide fluctuations due to a number of factors, including
variations in our revenues and operating results. We believe that you should not rely on period-to-period comparisons of financial results as an indication of
future performance. Because many of our operating expenses are fixed and will not be affected by short-term fluctuations in revenues, short-term
fluctuations in revenues may significantly impact operating results. Additional factors that may cause our stock price to fluctuate include the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
variability in demand from our existing customers;
failure to meet the expectations of market analysts;
changes in recommendations by market analysts;
the lengthy and variable sales cycle of many products, combined with the relatively large size of orders for our products, increases the likelihood
of short-term fluctuation in revenues;
consumer or customer dissatisfaction with, or problems caused by, the performance of our products;
the timing of new product announcements and introductions in comparison with our competitors;
the level of our operating expenses;
changes in demand and competitive and other conditions in the consumer credit, banking and insurance industries;
fluctuations in domestic and international economic conditions, such as those which have occurred as a result of the COVID-19 pandemic;
our ability to complete large installations, and to adopt and configure cloud-based deployments, on schedule and within budget;
announcements relating to litigation or regulatory matters;
changes in senior management or key personnel;
acquisition-related expenses and charges; and
timing of orders for and deliveries of software systems.
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In addition, the financial markets have at various times experienced significant price and volume fluctuations that have particularly affected the stock
prices of many technology companies and financial services companies, and these fluctuations sometimes have been unrelated to the operating performance
of these companies. Broad market fluctuations, as well as industry-specific and general economic conditions, may negatively affect our business and
require us to record an impairment charge related to goodwill, which could adversely affect our results of operations, stock price and business.
Our anti-takeover defenses could make it difficult for another company to acquire control of FICO, thereby limiting the demand for our securities by
certain types of purchasers or the price investors are willing to pay for our stock.
Certain provisions of our Restated Certificate of Incorporation, as amended, could make a merger, tender offer or proxy contest involving us difficult,
even if such events would be beneficial to the interests of our stockholders. These provisions include giving our board the ability to issue preferred stock
and determine the rights and designations of the preferred stock at any time without stockholder approval. The rights of the holders of our common stock
will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from acquiring, a majority of our outstanding voting stock. These factors and certain
provisions of the Delaware General Corporation Law may have the effect of deterring hostile takeovers or otherwise delaying or preventing changes in
control or changes in our management, including transactions in which our stockholders might otherwise receive a premium over the fair market value of
our common stock.
If we experience changes in tax laws or adverse outcomes resulting from examination of our income tax returns, it could adversely affect our results
of operations.
We are subject to federal and state income taxes in the U.S. and in certain foreign jurisdictions. Significant judgment is required in determining our
worldwide provision for income taxes. Our future effective tax rates could be adversely affected by changes in tax laws, by our ability to generate taxable
income in foreign jurisdictions in order to utilize foreign tax losses, and by the valuation of our deferred tax assets. In addition, we are subject to the
examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes
resulting from such examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from such
examinations will not have an adverse effect on our operating results and financial condition.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our properties consist primarily of leased office facilities for sales, data processing, research and development, consulting and administrative
personnel. Our principal locations include:
•
•
•
•
•
approximately 55,000 square feet of office space in San Jose, California in one building under a lease expiring in fiscal 2024; this is used for our
corporate headquarters and all of our segments;
approximately 173,000 square feet of office space in Bangalore, India in one building under a lease expiring in fiscal 2022; this is used for our
Applications and Decision Management Software segments;
approximately 124,000 square feet of office space in San Rafael, California in one building under a lease expiring in fiscal 2025; this is used for
all of our segments;
approximately 80,000 square feet of office space in San Diego, California in one building under a lease expiring in fiscal 2027; this is used for our
Applications and Decision Management Software segments; and
approximately 45,000 square feet of office space in Roseville, Minnesota in one building under a lease expiring in fiscal 2028; this is used for all
of our segments.
In addition, we lease an aggregate of approximately 235,000 square feet of office and data center space in a number of smaller domestic locations
and internationally in the United Kingdom, China, Singapore, and several other locations. We believe that suitable additional space will be available to
accommodate future needs. See Note 17 to the accompanying consolidated financial statements for information regarding our obligations under leases.
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Item 3. Legal Proceedings
On March 13, 2020, we received a letter from the Antitrust Division of the U.S. Department of Justice (“DOJ”) informing us that the DOJ had opened
a civil investigation into potential exclusionary conduct by the Company. We are cooperating with the DOJ in its investigation.
Item 4. Mine Safety Disclosures
Not Applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock trades on the New York Stock Exchange under the symbol: FICO. According to records of our transfer agent, at October 30,
2020, we had 278 stockholders of record of our common stock.
Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
Period
July 1, 2020 through July 31, 2020
August 1, 2020 through August 31, 2020
September 1, 2020 through September 30, 2020
Total
Total Number
of Shares
Purchased (1)
Average
Price Paid
per Share
2,298 $
27,880 $
35,990 $
66,168 $
436.71
426.55
421.32
424.05
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs (2)
Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs (2)
— $
24,000 $
35,600 $
59,600 $
250,000,000
239,776,878
224,777,076
224,777,076
(1) Includes 6,568 shares delivered in satisfaction of the tax withholding obligations resulting from the vesting of restricted stock units held by employees
during the quarter ended September 30, 2020.
(2) In July 2019, our Board of Directors approved a stock repurchase program following the completion of our previous program. This program was open-
ended and authorized repurchases of shares of our common stock up to an aggregate cost of $250.0 million in the open market or in negotiated
transactions. In July 2020, our Board of Directors approved a new stock repurchase program following the completion of the July 2019 program. The
new program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $250.0 million in the open market or
in negotiated transactions.
Performance Graph
The following graph shows the total stockholder return of an investment of $100 in cash on September 30, 2015, in (a) the Company’s common
stock, (b) the Standard & Poor’s 500 Stock Index and (c) the Standard & Poor’s 500 Application Software Index, in each case with reinvestment of
dividends. Our past performance may not be indicative of future performance.
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Item 6. Selected Financial Data
We acquired TONBELLER Aktiengesellschaft in January 2015, QuadMetrics, Inc. in May 2016, and eZmCom, Inc. in August 2019. Results of
operations from the acquisitions are included prospectively from their respective acquisition dates and did not materially impact comparability of the data
presented below.
Revenues
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Dividends declared per share
2020 (1)
2019
2018
2017 (1)
2016
Year Ended September 30,
$
1,294,562 $
1,160,083 $
1,000,146 $
934,983 $
(In thousands, except per share data)
295,969
236,411
8.13
7.90
—
253,548
192,124
6.63
6.34
—
175,359
126,482
4.26
4.06
—
182,159
133,414
4.32
4.14
0.04
881,356
169,592
109,448
3.52
3.39
0.08
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Working capital
Total assets
Senior notes
Revolving line of credit
Stockholders’ equity
2020
2019
September 30,
2018
(In thousands)
2017
2016
$
119,567 $
(35,122) $
(77,514) $
22,842 $
1,606,240
1,433,448
1,330,467
1,348,728
750,000
95,000
331,082
485,000
345,000
289,767
513,000
257,000
287,437
244,000
361,000
466,183
21,561
1,220,676
316,000
255,000
446,828
(1) Results of operations for fiscal years 2020 and 2017 included pre-tax charges of $45.0 million and $4.5 million, respectively, in restructuring and
impairment charges.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes the following: a business
overview that provides a high-level summary of our strategies and initiatives, financial results and bookings trends that affect our business; a more detailed
analysis of our results of operations; our liquidity and capital resources, which discusses key aspects of our statements of cash flows, changes in our
balance sheets and our financial commitments; and a summary of our critical accounting policies and estimates we believe are important to understanding
the assumptions and judgments incorporated in our reported financial results. Our MD&A should be read in conjunction with Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K. The following discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results may differ from those referred to herein due to a number of factors, including but not limited to risks described in Item 1A,
Risk Factors, in this Annual Report on Form 10-K.
Strategies and Initiatives
BUSINESS OVERVIEW
During fiscal 2020, we continued to advance our cloud-enabled, platform-based strategy in our Applications and Decision Management Software
segments. The application of this strategy has led to an increase in our cloud bookings over the past several years. Our cloud bookings accounted for 41%
of our total bookings in fiscal 2020, compared to 39% during fiscal 2019. We have invested, and intend to continue to invest, in product development to
build out and deliver features, functionalities and performance enhancements using a SaaS-based approach on our platform. Our continued product
innovation provides growth opportunities with customers that can benefit from the power, flexibility and modularity of these solutions.
For our Scores segment, our industry leading business-to-business FICO® Scores have achieved a multi-year expansion in the growing U.S. business-
to-consumer market. We have launched numerous new FICO® Score-based products, and continue to grow our business-to-consumer partnership with
Experian, a leading global information services provider. This partnership provides consumers the FICO® Score that lenders most commonly use in
evaluating credit when determining applicant eligibility for new credit cards, car loans, mortgages or other lines of credit and can be accessed through
Experian.com. The FICO® Score Open Access program, which allows our participating clients to provide their customers with a free FICO® Score along
with content to help them understand the FICO® Score their lender uses, has more than 240 million consumer accounts with access to their free FICO®
Scores. We continue to pursue additional partners to distribute FICO® Scores with their product offerings sold directly to consumers. During fiscal 2020,
we announced the launch of the FICO® Resilience Index, a new analytic tool designed to complement FICO® Score models by identifying those consumers
who are most resilient to economic stress relative to other consumers within the same FICO® Score bands. FICO® Resilience Index would enable industry
participants to more precisely assess credit risk and extend credit to more consumers throughout the economic cycle by managing the risk that emerges
during periods of economic stress.
We also continue to enhance stockholder value by returning cash to stockholders through our stock repurchase program. During fiscal 2020, we
repurchased approximately 0.7 million shares at a total repurchase price of $235.2 million. As of September 30, 2020, we had $224.8 million remaining
under our current stock repurchase program.
As a strategic cost initiative in fiscal 2020, we committed to a course of action designed to reduce operating costs in lower value, less strategic areas
of our business in order to facilitate incremental investment in higher value, more strategic areas while also reducing our facilities footprint in light of post-
pandemic workforce patterns. As a result of this initiative, in the fourth quarter of fiscal 2020, we recorded a net charge of $41.9 million consisting of
impairment losses of $33.2 million on our operating lease assets, property and equipment related to closing or consolidating office spaces, as well as a
restructuring charge of $8.7 million related to our workforce reduction. We expect this course of action to result in an aggregate annual expense savings of
approximately $36 million beginning in fiscal 2021.
In addition, during fiscal 2020, we changed our practice of selling term software licenses with separate license and maintenance components to a
single software subscription contract with license and maintenance bundled. This transition will be substantially completed by the end of the first quarter of
our fiscal 2021. This will shift the timing of our revenue recognition on these subscription sales, resulting in less revenue recognized upfront and more
revenue recognized over the term of these subscriptions. We expect a decline in revenue recognized from term software licenses in fiscal 2021 as we
transition to the new term license subscription model. This change will not negatively impact our cash flows.
Overview of Financial Results
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Total revenues for fiscal 2020 were $1.29 billion, an increase of 12% from $1.16 billion in fiscal 2019. We continue to drive growth in our Scores
segment. Scores revenue increased 25% to $528.5 million in fiscal 2020 from $421.2 million in fiscal 2019, and Scores operating income increased 26% to
$454.3 million in fiscal 2020 from $361.4 million in fiscal 2019. For our Applications and Decision Management Software segments, our SaaS business
continues to grow as we pursue our cloud-enabled, platform-based strategy. Revenue derived from our cloud-enabled SaaS business, which includes both
subscription revenue and associated professional services revenue, increased 11% to $300.0 million during fiscal 2020, from $270.4 million during fiscal
2019. SaaS subscription revenue increased 11% to $236.0 million during fiscal 2020, from $213.1 million during fiscal 2019.
We derive a significant portion of revenues internationally, and 32% and 34% of total consolidated revenues were derived from clients outside the
U.S. during fiscal 2020 and 2019, respectively. A significant portion of our revenues are derived from the sale of products and services within the banking
(including consumer credit) industry, and 86% and 87% of our revenues were derived from within this industry during fiscal 2020 and 2019, respectively.
In addition, a significant share of our revenues come from transactional or unit-based software license fees, transactional fees under credit scoring, data
processing, data management and SaaS subscription services arrangements, and annual software maintenance fees. Arrangements with transactional or
unit-based pricing accounted for 75% and 74% of our revenues during fiscal 2020 and 2019, respectively.
Operating income for fiscal 2020 was $296.0 million, an increase of 17% from $253.5 million in fiscal 2019. Operating margin was 23% and 22%
for fiscal 2020 and 2019, respectively. Net income increased 23% to $236.4 million in fiscal 2020 from $192.1 million in fiscal 2019 primarily due to an
increase in operating income. Diluted earnings per share for fiscal 2020 was $7.90, an increase of 25% from $6.34 in fiscal 2019.
COVID-19 Update
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic, which has spread throughout the U.S. and the
world. The COVID-19 pandemic has resulted in authorities implementing numerous measures to contain the virus, including quarantines, shelter-in-place
orders, travel bans and restrictions, and business limitations and shutdowns.
Our focus remains on promoting employee health and safety, serving our customers and ensuring business continuity. Since March 2020, our
employees have been instructed to work from home in each country where we operate to support their health and well-being as well as for our customers,
partners and communities. We have also substantially reduced employee travel to only essential business needs. We cannot predict when or how we will
begin to lift the actions put in place, but as of the date of this filing, we do not believe our work-from-home protocol has had a material adverse impact on
our internal controls, financial reporting systems or our operations.
Our operational flexibility and strong balance sheet allowed us to successfully manage through the initial impact of COVID-19 while protecting our
cash flow and liquidity. However, certain areas of our business have been adversely impacted as a result of the pandemic’s global economic impact. For
example, COVID-19 has been adversely affecting certain purchasing decisions by our customers in our Applications and Decision Management Software
segments. For our Scores segment, we have seen a decline in auto and unsecured originations volumes, but an increase in mortgage volume through the 2nd
half of fiscal 2020 due to strong refinancing activities boosted by low interest rates. Additionally, we have granted and may continue to grant extended
payment terms to a small number of customers as a result of COVID-19. We have not and do not plan to modify our customer agreements in a manner that
would materially impact our financial condition or results of operations. Finally, contrary to our original expectations, a decrease in sales-related travel
activity has not materially affected our ability to consummate sales.
As a cost management initiative due to COVID-19, we accelerated reviews of our leased office spaces across our real estate portfolio to reshape and
optimize our occupancy cost structures over the next several years. As a result, in the fourth quarter of fiscal 2020 we recorded impairment charges of
$33.2 million on operating lease assets, property and equipment related to closing or consolidating office spaces to better align with anticipated needs.
While we intend to continue to manage our costs by limiting the addition of new employees and third-party contracted services, and substantially reducing
employee travel and other discretionary spending, to the extent the business disruption continues for an extended period, additional cost management
actions will be considered and may become necessary. Further asset impairment charges, increases in allowance for doubtful accounts, or restructuring
charges may be required, depending on the severity and duration of the pandemic.
We have not incurred significant financial disruptions thus far from the COVID-19 outbreak, but due to numerous uncertainties, including the severity
and duration of the pandemic, actions that may be taken by governmental authorities, the impact on the business of our clients, and other factors, we are
unable to accurately predict the impact COVID-19 will have on our results of operations, financial condition, liquidity and cash flows. For more
information, see Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K.
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Bookings
Management regards the volume of bookings achieved as an important indicator of future revenues, but they are not comparable to nor a substitute
for an analysis of our revenues. Bookings represent contracts signed in the current reporting period that generate current and future revenue streams. While
we disclose estimated revenue expected to be recognized in the future related to unsatisfied performance obligations in Note 16 to the accompanying
consolidated financial statements, we believe bookings amount is still a meaningful measure of our business as it includes estimated revenues omitted from
Note 16, such as usage-based royalties derived from our software licenses, among others.
We estimate bookings as of the end of the period in which a contract is signed and initial booking estimates are not updated in future periods for
changes between estimated and actual results. Our calculations have varying degrees of certainty depending on the revenue type and individual contract
terms. They are subject to a number of risks and uncertainties concerning timing and contingencies affecting product delivery and performance, and
estimates consider contract terms, knowledge of the marketplace and experience with our customers, among other factors. Actual revenue and the timing
thereof could differ materially from our initial estimates.
Although many of our contracts contain non-cancelable terms, most of our bookings are transactional or service-related that depend upon estimates
such as volume of transactions, number of active accounts, or number of hours incurred. Since these estimates cannot be considered fixed or firm, we do
not believe it is appropriate to characterize bookings as backlog. The following paragraphs discuss the key assumptions used to calculate bookings and the
susceptibility of these assumptions to variability for each revenue type, as defined in Revenue Recognition in the Critical Accounting Policies and
Estimates.
Transactional and Maintenance Bookings
We calculate transactional bookings as the total estimated volume of transactions or number of accounts under contract, multiplied by the contractual
rate. Transactional contracts generally span multiple years and require estimates of future transaction volumes or number of active accounts. We develop
estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements. Differences between
estimated bookings and actual results occur due to variability in the volume of transactions or number of active accounts estimated. This variability is
primarily caused by 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.
We calculate maintenance bookings directly from the terms stated in the contract.
Professional Services Bookings
We calculate professional services bookings as the estimated number of hours to complete a project multiplied by the rate per hour. We estimate the
number of hours based on our understanding of the project scope, conversations with customer personnel and our experience in estimating professional
services projects. Estimated bookings may differ from actual results primarily due to differences in the actual number of hours incurred.
License Bookings
Licenses that are sold on a perpetual or term basis when bookings generally equal the fixed amount (including guaranteed minimums) stated in the
contract.
Bookings Trend Analysis
Quarter ended September 30, 2020
Quarter ended September 30, 2019
Year ended September 30, 2020
Year ended September 30, 2019
Bookings
(In millions)
$
$
$
$
234.6
160.4
537.0
481.7
Bookings
Yield (1)
Number of
Bookings
over $1 Million
15%
15%
29%
31%
31
34
87
95
Weighted-
Average
Term (2)
(months)
55
34
NM(a)
NM(a)
(1) Bookings yield represents the percentage of revenue recognized from bookings for the periods indicated.
(2) Weighted-average term of bookings measures the average term over which bookings are expected to be recognized as revenue.
(a) NM - Measure is not meaningful as our estimate of bookings is as of the end of the period in which a contract is signed, and we do not update our
initial booking estimates in future periods for changes between estimated and actual results.
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Transactional and maintenance bookings were 48% of total bookings for each of the years ended September 30, 2020 and 2019. Professional services
bookings were 33% and 39% of total bookings for the years ended September 30, 2020 and 2019, respectively. License bookings were 19% and 13% of
total bookings for the years ended September 30, 2020 and 2019, respectively.
We are organized into the following three reportable segments: Applications, Scores and Decision Management 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. Segment revenues, operating
income, and related financial information, including disaggregation of revenue, for the years ended September 30, 2020, 2019 and 2018 are set forth in
Note 15 to the accompanying consolidated financial statements.
RESULTS OF OPERATIONS
Revenues
The following tables set forth certain summary information on a segment basis related to our revenues for fiscal 2020, 2019 and 2018:
Revenues
Year Ended September 30,
Period-to-Period Change
Period-to-Period
Percentage Change
2020
2019
2018
2020 to 2019
2019 to 2018
2020 to 2019 2019 to 2018
Segment
Applications
Scores
Decision Management Software
$
602,046 $
605,034 $
564,375 $
(2,988) $
(In thousands)
(In thousands)
528,547
163,969
421,177
133,872
335,870
99,901
107,370
30,097
40,659
85,307
33,971
Total
$
1,294,562 $
1,160,083 $
1,000,146
134,479
159,937
— %
25 %
22 %
12 %
Segment
Applications
Scores
Decision Management Software
Total
34
Percentage of Revenues
Year Ended September 30,
2020
2019
2018
46%
41%
13%
100%
52%
36%
12%
100%
7%
25%
34%
16%
56%
34%
10%
100%
Table of Contents
Applications
Transactional and
maintenance
Professional
services
License
Total
$
$
Year Ended September 30,
Period-to-Period Change
Period-to-Period
Percentage Change
2020
2019
2018
2020 to 2019
2019 to 2018
2020 to 2019
2019 to 2018
(In thousands)
(In thousands)
393,994 $
395,398 $
372,283 $
(1,404) $
23,115
— %
136,677
71,375
137,258
72,378
602,046 $
605,034 $
142,736
49,356
564,375
(581)
(1,003)
(2,988)
(5,478)
23,022
40,659
— %
(1)%
— %
6 %
(4)%
47 %
7 %
Applications segment revenues decreased $3.0 million in fiscal 2020 from 2019 primarily attributable to a $17.9 million decrease in our fraud
solutions and a $3.1 million decrease in our customer communications services, partially offset by a $10.8 million increase in our compliance solutions and
a $7.7 million increase in our originations solutions. The decrease in fraud solutions was primarily attributable to a decrease in license revenue, driven by a
large multi-year license renewal recognized during fiscal 2019. The decrease in customer communication services was primarily attributable to a decrease
in transactional revenue. The increase in compliance solutions was primarily attributable to an increase in professional services and license revenues. The
increase in originations solutions was primarily due to an increase in SaaS subscription revenue classified as transactional and maintenance revenue and an
increase in license revenue.
Applications segment revenues increased $40.7 million in fiscal 2019 from 2018 primarily due to a $50.6 million increase in our fraud solutions and
a $7.3 million increase in our customer communication services, partially offset by an $8.7 million decrease in our customer management solutions and a
$7.6 million decrease in our originations solutions. The increase in fraud solutions was primarily attributable to an increase in license and transactional
revenues. The increase in customer communication services was primarily attributable to an increase in transactional revenue. The decrease in customer
management solutions was primarily attributable to a decrease in license and professional services revenues. The decrease in originations solutions was
primarily attributable to a decrease in professional services revenues.
Scores
Transactional and
maintenance
Professional
services
License
Total
$
$
Year Ended September 30,
Period-to-Period Change
Period-to-Period
Percentage Change
2020
2019
2018
2020 to 2019
2019 to 2018
2020 to 2019
2019 to 2018
(In thousands)
(In thousands)
517,024 $
415,288 $
331,662 $
101,736 $
83,626
24 %
1,600
9,923
2,157
3,732
1,900
2,308
(557)
6,191
528,547 $
421,177 $
335,870
107,370
257
1,424
85,307
(26)%
166 %
25 %
25%
14%
62%
25%
Scores segment revenues increased $107.4 million in fiscal 2020 from 2019 due to an increase of $79.8 million in our business-to-business scores
revenue and $27.6 million in our business-to-consumer services revenue. The increase in business-to-business scores was primarily attributable to an
increase in mortgage volumes, a higher unit price in auto and unsecured originations, a large royalty true-up as well as a large annual license deal
recognized during fiscal 2020. The increase was partially offset by a decrease in unsecured originations volume. The increase in business-to-consumer
services was attributable to an increase in both royalties derived from direct sales generated from the myFICO.com website and scores sold indirectly to
consumers through credit reporting agencies.
Scores segment revenues increased $85.3 million in fiscal 2019 from 2018 due to an increase of $77.4 million in our business-to-business scores
revenue and $7.9 million in our business-to-consumer services revenue. The increase in business-to-business scores was primarily attributable to a higher
unit price in mortgage and auto activities. The increase in business-to-consumer services was primarily attributable to an increase in royalties derived from
scores sold indirectly to consumers through credit reporting agencies.
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During fiscal 2020, 2019 and 2018, revenues generated from our agreements with Experian accounted for 14%, 13% and 11%, respectively, of our
total revenues, and revenues generated from our agreements with Equifax and TransUnion together accounted for 18%, 16% and 14%, respectively, of our
total revenues. Revenues from these customers included amounts recorded in our other segments.
Decision Management Software
Year Ended September 30,
Period-to-Period Change
Period-to-Period
Percentage Change
2020
2019
2018
2020 to 2019
2019 to 2018
2020 to 2019
2019 to 2018
(In thousands)
(In thousands)
Transactional and
maintenance
Professional
services
License
Total
$
$
62,915 $
50,262 $
46,658 $
12,653 $
3,604
44,763
56,291
44,680
38,930
163,969 $
133,872 $
32,274
20,969
99,901
83
17,361
30,097
12,406
17,961
33,971
25%
—%
45%
22%
8%
38%
86%
34%
Decision Management Software segment revenues increased $30.1 million in fiscal 2020 from 2019 primarily attributable to an increase in license
revenue, as well as an increase in our SaaS subscription revenue classified as transactional and maintenance revenue.
Decision Management Software segment revenues increased $34.0 million in fiscal 2019 from 2018 primarily attributable to an increase in license
revenue, an increase in professional services revenue, as well as an increase in our SaaS subscription revenue classified as transactional and maintenance
revenue.
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Operating Expenses and Other Income, Net
The following tables set forth certain summary information related to our consolidated statements of income and comprehensive income for fiscal
2020, 2019 and 2018:
Year Ended September 30,
Period-to-Period Change
Period-to-Period
Percentage Change
2020
2019
2018
2020 to 2019
2019 to 2018
2020 to 2019
2019 to 2018
(In thousands, except employees)
(In thousands, except
employees)
Revenues
$
1,294,562 $
1,160,083 $
1,000,146 $
134,479 $
159,937
12 %
Operating expenses:
Cost of revenues
361,142
336,845
312,898
24,297
23,947
7 %
11 %
2 %
— %
10 %
17 %
6 %
41 %
19 %
(14)%
23 %
16 %
8 %
16 %
10 %
(7)%
— %
10 %
45 %
27 %
(82)%
38 %
(21)%
52 %
9 %
Research and
development
Selling, general and
administrative
Amortization of
intangible assets
Restructuring and
impairment charges
Total operating expenses
Operating income
Interest expense, net
Other income, net
Income before income
taxes
Provision for income
taxes
166,499
149,478
128,383
17,021
21,095
420,930
414,086
376,912
6,844
37,174
4,993
6,126
6,594
(1,133)
(468)
(18)%
45,029
998,593
295,969
(42,177)
3,208
—
906,535
253,548
(39,752)
2,276
—
824,787
175,359
(31,311)
12,884
45,029
92,058
42,421
(2,425)
932
—
81,748
78,189
(8,441)
(10,608)
257,000
216,072
156,932
40,928
59,140
Net income
$
236,411 $
192,124 $
126,482
20,589
23,948
30,450
(3,359)
44,287
(6,502)
65,642
Number of employees at
fiscal year-end
4,003
4,009
3,668
(6)
341
— %
Revenues
Operating expenses:
Cost of revenues
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring and impairment charges
Total operating expenses
Operating income
Interest expense, net
Other income, net
Income before income taxes
Provision for income taxes
Net income
Percentage of Revenues
Year Ended September 30,
2020
2019
2018
100 %
100 %
100 %
28 %
13 %
33 %
— %
3 %
77 %
23 %
(3)%
— %
20 %
2 %
18 %
29 %
13 %
35 %
1 %
— %
78 %
22 %
(3)%
— %
19 %
2 %
17 %
31 %
13 %
37 %
1 %
— %
82 %
18 %
(3)%
1 %
16 %
3 %
13 %
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Cost of Revenues
Cost of revenues consists primarily of employee salaries and benefits for personnel directly involved in delivering software products, operating SaaS
infrastructure, and providing support, implementation and consulting services; allocated overhead, facilities and data center costs; software royalty fees;
credit bureau data and processing services; third-party hosting fees related to our SaaS services; travel costs; and outside services.
The fiscal 2020 over 2019 increase of $24.3 million in cost of revenues was primarily attributable to an $11.1 million increase in allocated facilities
and infrastructure costs, a $10.3 million increase in personnel and labor costs and a $7.6 million increase in direct materials cost, partially offset by a $4.9
million decrease in travel costs. The increase in facilities and infrastructure costs was primarily attributable to increased resource requirements due to
expansion in our cloud infrastructure operations. The increase in personnel and labor costs was primarily attributable to an increase in our average
headcount. The increase in direct materials cost was primarily attributable to an increase in license and Scores revenues that incur third-party royalties and
data costs, as well as an increase in telecommunication cost. The decrease in travel costs was primarily attributable to the COVID-19 pandemic. Cost of
revenues as a percentage of revenues was 28% during fiscal 2020, materially consistent with that incurred during fiscal 2019.
The fiscal 2019 over 2018 increase of $23.9 million in cost of revenues expenses was primarily attributable to a $13.9 million increase in personnel
and labor costs and a $6.7 million increase in facilities and infrastructure costs. The increase in personnel and labor costs was primarily attributable to an
increase in headcount. The increase in facilities and infrastructure costs was primarily attributable to increased resource requirements due to expansion in
our cloud infrastructure operations. Cost of revenues as a percentage of revenues decreased to 29% during fiscal 2019 from 31% during fiscal 2018
primarily due to increased sales of our high-margin Scores and software 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 Applications and Decision Management Software products.
The fiscal 2020 over 2019 increase of $17.0 million in research and development expenses was primarily attributable to an increase in personnel and
labor costs and an increase in allocated facilities and infrastructure costs, both driven by increased average headcount and our continued investments in new
product development. Research and development expenses as a percentage of revenues was 13% during fiscal 2020, consistent with that incurred during
fiscal 2019.
The fiscal 2019 over 2018 increase of $21.1 million in research and development expenses was primarily attributable to a $15.6 million increase in
personnel and labor costs as a result of increased headcount, and a $3.5 million increase in facilities and infrastructure cost. Research and development
expenses as a percentage of revenues was 13% during fiscal 2019, consistent with that incurred during fiscal 2018.
Selling, General and Administrative
Selling, general and administrative expenses consist principally of employee salaries, commissions and benefits; travel costs; overhead costs;
advertising and other promotional expenses; corporate facilities expenses; legal expenses; business development expenses; and the cost of operating
computer systems.
The fiscal 2020 over 2019 increase of $6.8 million was primarily attributable to an increase in personnel and labor costs as a result of increased
average headcount, higher share-based compensation and higher non-capitalizable commission cost. The increase was partially offset by a decrease in
marketing and travel costs as a result of a decrease in travel activity due to COVID-19. Selling, general and administrative expenses as a percentage of
revenues decreased to 33% during fiscal 2020 from 35% during fiscal 2019 primarily due to increased sales of our high-margin Scores and software
products.
The fiscal 2019 over 2018 increase of $37.2 million was primarily attributable to an increase in personnel and labor costs as a result of increased
headcount, higher share-based compensation and higher non-capitalizable commission cost. Selling, general and administrative expenses as a percentage of
revenues decreased to 35% during fiscal 2019 from 37% during fiscal 2018 primarily due to increased sales of our high-margin Scores and software
products.
Amortization of Intangible Assets
Amortization of intangible assets consists of expense related to intangible assets recorded in connection with our acquisitions. Our finite-lived
intangible assets consist primarily of completed technology and customer contracts and relationships, which are being amortized using the straight-line
method over periods ranging from four to fifteen years.
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Amortization expense was $5.0 million, $6.1 million and $6.6 million for fiscal 2020, 2019 and 2018, respectively.
Restructuring and Impairment Charges
During fiscal 2020, we incurred net charges totaling $45.0 million consisting of $28.0 million in impairment loss on operating lease assets, $5.2
million in impairment loss on abandonment of property and equipment and $11.8 million in restructuring charges. The impairment losses were associated
with closing certain non-core offices and reducing office space in other locations to better align with anticipated needs in light of post-pandemic workforce
patterns. The restructuring charges related to employee separation costs as a result of eliminating 209 positions throughout the Company. Cash payments
for all the employee separation costs will be paid by the end of our fiscal 2021.
There were no restructuring and impairment charges incurred during fiscal 2019 and 2018.
Interest Expense, Net
Interest expense includes primarily interest on the senior notes issued in December 2019, May 2018, and July 2010, as well as interest and credit
facility fees on the revolving line of credit. 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 2020 over 2019 increase in net interest expense of $2.4 million was primarily attributable to a higher average outstanding debt balance
during fiscal 2020.
The fiscal 2019 over 2018 increase in net interest expense of $8.4 million was primarily attributable to a higher average outstanding debt balance
during fiscal 2019, as well as a higher average interest rate on our 2018 Senior Notes compared to that on our revolving line of credit.
Other Income, Net
Other income, net consists primarily of realized investment gains/losses and unrealized gains/losses on certain investments classified as trading
securities, exchange rate gains/losses resulting from re-measurement 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 2020 over 2019 increase in other income, net of $0.9 million was primarily attributable to an increase in net unrealized gains on our
supplemental retirement and savings plan, partially offset by an increase in foreign currency exchange losses.
The fiscal 2019 over 2018 decrease in other income, net of $10.6 million was primarily attributable to a non-operating gain related to the divestiture
of an investment during fiscal 2018.
Provision for Income Taxes
Our effective tax rates were 8.0%, 11.1% and 19.4% in fiscal 2020, 2019 and 2018, respectively.
The decrease in our income tax provision in fiscal 2020 compared to fiscal 2019 was due to the excess tax benefits related to stock-based
compensation.
The decrease in our income tax provision in fiscal 2019 compared to fiscal 2018 was due to the decrease in the overall federal tax rate from the
blended 24.5% in fiscal 2018 to 21% in fiscal 2019 and the recording of several one-time items in fiscal 2018 related to the enactment of the Tax Cuts and
Jobs Act of 2017 (the “Tax Act”).
As of September 30, 2020, we had approximately $111.7 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. In the event these earnings are later
remitted to the U.S., any estimated withholding tax on remittance of those earnings is expected to be immaterial to our income tax provision.
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Table of Contents
Operating Income
The following tables set forth certain summary information on a segment basis related to our operating income for fiscal 2020, 2019 and 2018:
Segment
2020
2019
2018
2020 to 2019
2019 to 2018
2020 to 2019
2019 to 2018
Year Ended September 30,
Period-to-Period
Change
Period-to-Period
Percentage Change
12 %
33 %
2 %
16 %
33 %
11 %
(7)%
— %
45 %
(In thousands)
(In thousands)
$
153,541 $
161,162 $
143,964 $
(7,621) $
454,310
361,356
272,418
92,954
17,198
88,938
(5)%
26 %
(23,475)
(35,116)
(34,360)
11,641
(756)
(33)%
(144,704)
(144,755)
(125,255)
51
(19,500)
— %
439,672
342,647
256,767
97,025
85,880
28 %
(93,681)
(82,973)
(74,814)
(10,708)
(8,159)
13 %
(4,993)
(6,126)
(6,594)
1,133
468
(18)%
Applications
Scores
Decision Management
Software
Unallocated corporate
expenses
Total segment
operating income
Unallocated share-based
compensation
Unallocated amortization
expense
Unallocated restructuring
and impairment charges
Operating income
$
295,969 $
253,548 $
175,359
(45,029)
—
—
(45,029)
42,421
—
78,189
— %
17 %
Applications
Segment revenues
Segment operating expenses
Segment operating income
Scores
Segment revenues
Segment operating expenses
Segment operating income
Decision Management Software
Segment revenues
Segment operating expenses
Segment operating loss
$
$
$
$
$
$
Year Ended September 30,
Percentage of Revenues
2020
2019
2018
2020
2019
2018
(In thousands)
602,046 $
605,034 $
564,375
(448,505)
(443,872)
(420,411)
153,541 $
161,162 $
143,964
100 %
(74)%
26 %
100 %
(73)%
27 %
100 %
(74)%
26 %
Year Ended September 30,
Percentage of Revenues
2020
2019
2018
2020
2019
2018
(In thousands)
528,547 $
421,177 $
335,870
(74,237)
(59,821)
(63,452)
454,310 $
361,356 $
272,418
100 %
(14)%
86 %
100 %
(14)%
86 %
100 %
(19)%
81 %
Year Ended September 30,
Percentage of Revenues
2020
2019
2018
2020
2019
2018
(In thousands)
163,969 $
133,872 $
99,901
(187,444)
(168,988)
(134,261)
(23,475) $
(35,116) $
(34,360)
100 %
(114)%
(14)%
100 %
(126)%
(26)%
100 %
(134)%
(34)%
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The fiscal 2020 over 2019 increase in operating income of $42.4 million was attributable to a $134.5 million increase in segment revenues and a $1.1
million decrease in amortization expense, partially offset by a $45.0 million increase in restructuring and impairment charges, a $37.5 million increase in
segment operating expenses, and a $10.7 million increase in share-based compensation expense.
At the segment level, the $97.0 million increase in segment operating income was the result of a $93.0 million increase in our Scores segment
operating income and an $11.6 million decrease in our Decision Management Software segment operating loss, partially offset by a $7.6 million decrease
in our Applications segment operating income.
The $7.6 million decrease in Applications segment operating income was attributable to a $4.6 million increase in segment operating expenses and a
$3.0 million decrease in segment revenue. Segment operating income as a percentage of segment revenue for Applications was 26%, materially consistent
with fiscal 2019.
The $93.0 million increase in Scores segment operating income was attributable to a $107.4 million increase in segment revenue, partially offset by a
$14.4 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Scores was 86%, consistent with
fiscal 2019.
The $11.6 million decrease in Decision Management Software segment operating loss was attributable to a $30.1 million increase in segment
revenue, partially offset by an $18.5 million increase in segment operating expenses. Segment operating margin for Decision Management Software
improved to negative 14% from negative 26%, mainly due to an increase in sales of our higher-margin software products, partially offset by our continued
investment in cloud infrastructure operations and new products.
The fiscal 2019 over 2018 increase in operating income of $78.2 million was attributable to a $160.0 million increase in segment revenues and a $0.5
million decrease in amortization expense, partially offset by a $54.6 million increase in segment operating expenses, a $19.5 million increase in unallocated
corporate expenses and an $8.2 million increase in share-based compensation expense.
At the segment level, the $85.9 million increase in segment operating income was the result of an $88.9 million increase in our Scores segment
operating income and a $17.2 million increase in our Applications segment operating income, partially offset by a $19.5 million increase in unallocated
corporate expenses primarily driven by an increase in unallocated incentive cost and a $0.7 million increase in our Decision Management Software segment
operating loss.
The $17.2 million increase in Applications segment operating income was attributable to a $40.7 million increase in segment revenue, partially offset
by a $23.5 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Applications increased to
27% from 26% mainly due to an increase in sales of our higher-margin software products.
The $88.9 million increase in Scores segment operating income was attributable to an $85.3 million increase in segment revenue as well as a $3.6
million decrease in segment operating expenses. Segment operating income as a percentage of segment revenue for Scores increased to 86% from 81%
mainly due to an increase in sales of our higher-margin score products.
The $0.7 million increase in Decision Management Software segment operating loss was attributable to a $34.7 million increase in segment operating
expenses, partially offset by a $34.0 million increase in segment revenue. Segment operating margin for Decision Management Software improved to
negative 26% from negative 34% mainly due to an increase in sales of our higher-margin software products, partially offset by our continued investment in
cloud infrastructure operations and new products.
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Outlook
CAPITAL RESOURCES AND LIQUIDITY
As of September 30, 2020, we had $157.4 million in cash and cash equivalents, which included $118.0 million held by our foreign subsidiaries. Our
cash position could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks
detailed in Part I, Item 1A titled “Risk Factors” of this Annual Report on Form 10-K. However, based on our current business plan and revenue prospects,
we believe our cash and cash equivalents balances, as well as available borrowings from our $400 million revolving line of credit and anticipated cash
flows from operating activities, will be sufficient to fund our working and other capital requirements. Under our current financing arrangements, we have
no significant debt obligations maturing over the next twelve months. Our undistributed earnings outside the U.S. are deemed to be permanently reinvested
in foreign jurisdictions. We currently do not foresee a need to repatriate cash and cash equivalents held by our foreign subsidiaries. If these funds are
needed for our operations in the U.S., we may be required to accrue for state income or foreign withholding taxes on the distributed foreign earnings, which
we expect to be immaterial.
In the normal course of business, we evaluate the merits of acquiring technology or businesses, or establishing strategic relationships with or
investing in these businesses. We may elect to use available cash and cash equivalents to fund such activities in the future. In the event additional needs for
cash arise, or if we refinance our existing debt, we may raise additional funds from a combination of sources, including the potential issuance of debt or
equity securities. Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available
on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited.
Summary of Cash Flows
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
Cash Flows from Operating Activities
2020
Year Ended September 30,
2019
(In thousands)
2018
$
$
364,916 $
260,350 $
(24,583)
(289,424)
59
(42,760)
(200,047)
(1,140)
50,968 $
16,403 $
223,052
(14,119)
(218,627)
(5,901)
(15,595)
Our primary method for funding operations and growth has been through cash flows generated from operating activities. Net cash provided by
operating activities totaled $364.9 million in fiscal 2020 compared to $260.4 million in fiscal 2019. The $104.5 million increase was attributable to a $44.3
million increase in net income, a $46.1 million increase in non-cash items, including a $28.0 million increase in impairment loss on operating lease assets
as well as a $20.0 million increase in operating lease costs, and a $14.2 million increase that resulted from timing of receipts and payments in our ordinary
course of business.
Net cash provided by operating activities totaled $260.4 million in fiscal 2019 compared to $223.1 million in fiscal 2018. The $37.3 million increase
was attributable to a $65.6 increase in net income as well as an $18.7 million increase in non-cash items, partially offset by a $47.0 million decrease that
resulted from timing of receipts and payments in our ordinary course of business.
Cash Flows from Investing Activities
Net cash used in investing activities totaled $24.6 million in fiscal 2020 compared to $42.8 million in fiscal 2019. The $18.2 million decrease was
primarily attributable to a $15.9 million decrease in net cash used for acquisitions and a $2.0 million decrease in net cash used for purchases of property
and equipment.
Net cash used in investing activities totaled $42.8 million in fiscal 2019 compared to $14.1 million in fiscal 2018. The $28.7 million increase was
primarily attributable to a $20.0 million decrease in proceeds from the sale of cost method investment and a $15.9 million increase in net cash used for
acquisitions, partially offset by a $7.3 million decrease in net cash used for purchases of property and equipment.
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Table of Contents
Cash Flows from Financing Activities
Net cash used in financing activities totaled $289.4 million in fiscal 2020 compared to $200.0 million in fiscal 2019. The $89.4 million increase was
primarily due to a $338.0 million increase in payments, net of proceeds, on our revolving line of credit and a $49.9 million increase in taxes paid related to
net share settlement of equity awards, partially offset by a $293.0 million increase in proceeds, net of payments, from our senior notes.
Net cash used in financing activities totaled $200.0 million in fiscal 2019 compared to $218.6 million in fiscal 2018. The $18.6 million decrease was
primarily due to a $192.0 million decrease in payments, net of proceeds, on our revolving line of credit, a $113.7 million decrease in net cash used for
repurchases of common stock and an $11.8 million increase in proceeds from issuance of treasury stock under employee stock plans, partially offset by a
$297.0 million decrease in proceeds, net of payments, from our senior notes.
Repurchases of Common Stock
In July 2019, our Board of Directors approved a stock repurchase program following the completion of the previously authorized program. This
program was open-ended and authorized repurchases of shares of our common stock up to an aggregate cost of $250.0 million in the open market or in
negotiated transactions. In July 2020, our Board of Directors approved a new stock repurchase program following the completion of the July 2019 program.
This program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $250.0 million in the open market or in
negotiated transactions. As of September 30, 2020, we had $224.8 million remaining under this authorization. During fiscal 2020, 2019 and 2018, we
expended $235.2 million, $228.9 million and $336.9 million, respectively, under these and previously authorized stock repurchase programs.
Revolving Line of Credit
On May 8, 2018, we amended our credit agreement with a syndicate of banks, extending the maturity date of the unsecured revolving line of credit
from December 30, 2019 to May 8, 2023, while reducing our borrowing capacity to $400 million with an option to increase it by another $100 million.
Proceeds from the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt,
acquisitions and the repurchase of our common stock. Interest on amounts borrowed under the credit facility is based on (i) a base rate, which is the greater
of (a) the prime rate, (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 0.875% and for LIBOR
borrowings ranges from 1.000% to 1.875%, 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 3.25, subject to a step up to 3.75
following certain permitted acquisitions; and a minimum fixed charge ratio of 2.50 through the maturity of our 2010 Senior Notes (as defined below) in
July 2020, following which maintaining a minimum interest coverage ratio of 3.00 is required. The credit agreement also contains other covenants typical
of unsecured facilities. As of September 30, 2020, we had $95.0 million in borrowings outstanding at a weighted-average interest rate of 1.285% and we
were in compliance with all financial covenants under this credit facility.
Senior Notes
On July 14, 2010, we issued $245 million of senior notes in a private placement to a group of institutional investors, the outstanding aggregate
principal amount of which was paid in full at maturity on July 14, 2020 (the “2010 Senior Notes”). On May 8, 2018, we issued $400 million of senior notes
in a private offering to qualified institutional investors (the “2018 Senior Notes”). The 2018 Senior Notes require interest payments semi-annually at a rate
of 5.25% per annum and will mature on May 15, 2026. On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified
institutional investors (the “2019 Senior Notes,” along with the 2010 Senior Notes and 2018 Senior Notes, the “Senior Notes”). The 2019 Senior Notes
require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028.
The indentures for the 2018 Senior Notes and the 2019 Senior Notes contain certain covenants typical of unsecured obligations. As of September 30,
2020, the carrying value of the Senior Notes was $750.0 million and we were in compliance with all financial covenants under these obligations, and do not
believe we are at material risk of not meeting these covenants due to COVID-19.
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Table of Contents
Contractual Obligations
The following table presents a summary of our contractual obligations at September 30, 2020:
Senior notes (1)
$
Revolving line of credit
Interest due on debt
obligations (2)
Finance lease obligations
2021
2022
2023
2024
2025
Thereafter
Total
Year Ending September 30,
— $
—
— $
—
— $
—
— $
—
— $
750,000
$
95,000
—
(In thousands)
35,000
2,397
35,000
2,240
35,000
784
35,000
—
35,000
—
63,000
—
750,000
95,000
238,000
5,421
Operating lease
obligations
Unrecognized tax
benefits (3)
Total commitments
26,047
21,925
17,109
14,384
9,004
17,131
105,600
—
—
—
—
—
—
7,994
$
63,444
$
59,165
$
52,893
$
49,384
$
139,004
$
830,131
$
1,202,015
(1) Represents the unpaid principal amount of the Senior Notes.
(2) Represents interest payments on the Senior Notes.
(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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles. These accounting principles
require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We
periodically evaluate our estimates including those relating to revenue recognition, goodwill and other intangible assets resulting from business
acquisitions, share-based compensation, income taxes and contingencies and litigation. We base our estimates on historical experience and various other
assumptions that we believe to be reasonable based on the specific circumstances, the results of which form the basis for making judgments about the
carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated
financial statements:
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Table of Contents
Revenue Recognition
Contracts with Customers
Our revenue is primarily derived from term-based or perpetual licensing of software and scoring products and solutions, and associated maintenance;
SaaS subscription services; scoring and credit monitoring services for consumers; and professional services. For contracts with customers that contain
various combinations of products and services, we evaluate whether the products or services are distinct—distinct products or services will be accounted
for as separate performance obligations, while non-distinct products or services are combined with others to form a single performance obligation. For
contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative standalone selling price
(“SSP”) basis. Revenue is recognized when control of the promised goods or services is transferred to our customers.
License revenue is derived from contracts in which we grant our direct customers or distributors the right to deploy or resell our software and scoring
products and solutions on-premises. Our software offerings often include a perpetual or term-based license and post-contract support or maintenance, both
of which generally represent distinct performance obligations and are accounted for separately. The transaction price is either in the form of a fixed
consideration with separately stated prices for license and maintenance, a single subscription with license and maintenance bundled, or a usage-based
royalty—sometimes subject to a guaranteed minimum—for the license and maintenance bundle. When the amount is in the form of a fixed consideration,
including the guaranteed minimum in usage-based royalty, license revenue from distinct on-premises licenses is recognized at the point in time when the
software or scoring solution is made available to the customer or distributor. Any royalties not subject to the guaranteed minimum or earned in excess of
the minimum amount are recognized as transactional revenue when the subsequent sales or usage occurs. Revenue allocated to maintenance is generally
recognized ratably over the contract period as customers simultaneously consume and receive benefits.
In addition to usage-based royalty on our software and scoring products, transactional revenue is also derived from SaaS contracts in which we
provide customers with access to and standard support for our software application either in the FICO® Analytic Cloud or AWS, our primary cloud
infrastructure provider, on a subscription basis. The transaction price typically includes a fixed consideration in the form of a guaranteed minimum that
allows up to a certain level of usage and a variable consideration in the form of usage or transaction-based fees in excess of the minimum threshold; or
usage or transaction-based variable amount not subject to a minimum threshold. We determined the nature of our SaaS arrangements is to provide
continuous access to our hosted application in the cloud, i.e., a stand-ready obligation that comprises a series of distinct service periods (e.g., a series of
distinct daily, monthly or annual periods of service). We estimate the total variable consideration at contract inception—subject to any constraints that may
apply—and update the estimates as new information becomes available and recognize the amount ratably over the SaaS service period, unless we
determine it is appropriate to allocate the variable amount to each distinct service period and recognize revenue as each distinct service period is performed.
We also derive transactional revenue from credit scoring and monitoring services that provide consumers access to their credit reports and enable
them to monitor their credit. These are provided as either a one-time or ongoing subscription service renewed monthly or annually, all with a fixed
consideration. We determined the nature of the subscription service is a stand-ready obligation to generate credit reports, provide credit monitoring and
other services for our customers, which comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service).
Revenue from one-time or monthly subscription services is recognized during the period when service is performed. Revenue from annual subscription
services is recognized ratably over the subscription period.
Professional services include software or SaaS implementation, consulting, model development, training services and premium cloud support. They
are sold either standalone, or together with other products or services and generally represent distinct performance obligations. The transaction price can be
a fixed amount or on a time and materials basis. Revenue on fixed-price services is recognized using an input method based on labor hours expended which
we believe provides a faithful depiction of the transfer of services. Revenue on services provided on a time and materials basis is recognized applying the
“right-to-invoice” practical expedient as the amount to which we have a right to invoice the customer corresponds directly with the value of our
performance to the customer. In addition, we sell premium cloud support on a subscription basis for a fixed amount, and revenue is recognized ratably over
the contract term.
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Significant Judgments
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and
services are considered distinct and should be accounted for separately may require significant judgment. Specifically, when implementation service is
included in the original software or SaaS offerings, judgment is required to determine if the implementation service significantly modifies or customizes the
software or SaaS service in such a way that the risks of providing it and the customization service are inseparable. In rare instances, contracts may include
significant modification or customization of the software of SaaS service and will result in the combination of software or SaaS service and implementation
service as one performance obligation.
We determine the SSPs using data from our historical standalone sales, or, in instances where such information is not available (such as when we do
not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market
strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. When the selling price of a product or service is
highly variable, we may use the residual approach to determine the SSP of that product or service. Significant judgment may be required to determine the
SSP for each distinct performance obligation when it involves the consideration of many market conditions and entity-specific factors discussed above.
Significant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts
with a fixed consideration, in which we measure progress using an input method based on labor hours expended. In order to estimate the total hours of the
project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others. For certain
complex projects, due to the risks and uncertainties inherent with the estimation process and factors relating to the assumptions, actual progress may differ
due to the change in estimated total hours. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and,
accordingly, recognized revenues are subject to revisions as the contract progresses to completion.
Capitalized Commission Costs
We capitalize incremental commission fees paid as a result of obtaining customer contracts. Capitalized commission costs 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.
Business Combinations
Accounting for our acquisitions requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-
date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of
the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed
at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to
one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the
conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to our consolidated statements of income and comprehensive income.
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date,
including our estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies and contingent consideration, where
applicable. If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement
period, we will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been incurred
at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Although we believe the assumptions and estimates we have
made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of
the acquired companies and are inherently uncertain. Subsequent to the measurement period, changes in our estimates of such contingencies will affect
earnings and could have a material effect on our consolidated results of operations and financial position.
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Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to: (i) future expected cash flows
from software license sales, support agreements, consulting contracts, other customer contracts and acquired developed technologies and patents; (ii)
expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when
completed; and (iii) the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will
continue to be used in the combined company’s product portfolio. Unanticipated events and circumstances may occur that may affect the accuracy or
validity of such assumptions, estimates or actual results. Historically, there have been no significant changes in our estimates or assumptions. To the extent
a significant acquisition is made during a fiscal year, as appropriate we will expand the discussion to include specific assumptions and inputs used to
determine the fair value of our acquired intangible assets.
In addition, uncertain tax positions and tax-related valuation allowances assumed in connection with a business combination are initially estimated as
of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments
to our preliminary estimates being recorded to goodwill provided that we are within the measurement period. Subsequent to the measurement period or our
final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax-related
valuation allowances will affect our provision for income taxes in our consolidated statements of income and comprehensive income and could have a
material impact on our consolidated results of operations and financial position. Historically, there have been no significant changes in our valuation
allowances or uncertain tax positions as it relates to business combinations. We do not believe there is a reasonable likelihood there will be a material
change in the future estimates.
Goodwill, Acquisition Intangibles and Other Long-Lived Assets - Impairment Assessment
Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. We assess
goodwill for impairment for each of our reporting units on an annual basis during our fourth fiscal quarter using a July 1 measurement date unless
circumstances require a more frequent measurement. We have determined that our reporting units are the same as our reportable segments. When
evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit's carrying
amount exceeds its fair value, referred to as a “step zero” approach. If, based on the review of the qualitative factors, we determine it is not more likely than
not that the fair value of a reporting unit is less than its carrying value, we would bypass the two-step impairment test. Events and circumstances we
consider in performing the “step zero” qualitative assessment include macro-economic conditions, market and industry conditions, internal cost factors,
share price fluctuations, and the operational stability and the overall financial performance of the reporting units. If we conclude that it is more likely than
not that a reporting unit's fair value is less than its carrying amount, we would perform the first step (“step one”) of the two-step impairment test and
calculate the estimated fair value of the reporting unit by using discounted cash flow valuation models and by comparing our reporting units to guideline
publicly-traded companies. These methods require estimates of our future revenues, profits, capital expenditures, working capital, and other relevant
factors, as well as selecting appropriate guideline publicly-traded companies for each reporting unit. We estimate these amounts by evaluating historical
trends, current budgets, operating plans, industry data, and other relevant factors. Using assumptions that are different from those used in our estimates, but
in each case reasonable, could produce significantly different results and materially affect the determination of fair value and/or goodwill impairment for
each reporting unit. For example, if the economic environment impacts our forecasts beyond what we have anticipated, it could cause the fair value of a
reporting unit to fall below its respective carrying value.
For fiscal 2017, we elected to proceed directly to the step one quantitative analysis for all of our reporting units. There was a substantial excess of fair
value over carrying value for each of our reporting units and we determined goodwill was not impaired for any of our reporting units for fiscal 2017. For
fiscal 2018, 2019 and 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 2018, 2019 and 2020.
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Our intangible assets that have finite useful lives and other long-lived assets are assessed for potential impairment when there is evidence that events
and circumstances related to our financial performance and economic environment indicate the carrying amount of the assets may not be recoverable.
When impairment indicators are identified, we test for impairment using undiscounted cash flows. If such tests indicate impairment, then we measure and
record the impairment as the difference between the carrying value of the asset and the fair value of the asset. Significant management judgment is required
in forecasting future operating results used in the preparation of the projected cash flows. Should different conditions prevail, material write downs of our
intangible assets or other long-lived assets could occur. We review the estimated remaining useful lives of our acquired intangible assets at each reporting
period. A reduction in our estimate of remaining useful lives, if any, could result in increased annual amortization expense in future periods. We did not
recognize any impairment charges on intangible assets that have finite useful lives or other long-lived assets in fiscal 2020, 2019 and 2018.
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, acquired intangibles with finite lives
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 intangible 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. However, based upon our historical experience with operations, we do not believe there
is a reasonable likelihood of a significant change in our projections.
Share-Based Compensation
We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, net of estimated
forfeitures, over the vesting or service period, as applicable, of the stock award (generally three to four years). We use the Black-Scholes valuation model to
determine the fair value of our stock options and a Monte Carlo valuation model to determine the fair value of our market share units. Our valuation models
and generally accepted valuation techniques require us to make assumptions and to apply judgment to determine the fair value of our awards. 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. See Note 13 to the accompanying consolidated financial statements for
further discussion of our share-based employee benefit plans.
Income Taxes
We estimate our income taxes based on the various jurisdictions where we conduct business, which involves significant judgment in determining our
income tax provision. We estimate our current tax liability using currently enacted tax rates and laws and assess temporary differences that result from
differing treatments of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities recorded on our balance
sheet using the currently enacted tax rates and laws that will apply to taxable income for the years in which those tax assets are expected to be realized or
settled. We then assess the likelihood our deferred tax assets will be realized and to the extent we believe realization is not more likely than not, we
establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a corresponding
income tax expense in our consolidated statements of income and comprehensive income. In assessing the need for the valuation allowance, we consider
future taxable income in the jurisdictions we operate; our ability to carry back tax attributes to prior years; an analysis of our deferred tax assets and the
periods over which they will be realizable; and ongoing prudent and feasible tax planning strategies. An increase in the valuation allowance would have an
adverse impact, which could be material, on our income tax provision and net income in the period in which we record the increase.
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or
expected to be taken in a tax return by determining if the technical merits of the tax position indicate it is more likely than not that the tax position will be
sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions more likely than not of being sustained upon
audit, the second step is to measure the tax benefit as the largest amount more than 50% likely of being realized upon settlement. Significant judgment is
required to evaluate uncertain tax positions and they are evaluated on a quarterly basis. Our evaluations are based upon a number of factors, including
changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit
issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in
the period in which we make the change, which could have a material impact on our effective tax rate and operating results.
A description of our accounting policies associated with tax-related contingencies and valuation allowances assumed as part of a business
combination is provided under “Business Combinations” above.
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Contingencies and Litigation
We are subject to various proceedings, lawsuits and claims relating to products and services, technology, labor, stockholder and other matters. We are
required to assess the likelihood of any adverse outcomes and the potential range of probable losses in these matters. If the potential loss is considered
probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. If the potential loss is considered less than probable or
the amount cannot be reasonably estimated, disclosure of the matter is considered. The amount of loss accrual or disclosure, if any, is determined after
analysis of each matter, and is subject to adjustment if warranted by new developments or revised strategies. Due to uncertainties related to these matters,
accruals or disclosures are based on the best information available at the time. Significant judgment is required in both the assessment of likelihood and in
the determination of a range of potential losses. 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.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases (Topic 842)” and subsequent amendments
to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”). Topic 842 requires the
recognition of operating lease assets and lease liabilities on the balance sheet. Leases are classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income statement. Under the new standard, disclosures are required to enable users of financial
statements to assess the amount, timing and uncertainty of cash flows arising from leases.
In the first quarter of fiscal 2020, we adopted Topic 842 using the “Comparatives Under 840 Option” approach to transition. In accordance with the
standard, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Topic
842 provided a package of practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the
lease classification of any expired or existing lease, and (3) initial direct costs for any existing leases. We elected to apply the package of practical
expedients, and did not elect the hindsight practical expedient in determining the lease term for existing leases as of October 1, 2019.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other (Topic 350): Internal-Use Software.” ASU 2018-15 aligns
the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years and interim periods within
those fiscal years beginning after December 15, 2019, which means that it will be effective for our fiscal year beginning October 1, 2020. We do not
believe that adoption of ASU 2018-15 will have a significant impact on our consolidated financial statements.
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 and ASU 2019-05 (collectively, “Topic 326”). Topic 326
requires measurement and recognition of expected credit losses for financial assets held. Topic 326 is effective for fiscal years and interim periods within
those fiscal years beginning after December 15, 2019, which means it will be effective for our fiscal year beginning October 1, 2020. We do not believe
that adoption of Topic 326 will have a significant impact on our consolidated financial statements.
We do not expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Disclosures
We are exposed to market risk related to changes in interest rates and foreign exchange rates. We do not use derivative financial instruments for
speculative or trading purposes.
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Interest Rate
We maintain an investment portfolio consisting of bank deposits and money market funds. The funds provide daily liquidity and may be subject to
interest rate risk and fall in value if market interest rates increase. We do not expect our operating results or cash flows to be affected to any significant
degree by a sudden change in market interest rates. The following table presents the principal amounts and related weighted-average yields for our
investments with interest rate risk at September 30, 2020 and 2019:
Cost Basis
September 30, 2020
Carrying
Amount
Average
Yield
Cost Basis
(Dollars in thousands)
September 30, 2019
Carrying
Amount
Average
Yield
Cash and cash equivalents
$
157,394 $
157,394
0.05% $
106,426 $
106,426
0.76%
On July 14, 2010, we issued $245 million of senior notes in a private placement to a group of institutional investors, the outstanding aggregate
principal amount of which was paid in full at maturity on July 14, 2020 (the “2010 Senior Notes”). On May 8, 2018, we issued $400 million of senior notes
in a private offering to qualified institutional investors (the “2018 Senior Notes”). On December 6, 2019, we issued $350 million of senior notes in a private
offering to qualified institutional investors (the “2019 Senior Notes,” along with the 2010 Senior Notes and 2018 Senior Notes, the “Senior Notes”). The
fair value of the Senior Notes may increase or decrease due to various factors, including fluctuations in market interest rates and fluctuations in general
economic conditions. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity for
additional information on the Senior Notes. The following table presents the carrying amounts and fair values for the Senior Notes at September 30, 2020
and 2019:
The 2010 Senior Notes
The 2018 Senior Notes
The 2019 Senior Notes
Total
September 30, 2020
September 30, 2019
Face Value (*)
Fair Value
Face Value (*)
Fair Value
$
$
— $
400,000
350,000
750,000
$
(In thousands)
— $
442,000
358,750
800,750
$
85,000 $
400,000
—
485,000
$
86,121
428,000
—
514,121
(*) The carrying value of the Senior Notes was reduced by the net debt issuance costs of $10.6 million and $5.2 million at September 30, 2020 and 2019,
respectively.
We have interest rate risk with respect to our $400 million unsecured revolving line of credit. Interest on amounts borrowed under the credit facility is
based on (i) a base rate, which is the greater of (a) the prime rate and (b) the Federal Funds rate plus 0.500% and (c) the one-month LIBOR rate plus
1.000%, plus, in each case, an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin. The applicable margin for base rate borrowings
ranges from 0% to 0.875% and for LIBOR borrowings ranges from 1.000% to 1.875% and is determined based on our consolidated leverage ratio. A
change in interest rates on this variable rate debt impacts the interest incurred and cash flows, but does not impact the fair value of the instrument. We had
$95.0 million in borrowings outstanding at a weighted-average interest of 1.285% under the credit facility as of September 30, 2020.
Foreign Currency Forward Contracts
We use derivative instruments to manage risks caused by fluctuations in foreign exchange rates. The primary objective of our derivative instruments
is to protect the value of foreign-currency-denominated receivable and cash balances from the effects of volatility in foreign exchange rates that might
occur prior to conversion to their functional currencies. We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign
currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates. We routinely enter into contracts to offset
exposures denominated in the British pound, Euro and Singapore dollar.
Foreign-currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the
effects of changes in foreign exchange rates reported in other income, net. The forward contracts are not designated as hedges and are marked to market
through other income, net. 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.
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The following tables summarize our outstanding foreign currency forward contracts, by currency, at September 30, 2020 and 2019:
Sell foreign currency:
Euro (EUR)
Buy foreign currency:
British pound (GBP)
Singapore dollar (SGD)
Sell foreign currency:
Euro (EUR)
Buy foreign currency:
British pound (GBP)
Singapore dollar (SGD)
September 30, 2020
Contract Amount
Foreign
Currency
USD
(In thousands)
Fair Value
USD
15,000 $
17,656
16,555 $
7,815 $
21,300
5,700
September 30, 2019
Contract Amount
Foreign
Currency
USD
(In thousands)
Fair Value
USD
10,800 $
11,723
5,200 $
5,798 $
6,400
4,200
—
—
—
—
—
—
EUR
GBP
SGD
EUR
GBP
SGD
The foreign currency forward contracts were entered into on September 30 of each fiscal year; therefore, the fair value was $0 on September 30, 2020
and 2019.
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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Fair Isaac Corporation
San Jose, California
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Fair Isaac Corporation and subsidiaries (the "Company") as of September 30, 2020 and
2019, and the related consolidated statements of Income and comprehensive income, stockholders' equity, and cash flows, for each of the three years in the
period ended September 30, 2020, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal
control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30,
2020 and 2019, and the results of operations and cash flows for each of the three years in the period ended September 30, 2020, in conformity with
accounting principles generally accepted in the United States of America . Also, in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued
by COSO.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in fiscal year 2020 due to adoption of the
new lease standard (Topic 842). The Company adopted the new lease standard using the modified retrospective approach.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over
financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control
over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain
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to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Revenues -Refer to Note 1 to the financial statement
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 customers; and professional services.
The Company's contracts with customers often includes promises to transfer multiple products and services to a customer. For contracts with customers that
contain various combinations of products and services, the Company evaluates weather the product or service are distinct. Distinct product or services will
be accounted for as separate performance obligations, while non distinct products or services are combined with others to form a single performance
obligation.
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.
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.
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 and 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.
• We selected a sample of contracts and performed the following procedures:
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-Obtained and read the contract, including master agreements, renewal agreements, and other source documents that were part of the
contract.
-Obtained other contracts with the same customer that were entered into at or near the same time and evaluated management’s conclusion
of whether two or more contracts for multiple products and services promised to a customer should be combined and accounted for as a
single contract for revenue recognition.
-Confirmed the terms of the contract directly with the customer, including whether there are side agreements and terms not formally
included in the contract that may impact the identification of performance obligations and revenue recognition and performed alternative
procedures in the event of nonreplies.
-Evaluated internal certification letters provided by the Company’s sales personnel to identify the existence of side agreements that may
impact the identification of performance obligations and revenue recognition.
-Tested management’s identification of the performance obligations within the customer contract, including whether material rights that
gave rise to a performance obligation were identified.
-Tested management’s estimation of variable consideration in the transaction price by evaluating the reasonableness of the inputs used in
management’s estimates.
-Tested the accuracy and completeness of the data and factors used in management’s determination of the SSP for each performance
obligation.
-Evaluated the consistency of the methodologies used to develop the SSP for each performance obligation.
/s/ Deloitte & Touche LLP
San Diego, CA
November 10, 2020
We have served as the Company’s auditor since 2004.
54
FAIR ISAAC CORPORATION
CONSOLIDATED BALANCE SHEETS
Assets
Table of Contents
Current assets:
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Marketable securities
Other investments
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Deferred income taxes
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued compensation and employee benefits
Other accrued liabilities
Deferred revenue
Current maturities on debt
Total current liabilities
Long-term debt
Operating lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock ($0.01 par value; 1,000 shares authorized; none issued and outstanding)
Common stock ($0.01 par value; 200,000 shares authorized, 88,857 shares issued and 29,096 and 28,944
shares outstanding at September 30, 2020 and September 30, 2019, respectively)
Paid-in-capital
Treasury stock, at cost (59,761 and 59,913 shares at September 30, 2020 and September 30, 2019,
respectively)
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
September 30,
2020
2019
(In thousands, except par value
data)
$
157,394 $
334,180
42,504
534,078
25,513
1,060
46,419
57,656
812,364
9,236
14,629
105,285
106,426
297,427
51,853
455,706
20,222
1,643
53,027
—
803,542
14,139
6,006
79,163
$
$
1,606,240 $
1,433,448
23,033 $
117,952
63,367
115,159
95,000
414,511
739,435
73,207
48,005
23,118
106,240
32,454
111,016
218,000
490,828
606,790
—
46,063
1,275,158
1,143,681
—
291
—
289
1,218,583
1,225,365
(2,997,856)
2,193,059
(82,995)
331,082
(2,802,450)
1,956,648
(90,085)
289,767
Total liabilities and stockholders’ equity
$
1,606,240 $
1,433,448
See accompanying notes.
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FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Revenues:
Transactional and maintenance
Professional services
License
Total revenues
Operating expenses:
Cost of revenues
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring and impairment charges
Total operating expenses
Operating income
Interest expense, net
Other income, net
Income before income taxes
Provision for income taxes
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments
Comprehensive income
Basic earnings per share
Shares used in computing basic earnings per share
Diluted earnings per share
Shares used in computing diluted earnings per share
Year Ended September 30,
2020
2019
2018
(In thousands, except per share data)
$
973,933 $
860,948 $
183,040
137,589
184,095
115,040
750,603
176,910
72,633
1,294,562
1,160,083
1,000,146
361,142
166,499
420,930
4,993
45,029
998,593
295,969
(42,177)
3,208
257,000
20,589
236,411
336,845
149,478
414,086
6,126
—
906,535
253,548
(39,752)
2,276
216,072
23,948
192,124
$
$
$
7,090
(13,664)
243,501 $
178,460 $
8.13 $
29,067
7.90 $
29,932
6.63 $
28,980
6.34 $
30,294
312,898
128,383
376,912
6,594
—
824,787
175,359
(31,311)
12,884
156,932
30,450
126,482
(9,926)
116,556
4.26
29,711
4.06
31,180
See accompanying notes.
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FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended September 30, 2020, 2019 and 2018
(In thousands)
Balance at September 30, 2017
Share-based compensation
Issuance of treasury stock under employee
stock plans
Repurchases of common stock
Net income
Foreign currency translation adjustments
Balance at September 30, 2018
Share-based compensation
Issuance of treasury stock under employee
stock plans
Repurchases of common stock
Net income
Foreign currency translation adjustments
Balance at September 30, 2019
Share-based compensation
Issuance of treasury stock under employee
stock plans
Repurchases of common stock
Net income
Foreign currency translation adjustments
Balance at September 30, 2020
Common
Stock
Shares
30,243 $
Par
Value
Paid-in-
Capital
Treasury
Stock
Retained
Earnings
302 $ 1,195,431 $(2,301,097) $ 1,638,042 $
Accumulated
Other
Comprehensive
Loss
(66,495) $
Total
Stockholders’
Equity
466,183
—
—
74,814
—
7
(19)
—
—
(59,194)
26,006
—
—
—
(336,916)
—
—
—
—
—
126,482
—
74,814
—
—
—
(33,181)
(336,935)
126,482
—
(9,926)
(9,926)
290
1,211,051
(2,612,007)
1,764,524
(76,421)
287,437
—
82,973
—
8
(9)
—
—
(68,659)
38,442
—
—
—
(228,885)
—
—
—
—
—
192,124
—
82,973
—
—
—
(30,209)
(228,894)
192,124
—
(13,664)
(13,664)
289
1,225,365
(2,802,450)
1,956,648
(90,085)
289,767
—
93,681
—
9
(7)
—
—
(100,463)
39,810
—
—
—
(235,216)
—
—
—
—
—
236,411
—
93,681
—
—
—
(60,644)
(235,223)
236,411
7,090
—
7,090
633
(1,861)
—
—
29,015
—
854
(925)
—
—
28,944
—
827
(675)
—
—
29,096
$
291
$ 1,218,583
$(2,997,856)
$ 2,193,059
$
(82,995)
$
331,082
See accompanying notes.
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FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Share-based compensation
Deferred income taxes
Non-cash operating lease costs
Impairment loss on operating lease assets
Provision of doubtful accounts
Net gain (loss) on marketable securities
Gain on sale of equity investments
Net loss on sales and abandonment of property and equipment
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Accrued compensation and employee benefits
Other liabilities
Deferred revenue
Year Ended September 30,
2020
2019
2018
(In thousands)
$
236,411 $
192,124 $
126,482
30,367
93,681
(8,639)
20,011
28,016
3,199
(2,071)
—
5,249
(59,889)
(960)
1,059
12,065
693
5,724
31,612
82,973
7,701
—
—
518
761
—
127
(36,176)
(55,507)
1,885
22,380
1,463
10,489
Net cash provided by operating activities
364,916
260,350
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sales of marketable securities
Purchases of marketable securities
Proceeds from sale of equity investments
Distribution from equity investments
Cash paid for acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from revolving line of credit
Payments on revolving line of credit
Proceeds from issuance of senior notes
Payments on senior notes
Payments on debt issuance costs
Payments on finance leases
Proceeds from issuance of treasury stock under employee stock plans
Taxes paid related to net share settlement of equity awards
Repurchases of common stock
Net cash used in financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds of $1,931, $1,372 and $3,079 during the years ended
September 30, 2020, 2019 and 2018, respectively
Cash paid for interest
Supplemental disclosures of non-cash investing and financing activities:
Finance lease obligation incurred
Purchase of property and equipment included in accounts payable
See accompanying notes.
58
(21,989)
3,470
(6,119)
—
55
—
(24,583)
263,000
(513,000)
350,000
(85,000)
(6,840)
(1,716)
42,258
(102,903)
(235,223)
(289,424)
59
50,968
106,426
(23,981)
3,480
(6,404)
—
—
(15,855)
(42,760)
229,000
(141,000)
—
(28,000)
—
(945)
22,788
(52,996)
(228,894)
(200,047)
(1,140)
16,403
90,023
$
$
$
$
$
157,394 $
106,426 $
10,152 $
37,735 $
18,779 $
39,924 $
1,387 $
166 $
5,803 $
1,448 $
30,182
74,814
10,584
—
—
623
(1,449)
(10,000)
231
(8,266)
(9,790)
843
7,352
6,246
(4,800)
223,052
(31,299)
3,230
(6,050)
20,000
—
—
(14,119)
427,000
(531,000)
400,000
(131,000)
(7,849)
—
11,023
(44,205)
(342,596)
(218,627)
(5,901)
(15,595)
105,618
90,023
13,398
26,106
—
1,913
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
1. Nature of Business and Summary of Significant Accounting Policies
Fair Isaac Corporation
Incorporated under the laws of the State of Delaware, Fair Isaac Corporation (“FICO”) is a provider of analytic, software and data management
products and services that enable businesses to automate, improve and connect decisions. FICO provides a range of analytical solutions, credit scoring and
credit account management products and services to banks, credit reporting agencies, credit card processing agencies, insurers, retailers, healthcare
organizations and public agencies.
In these consolidated financial statements, FICO is referred to as “we,” “us,” “our,” or “the Company.”
Principles of Consolidation and Basis of Presentation
Effective October 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance: ASU 2017-13,
ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”) using the modified retrospective approach, under which
financial results reported in prior periods were not restated. As a result, the consolidated balance sheet as of September 30, 2020 is not comparable with
that as of September 30, 2019. See our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 filed with the SEC on November 8,
2019 for lease policies that were in effect in prior periods before adoption of Topic 842.
The consolidated financial statements include the accounts of FICO and its subsidiaries. All intercompany accounts and transactions have been
eliminated.
Use of Estimates
We make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures made in the accompanying notes.
For example, we use estimates in determining the collectibility of accounts receivable; the appropriate levels of various accruals; variable considerations
included in the transaction price for our customer contracts; labor hours in connection with fixed-fee service contracts; 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. In addition, we use assumptions to estimate the fair value of reporting units and share-based
compensation. 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
Cash and cash equivalents consist of cash in banks and investments with an original maturity of 90 days or less at time of purchase.
Fair Value of Financial Instruments
The fair value of certain of our financial instruments, including cash and cash equivalents, receivables, other current assets, accounts payable, accrued
compensation and employee benefits, other accrued liabilities and amounts outstanding under our revolving line of credit, approximate their carrying
amounts because of the short-term maturity of these instruments. The fair values of our cash and cash equivalents and marketable security investments are
disclosed in Note 4. The fair value of our derivative instruments is disclosed in Note 5. The fair value of our senior notes is disclosed in Note 9.
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Investments
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
We categorize our investments in debt and equity instruments as trading, available-for-sale or held-to-maturity at the time of purchase. Trading
securities are carried at fair value with unrealized gains or losses included in 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). Held-to-maturity securities are carried at amortized cost. Dividends and interest income are accrued as earned. Realized
gains and losses are determined on a specific identification basis and are included in other income (expense). We review marketable securities for
impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. We did not
classify any securities as held-to-maturity or available-for-sale during each of the three years ended September 30, 2020, 2019 and 2018. Investments with
remaining maturities over one year are classified as long-term investments.
We have certain other investments for which there is no readily determinable fair value. 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 $1.1 million and $1.6 million at September 30,
2020 and 2019, respectively, and they are reported in other assets on our consolidated balance sheets. At September 30, 2020, 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.
Concentration of Risk
Financial instruments that potentially expose us to concentrations of risk consist primarily of cash and cash equivalents, marketable securities and
accounts receivable, which are generally not collateralized. Our policy is to place our cash, cash equivalents, and marketable securities with high quality
financial institutions, commercial corporations and government agencies in order to limit the amount of credit exposure. We have established guidelines
relative to diversification and maturities for maintaining safety and liquidity. We generally do not require collateral from our customers, but our credit
extension and collection policies include analyzing the financial condition of potential customers, establishing credit limits, monitoring payments, and
aggressively pursuing delinquent accounts. We maintain allowances for potential credit losses.
A significant portion of our revenues are derived from the sales of products and services to the consumer credit and banking industries.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and amortization. Major renewals and improvements are capitalized,
while repair and maintenance costs are expensed as incurred. Assets acquired under capital leases are included in property and equipment with
corresponding depreciation included in accumulated depreciation. Depreciation and amortization charges are calculated using the straight-line method over
the following estimated useful lives:
Data processing equipment and software
Office furniture and equipment
Leasehold improvements
Equipment under capital lease
3 years
3 years
Estimated Useful Life
to
to
6 years
7 years
Shorter of estimated
useful life or lease term
Shorter of estimated
useful life or lease term
The cost and accumulated depreciation for property and equipment sold, retired or otherwise disposed of are removed from the applicable accounts
and resulting gains or losses are recorded in our consolidated statements of income and comprehensive income. Depreciation and amortization on property
and equipment totaled $23.5 million, $24.2 million and $22.6 million during fiscal 2020, 2019 and 2018, respectively.
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Internal-Use Software
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Costs incurred to develop internal-use software during the application development stage are capitalized and reported at cost. Application
development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs of significant
upgrades and enhancements that result in additional functionality are also capitalized whereas costs incurred for maintenance and minor upgrades and
enhancements are expensed as incurred. Capitalized costs are amortized using the straight-line method over two to three years. Software development costs
required to be capitalized for internal-use software have not been material to date.
Capitalized Software and Research and Development Costs
Software development costs relating to products to be sold in the normal course of business are expensed as incurred as research and development
costs until technological feasibility is established. Technological feasibility for our products occurs approximately concurrently with the general release of
our products; accordingly, we have not capitalized any development or production costs. Costs we incur to maintain and support our existing products after
the general release of the product are expensed in the period they are incurred and included in research and development costs in our consolidated
statements of income and comprehensive income.
Goodwill, Acquisition Intangibles and Other Long-Lived Assets
Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. We assess
goodwill for impairment for each of our reporting units on an annual basis during our fourth fiscal quarter using a July 1 measurement date unless
circumstances require a more frequent measurement. We have determined that our reporting units are the same as our reportable segments. When
evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit's carrying
amount exceeds its fair value, referred to as a “step zero” approach. If, based on the review of the qualitative factors, we determine it is not more likely than
not that the fair value of a reporting unit is less than its carrying value, we would bypass the two-step impairment test. Events and circumstances we
consider in performing the “step zero” qualitative assessment include macro-economic conditions, market and industry conditions, internal cost factors,
share price fluctuations, and the operational stability and the overall financial performance of the reporting units. If we conclude that it is more likely than
not that a reporting unit's fair value is less than its carrying amount, we would perform the first step (“step one”) of the two-step impairment test and
calculate the estimated fair value of the reporting unit by using discounted cash flow valuation models and by comparing our reporting units to guideline
publicly-traded companies. These methods require estimates of our future revenues, profits, capital expenditures, working capital, and other relevant
factors, as well as selecting appropriate guideline publicly-traded companies for each reporting unit. We estimate these amounts by evaluating historical
trends, current budgets, operating plans, industry data, and other relevant factors. Alternatively, we may bypass the qualitative assessment described above
for any reporting unit in any period and proceed directly to performing step one of the goodwill impairment test.
For fiscal 2017, we elected to proceed directly to the step one quantitative analysis for all of our reporting units. There was a substantial excess of fair
value over carrying value for each of our reporting units and we determined goodwill was not impaired for any of our reporting units for fiscal 2017. For
fiscal 2018, 2019 and 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 2018, 2019 and 2020.
We amortize our finite-lived intangible assets which result from our acquisitions over the following estimated useful lives:
Completed technology
Customer contracts and relationships
Trade names
Non-compete agreements
4 years
5 years
1 year
Estimated Useful Life
to
to
to
2 years
10 years
10 years
3 years
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Our intangible assets that have finite useful lives and other long-lived assets are assessed for potential impairment when there is evidence that events
and circumstances related to our financial performance and economic environment indicate the carrying amount of the assets may not be recoverable.
When impairment indicators are identified, we test for impairment using undiscounted cash flows. If such tests indicate impairment, then we measure and
record the impairment as the difference between the carrying value of the asset and the fair value of the asset. We did not recognize any impairment charges
on intangible assets that have finite useful lives or other long-lived assets in fiscal 2020, 2019 and 2018.
Revenue Recognition
Contracts with Customers
Our revenue is primarily derived from term-based or perpetual licensing of software and scoring products and solutions, and associated maintenance;
software-as-a-service (“SaaS”) subscription services; scoring and credit monitoring services for consumers; and professional services. For contracts with
customers that contain various combinations of products and services, we evaluate whether the products or services are distinct — distinct products or
services will be accounted for as separate performance obligations, while non-distinct products or services are combined with others to form a single
performance obligation. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative
SSP basis. Revenue is recognized when control of the promised goods or services is transferred to our customers.
License revenue is derived from contracts in which we grant our direct customers or distributors the right to deploy or resell our software and scoring
products and solutions on-premises. Our software offerings often include a perpetual or term-based license and post-contract support or maintenance, both
of which generally represent distinct performance obligations and are accounted for separately. The transaction price is either in the form of a fixed
consideration with separately stated prices for license and maintenance, a single subscription with license and maintenance bundled, or a usage-based
royalty — sometimes subject to a guaranteed minimum — for the license and maintenance bundle. When the amount is in the form of a fixed
consideration, including the guaranteed minimum in usage-based royalty, license revenue from distinct on-premises license is recognized at the point in
time when the software or scoring solution is made available to the customer or distributor. Any royalties not subject to the guaranteed minimum or earned
in excess of the minimum amount are recognized as transactional revenue when the subsequent sales or usage occurs. Revenue allocated to maintenance is
generally recognized ratably over the contract period as customers simultaneously consume and receive benefits.
In addition to usage-based royalty on our software and scoring products, transactional revenue is also derived from SaaS contracts in which we
provide customers with access to and standard support for our software application either in the FICO® Analytic Cloud or Amazon Web Services (“AWS”),
our primary cloud infrastructure provider, on a subscription basis. The transaction price typically includes a fixed consideration in the form of a guaranteed
minimum that allows up to a certain level of usage and a variable consideration in the form of usage or transaction-based fees in excess of the minimum
threshold; or usage or transaction-based variable amount not subject to a minimum threshold. We determined the nature of our SaaS arrangements is to
provide continuous access to our hosted application in the cloud, i.e., a stand-ready obligation that comprises a series of distinct service periods (e.g., a
series of distinct daily, monthly or annual periods of service). We estimate the total variable consideration at contract inception — subject to any constraints
that may apply — and update the estimates as new information becomes available and recognize the amount ratably over the SaaS service period, unless
we determine it is appropriate to allocate the variable amount to each distinct service period and recognize revenue as each distinct service period is
performed.
We also derive transactional revenue from credit scoring and monitoring services that provide consumers access to their credit reports and enable
them to monitor their credit. These are provided as either a one-time or ongoing subscription service renewed monthly or annually, all with a fixed
consideration. We determined the nature of the subscription service is a stand-ready obligation to generate credit reports, provide credit monitoring and
other services for our customers, which comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service).
Revenue from one-time or monthly subscription services is recognized during the period when service is performed. Revenue from annual subscription
services is recognized ratably over the subscription period.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Professional services include software or SaaS implementation, consulting, model development, training services and premium cloud support. They
are sold either standalone, or together with other products or services and generally represent distinct performance obligations. The transaction price can be
a fixed amount or on a time and materials basis. Revenue on fixed-price services is recognized using an input method based on labor hours expended which
we believe provides a faithful depiction of the transfer of services. Revenue on services provided on a time and materials basis is recognized applying the
“right-to-invoice” practical expedient as the amount to which we have a right to invoice the customer corresponds directly with the value of our
performance to the customer. In addition, we sell premium cloud support on a subscription basis for a fixed amount, and revenue is recognized ratably over
the contract term.
Significant Judgments
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and
services are considered distinct and should be accounted for separately may require significant judgment. Specifically, when implementation service is
included in the original software or SaaS offerings, judgment is required to determine if the implementation service significantly modifies or customizes the
software or SaaS service in such a way that the risks of providing it and the customization service are inseparable. In rare instances, contracts may include
significant modification or customization of the software of SaaS service and will result in the combination of software or SaaS service and implementation
service as one performance obligation.
We determine the SSPs using data from our historical standalone sales, or, in instances where such information is not available (such as when we do
not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market
strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. When the selling price of a product or service is
highly variable, we may use the residual approach to determine the SSP of that product or service. Significant judgment may be required to determine the
SSP for each distinct performance obligation when it involves the consideration of many market conditions and entity-specific factors discussed above.
Significant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts
with a fixed consideration, in which we measure progress using an input method based on labor hours expended. In order to estimate the total hours of the
project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others. For certain
complex projects, due to the risks and uncertainties inherent with the estimation process and factors relating to the assumptions, actual progress may differ
due to the change in estimated total hours. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and,
accordingly, recognized revenues are subject to revisions as the contract progresses to completion.
Capitalized Commission Costs
We capitalize incremental commission fees paid as a result of obtaining customer contracts. Capitalized commission costs, which are recorded in
other assets within the accompanying consolidated balance sheets, were $38.6 million and $33.7 million at September 30, 2020 and 2019, respectively.
Capitalized commission costs are amortized on a straight-line basis over ten years — determined using a portfolio approach — based on the transfer
of goods or services to which the assets relate, taking into consideration both the initial and future contracts as we do not typically pay a commission on a
contract renewal. The amortization costs are included in selling, general, and administrative expenses of our consolidated statements of income and
comprehensive income. The amount of amortization was $5.7 million, $5.0 million and $4.5 million during the years ended September 30, 2020, 2019 and
2018, respectively. There was no impairment loss in relation to the costs capitalized.
We apply a practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the
assets that we otherwise would have recognized is one year or less. These costs are recorded within selling, general, and administrative expenses.
See Note 15 for our discussion on disaggregation of revenues, and Note 16 for contract balances and performance obligations.
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Business Combinations
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Accounting for our acquisitions requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-
date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of
the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed
at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to
one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the
conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to our consolidated statements of income and comprehensive income.
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date,
including our estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies and contingent consideration, where
applicable. If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement
period, we will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been incurred
at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Although we believe the assumptions and estimates we have
made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of
the acquired companies and are inherently uncertain. Subsequent to the measurement period, changes in our estimates of such contingencies will affect
earnings and could have a material effect on our consolidated results of operations and financial position.
Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to: (i) future expected cash
flows from software license sales, support agreements, consulting contracts, other customer contracts and acquired developed technologies and patents;
(ii) expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when
completed; and (iii) the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will
continue to be used in the combined company’s product portfolio. Unanticipated events and circumstances may occur that may affect the accuracy or
validity of such assumptions, estimates or actual results.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as
of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments
to our preliminary estimates being recorded to goodwill provided that we are within the measurement period. Subsequent to the measurement period or our
final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax related
valuation allowances will affect our provision for income taxes in our consolidated statements of income and comprehensive income and could have a
material impact on our consolidated results of operations and financial position.
Income Taxes
We estimate our income taxes based on the various jurisdictions where we conduct business, which involves significant judgment in determining our
income tax provision. We estimate our current tax liability using currently enacted tax rates and laws and assess temporary differences that result from
differing treatments of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities recorded on our
consolidated balance sheets using the currently enacted tax rates and laws that will apply to taxable income for the years in which those tax assets are
expected to be realized or settled. We then assess the likelihood our deferred tax assets will be realized and to the extent we believe realization is not more
likely than not, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record
a corresponding income tax expense in our consolidated statements of income and comprehensive income. In assessing the need for the valuation
allowance, we consider future taxable income in the jurisdictions we operate; our ability to carry back tax attributes to prior years; an analysis of our
deferred tax assets and the periods over which they will be realizable; and ongoing prudent and feasible tax planning strategies. An increase in the valuation
allowance would have an adverse impact, which could be material, on our income tax provision and net income in the period in which we record the
increase.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or
expected to be taken in a tax return by determining if the technical merits of the tax position indicate it is more likely than not that the tax position will be
sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions more likely than not of being sustained upon
audit, the second step is to measure the tax benefit as the largest amount more than 50% likely of being realized upon settlement. Significant judgment is
required to evaluate uncertain tax positions and they are evaluated on a quarterly basis. Our evaluations are based upon a number of factors, including
changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit
issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in
the period in which we make the change, which could have a material impact on our effective tax rate and operating results.
A description of our accounting policies associated with tax-related contingencies and valuation allowances assumed as part of a business
combination is provided under “Business Combinations” above.
Earnings per Share
Basic earnings per share are computed on the basis of the weighted-average number of common shares outstanding during the period under
measurement. Diluted earnings per share are based on the weighted-average number of common shares outstanding and potential common shares. Potential
common shares result from the assumed exercise of outstanding stock options or other potentially dilutive equity instruments, when they are dilutive under
the treasury stock method.
Comprehensive Income
Comprehensive income is the change in our equity (net assets) during each period from transactions and other events and circumstances from non-
owner sources. It includes net income, foreign currency translation adjustments and unrealized gains and losses on our investments in marketable securities,
net of tax.
Foreign Currency and Derivative Financial Instruments
We have determined that the functional currency of each foreign operation is the local currency. Assets and liabilities denominated in their local
foreign currencies are translated into U.S. dollars at the exchange rate on the balance sheet date. 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.
We utilize derivative instruments to manage market risks associated with fluctuations in certain foreign currency exchange rates as they relate to
specific balances of accounts receivable and cash denominated in foreign currencies. We principally utilize foreign currency forward contracts to protect
against market risks arising in the normal course of business. Our policies prohibit the use of derivative instruments for the sole purpose of trading for
profit on price fluctuations or to enter into contracts that intentionally increase our underlying exposure. All of our foreign currency forward contracts have
maturity periods of less than three months.
At the end of the reporting period, foreign-currency-denominated assets and liabilities are remeasured into the functional currencies of the reporting
entities at current market rates. 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 $1.0 million, $0.0 million and $0.4 million during fiscal 2020, 2019 and 2018, respectively.
Share-Based Compensation
We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, net of estimated
forfeitures, over the vesting or service period, as applicable, of the stock award (generally three to four years). See Note 13 for further discussion of our
share-based employee benefit plans.
Advertising and Promotion Costs
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Advertising and promotion costs are expensed as incurred and are included in selling, general and administrative expenses in the accompanying
consolidated statements of income and comprehensive income. Advertising and promotion costs totaled $8.7 million, $3.6 million and $4.1 million in fiscal
2020, 2019 and 2018, respectively.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Topic 842, which requires the recognition of operating lease assets and lease liabilities on the balance sheet.
Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new
standard, disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.
In the first quarter of fiscal 2020, we adopted Topic 842 using the “Comparatives Under 840 Option” approach to transition. In accordance with the
standard, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Topic
842 provided a package of practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the
lease classification of any expired or existing lease, and (3) initial direct costs for any existing leases. We elected to apply the package of practical
expedients, and did not elect the hindsight practical expedient in determining the lease term for existing leases as of October 1, 2019.
Adoption of Topic 842 did not result in the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of
adoption. The most significant impact of adoption was the recognition of operating lease assets and operating lease liabilities of $89.8 million and $98.9
million, respectively, while our accounting for existing capital leases (now referred to as finance leases) remained substantially unchanged. We expect the
impact of adoption to be immaterial to our consolidated statements of income and comprehensive income and consolidated statements of cash flows on an
ongoing basis. As part of our adoption, we also modified our control procedures and processes, none of which materially affected our internal control over
financial reporting. See Note 17 for additional information regarding our accounting policy for leases and additional disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other (Topic 350): Internal-Use Software.” ASU 2018-15 aligns
the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years and interim periods within
those fiscal years beginning after December 15, 2019, which means that it will be effective for our fiscal year beginning October 1, 2020. We do not
believe that adoption of ASU 2018-15 will have a significant impact on our consolidated financial statements.
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 and ASU 2019-05 (collectively, “Topic 326”). Topic 326
requires measurement and recognition of expected credit losses for financial assets held. Topic 326 is effective for fiscal years and interim periods within
those fiscal years beginning after December 15, 2019, which means it will be effective for our fiscal year beginning October 1, 2020. We do not believe
that adoption of Topic 326 will have a significant impact on our consolidated financial statements.
We do not expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements.
2. Business Combinations
There were no acquisitions incurred during fiscal 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
Applications segment that is deductible for tax purposes.
There were no acquisitions incurred during fiscal 2018.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
3. Cash, Cash Equivalents and Marketable Securities
The following is a summary of cash, cash equivalents and marketable securities at September 30, 2020 and 2019:
Cash and Cash Equivalents:
Cash
Money market funds
Bank time deposits
Total
Long-term Marketable Securities:
Marketable securities
$
$
$
September 30, 2020
September 30, 2019
Amortized
Cost
Fair Value
(In thousands)
Amortized
Cost
Fair Value
122,119 $
122,119 $
35,275
—
35,275
—
157,394 $
157,394 $
77,525 $
22,102
6,799
106,426 $
77,525
22,102
6,799
106,426
20,195 $
25,513 $
17,193 $
20,222
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. These investments are
treated as trading securities and recorded at fair value.
4. Fair Value Measurements
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance
establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.
•
•
•
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, 2020 and 2019.
Level 2 — uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation
with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; 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, 2020 and 2019. We measure the fair value of the Senior Notes based on Level 2 inputs, which include quoted market prices and
interest rate spreads of similar securities.
Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the
use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined
using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or
estimation. We did not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy as of September
30, 2020 and 2019.
The following table represents financial assets that we measured at fair value on a recurring basis at September 30, 2020 and 2019:
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September 30, 2020
Assets:
Cash equivalents (1)
Marketable securities (2)
Total
September 30, 2019
Assets:
Cash equivalents (1)
Marketable securities (2)
Total
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Active Markets for
Identical Instruments
(Level 1)
Fair Value as of September
30, 2020
(In thousands)
35,275 $
25,513
60,788 $
35,275
25,513
60,788
Active Markets for
Identical Instruments
(Level 1)
Fair Value as of September
30, 2019
(In thousands)
28,901 $
20,222
49,123 $
28,901
20,222
49,123
$
$
$
$
(1) Included in cash and cash equivalents on our consolidated balance sheets at September 30, 2020 and 2019. Not included in this table are cash deposits
of $122.1 million and $77.5 million at September 30, 2020 and 2019, 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, 2020 and 2019.
For the fair value of our derivative instruments and senior notes, see Note 5 and Note 9, respectively.
There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the years ended September 30, 2020, 2019 or 2018.
5. Derivative Financial Instruments
We use derivative instruments to manage risks caused by fluctuations in foreign exchange rates. The primary objective of our derivative instruments
is to protect the value of foreign-currency-denominated receivable and cash balances from the effects of volatility in foreign exchange rates that might
occur prior to conversion to their functional currencies. We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign
currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates. We routinely enter into contracts to offset
exposures denominated in the British pound, Euro and Singapore dollar.
Foreign-currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the
effects of changes in foreign exchange rates reported in other income, net. The forward contracts are not designated as hedges and are marked to market
through other income, net. Fair value changes in the forward contracts help mitigate the changes in the value of the remeasured receivable and cash
balances attributable to changes in foreign exchange rates. The forward contracts are short-term in nature and typically have average maturities at inception
of less than three months.
The following tables summarize our outstanding foreign currency forward contracts, by currency, at September 30, 2020 and 2019:
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Sell foreign currency:
Euro (EUR)
Buy foreign currency:
British pound (GBP)
Singapore dollar (SGD)
Sell foreign currency:
Euro (EUR)
Buy foreign currency:
British pound (GBP)
Singapore dollar (SGD)
September 30, 2020
Contract Amount
Fair Value
Foreign
Currency
USD
USD
(In thousands)
15,000 $
17,656
16,555 $
7,815 $
21,300
5,700
September 30, 2019
Contract Amount
Fair Value
Foreign
Currency
USD
USD
(In thousands)
10,800 $
11,723
5,200 $
5,798 $
6,400
4,200
—
—
—
—
—
—
EUR
GBP
SGD
EUR
GBP
SGD
The foreign currency forward contracts were entered into on September 30 of each fiscal year; therefore, their fair value was $0 at September 30,
2020 and 2019.
Losses on derivative financial instruments are recorded in our consolidated statements of income and comprehensive income as a component of other
income, net. These amounts are shown below for the years ended September 30, 2020, 2019 and 2018:
Loss on foreign currency forward contracts
$
347 $
896 $
476
Year Ended September 30,
2020
2019
(In thousands)
2018
6. Goodwill and Intangible Assets
Intangible assets that are subject to amortization consisted of the following at September 30, 2020 and 2019:
September 30, 2020
September 30, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
Average
Life
Gross
Carrying
Amount
Accumulated
Amortization
Net
Average
Life
Completed technology
$
83,764 $
(80,136) $
(In thousands, except average life)
5 $
82,724 $
3,628
(77,331) $
5,393
Customer contracts and
relationships
Trade names
Non-compete agreements
19,332
(13,870)
—
350
—
(204)
5,462
—
146
9
0
2
30,583
(22,283)
150
350
(25)
(29)
8,300
125
321
$
103,446 $
(94,210) $
9,236
$
113,807 $
(99,668) $
14,139
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8
1
2
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
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. Amortization expense consisted of the following:
Completed technology
Customer contracts and relationships
Trade names
Non-compete agreements
Total
Year Ended September 30,
2020
2019
(In thousands)
2018
1,766 $
2,927
125
175
1,974 $
4,098
25
29
4,993 $
6,126 $
2,380
4,214
—
—
6,594
$
$
Estimated future intangible asset amortization expense associated with intangible assets existing at September 30, 2020, was as follows (in
thousands):
Year Ending September 30,
2021
2022
2023
2024
2025
Thereafter
Total
$
$
3,646
3,356
1,317
917
—
—
9,236
The following table summarizes changes to goodwill during fiscal 2020 and 2019, both in total and as allocated to our operating segments. We have
not recognized any goodwill impairment losses to date.
Balance at September 30, 2018
Addition from acquisitions
Foreign currency translation adjustment
Balance at September 30, 2019
Foreign currency translation adjustment
Balance at September 30, 2020
Applications
Scores
Decision Management
Software
Total
$
$
585,161 $
146,648 $
69,081 $
(In thousands)
11,233
(7,780)
588,614
8,190
—
—
146,648
—
—
(801)
68,280
632
596,804 $
146,648 $
68,912 $
800,890
11,233
(8,581)
803,542
8,822
812,364
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
7. Composition of Certain Financial Statement Captions
The following table presents the composition of property and equipment, net and other assets at September 30, 2020 and 2019:
Property and equipment:
Data processing equipment and software
Office furniture and equipment
Leasehold improvements
Equipment under capital lease
Less: accumulated depreciation and amortization
Total
Other assets:
Long-term receivables
Prepaid commissions
Others
Total
September 30,
2020
2019
(In thousands)
$
$
$
$
108,913 $
20,478
25,239
6,489
(114,700)
46,419 $
54,074 $
38,579
12,632
105,285 $
110,874
21,443
33,360
6,398
(119,048)
53,027
34,370
33,700
11,093
79,163
As a strategic cost initiative in fiscal 2020 we committed to a course of action to adjust our facilities footprint in light of post-pandemic workforce
patterns. As a result of this initiative, we recorded a net impairment loss of $5.2 million on abandonment of property and equipment. See Note 11 for
additional information regarding our restructuring and impairment charges.
8. Revolving Line of Credit
On May 8, 2018, we amended our credit agreement with a syndicate of banks, extending the maturity date of the unsecured revolving line of credit
from December 30, 2019 to May 8, 2023, while reducing our borrowing capacity to $400 million with an option to increase it by another $100 million.
Proceeds from the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt,
acquisitions, and the repurchase of our common stock. Interest on amounts borrowed under the credit facility is based on (i) a base rate, which is the greater
of (a) the prime rate and (b) the Federal Funds rate plus 0.500% and (c) the one-month LIBOR rate plus 1.000%, plus, in each case, an applicable margin,
or (ii) an adjusted LIBOR rate plus an applicable margin. The applicable margin for base rate borrowings ranges from 0% to 0.875% and for LIBOR
borrowings ranges from 1.000% to 1.875% 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 3.25, subject to a step up to 3.75
following certain permitted acquisitions; and a minimum fixed charge ratio of 2.50 through the maturity of our 2010 Senior Notes in July 2020, following
which maintaining a minimum interest coverage ratio of 3.00 is required. The credit agreement also contains other covenants typical of unsecured facilities.
As of September 30, 2020, we had $95.0 million in borrowings outstanding at a weighted-average interest rate of 1.285% and we were in compliance with
all financial covenants under this credit facility.
9. Senior Notes
On July 14, 2010, we issued $245 million of senior notes in a private placement to a group of institutional investors (the “2010 Senior Notes”). The
2010 Senior Notes were issued in four series as follows:
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Series
E
F
G
H
Amount
(In millions)
60.0
72.0
28.0
85.0
$
$
$
$
Interest Rate
Maturity Date
4.72%
5.04%
5.42%
5.59%
July 14, 2016
July 14, 2017
July 14, 2019
July 14, 2020
On July 14, 2020, the aggregate principal amount of Series H of 2010 Senior Notes was repaid at maturity. At September 30, 2020, the 2010 Senior
Notes were no longer outstanding.
On May 8, 2018, we issued $400 million of senior notes in a private offering to qualified institutional investors (the “2018 Senior Notes”). The 2018
Senior Notes require interest payments semi-annually at a rate of 5.25% per annum and will mature on May 15, 2026.
On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes,” along
with the 2010 Senior Notes and 2018 Senior Notes, the “Senior Notes”). We used the net proceeds to repay a large portion of the outstanding balance on
our revolving credit facility. The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on
June 15, 2028.
The indentures for the 2018 Senior Notes and the 2019 Senior Notes contain certain covenants typical of unsecured obligations.
The following table presents the carrying amounts and fair values for the Senior Notes at September 30, 2020 and 2019:
The 2010 Senior Notes
The 2018 Senior Notes
The 2019 Senior Notes
Total
September 30, 2020
September 30, 2019
Face Value (*)
Fair Value
Face Value (*)
Fair Value
$
$
— $
400,000
350,000
750,000 $
(In thousands)
— $
442,000
358,750
800,750 $
85,000
$
400,000
—
485,000 $
86,121
428,000
—
514,121
(*) The carrying value of the Senior Notes was reduced by the net debt issuance costs of $10.6 million and $5.2 million at September 30, 2020 and 2019,
respectively.
Future principal payments for the Senior Notes are as follows (in thousands):
Year Ending September 30,
2021
2022
2023
2024
2025
Thereafter
Total
$
$
—
—
—
—
—
750,000
750,000
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10. Employee Benefit Plans
Defined Contribution Plans
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
We sponsor the Fair Isaac Corporation 401(k) plan for eligible employees in the U.S. Under this plan, eligible employees may contribute up to 25%
of compensation, not to exceed statutory limits. We also provide a company matching contribution. Investment in FICO common stock is not an option
under this plan. Our contributions into all 401(k) plans, including former-acquired-company-sponsored plans that have since merged into the Fair Isaac
Corporation 401(k) plan or have been frozen, totaled $10.1 million, $10.3 million and $8.8 million during fiscal 2020, 2019 and 2018, respectively.
Employee Incentive Plans
We maintain various employee incentive plans for the benefit of eligible employees, including officers. The awards generally are based on the
achievement of certain financial and performance objectives subject to the discretion of management. Total expenses under our employee incentive plans
were $60.6 million, $57.5 million and $48.4 million during fiscal 2020, 2019 and 2018, respectively.
11. Restructuring and Impairment Charges
During fiscal 2020, we incurred net charges totaling $45.0 million consisting of$28.0 million in impairment loss on operating lease assets, $5.2
million in impairment loss on disposals of property and equipment and $11.8 million in restructuring charges. The impairment losses were associated with
closing certain non-core offices and reducing office space in other locations to better align with anticipated needs in light of post-pandemic workforce
patterns. The restructuring charges related to employee separation costs as a result of eliminating 209 positions throughout the Company. Cash payments
for all the employee separation costs will be paid by the end of our fiscal 2021.
There were no restructuring and impairment charges incurred during fiscal 2019 and 2018.
The following tables summarize our restructuring accruals associated with the employee separation actions. The current portion and non-current
portion were recorded in other accrued liabilities and other liabilities, respectively, within the accompanying consolidated balance sheets.
Accrual at September 30,
2018
Expense
Additions
Cash
Payments
(In thousands)
Accrual Adjustments
Accrual at September 30,
2019
Facilities charges
Less: current portion
Non-current
$
$
5,228 $
(3,850)
1,378
— $
(3,850) $
— $
$
1,378
(1,378)
—
Accrual at September 30,
2019
Expense
Additions
Cash
Payments
(In thousands)
Accrual Adjustments (*)
Accrual at September 30,
2020
Facilities charges
Employee separation
Less: current portion
Non-current
$
$
1,378 $
—
1,378 $
(1,378)
—
— $
11,768
11,768 $
— $
(3,577)
(3,577) $
(1,378) $
—
(1,378)
$
—
8,191
8,191
(8,191)
—
(*) 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.
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12. Income Taxes
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
The provision for income taxes was as follows during fiscal 2020, 2019 and 2018:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total provision
Year ended September 30,
2020
2019
(In thousands)
2018
$
14,566 $
1,299 $
2,180
12,482
29,228
(8,575)
(957)
893
(8,639)
20,589 $
(423)
15,371
16,247
7,003
947
(249)
7,701
23,948 $
$
8,071
2,236
9,559
19,866
13,987
132
(3,535)
10,584
30,450
The foreign provision was based on foreign pre-tax earnings of $42.2 million, $36.0 million and $10.8 million in fiscal 2020, 2019 and 2018,
respectively. Current foreign tax expense related to foreign tax withholdings was $6.4 million, $6.5 million and $6.0 million in fiscal 2020, 2019 and 2018,
respectively. Foreign withholding tax and related foreign tax credits are included in current tax expense above.
Deferred tax assets and liabilities at September 30, 2020 and 2019 were as follows:
Deferred tax assets:
Loss and credit carryforwards
Compensation benefits
Operating lease liabilities
Other assets
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Deferred commission
Property and equipment
Operating lease right-of-use assets
Other liabilities
Total deferred tax liabilities
Deferred tax assets, net
September 30,
2020
2019
(In thousands)
$
31,015 $
29,640
21,827
9,000
91,482
(24,563)
66,919
(14,715)
(9,027)
(3,135)
(13,719)
(11,694)
(52,290)
$
14,629 $
26,702
23,931
—
9,393
60,026
(19,231)
40,795
(15,114)
(7,920)
(3,511)
—
(8,244)
(34,789)
6,006
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, 2020.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
As of September 30, 2020, we had available U.S. federal, state and foreign net operating loss (“NOL”) carryforwards of approximately $7.6 million,
$0.1 million, and $31.3 million, respectively. The U.S. federal NOLs were acquired in connection with our acquisitions of Adeptra in fiscal 2012 and
Infoglide in fiscal 2013. The U.S. federal NOL carryforward will expire at various dates beginning in fiscal 2024, if not utilized. The state NOL
carryforward will expire at various dates beginning in fiscal 2021, if not utilized. The $31.3 million of foreign NOL includes $5.5 million related to China
and $19.5 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. federal and state NOLs are subject to an annual limitation due to the “change
in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. In fiscal 2020 we generated approximately $4.7
million of excess federal research credits which are expected to be utilized fully in future tax years. We also have available excess California state research
credit of approximately $16.6 million. The California state research credit does not have an expiration date; however, based on enacted law and expected
future cash taxes, we have recorded a valuation allowance of $16.6 million.
A reconciliation of the provision for income taxes, with the amount computed by applying the U.S. federal statutory income tax rate (21% in each of
fiscal 2020 and fiscal 2019, and 24.5% in fiscal 2018) to income before provision for income taxes for fiscal 2020, 2019 and 2018 is shown below:
Income tax provision at U.S. federal statutory rate
State income taxes, net of U.S. federal benefit
Foreign tax rate differential
Research credits
Domestic production deduction
Amended returns/audit settlements/statute expirations
Foreign
Valuation allowance
Foreign tax credit and foreign withholding tax
Excess tax benefits relating to stock-based compensation
Tax effect of the Tax Act
GILTI, FDII and BEAT
Other
Recorded income tax provision
Year Ended September 30,
2020
2019
(In thousands)
2018
$
53,970 $
45,375 $
4,619
493
(5,868)
—
(1,085)
7,513
5,332
2,086
(45,086)
—
5,050
(6,435)
4,194
839
(5,761)
—
(2,268)
11,177
(333)
(464)
(24,891)
—
1,931
(5,851)
$
20,589 $
23,948 $
38,495
2,755
(649)
(3,486)
(2,421)
(2,349)
4,040
1,907
1,320
(22,253)
16,719
—
(3,628)
30,450
The decrease in our income tax provision in fiscal 2020 compared to fiscal 2019 was due to an increase in the excess tax benefits related to stock-
based compensation in fiscal 2020.
The decrease in our income tax provision in fiscal 2019 compared to fiscal 2018 was due to the decrease in the overall federal tax rate from the
blended 24.5% in fiscal 2018 to 21% in fiscal 2019 and the recording of several one-time items in fiscal 2018 related to the enactment of the Tax Act.
As of September 30, 2020, we had approximately $111.7 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. 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.
Unrecognized Tax Benefit for Uncertain Tax Positions
We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the
normal course of business, we are subject to examination by taxing authorities. With a few exceptions, we are no longer subject to U.S. federal, state, local,
or foreign income tax examinations for fiscal years prior to 2015.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Gross unrecognized tax benefits at beginning of year
Gross increases for tax positions in prior years
Gross decreases for tax positions in prior years
Gross increases based on tax positions related to the current year
Decreases for settlements and payments
Decreases due to statute expiration
Gross unrecognized tax benefits at end of year
Year Ended September 30,
2020
2019
(In thousands)
2018
5,834 $
6,113 $
883
(65)
2,260
—
(918)
509
(611)
1,439
(637)
(979)
7,994 $
5,834 $
6,480
404
—
1,625
—
(2,396)
6,113
$
$
We had $8.0 million of total unrecognized tax benefits as of September 30, 2020, including $7.8 million of tax benefits that, if recognized, would
impact the effective tax rate. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a significant reduction of the
uncertain tax benefits in the next twelve months.
We recognize interest expense and penalties related to unrecognized tax benefits and penalties as part of the provision for income taxes in our
consolidated statements of income and comprehensive income. We recognize interest earned related to income tax matters as interest income in our
consolidated statements of income and comprehensive income. As of September 30, 2020, we had accrued interest of $0.4 million related to the
unrecognized tax benefits.
13. Stock-Based Employee Benefit Plans
Description of Stock Option and Share Plans
We maintain the 2012 Long-Term Incentive Plan (the “2012 Plan”) under which we are authorized to issue equity awards, including stock options,
stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards. All employees, consultants and advisors of FICO or any
subsidiary, as well as all non-employee directors are eligible to receive awards under the 2012 Plan. Stock option awards have a maximum term of seven
years. In general, stock option awards and restricted stock unit awards not subject to market or performance conditions vest annually over four years.
Restricted stock unit awards subject to market or performance conditions generally vest annually over three years based on the achievement of specified
criteria. At September 30, 2020, there were 4,998,722 shares available for issuance under the 2012 Plan.
Description of Employee Stock Purchase Plan
We maintain the 2019 Employee Stock Purchase Plan (the “2019 Purchase Plan”) under which we are authorized to issue up to 1,000,000 shares of
common stock to eligible employees. Employees may have up to 15% of their eligible pay withheld through payroll deductions to purchase FICO common
stock during semi-annual offering periods. The purchase price of the stock is 85% of the closing sales price on the last trading day of each offering period.
Offering period means approximately six-month periods commencing (a) on the first trading day on or after September 1 and terminating on the last trading
day in the following February, and (b) on the first trading day on or after March 1 and terminating on the last trading day in the following August. At
September 30, 2020, there were 949,702 shares available for issuance under the 2019 Purchase Plan.
We satisfy stock option exercises, vesting of restricted 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 $93.7 million, $83.0 million and $74.8 million in fiscal years 2020, 2019 and 2018, respectively.
The total tax benefit related to this share-based compensation expense was $13.2 million, $12.5 million and $15.7 million in fiscal 2020, 2019 and 2018,
respectively. As of September 30, 2020, there was $127.7 million of total unrecognized compensation cost related to non-vested share-based compensation
arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated
forfeitures. We expect to recognize that cost over a weighted-average period of 2.33 years.
In fiscal 2020 we received $25.4 million in cash from stock option exercises, with the tax benefit realized for the tax deductions from these exercises
of $30.2 million.
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Stock-Based Activity
Stock Options
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
We estimate the fair value of stock options granted using the Black-Scholes option valuation model and we amortize the fair value on a straight-line
basis over the vesting period. We used the following assumptions to estimate the fair value of our stock options during fiscal 2020, 2019 and 2018:
Stock Options:
Weighted-average expected term (years)
Expected volatility (range)
Weighted-average volatility
Risk-free interest rate (range)
Weighted-average expected dividend yield
Year Ended September 30,
2020
2019
2018
4.46
30.0 -
35.9%
31.1 -
30.6%
0.36 -
1.68%
2.50 -
—%
4.26
32.4%
32.2%
2.68%
—%
33.6% -
2.03% -
4.78
35.1%
34.6%
2.65%
—%
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. The expected term represents the period that our stock options are expected to be outstanding. We estimate the expected term based
on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of
future employee behavior.
Dividends. 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.
Risk-Free Interest Rate. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our employee options.
Forfeitures. 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.
The following table summarizes option activity during fiscal 2020:
Outstanding at September 30, 2019
Granted
Exercised
Forfeited
Outstanding at September 30, 2020
Exercisable at September 30, 2020
Vested and expected to vest at September 30, 2020
Weighted-
average
Exercise
Price
Weighted-
average
Remaining
Contractual
Term
(In years)
Aggregate
Intrinsic Value
(In thousands)
Shares
(In thousands)
616 $
32
(401)
(1)
246 $
168 $
243 $
89.36
364.23
63.47
185.05
166.80
130.87
165.32
3.84 $
3.06 $
3.82 $
63,605
49,435
63,125
The weighted-average fair value of options granted were $99.30, $59.63 and $56.61 during fiscal 2020, 2019 and 2018, respectively. The aggregate
intrinsic value of options outstanding at September 30, 2020 was calculated as the difference between the exercise price of the underlying options and the
market price of our common stock for the 0.2 million outstanding options, which had exercise prices lower than the $425.38 market price of our common
stock at September 30, 2020. The total intrinsic value of options exercised was $132.6 million, $99.1 million and $41.4 million during fiscal 2020, 2019
and 2018, respectively, determined as of the date of exercise.
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Restricted Stock Units
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
The fair value of restricted stock units (“RSUs”) granted is the closing market price of our common stock on the date of grant, adjusted for the
expected dividend yield, if applicable. We amortize the fair value on a straight-line basis over the vesting period.
The following table summarizes the RSUs activity during fiscal 2020:
Outstanding at September 30, 2019
Granted
Released
Forfeited
Outstanding at September 30, 2020
Shares
(In thousands)
Weighted-average Grant-date
Fair Value
998 $
218
(434)
(61)
721 $
159.99
356.66
138.04
200.38
229.10
The weighted-average fair value of the RSUs granted were $356.66, $206.29 and $161.85 during fiscal 2020, 2019 and 2018, respectively. The total
intrinsic value of the RSUs that vested was $159.0 million, $91.2 million and $70.7 million during fiscal 2020, 2019 and 2018, respectively, determined as
of the date of vesting.
Performance Share Units
Performance share units (“PSUs”) are granted to our senior officers and earned based on pre-established performance goals approved by the
Leadership Development and Compensation Committee of our Board of Directors for any given performance period. The range of payout is zero to 200%
of the number of target PSUs, based on the outcome of the performance conditions. We estimate the fair value of the PSUs using the closing market price
of our common stock on the date of grant, adjusted for the expected dividend yield if applicable, based on the performance condition that is probable of
achievement. We amortize the fair values over the requisite service period for each vesting tranche of the award. We reassess the probability at each
reporting period and recognize the cumulative effect of the change in estimate in the period of change.
The following table summarizes the PSUs activity during fiscal 2020:
Outstanding at September 30, 2019
Granted
Released
Forfeited
Outstanding at September 30, 2020
Shares
(In thousands)
Weighted- average Grant-
date Fair Value
195 $
53
(101)
(20)
127 $
163.38
354.18
152.45
175.50
248.97
The weighted-average fair value of the PSUs granted were $354.18, $185.05 and $157.17 during fiscal 2020, 2019 and 2018, respectively. The total
intrinsic value of the PSUs that vested was $36.5 million, $19.3 million and $15.1 million during fiscal 2020, 2019 and 2018, respectively, determined as of
the date of vesting.
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Market Share Units
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Market share units (“MSUs”) are granted to our senior officers and earned based on our total stockholder return relative to the Russell 3000 Index
over performance periods of one, two and three years. We estimate the fair value of MSUs granted using the Monte Carlo valuation model and amortize the
fair values over the requisite service period for each vesting tranche of the award. In addition, we do not reverse the compensation cost solely because the
market condition is not satisfied, and the award is therefore not earned by the employee, provided the requisite service is rendered. We used the following
assumptions to estimate the fair value of our MSUs during fiscal 2020, 2019 and 2018:
Expected volatility in FICO’s stock price
Expected volatility in Russell 3000 Index
Correlation between FICO and the Russell 3000 Index
Risk-free interest rate
Average expected dividend yield
Year Ended September 30,
2020
2019
2018
25.2 %
12.9 %
64.0 %
1.67 %
— %
24.6 %
12.8 %
66.6 %
2.73 %
— %
24.6 %
12.7 %
63.1 %
1.92 %
— %
The expected volatility was determined based on daily historical movements in our stock price and the Russell 3000 Index for the three years
preceding the grant date. 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 2020:
Outstanding at September 30, 2019
Granted
Released
Forfeited
Outstanding at September 30, 2020
Shares
(In thousands)
Weighted- average Grant-date
Fair Value
100 $
96
(123)
(10)
63 $
188.63
249.13
171.42
202.48
311.91
The weighted-average fair value of the MSUs granted were $249.13, $169.46 and $151.78 during fiscal 2020, 2019 and 2018, respectively. The total
intrinsic value of the MSUs that vested was $44.6 million, $21.6 million and $18.7 million during fiscal 2020, 2019 and 2018, respectively, determined as
of the date of vesting.
Employee Stock Purchase Plan
The compensation expense on the employee stock purchase plan arises from the 15% discount offered to participants. During fiscal 2020, a total of
50,298 shares of our common stock with a weighted-average purchase price of $334.21 per share was issued under the 2019 Purchase Plan. As our first
semi-annual offering period started on September 1, 2019, there were no shares purchased during fiscal 2019.
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14. Earnings per Share
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) during fiscal 2020,
2019 and 2018:
Numerator for basic and diluted earnings per share — net income
$
236,411 $
192,124 $
126,482
Year Ended September 30,
2020
2019
2018
(In thousands, except per share data)
Denominator — share:
Basic weighted-average shares
Effect of dilutive securities
Diluted weighted-average shares
Earnings per share:
Basic
Diluted
29,067
865
29,932
28,980
1,314
30,294
$
$
8.13 $
7.90 $
6.63 $
6.34 $
29,711
1,469
31,180
4.26
4.06
Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.
15. Segment Information
We are organized into the following three operating segments, each of which is a reportable segment, to align with internal management of our
worldwide business operations based on product offerings.
•
•
•
Applications. This segment includes pre-configured decision management applications designed for a specific type of business problem or process
— such as marketing, account origination, customer management, fraud, financial crimes compliance, collections and insurance claims
management — as well as associated professional services. These applications are available to our customers as on-premises software, and many
are available as hosted, SaaS applications through the FICO® Analytic Cloud or AWS.
Scores. This segment includes our business-to-business scoring solutions and services, our business-to-consumer scoring solutions and services
including myFICO® solutions for consumers, and associated professional services. Our scoring solutions give our clients access to analytics that
can be easily integrated into their transaction streams and decision-making processes. Our scoring solutions are distributed through major credit
reporting agencies worldwide, as well as services through which we provide our scores to clients directly.
Decision Management Software. This segment is composed of analytic and decision management software tools that clients can use to create their
own custom decision management applications, our FICO® Decision Management Suite, as well as associated professional services. Decision
management software is currently delivered as part of the FICO® Decision Management Platform and is increasingly being adopted to connect
decisioning solutions or previously disconnected use cases. These tools are available to our customers as on-premises software, through the FICO®
Analytic Cloud or AWS.
Our Chief Executive Officer evaluates segment financial performance based on segment revenues and segment operating income. Segment operating
expenses consist of direct and indirect costs principally related to personnel, facilities, 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. We do not allocate broad-based incentive expense, share-based compensation expense, restructuring
and acquisition-related expense, amortization expense, various corporate charges and certain other income and expense measures to our segments. 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; rather, depreciation amounts are
allocated to the segments from their internal cost centers as described above.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
The following tables summarize segment information for fiscal 2020, 2019 and 2018:
Applications
Scores
Year Ended September 30, 2020
Decision Management
Software
(In thousands)
Unallocated
Corporate
Expenses
Total
$
$
$
$
$
Segment revenues:
Transactional and maintenance
Professional services
License
Total segment revenues
Segment operating expense
Segment operating income (loss)
Unallocated share-based compensation
expense
Unallocated amortization expense
Unallocated restructuring and impairment
charges
Operating income
Unallocated interest expense, net
Unallocated other income, net
Income before income taxes
Depreciation expense
Segment revenues:
Transactional and maintenance
Professional services
License
Total segment revenues
Segment operating expense
Segment operating income (loss)
Unallocated share-based compensation
expense
Unallocated amortization expense
Operating income
Unallocated interest expense, net
Unallocated other income, net
Income before income taxes
Depreciation expense
393,994 $
517,024 $
62,915 $
136,677
71,375
602,046
(448,505)
1,600
9,923
528,547
(74,237)
44,763
56,291
163,969
(187,444)
— $
—
—
—
(144,704)
153,541 $
454,310 $
(23,475) $
(144,704) $
18,021 $
617 $
4,397 $
$
418 $
973,933
183,040
137,589
1,294,562
(854,890)
439,672
(93,681)
(4,993)
(45,029)
295,969
(42,177)
3,208
257,000
23,453
Applications
Scores
Year Ended September 30, 2019
Decision Management
Software
(In thousands)
Unallocated
Corporate
Expenses
Total
395,398 $
415,288 $
50,262 $
137,258
72,378
605,034
(443,872)
2,157
3,732
421,177
(59,821)
44,680
38,930
133,872
(168,988)
161,162 $
361,356 $
(35,116) $
— $
—
—
—
(144,755)
(144,755)
860,948
184,095
115,040
1,160,083
(817,436)
342,647
(82,973)
(6,126)
253,548
(39,752)
2,276
216,072
24,204
$
18,766 $
498 $
4,036 $
$
904 $
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Applications
Scores
Year Ended September 30, 2018
Decision Management
Software
(In thousands)
Unallocated
Corporate
Expenses
Total
Segment revenues:
Transactional and maintenance
Professional services
License
Total segment revenues
Segment operating expense
Segment operating income (loss)
Unallocated share-based compensation
expense
Unallocated amortization expense
Operating income
Unallocated interest expense, net
Unallocated other income, net
Income before income taxes
Depreciation expense
$
$
372,283 $
331,662 $
46,658 $
142,736
49,356
564,375
(420,411)
1,900
2,308
335,870
(63,452)
32,274
20,969
99,901
(134,261)
143,964 $
272,418 $
(34,360) $
— $
—
—
—
(125,255)
(125,255)
$
15,651 $
555 $
5,471 $
$
956 $
750,603
176,910
72,633
1,000,146
(743,379)
256,767
(74,814)
(6,594)
175,359
(31,311)
12,884
156,932
22,633
Information about disaggregated revenue by product deployment methods was as follows:
Reportable Segments
On-Premises
SaaS
Scores
Total
Percentage
(Dollars in thousands)
Year Ended September 30, 2020
Applications
Scores
Decision Management Software
Total
Reportable Segments
Applications
Scores
Decision Management Software
Total
$
$
$
$
340,702 $
261,344 $
—
125,269
465,971 $
—
38,700
— $
528,547
—
602,046
528,547
163,969
300,044 $
528,547 $
1,294,562
On-Premises
SaaS
Scores
Total
Percentage
(Dollars in thousands)
Year Ended September 30, 2019
360,105 $
244,929 $
—
108,447
468,552 $
—
25,425
— $
421,177
—
605,034
421,177
133,872
270,354 $
421,177 $
1,160,083
82
46%
41%
13%
100%
52%
36%
12%
100%
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Reportable Segments
On-Premises
SaaS
Scores
Total
Percentage
Applications
Scores
Decision Management Software
Total
$
$
337,162 $
227,213 $
—
86,172
—
13,729
— $
335,870
—
564,375
335,870
99,901
423,334 $
240,942 $
335,870 $
1,000,146
56%
34%
10%
100%
(Dollars in thousands)
Year Ended September 30, 2018
We derive a significant portion of revenues internationally, and 32%, 34%, and 35% of total consolidated revenues were derived from clients outside
the U.S. during fiscal 2020, 2019 and 2018, respectively. Information about disaggregated revenue by primary geographical markets was as follows:
Reportable Segments
North America
Latin America
Year Ended September 30, 2020
Europe, Middle East
and Africa
(In thousands)
Asia Pacific
Total
Applications
Scores
Decision Management Software
Total
Reportable Segments
Applications
Scores
Decision Management Software
Total
Reportable Segments
Applications
Scores
Decision Management Software
Total
$
$
$
$
$
$
331,290 $
40,047 $
157,793 $
511,333
87,305
3,576
18,674
6,385
39,406
72,916 $
7,253
18,584
602,046
528,547
163,969
929,928 $
62,297 $
203,584 $
98,753 $
1,294,562
North America
Latin America
Year Ended September 30, 2019
Europe, Middle East
and Africa
(In thousands)
Asia Pacific
Total
338,990 $
42,656 $
155,539 $
404,778
63,397
4,591
18,040
6,359
33,288
67,849 $
5,449
19,147
605,034
421,177
133,872
807,165 $
65,287 $
195,186 $
92,445 $
1,160,083
North America
Latin America
Year Ended September 30, 2018
Europe, Middle East
and Africa
(In thousands)
Asia Pacific
Total
318,836 $
39,136 $
141,358 $
328,990
53,184
1,366
5,035
3,989
24,245
65,045 $
1,525
17,437
564,375
335,870
99,901
701,010 $
45,537 $
169,592 $
84,007 $
1,000,146
Within our Applications segment our fraud solutions accounted for 15%, 18% and 17% of total revenues in each of fiscal 2020, 2019 and 2018,
respectively, and our customer communication services accounted for 8%, 9% and 10% of total revenues in each of these periods, respectively.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Revenue generated from a single customer or a group of customers which represented 10% or greater of total revenue are summarized below for
fiscal 2020, 2019 and 2018:
Experian
TransUnion and Equifax
Other customers
Total
$
$
2020
181,036
239,166
874,360
Year Ended September 30,
2019
(Dollars in thousands)
148,037
183,523
828,523
13% $
16%
71%
2018
109,097
142,179
748,870
14% $
18%
68%
1,294,562
100% $
1,160,083
100% $
1,000,146
At September 30, 2020 and 2019, no individual customer accounted for 10% or more of total consolidated receivables.
Our property and equipment, net, on a geographical basis are summarized below at September 30, 2020 and 2019:
September 30,
2020
2019
(Dollars in thousands)
$
$
29,375
8,776
8,268
46,419
63% $
19%
18%
100% $
38,058
7,801
7,168
53,027
United States
United Kingdom
Other countries
Total
16. Contract Balances and Performance Obligations
Contract Balances
11%
14%
75%
100%
72%
15%
13%
100%
We record a receivable when we satisfy a performance obligation prior to invoicing if only the passage of time is required before payment is due or
if we have an unconditional right to consideration before we satisfy a performance obligation. We record a contract asset when we satisfy a performance
obligation prior to invoicing but our right to consideration is conditional. We record deferred revenue when the payment is made or due before we satisfy a
performance obligation.
Receivables at September 30, 2020 and 2019 consisted of the following:
Billed
Unbilled
Less: allowance for doubtful accounts
Net receivables
Less: long-term receivables *
Short-term receivables *
September 30,
2020
2019
$
(In thousands)
211,776 $
181,550
393,326
(5,072)
388,254
(54,074)
334,180
206,714
127,651
334,365
(2,568)
331,797
(34,370)
297,427
(*) 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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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
Activity in the allowance for doubtful accounts was as follows:
Allowance for doubtful accounts, beginning balance
Add: expense
Less: write-offs (net of recoveries)
Allowance for doubtful accounts, ending balance
Year Ended September 30,
2020
2019
(In thousands)
$
$
2,568 $
3,199
(695)
5,072 $
3,439
518
(1,389)
2,568
Contract assets balance at September 30, 2020 and 2019 was immaterial.
Deferred revenue primarily relates to our maintenance and SaaS contracts billed annually in advance and generally recognized ratably over the term
of the service period. Significant changes in the deferred revenues balances are as follows:
Deferred revenues, beginning balance
Revenue recognized that was included in the deferred revenues balance at the beginning of the
period
Increases due to billings, excluding amounts recognized as revenue during the period
Deferred revenues, ending balance (*)
Year Ended September 30,
2020
2019
(In thousands)
116,320 $
(101,640)
107,461
122,141 $
108,118
(93,265)
101,467
116,320
$
$
(*) Ending balance at September 30, 2020 included current portion of $115.1 million and long-term portion of $7.0 million that were recorded in deferred
revenue and other liabilities, respectively, within the consolidated balance sheets. Ending balance at September 30, 2019 included current portion of $111.0
million and long-term portion of $5.3 million that were recorded in deferred revenue and other liabilities, respectively, within the consolidated balance
sheets.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances
where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant
financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products
and services, not to provide customers with financing or to receive financing from our customers. Examples include multi-year on-premises licenses that
are invoiced annually with revenue recognized upfront, and invoicing at the beginning of a subscription term with revenue recognized ratably over the
contract period.
Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised
of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include:
•
•
•
Revenue that will be recognized in future periods from usage-based royalty from license sales;
SaaS transactional revenue from variable considerations that will be recognized in the distinct service period during which it is earned; and
Revenue from variable considerations that will be recognized in accordance with the “right-to-invoice” practical expedient, such as fees from our
professional services billed based on a time and materials basis.
Revenue allocated to remaining performance obligations was $298.0 million as of September 30, 2020, of which we expect to recognize
approximately 50% over the next 18 months and the remainder thereafter. Revenue allocated to remaining performance obligations was $238.4 million as
of September 30, 2019.
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17. Leases
FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
We lease office space and data centers under operating lease arrangements, which constitute the majority of our lease obligations. We also enter into
finance lease agreements from time to time for certain computer equipment. For any lease with a lease term in excess of 12 months, the related lease assets
and liabilities are recognized on our consolidated balance sheets as either operating or finance leases at the commencement of an agreement where it is
determined that a lease exists. We have lease agreements that contain both lease and non-lease components, and we have elected to combine these
components together and account for them as a single lease component for all classes of assets. Leases with a lease term of 12 months or less are not
recorded on our consolidated balance sheets. Furthermore, we recognize lease expense for these leases on a straight-line basis over the lease term.
Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make
lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at the
commencement date. We use a collateralized incremental borrowing rate based on the information available at the commencement date, including the lease
term, in determining the present value of future payments. In calculating the incremental borrowing rates, we consider recent ratings from credit agencies
and current lease demographic information. Our operating leases also typically require payment of real estate taxes, common area maintenance, insurance
and other operating costs as well as payments that are adjusted based on a consumer price index. These components comprise the majority of our variable
lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to
combine lease and non-lease components. Operating lease assets also include prepaid lease payments and initial direct costs, and are reduced by lease
incentives. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised.
Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement
date to the end of the lease term.
As a strategic cost initiative in fiscal 2020 we committed to a course of action to adjust our facilities footprint in light of post-pandemic workforce
patterns, including closing certain non-core offices and reducing office space in other locations to better align with anticipated needs. As a result of this
initiative, we recorded a net impairment of $28.0 million on operating lease right-of-use assets. Prior to the adoption of ASC 842, these adjustments were
described as restructuring expenses - facilities charges. See Note 11 for additional information regarding our restructuring and impairment charges.
The following table presents the lease balances within the accompanying consolidated balance sheet as of September 30, 2020:
Assets
Operating leases
Finance leases (*)
Total lease assets
Liabilities
Current:
Operating leases
Finance leases
Non-current:
Operating leases
Finance leases
Total lease liabilities
(*) Finance leases are recorded net of accumulated depreciation of $1.5 million.
86
Balance Sheet Location
September 30, 2020
(In thousands)
Operating lease right-of-use assets
Property and equipment, net
Other accrued liabilities
Other accrued liabilities
Operating lease liabilities
Other liabilities
$
$
$
$
57,656
5,021
62,677
22,787
2,186
73,207
3,076
101,256
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
The components of our operating and finance lease expenses were as follows:
Operating lease cost
Finance lease cost:
Depreciation of lease assets
Interest on lease liabilities
Short-term lease cost
Variable lease cost
Total lease cost
Year Ended
September 30, 2020
(In thousands)
23,624
2,078
186
1,171
3,264
30,323
$
$
The following table presents weighted-average remaining lease term and weighted-average discount rates related to our operating and finance leases:
Weighted-average remaining lease term (in months)
Weighted-average discount rate
September 30, 2020
Operating Leases
Finance Leases
63
3.86%
29
2.56%
Supplemental cash flow information related to our operating and finance leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow for operating leases
Operating cash outflow for finance leases
Financing cash outflow for finance leases
Lease assets obtained in exchange for new lease liabilities:
Operating leases
Finance leases
Future lease payments under our non-cancellable leases as of September 30, 2020 were as follows:
Year Ended
September 30, 2020
(In thousands)
$
18,801
186
1,716
11,457
1,387
(In thousands)
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Thereafter
Total future undiscounted lease payments
Less imputed interest
Total reported lease liability
Operating Leases
Finance Leases
$
$
26,047 $
21,925
17,109
14,384
9,004
17,131
105,600
(9,606)
95,994 $
2,397
2,240
784
—
—
—
5,421
(159)
5,262
In accordance with the prior guidance—ASC 840, Leases—our leases were previously designated as either capital or operating. Previously designated
capital leases are now considered finance leases under the new guidance, Topic 842. The
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
designation of operating leases remains substantially unchanged under the new guidance. The future minimum lease payments by fiscal year as determined
prior to the adoption of Topic 842 under our previously designated capital and operating leases as disclosed in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2019, were as follows:
(In thousands)
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Thereafter
Total minimum lease payments
Less amount representing interest
Present value of minimum lease payments
18. Commitments
Operating Leases
Capital Leases
$
$
19,842 $
19,969
17,677
16,940
14,887
24,431
113,746
$
1,935
1,934
1,934
—
—
—
5,803
(379)
5,424
In the ordinary course of business, we enter into contractual purchase obligations and other agreements that are legally binding and specify certain
minimum payment terms.
We are also a party to a management agreement with 23 of our executives providing for certain payments and other benefits in the event of a
qualified change in control of FICO, coupled with a termination of the officer during the following year.
19. Contingencies
We are in disputes with certain customers regarding amounts owed in connection with the sale of certain of our products and services. We also have
had claims asserted by former employees relating to compensation and other employment matters. We are also involved in various other claims and legal
actions arising in the ordinary course of business. We record litigation accruals for legal matters which are both probable and estimable. For legal
proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable),
we have determined we do not have material exposure on an aggregate basis.
20. Guarantees
In the ordinary course of business, we are not subject to potential obligations under guarantees, except for standard indemnification and warranty
provisions that are contained within many of our customer license and service agreements and certain supplier agreements, including underwriter
agreements, as well as standard indemnification agreements that we have executed with certain of our officers and directors, and give rise only to the
disclosure in the consolidated financial statements. In addition, we continue to monitor the conditions that are subject to the guarantees and
indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses under the guarantees and indemnifications
when those losses are estimable.
Indemnification and warranty provisions contained within our customer license and service agreements and certain supplier agreements are generally
consistent with those prevalent in our industry. The duration of our product warranties generally does not exceed 90 days following delivery of our
products. We have not incurred significant obligations under customer indemnification or warranty provisions historically and do not expect to incur
significant obligations in the future. Accordingly, we do not maintain accruals for potential customer indemnification or warranty-related obligations. The
indemnification agreements that we have executed with certain of our officers and directors would require us to indemnify such officers and directors in
certain instances. We have not incurred obligations under these indemnification agreements historically and do not expect to incur significant obligations in
the future. Accordingly, we do not maintain accruals for potential officer or director indemnification obligations. The maximum potential amount of future
payments that we could be required to make under the indemnification provisions in our customer license and service agreements, and officer and director
agreements is unlimited.
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FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2020, 2019 and 2018
21. Supplementary Financial Data (Unaudited)
The following table presents selected unaudited consolidated financial results for each of the eight quarters in the two-year period ended
September 30, 2020. In the opinion of management, this unaudited information has been prepared on the same basis as the audited information and
includes all adjustments (consisting of only normal recurring adjustments, except as noted below) necessary for a fair statement of the consolidated
financial information for the period presented.
Revenues
Cost of revenues (1)
Gross profit
Net income
Earnings per share (2):
Basic
Diluted
Shares used in computing earnings per share:
Basic
Diluted
Revenues
Cost of revenues (1)
Gross profit
Net income
Earnings per share (2):
Basic
Diluted
Shares used in computing earnings per share:
Basic
Diluted
$
$
$
$
$
$
$
$
September 30,
2020
June 30,
2020
March 31,
2020
December 31,
2019
Quarter Ended
(In thousands, except per share data)
374,356 $
313,731 $
307,971 $
93,676
280,680
88,569
225,162
88,139
219,832
59,126 $
64,076 $
58,288 $
2.04 $
1.98 $
2.21 $
2.15 $
2.00 $
1.94 $
29,045
29,833
29,005
29,744
29,194
29,985
298,504
90,758
207,746
54,921
1.89
1.82
29,025
30,169
September 30,
2019
June 30,
2019
March 31,
2019
December 31,
2018
Quarter Ended
(In thousands, except per share data)
305,344 $
314,249 $
278,234 $
87,996
217,348
87,215
227,034
85,568
192,666
54,584 $
64,152 $
33,381 $
1.89 $
1.80 $
2.21 $
2.12 $
1.15 $
1.10 $
28,918
30,290
28,967
30,292
29,074
30,259
262,256
76,066
186,190
40,007
1.38
1.32
28,961
30,336
(1) Cost of revenues excludes amortization expense of $0.3 million, $0.4 million, $0.5 million, $0.6 million, $0.5 million, $0.5 million, $0.5 million and
$0.5 million for the quarters ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, June 30, 2019,
March 31, 2019 and December 31, 2018, respectively.
(2) Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts may not equal
the totals for the respective years.
22. Subsequent Events
In October 2020, we entered into a purchase agreement with Rackspace US, Inc. (“Rackspace”) pursuant to which Rackspace will provide to us
primary cloud infrastructure services as a reseller of AWS. The initial term is a five-year period for which we have a minimum purchase obligation of $120
million over the first 3 years with the ability to roll up to $12 million into a fourth year if we spend less than the minimum commitment. The purpose of this
agreement is to replace services that were previously provided directly through AWS.
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Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of FICO’s management, including the Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of FICO’s disclosure controls and procedures (as defined in
Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this
annual report. Based on that evaluation, the CEO and CFO have concluded that FICO’s disclosure controls and procedures are effective to ensure that
information required to be disclosed by FICO in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms. In addition, the disclosure controls and procedures are designed to ensure that information
required to be disclosed is accumulated and communicated to management, including the CEO and CFO, allowing timely decisions regarding required
disclosure.
Changes in Internal Control over Financial Reporting
No change in FICO’s internal control over financial reporting was identified in connection with the evaluation required by Rule 13a-15(d) of the
Exchange Act that occurred during the year ended September 30, 2020, that has materially affected, or is reasonably likely to materially affect, FICO’s
internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Under the supervision and with the participation of management, including our CEO and CFO, we conducted an
evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2020 based on the guidelines established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation
management has concluded that our internal control over financial reporting was effective as of September 30, 2020.
Deloitte & Touche LLP, an independent registered public accounting firm that audited the consolidated financial statements included in this Annual
Report on Form 10-K, has also audited the effectiveness of our internal control over financial reporting as of September 30, 2020, as stated in their
attestation report included in Part II, Item 8 of this Annual Report on Form 10-K.
Item 9B. Other Information
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The required information regarding our Directors is incorporated by reference from the information under the caption “Our Director Nominees” in
our 2021 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.
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Table of Contents
Our current executive officers are as follows:
Name
William J. Lansing
Michael I. McLaughlin
Thomas A. Bowers
Stephanie Covert
Richard S. Deal
Michael S. Leonard
Claus Moldt
Mark R. Scadina
James M. Wehmann
Positions Held
January 2012-present, Chief Executive Officer and member of the Board of Directors of the Company. February
2009-November 2010, Chief Executive Offer and President, Infospace, Inc. 2004-2007, Chief Executive Officer and
President, ValueVision Media, Inc. 2001-2003, General Partner, General Atlantic LLC. 2000-2001, Chief Executive
Officer, NBC Internet, Inc. 1998-2000, President/Chief Executive Officer, Fingerhut Companies, Inc. 1996-1998,
Vice President, Corporate Business Development, General Electric Company. 1996, Executive Vice President, Chief
Operating Office, Prodigy, Inc. 1986-1995, various positions, McKinsey & Company, Inc.
Age
62
August 2019-present, Executive Vice President, Chief Financial Officer of the Company. May 2007-August 2019,
Managing Director, Head of Technology Corporate Finance of Morgan Stanley. January 2004-May 2007, Managing
Director, Head of Enterprise Systems and Supply Chain Coverage of BofA Securities. January 2001-January 2004,
Executive Director, Head of Enterprise Hardware and Supply Chain of UBS Investment Bank. 1997-2001, founder
and co-Chief Executive Officer of Stampede Ventures, LLC. 1993-1997, Vice President of Montgomery Securities.
1990-1993, Associate of The First Boston Corporation. 1986-1988, Analyst of The First Boston Corporation.
August 2020-present, Executive Vice President, Corporate Strategy of the Company. September 2019-August 2020,
Vice President, Business Consulting of the Company. April 2018-September 2019, Founder and Managing Partner,
M Cubed Development, LLC. August 2012-March 2018, Executive Vice President, American Savings Bank. 1987-
2012, Senior partner and various positions, McKinsey & Company, Inc.
October 2020-present, Executive Vice President, Sales & Marketing of the Company. June 2016-October 2020, Vice
President, Global Sales Operations of the Company. December 2015-May 2016, Vice President, Solution Success of
the Company. June 2015-December 2015, Senior Director, Solution Success, Americas & EMEA of the Company.
May 2014-June 2015, Senior Director, Solution Success, Americas of the Company. March 2013-May 2014, Senior
Director, Sales Operations, Apttus. March 2012-March 2013, Sales Operations Director, Oracle Corporation. June
2007-March 2012, various positions, RightNow Technologies, Inc.
November 2015-present, Executive Vice President, Chief Human Resources Officer of the Company. August 2007-
November 2015, Senior Vice President, Chief Human Resources Officer of the Company. January 2001-August
2007, Vice President, Human Resources of the Company. 1998-2001, Vice President, Human Resources, Arcadia
Financial, Ltd. 1993-1998, managed broad range of human resources corporate and line consulting functions with
U.S. Bancorp.
November 2011-present, Vice President, Chief Accounting Officer of the Company. November 2007-November
2011, Senior Director, Finance of the Company. July 2000-November 2007, Director, Finance of the Company.
1998-2000, Controller of Natural Alternatives International, Inc. 1994-1998, various audit staff positions at KPMG
LLP.
August 2019-present, Executive Vice President, Chief Technology Officer of the Company. March 2016-August
2019, Chief Information Officer of the Company. June 2013-March 2016, Chief Executive Officer of mPath.
October 2006-June 2013, Global Chief Information Officer and Senior Vice President of Technical Operations of
Salesforce.com. November 2002-September 2006, Senior Director Operations Infrastructure and Project Delivery of
eBay. May 2001-May 2002, Manager Database and System Administration, LoudCloud/Opsware.
February 2009-present, Executive Vice President and General Counsel and Corporate Secretary of the Company.
June 2007-February 2009, Senior Vice President and General Counsel and Corporate Secretary of the Company.
2003-2007, various senior positions including Executive Vice President, General Counsel and Corporate Secretary,
Liberate Technologies, Inc. 1999-2003, various leadership positions including Vice President and General Counsel,
Intertrust Technologies Corporation. 1994-1999, Associate, Pennie and Edmonds LLP.
April 2012-present, Executive Vice President, Scores of the Company. November 2003-March 2012, Vice
President/Senior Vice President, Global Marketing, Digital River, Inc. March 2002-June 2003, Vice President,
Marketing, Brylane, Inc. September 2000-March 2002, Senior Vice President, Marketing, New Customer
Acquisition, Bank One. 1993-2000, various roles, including Senior Vice President, Marketing, Fingerhut
Companies, Inc.
56
65
41
53
56
57
51
55
The required information regarding compliance with Section 16(a) of the Securities Exchange Act is incorporated by reference from the information
in our 2021 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.
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FICO has adopted a Code of Ethics for Senior Financial Management that applies to the Company’s Chief Executive Officer, Chief Financial Officer,
Controller and other employees performing similar functions who have been identified by the Chief Executive Officer. We have posted the Code of Ethics
on our website located at www.fico.com. FICO intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or a
waiver from, this Code of Ethics by posting such information on its website. FICO also has a Code of Conduct and Business Ethics applicable to all
directors, officers and employees, which is also available at the website cited above.
The required information regarding the Company’s audit committee is incorporated by reference from the information under the caption “Board
Committees” in our 2021 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from the information under the captions “Director Compensation for Fiscal 2020”
and “Executive Compensation” in our 2021 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference from the information under the caption “Security Ownership of Certain Beneficial
Owners and Management” and “Executive Compensation Plan Information” in our 2021 Proxy Statement to be filed with the SEC within 120 days after
September 30, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference from the information under the caption “Certain Relationships and Related
Persons Transactions” in our 2021 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference from the information under the caption “Ratification of Independent Registered
Public Accounting Firm” in our 2021 Proxy Statement to be filed with the SEC within 120 days after September 30, 2020.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
1. Consolidated Financial Statements:
Report of independent registered public accounting firm
Consolidated balance sheets as of September 30, 2020 and 2019
Consolidated statements of income and comprehensive income for the years ended September 30, 2020, 2019 and 2018
Consolidated statements of stockholders’ equity for the years ended September 30, 2020, 2019 and 2018
Consolidated statements of cash flows for the years ended September 30, 2020, 2019 and 2018
Notes to consolidated financial statements
2. Financial Statement Schedules
Reference Page
Form 10-K
52
55
56
57
58
59
All financial statement schedules are omitted as the required information is not applicable or as the information required is included in the
consolidated financial statements and related notes.
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3. Exhibits:
Exhibit
Number
Description
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Bylaws of Fair Isaac Corporation. (Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended
December 31, 2009.)
Composite Restated Certificate of Incorporation of Fair Isaac Corporation. (Incorporated by reference to Exhibit 3.2 to the Company’s
Form 10-Q for the quarter ended December 31, 2009.)
Description of Securities of Registrant Registered Under Section 12 of the Securities Exchange Act of 1934. (Incorporated by reference
to Exhibit 4.1 to the Company’s Form 10-K for the fiscal year ended September 30, 2019.)
Form of Note Purchase Agreement, dated May 7, 2008, between Fair Isaac Corporation and the Purchasers listed on Schedule A
thereto, which includes as Exhibits 1-4 the form of Senior Note for each of Series A, B, C and D (excluding certain schedules and
exhibits thereto, which Fair Isaac Corporation agrees to furnish to the Securities and Exchange Commission upon request).
(Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 13, 2008.)
Form of Note Purchase Agreement, dated July 14, 2010, between Fair Isaac Corporation and the Purchasers listed on Schedule A
thereto, which includes as Exhibits 1-4 the form of Senior Note for each of Series E, F, G and H (excluding certain schedules and
exhibits thereto, which Fair Isaac Corporation agrees to furnish to the Securities and Exchange Commission upon request).
(Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 19, 2010.)
Indenture, dated as of May 8, 2018, by and between the Company and U.S. Bank National Association, as trustee, which includes the
form of 5.25% Senior Notes due 2026. (Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on May 8, 2018.)
Indenture, dated as of December 6, 2019, by and between the Company and U.S. Bank National Association, as trustee, which includes
the form of 4.00% Senior Notes due 2028. (Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on December 6,
2019.)
Fair Isaac Corporation 1992 Long-Term Incentive Plan, as amended effective May 4, 2010. (Incorporated by reference to Exhibit 10.1
to the Company’s Form 10-Q for the quarter ended June 30, 2010.) (1)
Form of Non-Qualified Stock Option Agreement under 1992 Long-term Incentive Plan, as amended effective July 18, 2007.
(Incorporated by reference to Exhibit 10.42 to the Company’s Form 10-Q for the quarter ended December 31, 2007.) (1)
Form of Nonstatutory Stock Option Agreement for Initial Grants to Non-Employee Directors under 1992 Long-term Incentive Plan.
(Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended December 31, 2008.) (1)
Form of Restricted Stock Unit Agreement under 1992 Long-term Incentive Plan, as amended effective July 18, 2007. (Incorporated by
reference to Exhibit 10.49 to the Company’s Form 10-Q for the quarter ended December 31, 2007.) (1)
Form of Restricted Stock Agreement under 1992 Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10.43 to the
Company’s Form 10-K for the fiscal year ended September 30, 2006.) (1)
Fair Isaac Supplemental Retirement and Savings Plan, as amended and restated effective January 1, 2009. (Incorporated by reference to
Exhibit 10.10 of the Company’s Form 10-K for the fiscal year ended September 30, 2008.) (1)
Form of Indemnity Agreement entered into by the Company with the Company’s directors and executive officers. (Incorporated by
reference to Exhibit 10.49 to the Company’s Form 10-K for the fiscal year ended September 30, 2002.) (1)
Form of Management Agreement entered into with each of the Company’s executive officers. (Incorporated by reference to Exhibit
10.4 to the Company’s Form 8-K filed on February 10, 2012.) (1)
Form of Amendment to Management Agreement entered into with certain of the Company’s executive officers. (Incorporated by
reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended December 31, 2014.) (1)
Form of Amendment to Management Agreement entered into with each of the Company’s executive officers. (Incorporated by
reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2016.)
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10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Offer Letter entered into on May 29, 2007 with Mark R. Scadina. (Incorporated by reference to Exhibit 10.61 to the Company’s Form
10-K for the fiscal year ended September 30, 2008.) (1)
Letter Agreement dated January 24, 2012 by and between the Company and William J. Lansing. (Incorporated by reference to Exhibit
10.2 to the Company’s Form 8-K filed on January 26, 2012.) (1)
Letter Agreement dated February 6, 2012 by and between the Company and Mark Scadina. (Incorporated by reference to Exhibit 10.3
to the Company’s Form 8-K filed on February 10, 2012.) (1)
Letter Agreement dated March 7, 2012 by and between the Company and James M. Wehmann. (Incorporated by reference to Exhibit
10.1 to the Company’s Form 10-Q for the quarter ended December 31, 2012.) (1)
Letter Agreement dated November 5, 2014 by and between the Company and Wayne Huyard. (Incorporated by reference to Exhibit
10.3 to the Company’s Form 10-Q for the quarter ended December 31, 2014.) (1)
Form of Amendment to Letter Agreement entered into with each of the Company’s executive officers. (Incorporated by reference to
Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2016.) (1)
Fair Isaac Corporation 2012 Long-Term Incentive Plan, as amended as of March 4, 2020. (Incorporated by reference to Exhibit 4.3 of
the Company's Registration Statement on Form S-8, filed with the SEC on March 6, 2020.) (1)
Form of Employee Non-Statutory Stock Option Agreement (U.S.) under the 2012 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2012.) (1)
Form of Employee Restricted Stock Unit Award Agreement (U.S.) under the 2012 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended March 31, 2012.) (1)
Form of Employee Non-Statutory Stock Option Agreement (International) under the 2012 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended March 31, 2012.) (1)
Form of Employee Restricted Stock Unit Award Agreement (International) under the 2012 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended March 31, 2012.) (1)
Form of Employee Non-Statutory Stock Option Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
Form of Employee Restricted Stock Unit Award Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
Form of Executive Non-Statutory Stock Option Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.4 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
Form of Executive Non-Statutory Stock Option Agreement under the 2012 Long-Term Incentive Plan (U.S.), as amended November 6,
2018. (Incorporated by reference to Exhibit 10.30 to the Company’s Form 10-K for the fiscal year ended September 30, 2018.) (1)
Form of Executive Restricted Stock Unit Award Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
Form of Executive Restricted Stock Unit Award Agreement under the 2012 Long-Term Incentive Plan (U.S.), as amended November 8,
2018. (Incorporated by reference to Exhibit 10.32 to the Company’s Form 10-K for the fiscal year ended September 30, 2018.) (1)
Form of Employee Non Statutory Stock Option Agreement (International) under the 2012 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
Form of Employee Non Statutory Stock Option Agreement (United Kingdom) under the 2012 Long-Term Incentive Plan. (Incorporated
by reference to Exhibit 10.7 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
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Table of Contents
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
Form of Employee Restricted Stock Unit Award Agreement (International) under the 2012 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.8 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
Form of Employee Restricted Stock Unit Award Agreement (United Kingdom) under the 2012 Long-Term Incentive Plan.
(Incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
Form of Director Non-Statutory Stock Option Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended March 31, 2012.) (1)
Form of Director Restricted Stock Unit Award Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference by
Exhibit 10.7 to the Company's Form 10-Q for the quarter ended March 31, 2012.) (1)
Form of Director Non-Statutory Stock Option Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2017.) (1)
Form of Director Restricted Stock Unit Award Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2017.) (1)
Form of Performance Share Unit Award Agreement (fiscal 2016 grants) under the 2012 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended December 31, 2015.) (1)
Form of Performance Share Unit Award Agreement (fiscal 2017 grants) under the 2012 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.10 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
Form of Performance Share Unit Agreement (fiscal 2018) under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended December 31, 2017.) (1)
Form of Performance Share Unit Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10.44 to
the Company’s Form 10-K for the fiscal year ended September 30, 2018.) (1)
Form of Performance Share Unit Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10.1 to
the Company’s Form 10-Q for the quarter ended December 31, 2019.) (1)
Form of Market Share Unit Award Agreement (fiscal 2016 grants) under the 2012 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended December 31, 2015.) (1)
Form of Market Share Unit Agreement (fiscal 2017 grants) under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.11 to the Company’s Form 10-Q for the quarter ended December 31, 2016.) (1)
Form of Market Share Unit Agreement (fiscal 2018 grants) under the 2012 Long-Term Incentive Plan. (Incorporated by reference to
Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended December 31, 2017.) (1)
Form of Market Share Unit Agreement under the 2012 Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10.48 to the
Company’s Form 10-K for the fiscal year ended September 30, 2018.) (1)
Amended and Restated Credit Agreement dated December 31, 2014 among the Company, Wells Fargo Securities, LLC, U.S. Bank
National Association, and Wells Fargo Bank, National Association. (Incorporated by reference to Exhibit 10.1 to the Company’s Form
8-K filed on December 31, 2014.)
First Amendment to Amended and Restated Credit Agreement among the Company, Wells Fargo Bank, National Association as
administrative agent and the lenders thereto dated as of April 16, 2015. (Incorporated by reference to the Exhibit 10.1 to the Company's
Form 8-K filed on April 17, 2015.)
Commitment Increase Agreement and Second Amendment to Credit Agreement dated as of June 26, 2017 by and among the Company,
the lenders party thereto and Wells Fargo Bank, National Association as Administrative Agent (Incorporated by reference to the Exhibit
10.1 to the Company's Form 8-K filed on June 26, 2017.)
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Commitment Increase Agreement to the Amended and Restated Credit Agreement dated as of November 17, 2017 by and among the
Company, the lenders party thereto and Wells Fargo Bank, National Association as Administrative Agent (Incorporated by reference to
the Exhibit 10.1 to the Company’s Form 8-K filed on November 20, 2017.)
Third Amendment to Amended and Restated Credit Agreement dated as of May 8, 2018 by and among the Company, the several banks
and other financial institutions party thereto, and Wells Fargo Bank, National Association, as administrative agent. (Incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 8, 2018.)
Letter Agreement dated August 3, 2019 by and between the Company and Michael I. McLaughlin. (Incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed on June 24, 2019.) (1)
Letter Agreement dated August 21, 2019 by and between the Company and Claus Moldt (Incorporated by reference to Exhibit 10.57 to
the Company’s Form 10-K for the fiscal year ended September 30, 2019.) (1)
Fair Isaac Corporation 2019 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 4.3 to the Company’s Registration
Statement on Form S-8 filed March 4, 2019.) (1)
Transition Agreement dated August 26, 2020 by and between the Company and Wayne Huyard. (Incorporated by reference to Exhibit
10.1 to the Company’s Form 8-K filed on August 27, 2020.) (1)
Letter Agreement dated August 26, 2020 by and between the Company and Stephanie Covert. (1)
Letter Agreement dated August 26, 2020 by and between the Company and Thomas A. Bowers. (1)
List of Company’s subsidiaries.
Consent of Deloitte & Touche LLP, independent registered public accounting firm.
Rule 13a-14(a)/15d-14(a) Certifications of CEO.
Rule 13a-14(a)/15d-14(a) Certifications of CFO.
Section 1350 Certification of CEO.
Section 1350 Certification of CFO.
10.52
10.53
10.54
10.55
10.56
10.57
10.58*
10.59*
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
101.INS*
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded
within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
(1) Management contract or compensatory plan or arrangement.
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FAIR ISAAC CORPORATION
By
/s/ MICHAEL I. MCLAUGHLIN
Michael I. McLaughlin
Executive Vice President
and Chief Financial Officer
DATE: November 10, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
/s/ WILLIAM J. LANSING
William J. Lansing
/s/ MICHAEL I. MCLAUGHLIN
Michael I. McLaughlin
/s/ MICHAEL S. LEONARD
Michael S. Leonard
/s/ A. GEORGE BATTLE
A. George Battle
/s/ BRADEN R. KELLY
Braden R. Kelly
/s/ JAMES D. KIRSNER
James D. Kirsner
/s/ EVA MANOLIS
Eva Manolis
/s/ MARC F. MCMORRIS
Marc F. McMorris
/s/ JOANNA REES
Joanna Rees
/s/ DAVID A. REY
David A. Rey
/s/ FABIOLA R. ARREDONDO
Fabiola R. Arredondo
Chief Executive Officer
(Principal Executive Officer)
and Director
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
99
November 10, 2020
November 10, 2020
November 10, 2020
November 10, 2020
November 10, 2020
November 10, 2020
November 10, 2020
November 10, 2020
November 10, 2020
November 10, 2020
November 10, 2020
Table of Contents
100
Exhibit 10.58
August 26, 2020
Stephanie Covert
Dear Stephanie:
This letter agreement (the “Agreement”) confirms details of your promotion with Fair Isaac Corporation (the “Company”) to the role of
Executive Vice President, Sales & Marketing, and sets out the terms and conditions of your employment with the Company, as follows:
Beginning October 1, 2020, you will serve as the Company’s Executive Vice President, Sales & Marketing.
The term of your employment as the Company’s Executive Vice President, Sales & Marketing, under the terms and
conditions of this Agreement shall be for a period commencing on October 1, 2020 and ending on December 31,
2021 (the “Initial Term”), unless earlier terminated by either party as provided in this Agreement. Following the
Initial Term, your employment with the Company under the terms and conditions of this Agreement shall
automatically be renewed for successive one year periods (each a “Renewal Term”) on January 1 of each year, unless
the Company elects not to extend the Term providing you with written notice at least one hundred and eighty (180)
days’ prior to the end of the Initial Term or any Renewal Term thereof. The period of your employment with the
Company under the terms and conditions of this Agreement (including during the Initial Term and any Renewal
Term) is referred to as the “Term.”
During your employment hereunder with the Company as Executive Vice President, Sales & Marketing, you will
report to the Company’s Chief Executive Officer and will be responsible for leading the global marketing and sales
of FICO products and associated services in order to achieve targeted revenue and margin growth, and other
functions to which you may be assigned from time to time by the Chief Executive Officer or his or her designee. You
agree to serve the Company faithfully and to the best of your ability, and to devote your full working time, attention
and efforts to the business of the Company. You may participate in charitable activities and personal investment
activities to a reasonable extent, and you may serve as a director of business and civic organizations (and retain
compensation from same) as approved by the Company’s Board of Directors (the “Board”), so long as such activities
and directorships do not interfere with the performance of your duties and responsibilities to the Company.
1
Title:
Term:
Responsibilities:
US.129015688.01
Exhibit 10.58
Representation:
By accepting your continued employment with the Company under this Agreement and signing below, you represent
and confirm that you are under no contractual or legal commitments that would prevent you from fulfilling your
duties and responsibilities to the Company as Executive Vice President, Sales & Marketing.
During the Term, you will be paid a base salary at the rate of $400,000 per year for services performed, in
accordance with the regular payroll practices of the Company with annual review by the Board’s Leadership
Development and Compensation Committee (the “Committee”). Your performance and base salary will be reviewed
by the Committee annually during the first quarter of each fiscal year and may be adjusted upward from time to time
at the discretion of the Committee, but will not be reduced without your consent during the Term. After any such
increase, the reference to base salary in this Agreement shall mean such increased amount.
You will participate in the Company’s Management Incentive Plan, as may be amended by the Committee from time
to time (the “MIP”). Under the MIP, for each full fiscal year of the Company that you are employed during the Term,
you will be eligible for an annual incentive award opportunity payable from 0% to 100%, with a target award equal
to 50%, of your annual base salary at the rate in effect at the end of such fiscal year, pursuant to the terms and
conditions established by the Committee from time to time; provided, however, that for the Company’s fiscal year
2020 your MIP award will be based on your prior annual base salary of $300,000 per year. Objectives will be
established during the first quarter of the fiscal year. Any annual incentive bonus earned for a fiscal year will be paid
to you by December 31 of the calendar year in which such fiscal year ends.
For each fiscal year of the Company that you are employed during the Term, you will be eligible for an annual equity
grant based on achievement of objectives established by the Committee, and on such other terms established by the
Committee in its sole discretion. In accordance with the policies and practices of the Company, some or all of such
annual equity grant may be in the form of restricted stock units, performance share units, market share units, stock
options or other equity that is an economic equivalent to an option award. Such equivalency will be determined by
the Company in its sole discretion.
The Company shall grant to you, effective as of August 25, 2020 (the “Date of Grant”), initial equity with a Date of
Grant value of $2,000,000. This equity will be in the form of Restricted Stock Units (“RSUs”), subject to the terms
of the Company’s 2012 Long-Term Incentive Plan (the “Plan”). These RSUs will be subject to four-year ratable
vesting.
While employed by the Company during the Term, you (and your eligible dependents) will be eligible to participate
in the employee benefit plans and programs generally available to other executive officers of the Company, and in
such other employee benefit plans and programs to the extent that you meet the eligibility requirements for each
individual plan or program and subject to the provisions, rules
2
Initial Base Salary:
Incentive Bonus:
Annual Equity:
Initial Equity:
Benefits:
US.129015688.01
and regulations applicable to each such plan or program as in effect from time to time. The plans and programs of
the Company may be modified or terminated by the Company in its discretion.
Exhibit 10.58
Travel and Other
Business Expenses:
In performing your responsibilities as Executive Vice President, Sales & Marketing, you will be required to travel
extensively, both within the United States and internationally. The Company will reimburse you promptly for all
travel and other business expenses incurred by you in connection with the performance of your duties for the
Company, subject to the Company’s normal business expense and travel policies and procedures.
Vacation:
During your employment with the Company, you will receive vacation time off in accordance with the policies and
practices of the Company. Vacation time shall be taken at such times so as not to unduly disrupt the operations of the
Company.
Office Location:
Your employment will be based at the Company’s offices located in Bozeman, Montana.
Inventions Agreement: You acknowledge and agree that you continue to be bound by the terms and conditions of the Proprietary
Information and Inventions Agreement (“PIIA”) which you signed when you first joined the Company, the terms of
which are incorporated herein by reference.
Post-Employment
Restrictions
Agreement
Change in Control:
Termination:
Severance:
US.129015688.01
You acknowledge and agree that you continue to be bound by the terms and conditions of the Post-Employment
Restrictions Agreement (“PERA”) which you signed when you first joined the Company, the terms of which are
incorporated herein by reference.
You and the Company will enter into the enclosed Management Agreement (the “Management Agreement”), to be
separately signed by you, the terms of which are incorporated herein by reference (except that terms defined in the
Management Agreement apply only to the use of such terms in the Management Agreement, and terms defined in
this Agreement apply only to the use of such terms in this Agreement).
Either you or the Company may terminate the employment relationship during the Term or after the Term at any time
and for any reason. Upon termination of your employment by either party for any reason, you will promptly resign
any and all positions you then hold as officer or director of the Company or any of its affiliates.
In case of involuntary termination of your employment by the Company without Cause prior to the end of the Initial
Term or prior to the end of any Renewal Term then in effect or in the case of voluntary resignation of your
employment for Good Reason prior to the end of the Initial Term or prior to the end of any Renewal Term then in
effect (each a “Qualifying Termination”), the Company will pay you as severance pay an amount equal to one (1)
times the sum of (a) your annual base salary at the rate in effect on your last day of employment plus (b) the annual
3
Exhibit 10.58
incentive bonus last paid to you preceding the Qualifying Termination. In addition, upon a Qualifying Termination, if
you (and, if applicable, your eligible dependents), complete and return the forms necessary to elect COBRA
continuation coverage to the COBRA administrator for the group health plan in which you participate at the time of
your Qualifying Termination, then the Company will provide you and your eligible dependents with COBRA
continuation coverage at no cost to you, for a period of twelve (12) months following the effective date of
termination of your employment, provided you remain eligible for COBRA. This continuation coverage will be
provided only with respect to your base medical, dental, vision and Employee Assistance Program coverage under
the group health plan in which you receive COBRA continuation coverage (and in Minnesota only, this applies to
basic life insurance coverage), and shall not apply to any medical expense reimbursement account, dental care plan,
vision care plan, or other arrangement for which you may be entitled to COBRA continuation coverage. To the
extent necessary in order for you to avoid being subject to tax under section 105(h) of the Code (as defined below)
on any payment or reimbursement of group medical, dental or other group health care expenses made to you or for
your benefit pursuant to this paragraph, the Company shall impute as taxable income to you an amount equal to the
COBRA continuation coverage cost described above.
Payment by the Company of any severance pay or premium reimbursements under this paragraph will be
conditioned upon you (1) signing and not revoking a full release of all claims against the Company, its affiliates,
officers, directors, employees, agents and assigns, substantially in the form attached to this Agreement as Exhibit A,
and delivering such signed release to the Company within the period specified in Exhibit A (2) complying with your
obligations under the PIIA, the PERA and any other agreement between you and the Company then in effect,
(3) cooperating with the Company in the transition of your duties, and (4) agreeing not to disparage or defame the
Company, its affiliates, officers, directors, employees, agents, assigns, products or services as set forth in Exhibit A.
Subject to your execution and non-revocation of the release in the form attached hereto as Exhibit A and delivery of
such signed release within forty-five (45) days after your “separation from service” as determined under Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations and all notices, rulings
and other guidance issued by the Internal Revenue Service interpreting same (“Section 409A”) and your compliance
with the other conditions identified above, any severance payable to you under this Agreement will be paid to you in
a lump sum on the 70th day following your “separation from service” as determined under Section 409A.
For purposes of this Agreement, “Cause” and “Good Reason” have the following definitions:
“Cause” means a determination in good faith by the Company of the existence of one or more of the following:
(i) commission by you of any act constituting a felony; (ii) any intentional and/or willful act of fraud or material
dishonesty by you related to, connected with or otherwise affecting your employment with the Company, or
otherwise likely to cause material harm to the Company or its reputation; (iii) the willful and/or continued failure,
neglect, or refusal by you to perform in all material respects your duties with the Company as an employee, officer
or director, or to fulfill your fiduciary responsibilities to the Company, which failure, neglect or refusal has not been
cured within fifteen (15) days after written notice thereof to you from
4
US.129015688.01
Exhibit 10.58
the Company; or (iv) a material breach by you of the Company’s material policies or codes of conduct or of your
material obligations under the PIIA, the PERA or any other written agreement signed by you and the Company,
which breach has not been cured within fifteen (15) days after written notice thereof to you from the Company.
“Good Reason” means any one or more of the following conditions occur without your prior written consent: (i) a
material reduction in your base salary, unless such reduction is part of an across-the-board uniformly applied
reduction affecting all senior executives of the Company; (ii) a material reduction in your annual cash incentive
bonus target expressed as a percentage of base salary, unless such reduction is part of an across-the-board uniformly
applied reduction affecting all senior executives of the Company; (iii) a requirement that you relocate to an office
located fifty (50) or more miles from your current office location; (iv) material breach by the Company of any terms
or conditions of this Agreement; or (iv) the failure of the Company to obtain agreement from any successor to
assume and agree to perform this Agreement, unless this Agreement is otherwise assumed by any successor by
operation of law. A termination for Good Reason shall not take effect unless the following provisions are satisfied.
You shall notify the Company within ninety (90) days after the later of the occurrence of the event giving rise to
Good Reason or your learning of such event, specifying such act or acts. The Company shall have thirty (30) days
after such notice has been given to cure such conduct. If the Company fails to cure such condition, then you shall be
entitled to resign for Good Reason, provided such resignation shall be no later than 180 days after the occurrence of
the event giving rise to your right to so resign.
In the event of termination of your employment by the Company for Cause, resignation by you other than for Good
Reason, or termination due to your death or any disability for which you are qualified for benefits under the
Company’s group long-term disability program, the Company’s only obligations hereunder shall be those obligations
set forth immediately below in this paragraph. For any termination of your employment, you shall be entitled to (i)
such compensation and any benefits (including any vested equity awards) as are earned by you or accrued or vested
through the date of termination of employment, (ii) reimbursement of your business expenses incurred through the
date of termination, subject to the Company’s normal business expense and travel policies and procedures; (iii)
payments or benefits due to you pursuant to any applicable plan, policy, arrangement of, or agreement with, the
Company or any of its affiliates; and (iv) your rights under the Indemnification Agreement, the Company’s (or any
successor’s) charter documents or pursuant to applicable law or to be covered under any applicable directors’ and
officers’ insurance policies.
In the event that you receive any payment or benefit under the Management Agreement following termination of
your employment, you shall not be entitled to receive a comparable payment or benefit under this Agreement so as to
prevent any duplication of any payments or benefits under this Agreement and the Management Agreement.
Indemnification:
The Company will indemnify you in connection with your duties and responsibilities for the Company, as set out in
the enclosed Indemnification Agreement (the “Indemnification Agreement”), to be separately signed by you.
5
US.129015688.01
Prior Employment:
Taxes:
No Mitigation/
No Offset:
Binding Nature:
Exhibit 10.58
The Company understands that you may have other contractual obligations to former employers, but you have
represented that no such obligations prevent you from fulfilling your duties and responsibilities to the Company as
Executive Vice President, Sales & Marketing.
The Company may withhold from any compensation payable to you in connection with your employment such
federal, state and local income and employment taxes as the Company shall reasonably determine are required to be
withheld pursuant to any applicable law or regulation. You acknowledge and agree that the Company has made no
assurances or representations to you regarding the tax treatment of any consideration provided for in this Agreement
and that the Company has advised you to obtain your own personal tax advice. Except for any tax amounts withheld
by the Company from the payments or other consideration hereunder and any employment taxes required to be paid
by the Company or any tax liabilities for you that are the direct result of the Company failing to make payments or to
provide other consideration hereunder in accordance with the terms of this Agreement, you shall be responsible for
payment of any and all taxes owed in connection with the consideration provided for in this Agreement.
In the event of any termination of your employment, you shall be under no obligation to seek other employment or
otherwise mitigate damages. There shall be no offset against, or any recoupment of, any amounts, benefits or
entitlements due to you hereunder on account of any remuneration or other benefit earned or received by you from
subsequent employment.
As of the date first written above, this Agreement is intended to bind and inure to the benefit of and be enforceable
by you and the Company and their respective successors, assigns, heirs, executors and administrators, except you
may not assign your rights or obligations hereunder without the prior written consent of the Company (provided that
if you should die while any payment, benefit or entitlement is due to you hereunder, such payment, benefit or
entitlement shall be paid to your designated beneficiary, or, if there is no designated beneficiary, to your estate). In
addition, no rights or obligations of the Company under this Agreement may be assigned or transferred by the
Company without your prior written consent, except that such rights or obligations may be assigned or transferred
pursuant to a merger or consolidation in which the Company is not the continuing entity, or a sale, liquidation or
other disposition of all or substantially all of the assets of the Company, provided that the assignee or transferee is
the successor to all or substantially all of the assets of the Company and assumes the liabilities, obligations and
duties of the Company under this Agreement, either contractually or as a matter of law.
Applicable Law:
This Agreement shall be interpreted and construed in accordance with the laws of the State of Delaware.
Section 409A:
The parties hereto intend that all payments and benefits to be made or provided to you will be paid or provided in
compliance with all applicable requirements of Section 409A (as defined above), and the provisions of this
Agreement shall be construed and administered in accordance with and to implement such intent. In furtherance of
the foregoing, the provisions set forth below shall apply notwithstanding any other provision in this Agreement.
6
US.129015688.01
Exhibit 10.58
(a) All payments to be made to you hereunder, to the extent they constitute a deferral of compensation subject to
the requirements of Section 409A (after taking into account all exclusions applicable to such payments under Section
409A), shall be made no later, and shall not be made any earlier, than at the time or times specified herein or in any
applicable plan for such payments to be made, except as otherwise permitted or required under Section 409A.
(b) The date of your "separation from service", as defined in Section 409A (and as determined by applying the
default presumptions in Treas. Reg. §1.409A-1(h)(1)(ii)), shall be treated as the date of your termination of
employment for purposes of determining the time of payment of any amount that becomes payable to you related to
your termination of employment and that is properly treated as a deferral of compensation subject to Section 409A
after taking into account all exclusions applicable to such payment under Section 409A.
(c) To the extent any payment or delivery otherwise required to be made to you hereunder on account of your
separation from service is properly treated as a deferral of compensation subject to Section 409A after taking into
account all exclusions applicable to such payment and delivery under Section 409A, and if you are a "specified
employee" under Section 409A at the time of your separation from service, then such payment and delivery shall not
be made prior to the first business day after the earlier of (i) the expiration of six months from the date of your
separation from service, or (ii) the date of your death (such first business day, the “Delayed Payment Date”). On the
Delayed Payment Date, there shall be paid or delivered to you or, if you have died, to your estate, in a single
payment or delivery (as applicable) all entitlements so delayed, and in the case of cash payments, in a single cash
lump sum, an amount equal to aggregate amount of all payments delayed pursuant to the preceding sentence.
(d) In the case of any amounts payable to you under this Agreement that may be treated as payable in the form of
“a series of installment payments”, as defined in Treas. Reg. §1.409A-2(b)(2)(iii), your right to receive such
payments shall be treated as a right to receive a series of separate payments for purposes of Treas. Reg. §1.409A-
2(b)(2)(iii).
(e) To the extent that the reimbursement of any expenses eligible for reimbursement or the provision of any in-kind
benefits under any provision of this Agreement would be considered deferred compensation under Section 409A
(after taking into account all exclusions applicable to such reimbursements and benefits under Section 409A): (i)
reimbursement of any such expense shall be made by the Company as soon as practicable after such expense has
been incurred, but in any event no later than December 31st of the year following the year in which you incur such
expense; (ii) the amount of such expenses eligible for reimbursement, or in-kind benefits to be provided, during any
calendar year shall not affect the amount of such expenses eligible for reimbursement, or in-kind benefits to be
provided, in any calendar year; and (iii) your right to receive such reimbursements or in-kind benefits shall not be
subject to liquidation or exchange for another benefit.
7
US.129015688.01
Exhibit 10.58
Section 280G:
Notices:
Entire Agreement:
Section 3 of the Management Agreement is incorporated in full into this Agreement and shall apply to any payment,
benefit or entitlement paid or provided to you (or to be paid or so provided) hereunder or otherwise as if such
payment, benefit or entitlement had been paid under the Management Agreement.
Any notice, request or other communication required under this Agreement shall be in writing and shall be deemed
to have been given (i) when delivered personally, or (ii) two days after having been sent by a recognized courier,
provided written acknowledgement of receipt is obtained. Any such notices, requests or other communications shall
be given to the Company, at Fair Isaac Corporation, Attn: General Counsel, 181 Metro Drive, Suite 700, San Jose,
California, 95110, and to you at your home address in the Company’s files (or to any other address the party
provides in accordance with this notice provision).
This Agreement, the Indemnification Agreement and the Management Agreement constitute the entire agreement
between the parties with respect to the subject matter hereto, and supersede all prior discussions, agreements and
negotiations between you and the Company with respect to the subject matter hereof; provided, however, the PIIA
and PERA remain in full force and effect in accordance with their terms, and the terms of the PIIA and PERA are
incorporated herein by reference. No amendment or modification of this Agreement will be effective unless made in
writing and signed by you and an authorized officer or director of the Company. Any waiver of this Agreement will
only be effective if signed by the party against whom the waiver is being enforced (which in the case of the
Company shall be an authorized officer or director). No waiver by any party of any breach of any condition or
provision of this Agreement shall be deemed a waiver of any similar or dissimilar condition or provision at the same
or any prior or subsequent time.
[signature page follows]
8
US.129015688.01
Exhibit 10.58
If you have any questions about the terms of this Agreement, please contact Richard Deal.
Sincerely,
/s/ William J. Lansing
William J. Lansing
President and Chief Executive Officer
Enclosures
•
Form of Release attached hereto as Exhibit A
I accept and agree to the terms and conditions of employment with Fair Isaac Corporation as set forth above.
/s/ Stephanie Covert
Stephanie Covert
August 26, 2020
Dated
9
US.129015688.01
EXHIBIT A
RELEASE BY STEPHANIE COVERT
Definitions. I intend all words used in this Release to have their plain meanings in ordinary English. Specific terms that I use in this Release
have the following meanings:
Exhibit 10.58
A. I, me, and my include both me (Stephanie Covert) and anyone who has or obtains any legal rights or claims
through me.
B. FICO means Fair Isaac Corporation, any company related to Fair Isaac Corporation in the present or past
(including without limitation, its predecessors, parents, subsidiaries, affiliates, joint venture partners, and divisions), and any
successors of Fair Isaac Corporation.
C. Company means FICO; the present and past officers, directors, committees, shareholders, and employees of
FICO; any company providing insurance to FICO in the present or past; the present and past employee benefit plans
sponsored or maintained by FICO (other than multiemployer plans) and the present and past fiduciaries of such plans; the
attorneys for FIC; and anyone who acted on behalf of FICO or on instructions from FICO.
D. Agreement means the letter agreement between me and FICO dated August 26, 2020, including all of the
documents attached to such agreement.
E. My Claims mean all of my rights that I now have to any relief of any kind from the Company, whether I now
know about such rights or not, including without limitation:
1. all claims arising out of or relating to my employment with FICO or the termination of that
employment;
2. all claims arising out of or relating to the statements, actions, or omissions of the Company;
3. all claims for any alleged unlawful discrimination, harassment, retaliation or reprisal, or other alleged
unlawful practices arising under the laws of the United States or any other country or of any state, province,
municipality, or other unit of government, including without limitation, claims under Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and
Medical Leave Act, 42 U.S.C. § 1981, the Employee Retirement Income Security Act, the Equal Pay Act, the
Worker Adjustment and Retraining Notification Act, the Sarbanes-Oxley Act, the Lilly Ledbetter Fair Pay Act of
2009, the Minnesota Human Rights Act, the Genetic Information Nondiscrimination Act, the Fair Credit Reporting
Act, the California Fair Employment and Housing Act, the Minneapolis Civil Rights Ordinance, and workers’
compensation non-interference or non-retaliation statutes (such as Minn. Stat. § 176.82);
4. all claims for alleged wrongful discharge; breach of contract; breach of implied contract; failure to keep
any promise; breach of a covenant of good faith and fair dealing; breach of fiduciary duty; estoppel; my activities, if
any, as a “whistleblower”; defamation; infliction of emotional distress; fraud; misrepresentation; negligence;
harassment; retaliation or reprisal; constructive discharge; assault; battery; false imprisonment; invasion of privacy;
interference with contractual or business
US.129015688.01
10
Exhibit 10.58
relationships; any other wrongful employment practices; and violation of any other principle of common law;
5. all claims for compensation of any kind, including without limitation, bonuses, commissions, stock-
based compensation or stock options, vacation pay and paid time off, perquisites, and expense reimbursements;
6. all rights I have under California Civil Code section 1542, which states that: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the debtor;”
7. all claims for back pay, front pay, reinstatement, other equitable relief, compensatory damages, damages
for alleged personal injury, liquidated damages, and punitive damages; and
8. all claims for attorneys' fees, costs, and interest.
However, My Claims do not include any claims that the law does not allow to be waived; any claims that may arise after the
date on which I sign this Release; any rights I may have to indemnification from FICO as a current or former officer, director
or employee of FICO, including pursuant to the Indemnification Agreement (as defined in the Agreement); any claims for
payments, entitlements or benefits due me under the Agreement or the Management Agreement (as defined in the
Agreement), if applicable, subject to any terms or conditions under the Agreement or the Management Agreement, if
applicable; or any claims I may have for earned and accrued benefits under any employee benefit plan sponsored by the
Company in which I am a participant as of the date of termination of my employment with FICO or pursuant to any long-
term incentive or equity plan or award agreement
Consideration. I am entering into this Release in consideration of FICO’s obligations to provide me certain severance benefits as specified in
the Agreement. I will receive consideration from FICO as set forth in the Agreement if I sign and do not rescind this Release as provided
below. I understand and acknowledge that I would not be entitled to the consideration under the Agreement if I did not sign this Release. The
consideration is in addition to anything of value that I would be entitled to receive from FICO if I did not sign this Release or if I rescinded
this Release. I acknowledge and represent that I have received all payments and benefits that I am entitled to receive (as of the date of this
Release) by virtue of any employment by the Company.
Agreement to Release My Claims. In exchange for the consideration described in the Agreement, I give up and release all of My
Claims. I will not make any demands or claims against the Company for compensation or damages relating to My Claims. The
consideration that I am receiving is a fair compromise for the release of My Claims.
Cooperation. Upon the reasonable request of the Company, I agree that I will (i) timely execute and deliver such acknowledgements,
instruments, certificates, and other ministerial documents (including without limitation, certification as to specific actions performed by me in
my capacity as an officer of the Company) as may be necessary or appropriate to formalize and complete the applicable corporate records;
(ii) reasonably consult with the Company regarding business matters that I was involved with while employed by the Company; and (iii) be
reasonably available, with or without subpoena, to be interviewed, review documents or things, give depositions, testify, or engage in other
reasonable activities in connection with any litigation or investigation, with respect to matters that I may have knowledge of by virtue of my
employment by or service to the Company. In performing my obligations under this paragraph to testify or otherwise provide information, I
will honestly, truthfully,
US.129015688.01
11
Exhibit 10.58
forthrightly, and completely provide the information requested, volunteer pertinent information and turn over to the Company all relevant
documents which are or may come into my possession.
My Continuing Obligations. I understand and acknowledge that I must comply with all of my post-employment obligations under the
Agreement, the Proprietary Information and Inventions Agreement and the Post-Employment Restrictions Agreement. I will not defame or
disparage the reputation, character, image, products, or services of FICO, or the reputation or character of FICO’s directors, officers,
employees and agents, and I will refrain from making public comment about the Company except upon the express written consent of an
officer of FICO or if required by law or by any court with actual or apparent jurisdiction.
Additional Agreements and Understandings. Even though FICO will provide consideration for me to settle and release My Claims, the
Company does not admit that it is responsible or legally obligated to me. In fact, the Company denies that it is responsible or legally
obligated to me for My Claims, denies that it engaged in any unlawful or improper conduct toward me, and denies that it treated me unfairly.
Advice to Consult with an Attorney. I understand and acknowledge that I am hereby being advised by the Company to consult with an
attorney prior to signing this Release and I have done so (or waived my right to do so). My decision whether to sign this Release is my own
voluntary decision made with full knowledge that the Company has advised me to consult with an attorney.
Period to Consider the Release. I understand that I have at least 21 days from the date I received this Release (or at least 21 days after the
last day of my employment with FICO, if later) to consider whether I wish to sign this Release. If I sign this Release before the end of the 21-
day period, it will be my voluntary decision to do so because I have decided that I do not need any additional time to decide whether to sign
this Release. I understand and agree that if I sign this Release prior to my last day of employment with FICO it will not be valid and FICO
will not be obligated to provide the consideration described in the Release.
My Right to Rescind this Release. I understand that I may rescind this Release at any time within 15 days after I sign it, not counting the
day upon which I sign it. This Release will not become effective or enforceable unless and until the 15-day rescission period has expired
without my rescinding it. I understand that if I rescind this Release FICO will not be obligated to provide the consideration described in the
Release.
Procedure for Accepting or Rescinding the Release. To accept the terms of this Release, I must deliver the Release, after I have signed and
dated it, to FICO by hand or by mail within 45 days after my separation from service date. To rescind my acceptance, I must deliver a
written, signed statement that I rescind my acceptance to FICO by hand or by mail within the 15-day rescission period. All deliveries must be
made to FICO at the following address:
Executive Vice President-Chief HR Officer
Fair Isaac Corporation
2665 Long Lake Road
Roseville, MN 55113
If I choose to deliver my acceptance or the rescission by mail, it must be postmarked within the period stated above and properly addressed to
FICO at the address stated above.
Interpretation of the Release. This Release should be interpreted as broadly as possible to achieve my intention to resolve all of My Claims
against the Company. If this Release is held by a court to be inadequate to release a particular claim encompassed within My Claims, this
Release will remain in full force and effect with respect to all the rest of My Claims. I agree that the provisions of this Release may not be
amended, waived, changed or modified except by an instrument in writing signed by an authorized representative of FICO and by me.
US.129015688.01
12
My Representations. I am legally able and entitled to receive the consideration being provided to me in settlement of My Claims. I have not
been involved in any personal bankruptcy or other insolvency proceedings at any time since I began my employment with FICO. No child
support orders, garnishment orders, or other orders requiring that money owed to me by FICO be paid to any other person are now in effect.
I have read this Release carefully. I understand all of its terms. In signing this Release, I have not relied on any statements or explanations
made by the Company except as specifically set forth in the Agreement. I am voluntarily releasing My Claims against the Company. I intend
this Release and the Agreement to be legally binding.
Exhibit 10.58
Dated:
Stephanie Covert
US.129015688.01
13
Exhibit 10.59
August 26, 2020
Thomas A. Bowers
Dear Tab:
This letter agreement (the “Agreement”) confirms details of your promotion with Fair Isaac Corporation (the “Company”) to the role of
Executive Vice President, Corporate Strategy, and sets out the terms and conditions of your employment with the Company, as follows:
Title:
Term:
Responsibilities:
Beginning August 26, 2020, you will serve as the Company’s Executive Vice President, Corporate Strategy.
The term of your employment as the Company’s Executive Vice President, Corporate Strategy, under the terms and
conditions of this Agreement shall be for a period commencing on August 26, 2020 and ending on December 31,
2021 (the “Initial Term”), unless earlier terminated by either party as provided in this Agreement. Following the
Initial Term, your employment with the Company under the terms and conditions of this Agreement shall
automatically be renewed for successive one year periods (each a “Renewal Term”) on January 1 of each year, unless
the Company elects not to extend the Term providing you with written notice at least one hundred and eighty (180)
days’ prior to the end of the Initial Term or any Renewal Term thereof. The period of your employment with the
Company under the terms and conditions of this Agreement (including during the Initial Term and any Renewal
Term) is referred to as the “Term.”
During your employment hereunder with the Company as Executive Vice President, Corporate Strategy, you will
report to the Company’s Chief Executive Officer and will be responsible for leading the evaluation of and
influencing decision making concerning the company’s global business strategy including target markets, product
offerings, packaging/pricing and investment priorities designed to drive profitable growth, and other functions to
which you may be assigned from time to time by the Chief Executive Officer or his or her designee. You agree to
serve the Company faithfully and to the best of your ability, and to devote your full working time, attention and
efforts to the business of the Company. You may participate in charitable activities and personal investment activities
to a reasonable extent, and you may serve as a director of business and civic organizations (and retain compensation
from same) as approved by the Company’s Board of Directors (the “Board”), so long as such activities and
directorships do not interfere with the performance of your duties and responsibilities to the Company.
1
Exhibit 10.59
Representation:
By accepting your continued employment with the Company under this Agreement and signing below, you represent
and confirm that you are under no contractual or legal commitments that would prevent you from fulfilling your
duties and responsibilities to the Company as Executive Vice President, Corporate Strategy.
Initial Base Salary:
Incentive Bonus:
Annual Equity:
Benefits:
During the Term, you will be paid a base salary at the rate of $400,000 per year for services performed, in
accordance with the regular payroll practices of the Company with annual review by the Board’s Leadership
Development and Compensation Committee (the “Committee”). Your performance and base salary will be reviewed
by the Committee annually during the first quarter of each fiscal year and may be adjusted upward from time to time
at the discretion of the Committee, but will not be reduced without your consent during the Term. After any such
increase, the reference to base salary in this Agreement shall mean such increased amount.
You will participate in the Company’s Management Incentive Plan, as may be amended by the Committee from time
to time (the “MIP”). Under the MIP, for each full fiscal year of the Company that you are employed during the Term,
you will be eligible for an annual incentive award opportunity payable from 0% to 100%, with a target award equal
to 50%, of your annual base salary at the rate in effect at the end of such fiscal year, pursuant to the terms and
conditions established by the Committee from time to time. Objectives will be established during the first quarter of
the fiscal year. Any annual incentive bonus earned for a fiscal year will be paid to you by December 31 of the
calendar year in which such fiscal year ends.
For each fiscal year of the Company that you are employed during the Term, you will be eligible for an annual equity
grant based on achievement of objectives established by the Committee, and on such other terms established by the
Committee in its sole discretion. In accordance with the policies and practices of the Company, some or all of such
annual equity grant may be in the form of restricted stock units, performance share units, market share units, stock
options or other equity that is an economic equivalent to an option award. Such equivalency will be determined by
the Company in its sole discretion.
While employed by the Company during the Term, you (and your eligible dependents) will be eligible to participate
in the employee benefit plans and programs generally available to other executive officers of the Company, and in
such other employee benefit plans and programs to the extent that you meet the eligibility requirements for each
individual plan or program and subject to the provisions, rules and regulations applicable to each such plan or
program as in effect from time to time. The plans and programs of the Company may be modified or terminated by
the Company in its discretion.
2
Exhibit 10.59
Travel and Other
Business Expenses:
In performing your responsibilities as Executive Vice President, Corporate Strategy, you will be required to travel
extensively, both within the United States and internationally. The Company will reimburse you promptly for all
travel and other business expenses incurred by you in connection with the performance of your duties for the
Company, subject to the Company’s normal business expense and travel policies and procedures.
Vacation:
During your employment with the Company, you will receive vacation time off in accordance with the policies and
practices of the Company. Vacation time shall be taken at such times so as not to unduly disrupt the operations of the
Company.
Office Location:
Your employment will be based at the Company’s offices located in San Jose, California.
Inventions Agreement: You acknowledge and agree that you continue to be bound by the terms and conditions of the Proprietary
Information and Inventions Agreement (“PIIA”) which you signed when you first joined the Company, the terms of
which are incorporated herein by reference.
Post-Employment
Restrictions
Agreement
Change in Control:
Termination:
Severance:
You acknowledge and agree that you continue to be bound by the terms and conditions of the Post-Employment
Restrictions Agreement (“PERA”) which you signed when you first joined the Company, the terms of which are
incorporated herein by reference.
You and the Company will enter into the enclosed Management Agreement (the “Management Agreement”), to be
separately signed by you, the terms of which are incorporated herein by reference (except that terms defined in the
Management Agreement apply only to the use of such terms in the Management Agreement, and terms defined in
this Agreement apply only to the use of such terms in this Agreement).
Either you or the Company may terminate the employment relationship during the Term or after the Term at any time
and for any reason. Upon termination of your employment by either party for any reason, you will promptly resign
any and all positions you then hold as officer or director of the Company or any of its affiliates.
In case of involuntary termination of your employment by the Company without Cause prior to the end of the Initial
Term or prior to the end of any Renewal Term then in effect or in the case of voluntary resignation of your
employment for Good Reason prior to the end of the Initial Term or prior to the end of any Renewal Term then in
effect (each a “Qualifying Termination”), the Company will pay you as severance pay an amount equal to one (1)
times the sum of (a) your annual base salary at the rate in effect on your last day of employment plus (b) the annual
incentive bonus last paid to you preceding the Qualifying Termination. In addition, upon a Qualifying Termination, if
you (and, if applicable, your eligible dependents), complete and return the forms necessary to elect COBRA
continuation coverage to the COBRA administrator for the group health plan in which you participate at the time of
your Qualifying Termination, then the Company will provide you and your
3
Exhibit 10.59
eligible dependents with COBRA continuation coverage at no cost to you, for a period of twelve (12) months
following the effective date of termination of your employment, provided you remain eligible for COBRA. This
continuation coverage will be provided only with respect to your base medical, dental, vision and Employee
Assistance Program coverage under the group health plan in which you receive COBRA continuation coverage (and
in Minnesota only, this applies to basic life insurance coverage), and shall not apply to any medical expense
reimbursement account, dental care plan, vision care plan, or other arrangement for which you may be entitled to
COBRA continuation coverage. To the extent necessary in order for you to avoid being subject to tax under section
105(h) of the Code (as defined below) on any payment or reimbursement of group medical, dental or other group
health care expenses made to you or for your benefit pursuant to this paragraph, the Company shall impute as taxable
income to you an amount equal to the COBRA continuation coverage cost described above.
Payment by the Company of any severance pay or premium reimbursements under this paragraph will be
conditioned upon you (1) signing and not revoking a full release of all claims against the Company, its affiliates,
officers, directors, employees, agents and assigns, substantially in the form attached to this Agreement as Exhibit A,
and delivering such signed release to the Company within the period specified in Exhibit A (2) complying with your
obligations under the PIIA, the PERA and any other agreement between you and the Company then in effect,
(3) cooperating with the Company in the transition of your duties, and (4) agreeing not to disparage or defame the
Company, its affiliates, officers, directors, employees, agents, assigns, products or services as set forth in Exhibit A.
Subject to your execution and non-revocation of the release in the form attached hereto as Exhibit A and delivery of
such signed release within forty-five (45) days after your “separation from service” as determined under Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations and all notices, rulings
and other guidance issued by the Internal Revenue Service interpreting same (“Section 409A”) and your compliance
with the other conditions identified above, any severance payable to you under this Agreement will be paid to you in
a lump sum on the 70th day following your “separation from service” as determined under Section 409A.
For purposes of this Agreement, “Cause” and “Good Reason” have the following definitions:
“Cause” means a determination in good faith by the Company of the existence of one or more of the following:
(i) commission by you of any act constituting a felony; (ii) any intentional and/or willful act of fraud or material
dishonesty by you related to, connected with or otherwise affecting your employment with the Company, or
otherwise likely to cause material harm to the Company or its reputation; (iii) the willful and/or continued failure,
neglect, or refusal by you to perform in all material respects your duties with the Company as an employee, officer
or director, or to fulfill your fiduciary responsibilities to the Company, which failure, neglect or refusal has not been
cured within fifteen (15) days after written notice thereof to you from the Company; or (iv) a material breach by you
of the Company’s material policies or codes of conduct or of your material obligations under the PIIA, the PERA or
any other written agreement signed by you and the
4
Exhibit 10.59
Company, which breach has not been cured within fifteen (15) days after written notice thereof to you from the
Company.
“Good Reason” means any one or more of the following conditions occur without your prior written consent: (i) a
material reduction in your base salary, unless such reduction is part of an across-the-board uniformly applied
reduction affecting all senior executives of the Company; (ii) a material reduction in your annual cash incentive
bonus target expressed as a percentage of base salary, unless such reduction is part of an across-the-board uniformly
applied reduction affecting all senior executives of the Company; (iii) a requirement that you relocate to an office
located fifty (50) or more miles from your current office location; (iv) material breach by the Company of any terms
or conditions of this Agreement; or (iv) the failure of the Company to obtain agreement from any successor to
assume and agree to perform this Agreement, unless this Agreement is otherwise assumed by any successor by
operation of law. A termination for Good Reason shall not take effect unless the following provisions are satisfied.
You shall notify the Company within ninety (90) days after the later of the occurrence of the event giving rise to
Good Reason or your learning of such event, specifying such act or acts. The Company shall have thirty (30) days
after such notice has been given to cure such conduct. If the Company fails to cure such condition, then you shall be
entitled to resign for Good Reason, provided such resignation shall be no later than 180 days after the occurrence of
the event giving rise to your right to so resign.
In the event of termination of your employment by the Company for Cause, resignation by you other than for Good
Reason, or termination due to your death or any disability for which you are qualified for benefits under the
Company’s group long-term disability program, the Company’s only obligations hereunder shall be those obligations
set forth immediately below in this paragraph. For any termination of your employment, you shall be entitled to (i)
such compensation and any benefits (including any vested equity awards) as are earned by you or accrued or vested
through the date of termination of employment, (ii) reimbursement of your business expenses incurred through the
date of termination, subject to the Company’s normal business expense and travel policies and procedures; (iii)
payments or benefits due to you pursuant to any applicable plan, policy, arrangement of, or agreement with, the
Company or any of its affiliates; and (iv) your rights under the Indemnification Agreement, the Company’s (or any
successor’s) charter documents or pursuant to applicable law or to be covered under any applicable directors’ and
officers’ insurance policies.
In the event that you receive any payment or benefit under the Management Agreement following termination of
your employment, you shall not be entitled to receive a comparable payment or benefit under this Agreement so as to
prevent any duplication of any payments or benefits under this Agreement and the Management Agreement.
Indemnification:
The Company will indemnify you in connection with your duties and responsibilities for the Company, as set out in
the enclosed Indemnification Agreement (the “Indemnification Agreement”), to be separately signed by you.
Prior Employment:
The Company understands that you may have other contractual obligations to former employers, but you have
represented that no such obligations prevent you
5
Taxes:
No Mitigation/
No Offset:
Binding Nature:
Exhibit 10.59
from fulfilling your duties and responsibilities to the Company as Executive Vice President, Corporate Strategy.
The Company may withhold from any compensation payable to you in connection with your employment such
federal, state and local income and employment taxes as the Company shall reasonably determine are required to be
withheld pursuant to any applicable law or regulation. You acknowledge and agree that the Company has made no
assurances or representations to you regarding the tax treatment of any consideration provided for in this Agreement
and that the Company has advised you to obtain your own personal tax advice. Except for any tax amounts withheld
by the Company from the payments or other consideration hereunder and any employment taxes required to be paid
by the Company or any tax liabilities for you that are the direct result of the Company failing to make payments or to
provide other consideration hereunder in accordance with the terms of this Agreement, you shall be responsible for
payment of any and all taxes owed in connection with the consideration provided for in this Agreement.
In the event of any termination of your employment, you shall be under no obligation to seek other employment or
otherwise mitigate damages. There shall be no offset against, or any recoupment of, any amounts, benefits or
entitlements due to you hereunder on account of any remuneration or other benefit earned or received by you from
subsequent employment.
As of the date first written above, this Agreement is intended to bind and inure to the benefit of and be enforceable
by you and the Company and their respective successors, assigns, heirs, executors and administrators, except you
may not assign your rights or obligations hereunder without the prior written consent of the Company (provided that
if you should die while any payment, benefit or entitlement is due to you hereunder, such payment, benefit or
entitlement shall be paid to your designated beneficiary, or, if there is no designated beneficiary, to your estate). In
addition, no rights or obligations of the Company under this Agreement may be assigned or transferred by the
Company without your prior written consent, except that such rights or obligations may be assigned or transferred
pursuant to a merger or consolidation in which the Company is not the continuing entity, or a sale, liquidation or
other disposition of all or substantially all of the assets of the Company, provided that the assignee or transferee is
the successor to all or substantially all of the assets of the Company and assumes the liabilities, obligations and
duties of the Company under this Agreement, either contractually or as a matter of law.
Applicable Law:
This Agreement shall be interpreted and construed in accordance with the laws of the State of California.
Section 409A:
The parties hereto intend that all payments and benefits to be made or provided to you will be paid or provided in
compliance with all applicable requirements of Section 409A (as defined above), and the provisions of this
Agreement shall be construed and administered in accordance with and to implement such intent. In furtherance of
the foregoing, the provisions set forth below shall apply notwithstanding any other provision in this Agreement.
6
Exhibit 10.59
(a) All payments to be made to you hereunder, to the extent they constitute a deferral of compensation subject to
the requirements of Section 409A (after taking into account all exclusions applicable to such payments under Section
409A), shall be made no later, and shall not be made any earlier, than at the time or times specified herein or in any
applicable plan for such payments to be made, except as otherwise permitted or required under Section 409A.
(b) The date of your "separation from service", as defined in Section 409A (and as determined by applying the
default presumptions in Treas. Reg. §1.409A-1(h)(1)(ii)), shall be treated as the date of your termination of
employment for purposes of determining the time of payment of any amount that becomes payable to you related to
your termination of employment and that is properly treated as a deferral of compensation subject to Section 409A
after taking into account all exclusions applicable to such payment under Section 409A.
(c) To the extent any payment or delivery otherwise required to be made to you hereunder on account of your
separation from service is properly treated as a deferral of compensation subject to Section 409A after taking into
account all exclusions applicable to such payment and delivery under Section 409A, and if you are a "specified
employee" under Section 409A at the time of your separation from service, then such payment and delivery shall not
be made prior to the first business day after the earlier of (i) the expiration of six months from the date of your
separation from service, or (ii) the date of your death (such first business day, the “Delayed Payment Date”). On the
Delayed Payment Date, there shall be paid or delivered to you or, if you have died, to your estate, in a single
payment or delivery (as applicable) all entitlements so delayed, and in the case of cash payments, in a single cash
lump sum, an amount equal to aggregate amount of all payments delayed pursuant to the preceding sentence.
(d) In the case of any amounts payable to you under this Agreement that may be treated as payable in the form of
“a series of installment payments”, as defined in Treas. Reg. §1.409A-2(b)(2)(iii), your right to receive such
payments shall be treated as a right to receive a series of separate payments for purposes of Treas. Reg. §1.409A-
2(b)(2)(iii).
(e) To the extent that the reimbursement of any expenses eligible for reimbursement or the provision of any in-kind
benefits under any provision of this Agreement would be considered deferred compensation under Section 409A
(after taking into account all exclusions applicable to such reimbursements and benefits under Section 409A): (i)
reimbursement of any such expense shall be made by the Company as soon as practicable after such expense has
been incurred, but in any event no later than December 31st of the year following the year in which you incur such
expense; (ii) the amount of such expenses eligible for reimbursement, or in-kind benefits to be provided, during any
calendar year shall not affect the amount of such expenses eligible for reimbursement, or in-kind benefits to be
provided, in any calendar year; and (iii) your right to receive such reimbursements or in-kind benefits shall not be
subject to liquidation or exchange for another benefit.
7
Exhibit 10.59
Section 280G:
Notices:
Entire Agreement:
Section 3 of the Management Agreement is incorporated in full into this Agreement and shall apply to any payment,
benefit or entitlement paid or provided to you (or to be paid or so provided) hereunder or otherwise as if such
payment, benefit or entitlement had been paid under the Management Agreement.
Any notice, request or other communication required under this Agreement shall be in writing and shall be deemed
to have been given (i) when delivered personally, or (ii) two days after having been sent by a recognized courier,
provided written acknowledgement of receipt is obtained. Any such notices, requests or other communications shall
be given to the Company, at Fair Isaac Corporation, Attn: General Counsel, 181 Metro Drive, Suite 700, San Jose,
California, 95110, and to you at your home address in the Company’s files (or to any other address the party
provides in accordance with this notice provision).
This Agreement, the Indemnification Agreement and the Management Agreement constitute the entire agreement
between the parties with respect to the subject matter hereto, and supersede all prior discussions, agreements and
negotiations between you and the Company with respect to the subject matter hereof; provided, however, the PIIA
and PERA remain in full force and effect in accordance with their terms, and the terms of the PIIA and PERA are
incorporated herein by reference. No amendment or modification of this Agreement will be effective unless made in
writing and signed by you and an authorized officer or director of the Company. Any waiver of this Agreement will
only be effective if signed by the party against whom the waiver is being enforced (which in the case of the
Company shall be an authorized officer or director). No waiver by any party of any breach of any condition or
provision of this Agreement shall be deemed a waiver of any similar or dissimilar condition or provision at the same
or any prior or subsequent time.
[signature page follows]
8
Exhibit 10.59
If you have any questions about the terms of this Agreement, please contact Richard Deal.
Sincerely,
/s/ William J. Lansing
William J. Lansing
President and Chief Executive Officer
Enclosures
•
Form of Release attached hereto as Exhibit A
I accept and agree to the terms and conditions of employment with Fair Isaac Corporation as set forth above.
/s/ Thomas A. Bowers
Thomas A. Bowers
August 26, 2020
Dated
9
Exhibit 10.59
EXHIBIT A
RELEASE BY THOMAS A. BOWERS
Definitions. I intend all words used in this Release to have their plain meanings in ordinary English. Specific terms that I use in this Release
have the following meanings:
A. I, me, and my include both me (Thomas A. Bowers) and anyone who has or obtains any legal rights or claims
through me.
B. FICO means Fair Isaac Corporation, any company related to Fair Isaac Corporation in the present or past
(including without limitation, its predecessors, parents, subsidiaries, affiliates, joint venture partners, and divisions), and any
successors of Fair Isaac Corporation.
C. Company means FICO; the present and past officers, directors, committees, shareholders, and employees of
FICO; any company providing insurance to FICO in the present or past; the present and past employee benefit plans
sponsored or maintained by FICO (other than multiemployer plans) and the present and past fiduciaries of such plans; the
attorneys for FIC; and anyone who acted on behalf of FICO or on instructions from FICO.
D. Agreement means the letter agreement between me and FICO dated August 26, 2020, including all of the
documents attached to such agreement.
E. My Claims mean all of my rights that I now have to any relief of any kind from the Company, whether I now
know about such rights or not, including without limitation:
1. all claims arising out of or relating to my employment with FICO or the termination of that
employment;
2. all claims arising out of or relating to the statements, actions, or omissions of the Company;
3. all claims for any alleged unlawful discrimination, harassment, retaliation or reprisal, or other alleged
unlawful practices arising under the laws of the United States or any other country or of any state, province,
municipality, or other unit of government, including without limitation, claims under Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and
Medical Leave Act, 42 U.S.C. § 1981, the Employee Retirement Income Security Act, the Equal Pay Act, the
Worker Adjustment and Retraining Notification Act, the Sarbanes-Oxley Act, the Lilly Ledbetter Fair Pay Act of
2009, the Minnesota Human Rights Act, the Genetic Information Nondiscrimination Act, the Fair Credit Reporting
Act, the California Fair Employment and Housing Act, the Minneapolis Civil Rights Ordinance, and workers’
compensation non-interference or non-retaliation statutes (such as Minn. Stat. § 176.82);
US.129016046.01
10
Exhibit 10.59
4. all claims for alleged wrongful discharge; breach of contract; breach of implied contract; failure to keep
any promise; breach of a covenant of good faith and fair dealing; breach of fiduciary duty; estoppel; my activities, if
any, as a “whistleblower”; defamation; infliction of emotional distress; fraud; misrepresentation; negligence;
harassment; retaliation or reprisal; constructive discharge; assault; battery; false imprisonment; invasion of privacy;
interference with contractual or business relationships; any other wrongful employment practices; and violation of
any other principle of common law;
5. all claims for compensation of any kind, including without limitation, bonuses, commissions, stock-
based compensation or stock options, vacation pay and paid time off, perquisites, and expense reimbursements;
6. all rights I have under California Civil Code section 1542, which states that: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the debtor;”
7. all claims for back pay, front pay, reinstatement, other equitable relief, compensatory damages, damages
for alleged personal injury, liquidated damages, and punitive damages; and
8. all claims for attorneys' fees, costs, and interest.
However, My Claims do not include any claims that the law does not allow to be waived; any claims that may arise after the
date on which I sign this Release; any rights I may have to indemnification from FICO as a current or former officer, director
or employee of FICO, including pursuant to the Indemnification Agreement (as defined in the Agreement); any claims for
payments, entitlements or benefits due me under the Agreement or the Management Agreement (as defined in the
Agreement), if applicable, subject to any terms or conditions under the Agreement or the Management Agreement, if
applicable; or any claims I may have for earned and accrued benefits under any employee benefit plan sponsored by the
Company in which I am a participant as of the date of termination of my employment with FICO or pursuant to any long-
term incentive or equity plan or award agreement
Consideration. I am entering into this Release in consideration of FICO’s obligations to provide me certain severance benefits as specified in
the Agreement. I will receive consideration from FICO as set forth in the Agreement if I sign and do not rescind this Release as provided
below. I understand and acknowledge that I would not be entitled to the consideration under the Agreement if I did not sign this Release. The
consideration is in addition to anything of value that I would be entitled to receive from FICO if I did not sign this Release or if I rescinded
this Release. I acknowledge and represent that I have received all payments and benefits that I am entitled to receive (as of the date of this
Release) by virtue of any employment by the Company.
US.129016046.01
11
Exhibit 10.59
Agreement to Release My Claims. In exchange for the consideration described in the Agreement, I give up and release all of My
Claims. I will not make any demands or claims against the Company for compensation or damages relating to My Claims. The
consideration that I am receiving is a fair compromise for the release of My Claims.
Cooperation. Upon the reasonable request of the Company, I agree that I will (i) timely execute and deliver such acknowledgements,
instruments, certificates, and other ministerial documents (including without limitation, certification as to specific actions performed by me in
my capacity as an officer of the Company) as may be necessary or appropriate to formalize and complete the applicable corporate records;
(ii) reasonably consult with the Company regarding business matters that I was involved with while employed by the Company; and (iii) be
reasonably available, with or without subpoena, to be interviewed, review documents or things, give depositions, testify, or engage in other
reasonable activities in connection with any litigation or investigation, with respect to matters that I may have knowledge of by virtue of my
employment by or service to the Company. In performing my obligations under this paragraph to testify or otherwise provide information, I
will honestly, truthfully, forthrightly, and completely provide the information requested, volunteer pertinent information and turn over to the
Company all relevant documents which are or may come into my possession.
My Continuing Obligations. I understand and acknowledge that I must comply with all of my post-employment obligations under the
Agreement, the Proprietary Information and Inventions Agreement and the Post-Employment Restrictions Agreement. I will not defame or
disparage the reputation, character, image, products, or services of FICO, or the reputation or character of FICO’s directors, officers,
employees and agents, and I will refrain from making public comment about the Company except upon the express written consent of an
officer of FICO or if required by law or by any court with actual or apparent jurisdiction.
Additional Agreements and Understandings. Even though FICO will provide consideration for me to settle and release My Claims, the
Company does not admit that it is responsible or legally obligated to me. In fact, the Company denies that it is responsible or legally
obligated to me for My Claims, denies that it engaged in any unlawful or improper conduct toward me, and denies that it treated me unfairly.
Advice to Consult with an Attorney. I understand and acknowledge that I am hereby being advised by the Company to consult with an
attorney prior to signing this Release and I have done so (or waived my right to do so). My decision whether to sign this Release is my own
voluntary decision made with full knowledge that the Company has advised me to consult with an attorney.
Period to Consider the Release. I understand that I have at least 21 days from the date I received this Release (or at least 21 days after the
last day of my employment with FICO, if later) to consider whether I wish to sign this Release. If I sign this Release before the end of the 21-
day period, it will be my voluntary decision to do so because I have decided that I do not need any additional time to decide whether to sign
this Release. I understand and agree that if I sign this Release prior to my last day of employment with FICO it will not be valid and FICO
will not be obligated to provide the consideration described in the Release.
My Right to Rescind this Release. I understand that I may rescind this Release at any time within 15 days after I sign it, not counting the
day upon which I sign it. This Release will not become effective or enforceable unless and until the 15-day rescission period has expired
without my rescinding it. I understand that if I rescind this Release FICO will not be obligated to provide the consideration described in the
Release.
US.129016046.01
12
Procedure for Accepting or Rescinding the Release. To accept the terms of this Release, I must deliver the Release, after I have signed and
dated it, to FICO by hand or by mail within 45 days after my separation from service date. To rescind my acceptance, I must deliver a
written, signed statement that I rescind my acceptance to FICO by hand or by mail within the 15-day rescission period. All deliveries must be
made to FICO at the following address:
Exhibit 10.59
Executive Vice President-Chief HR Officer
Fair Isaac Corporation
2665 Long Lake Road
Roseville, MN 55113
If I choose to deliver my acceptance or the rescission by mail, it must be postmarked within the period stated above and properly addressed to
FICO at the address stated above.
Interpretation of the Release. This Release should be interpreted as broadly as possible to achieve my intention to resolve all of My Claims
against the Company. If this Release is held by a court to be inadequate to release a particular claim encompassed within My Claims, this
Release will remain in full force and effect with respect to all the rest of My Claims. I agree that the provisions of this Release may not be
amended, waived, changed or modified except by an instrument in writing signed by an authorized representative of FICO and by me.
My Representations. I am legally able and entitled to receive the consideration being provided to me in settlement of My Claims. I have not
been involved in any personal bankruptcy or other insolvency proceedings at any time since I began my employment with FICO. No child
support orders, garnishment orders, or other orders requiring that money owed to me by FICO be paid to any other person are now in effect.
I have read this Release carefully. I understand all of its terms. In signing this Release, I have not relied on any statements or explanations
made by the Company except as specifically set forth in the Agreement. I am voluntarily releasing My Claims against the Company. I intend
this Release and the Agreement to be legally binding.
Dated:
Thomas A. Bowers
US.129016046.01
13
FAIR ISAAC CORPORATION
SUBSIDIARIES
Name of Company
CR Software, LLC
Data Research Technologies, Inc.
Entiera, Inc.
eZmCom, Inc.
Fair Isaac (Adeptra) Limited
Fair Isaac (ASPAC) Pte. Ltd.
Fair Isaac (Australia) Pty Ltd
Fair Isaac (Singapore) Pte. Ltd.
Fair Isaac (Thailand) Co., Ltd.
Fair Isaac Asia Holdings, Inc.
Fair Isaac Asia Pacific Corp.
Fair Isaac Brazil, LLC
Fair Isaac Canada, Ltd.
Fair Isaac Chile Software and Services Ltda.
Fair Isaac Credit Services, Inc.
Fair Isaac do Brasil, Ltda.
Fair Isaac España SL
Fair Isaac Europe Limited
Fair Isaac Germany GmbH
Fair Isaac Holdings, Inc.
Fair Isaac Hong Kong Limited
Fair Isaac India Software Private Limited
Fair Isaac Information Technology (Beijing) Co., Ltd.
Fair Isaac International Corporation
Fair Isaac Italy S.r.l.
Fair Isaac Japan G.K.
Fair Isaac Lithuania, UAB
Fair Isaac Malaysia Sdn. Bhd.
Fair Isaac Mexico S.A. de C.V.
Fair Isaac Network, Inc.
Fair Isaac Nordics AB
Fair Isaac Polska sp. z.o.o.
Fair Isaac Services Limited
Fair Isaac Software Holdings Limited
Fair Isaac South Africa (Pty) Ltd
Fair Isaac Turkey Software and Consultancy Services Limited Sirketi
Fair Isaac UK Group Limited
Fair Isaac UK Holdings, Inc.
Fair Isaac UK International Holdings Ltd.
Fair Isaac UK Investment Holdings LP
Fair Isaac WBR Limited Liability Company
Exhibit 21.1
Jurisdiction of
Incorporation/Organization
Virginia
Minnesota
Delaware
Delaware
England and Wales
Singapore
Australia
Singapore
Thailand
Minnesota
Delaware
Delaware
Canada
Chile
Delaware
Brazil
Spain
England and Wales
Germany
Delaware
Hong Kong
India
People’s Republic of China
California
Italy
Japan
Lithuania
Malaysia
Mexico
Delaware
Sweden
Poland
England and Wales
England and Wales
South Africa
Turkey
England and Wales
Delaware
England and Wales
England and Wales
Russia
FICO Middle East FZ-LLC
HNC Software LLC
Infoglide Software Corporation
myFICO Consumer Services Inc.
Exhibit 21.1
United Arab Emirates
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-230061, 333-230059, 333-223492, 333-216171, 333-209761, 333-
194231, 333-114364, 333-133268, 333-179417, 333-123751, 333-123750, 333-114365, 333-66348, 333-32398, 333-95889, 333-83905, 333-65179, 333-
02121, and 333-102848 on Form S-8 of our report dated November 10, 2020, relating to the financial statements of Fair Isaac Corporation and the
effectiveness of Fair Isaac Corporation’s internal control over financial reporting appearing in this Annual Report on Form 10-K for the year ended
September 30, 2020.
EXHIBIT 23.1
/s/ Deloitte & Touche LLP
San Diego, CA
November 10, 2020
EXHIBIT 31.1
I, William J. Lansing, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Fair Isaac Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: November 10, 2020
/s/ WILLIAM J. LANSING
William J. Lansing
Chief Executive Officer
EXHIBIT 31.2
I, Michael I. McLaughlin, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Fair Isaac Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: November 10, 2020
/s/ MICHAEL I. MCLAUGHLIN
Michael I. McLaughlin
Chief Financial Officer
CERTIFICATION UNDER SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that this periodic report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this periodic report fairly presents, in all material respects,
the financial condition and results of operations of Fair Isaac Corporation.
EXHIBIT 32.1
Date: November 10, 2020
/s/ WILLIAM J. LANSING
William J. Lansing
Chief Executive Officer
CERTIFICATION UNDER SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that this periodic report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this periodic report fairly presents, in all material respects,
the financial condition and results of operations of Fair Isaac Corporation.
EXHIBIT 32.2
Date: November 10, 2020
/s/ MICHAEL I. MCLAUGHLIN
Michael I. McLaughlin
Chief Financial Officer