FAIR ISAAC CORP

Previous wording

Highlights from the quarter ended December 31, 2023

Current wording

Highlights from the quarter and six months ended March 31, 2024

Previous wording

•Total revenue for our Scores segment was $192.1 million during the quarter ended December 31, 2023, an 8% increase from the quarter ended December 31, 2022.

Current wording

•Total revenue for our Scores segment was $236.9 million during the quarter ended March 31, 2024, a 19% increase from the quarter ended March 31, 2023, and $429.0 million during the six months ended March 31, 2024, a 14% increase from the six months ended March 31, 2023.

Previous wording

•Annual Recurring Revenue for our Software segment as of December 31, 2023 was $687.7 million, an 18% increase from December 31, 2022.

Current wording

•Annual Recurring Revenue for our Software segment as of March 31, 2024 was $697.0 million, a 14% increase from March 31, 2023.

Previous wording

•Dollar-Based Net Retention Rate for our Software segment was 114% during the quarter ended December 31, 2023.

Current wording

•Dollar-Based Net Retention Rate for our Software segment was 112% as of March 31, 2024.

Previous wording

•Cash and cash equivalents were $160.4 million as of December 31, 2023, compared with $136.8 million as of September 30, 2023.

Current wording

•Cash and cash equivalents were $135.7 million as of March 31, 2024, compared with $136.8 million as of September 30, 2023.

Previous wording

•Total share repurchases during the quarter ended December 31, 2023 were $71.7 million, compared with $75.0 million during the quarter ended December 31, 2022.

Current wording

•Total share repurchases during the quarter ended March 31, 2024 were $179.5 million, compared with $116.3 million during the quarter ended March 31, 2023, and during the six months ended March 31, 2024 were $251.3 million, compared with $191.3 million during the six months ended March 31, 2023.

Previous wording

Management regards ACV Bookings as an important indicator of future revenues, but they are not comparable to, nor are they a substitute for, an analysis of our revenues and other U.S. generally accepted accounting principles (“U.S. GAAP”) measures. We define ACV Bookings as the average annualized value of software contracts signed in the current reporting period that generate current and future on-premises and SaaS software revenue. We only include contracts with an initial term of at least 24 months and we exclude perpetual licenses and other software revenues that are non-recurring in nature. For renewals of existing software subscription contracts, we count only incremental annual revenue expected over the current contract as ACV Bookings.

Current wording

Management regards ACV Bookings as an important indicator of future revenues, but it is not comparable to, nor is it a substitute for, an analysis of our revenues and other U.S. generally accepted accounting principles (“U.S. GAAP”) measures. We define ACV Bookings as the average annualized value of software contracts signed in the current reporting period that generate current and future on-premises and SaaS software revenue. We only include contracts with an initial term of at least 24 months and we exclude perpetual licenses and other software revenues that are non-recurring in nature. For renewals of existing software subscription contracts, we count only incremental annual revenue expected over the current contract as ACV Bookings.

Previous wording

ACV Bookings is calculated by dividing the total expected contract value by the contract term in years. The expected contract value equals the fixed amount — including guaranteed minimums, if any — stated in the contract, plus estimates of future usage-based fees. We develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements. Differences between estimates and actual results occur due to variability in the estimated usage. This variability can be the result of the economic trends in our customers’ industries, individual performance of our customers relative to their competitors, and regulatory and other factors that affect the business environment in which our customers operate.

Current wording

ACV Bookings is calculated by dividing the total expected contract value by the contract term in years. The expected contract value equals the fixed amount — including guaranteed minimums, if any — stated in the contract, plus estimates of future usage-based fees. We develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements. Differences between estimates and actual results occur due to variability in the estimated usage. This variability can be the result of the economic trends in our customers’ industries, individual performance of our customers relative to their competitors, and regulatory and other factors that affect the business environment in which our customers operate. For each of the periods presented, ACV Bookings related to estimates of future usage-based fees was approximately 30% of the total ACV Bookings amount. Differences between the initial estimates of future usage-based fees and actual results historically have not been material and we do not currently expect that they will be materially different in the future.

Previous wording

We disclose estimated revenue expected to be recognized in the future related to remaining performance obligations in Note 7 to the accompanying condensed consolidated financial statements. However, we believe ACV Bookings is a more meaningful measure of our business as it includes estimated revenues and future billings excluded from Note 7, such as usage-based fees and guaranteed minimums derived from our on-premises software licenses, among others.

Current wording

We disclose estimated revenue expected to be recognized in the future related to remaining performance obligations in Note 7 to the accompanying condensed consolidated financial statements. However, we believe ACV Bookings is a useful supplemental measure of our business as it includes estimated revenues and future billings excluded from Note 7, such as usage-based fees and guaranteed minimums derived from our on-premises software licenses, among others.

Previous wording

(*) During the quarter ended December 31, 2022, we sold certain assets related to our Siron compliance business and the amount above excludes this product line.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

(*) During the quarter ended December 31, 2022, we sold certain assets related to our Siron compliance business. The amounts and percentages above exclude this product line at all dates presented.

Current wording

(*) We sold certain assets related to our Siron compliance business during the quarter ended December 31, 2022, and the amounts and percentages above exclude this product line at June 30, 2022, September 30, 2022 and December 31, 2022.

Previous wording

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

Current wording

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

Previous wording

(*) During the quarter ended December 31, 2022, we sold certain assets related to our Siron compliance business. The percentages above exclude this product line for all periods presented.

Current wording

(*) We sold certain assets related to our Siron compliance business during the quarter ended December 31, 2022, and the percentages above exclude this product line at June 30, 2022, September 30, 2022 and December 31, 2022.

Previous wording

The following tables set forth certain summary information on a segment basis related to our revenues for the quarters ended December 31, 2023 and 2022:

Current wording

The following tables set forth certain summary information on a segment basis related to our revenues for the quarters and six-month periods ended March 31, 2024 and 2023:

Previous wording

Scores segment revenues increased $14.1 million due to an increase of $15.5 million in our business-to-business scores revenue, partially offset by a decrease of $1.4 million in our business-to-consumer revenue. The increase in business-to-business scores revenue was primarily attributable to a higher unit price. The decrease in business-to-consumer revenue was primarily attributable to a decrease in direct sales generated from the myFICO.com website.

Current wording

Scores segment revenues increased $38.4 million due to an increase of $40.6 million in our business-to-business scores revenue, partially offset by a decrease of $2.2 million in our business-to-consumer revenue. The increase in business-to-business scores revenue was primarily attributable to a higher unit price, partially offset by a decrease in volume of mortgage originations. The decrease in business-to-consumer revenue was primarily attributable to a decrease in direct sales generated from the myFICO.com website.

Previous wording

Software segment revenues increased $23.1 million due to a $24.1 million increase in our on-premises and SaaS software revenue, partially offset by a $1.0 million decrease in services revenue. The increase in our on-premises and SaaS software revenue was primarily attributable to an increase in over-time recognition largely driven by SaaS growth.

Current wording

Software segment revenues increased $15.2 million due to a $22.6 million increase in our on-premises and SaaS software revenue, partially offset by a $7.4 million decrease in professional services revenue. The increase in our on-premises and SaaS software revenue was primarily attributable to an increase in revenue recognized over-time largely driven by SaaS growth. The decrease in professional services revenue was primarily attributable to our strategy to emphasize higher-margin software over professional services.

Previous wording

The following tables set forth certain summary information related to our condensed consolidated statements of income and comprehensive income for the quarters ended December 31, 2023 and 2022:

Current wording

The following tables set forth certain summary information related to our condensed consolidated statements of income and comprehensive income for the quarters and six-month periods ended March 31, 2024 and 2023:

Previous wording

The quarter-over-prior year quarter increase in cost of revenues of $6.9 million was primarily attributable to a $3.9 million increase in personnel and labor costs, a $1.4 million increase in infrastructure and facilities costs, and a $0.9 million increase in direct materials costs. The increase in personnel and labor costs was primarily attributable to increased headcount and increased share-based compensation expense. The increase in infrastructure and facilities costs was primarily attributable to increased third-party data center hosting fees. The increase in direct materials costs was primarily attributable to increased telecommunications expenses to support FICO® Customer Communications Services revenue, partially offset by decreased software royalty fees. Cost of revenues as a percentage of revenues remained consistent at 22% during the quarters ended December 31, 2023 and 2022.

Current wording

The year-to-date period-over-period increase in cost of revenues of $14.0 million was primarily attributable to a $6.1 million increase in personnel and labor costs, a $3.8 million increase in infrastructure and facilities costs, and a $2.9 million increase in direct materials costs. The increase in personnel and labor costs was primarily attributable to increased headcount and increased share-based compensation expense, partially offset by decreased incentive expense. The increase in infrastructure and facilities costs was primarily attributable to increased third-party data center hosting costs. The increase in direct materials costs was primarily attributable to increased telecommunications expenses to support FICO® Customer Communications Services revenue. Cost of revenues as a percentage of revenues remained consistent at 21% during the six months ended March 31, 2024 and 2023.

Previous wording

The quarter-over-prior year quarter increase in research and development expenses of $6.0 million was primarily attributable to an increase in personnel and labor costs as a result of increased headcount, increased employee time allocated to research and development activities, and increased share-based compensation expense. Research and development expenses as a percentage of revenues remained consistent at 11% during the quarters ended December 31, 2023 and 2022.

Current wording

The year-to-date period-over-period increase in research and development expenses of $6.6 million was primarily attributable to an increase in personnel and labor costs as a result of increased headcount and increased share-based compensation expense, and increased third-party data center hosting costs. Research and development expenses as a percentage of revenues decreased to 10% during the six months ended March 31, 2024 from 11% during the six months ended March 31, 2023.

Previous wording

The quarter-over-prior year quarter increase in selling, general and administrative expenses of $11.3 million was primarily attributable to a $7.4 million increase in personnel and labor costs, a $1.8 million increase in infrastructure and facilities costs, a $1.1 million increase in travel costs, and a $0.8 million increase in marketing and business development costs. The increase in personnel and labor costs was primarily attributable to increased headcount, increased fringe benefit costs related to our supplemental retirement and savings plan, and increased commission expense. The increase in infrastructure and facilities costs was primarily attributable to the impact of a favorable adjustment in the prior year quarter from the termination of an office lease. The increases in travel, marketing and business development costs were primarily attributable to increased advertising and other promotional expenses and increased corporate event costs. Selling, general and administrative expenses as a percentage of revenues remained consistent at 27% during the quarters ended December 31, 2023 and 2022.

Current wording

The year-to-date period-over-period increase in selling, general and administrative expenses of $22.0 million was primarily attributable to a $17.3 million increase in personnel and labor costs, a $2.2 million increase in travel costs, and a $1.8 million increase in infrastructure and facilities costs. The increase in personnel and labor costs was primarily attributable to increased headcount, increased share-based compensation expense, increased fringe benefit costs related to our supplemental retirement and savings plan, and increased commission expense, partially offset by decreased incentive expense. The increase in travel costs was primarily attributable to promotional and corporate events. The increase in infrastructure and facilities costs was primarily attributable to the impact of a favorable adjustment in the prior year period from the termination of an office lease. Selling, general and administrative expenses as a percentage of revenues remained consistent at 27% during the six months ended March 31, 2024 and 2023.

Previous wording

The $1.9 million gain on product line asset sale during the quarter ended December 31, 2022 was attributable to the sale of certain assets related to our Siron compliance business.

Current wording

The $1.9 million gain on product line asset sale during the six months ended March 31, 2023 was attributable to the sale of certain assets related to our Siron compliance business.

Previous wording

The quarter-over-prior year quarter increase in interest expense of $1.4 million was primarily attributable to a higher average interest rate on our revolving line of credit and term loan, and a higher average outstanding balance on our revolving line of credit during the quarter ended December 31, 2023.

Current wording

The quarter-over-prior year quarter increase in interest expense of $2.2 million was primarily attributable to a higher average interest rate on our revolving line of credit and term loan, and a higher average outstanding balance on our revolving line of credit during the quarter ended March 31, 2024.

Previous wording

The quarter-over-prior year quarter increase in other income, net of $3.0 million was primarily attributable to an increase in net realized and unrealized gains on investments classified as trading securities in our supplemental retirement and savings plan, and a decrease in foreign currency exchange losses.

Current wording

The quarter-over-prior year quarter increase in other income, net of $2.4 million was primarily attributable to an increase in net unrealized gains on investments classified as trading securities in our supplemental retirement and savings plan, and a decrease in foreign currency exchange losses.

Previous wording

The effective income tax rate was 7.3% and 17.2% during the quarters ended December 31, 2023 and 2022, respectively. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the full fiscal year. The effective tax rate in any quarter can also be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The effective tax rate for the quarter ended December 31, 2023 was favorably impacted by the excess tax benefit relating to stock awards.

Current wording

The effective income tax rate was 24.9% and 26.1% during the quarters ended March 31, 2024 and 2023, respectively, and 17.3% and 22.0% during the six months ended March 31, 2024 and 2023, respectively. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the full fiscal year. The effective tax rate in any quarter can also be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The effective tax rates for the quarter and six months ended March 31, 2024 were favorably impacted by the excess tax benefit relating to stock awards.

Previous wording

The following tables set forth certain summary information on a segment basis related to our operating income for the quarters ended December 31, 2023 and 2022.

Current wording

The following tables set forth certain summary information on a segment basis related to our operating income for the quarters and six-month periods ended March 31, 2024 and 2023.

Previous wording

The quarter-over-prior year quarter increase in operating income of $11.0 million was attributable to a $37.2 million increase in segment revenues, partially offset by a $15.9 million increase in segment operating expenses, a $6.5 million increase in corporate expenses, a $1.9 million decrease in gain on product line asset sale, and a $1.9 million increase in share-based compensation cost.

Current wording

The quarter-over-prior year quarter increase in operating income of $35.1 million was attributable to a $53.5 million increase in segment revenues, partially offset by an $8.4 million increase in share-based compensation cost, a $7.4 million increase in segment operating expenses, and a $2.6 million increase in corporate expenses.

Previous wording

At the segment level, the quarter-over-prior year quarter increase in segment operating income of $14.8 million was the result of a $12.0 million increase in our Scores segment operating income and a $9.4 million increase in our Software segment operating income, partially offset by a $6.5 million increase in corporate expenses.

Current wording

At the segment level, the quarter-over-prior year quarter increase in segment operating income of $43.5 million was the result of a $36.8 million increase in our Scores segment operating income and a $9.3 million increase in our Software segment operating income, partially offset by a $2.6 million increase in corporate expenses.

Previous wording

The quarter-over-prior year quarter increase in Scores segment operating income of $12.0 million was due to a $14.1 million increase in segment revenue, partially offset by a $2.1 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Scores for the quarter ended December 31, 2023 was 88%, consistent with the quarter ended December 31, 2022.

Current wording

The quarter-over-prior year quarter increase in Scores segment operating income of $36.8 million was due to a $38.4 million increase in segment revenue, partially offset by a $1.6 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Scores increased to 90% from 88%.

Previous wording

The quarter-over-prior year quarter increase in Software segment operating income of $9.4 million was due to a $23.1 million increase in segment revenue, partially offset by a $13.7 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Software increased to 29% from 27%, primarily attributable to an increase in higher-margin license revenue recognized at a point in time and a decrease in sales of our lower-margin professional services.

Current wording

The quarter-over-prior year quarter increase in Software segment operating income of $9.3 million was due to a $15.1 million increase in segment revenue, partially offset by a $5.8 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Software increased to 33% from 30%, primarily attributable to a decrease in sales of our lower-margin professional services and an increase in higher-margin license revenue recognized at a point in time.

Previous wording

As of December 31, 2023, we had $160.4 million in cash and cash equivalents, which included $114.5 million held by our foreign subsidiaries. We believe our cash and cash equivalents balances, including those held by our foreign subsidiaries, as well as available borrowings from our $600 million revolving line of credit and anticipated cash flows from operating activities, will be sufficient to fund our working and other capital requirements for at least the next 12 months and thereafter for the foreseeable future, including the $15.0 million principal payments on our term loan due over the next 12 months. Under our current financing arrangements, we have no other significant debt obligations maturing over the next 12 months. For jurisdictions outside the U.S. where cash may be repatriated in the future, the Company expects the net impact of any repatriations to be immaterial to the Company’s overall tax liability.

Current wording

As of March 31, 2024, we had $135.7 million in cash and cash equivalents, which included $109.5 million held by our foreign subsidiaries. We believe our cash and cash equivalents balances, including those held by our foreign subsidiaries, as well as available borrowings from our $600 million revolving line of credit and anticipated cash flows from operating activities, will be sufficient to fund our working and other capital requirements for at least the next 12 months and thereafter for the foreseeable future, including the $15.0 million principal payments on our term loan due over the next 12 months. Under our current financing arrangements, we have no other significant debt obligations maturing over the next 12 months. For jurisdictions outside the U.S. where cash may be repatriated in the future, the Company expects the net impact of any repatriations to be immaterial to the Company’s overall tax liability.

Previous wording

Our primary method for funding operations and growth has been through cash flows generated from operating activities. Net cash provided by operating activities increased to $122.1 million during the quarter ended December 31, 2023 from $92.4 million during the quarter ended December 31, 2022. The $29.7 million increase was attributable to a $23.4 million increase in net income, a $3.4 million increase in non-cash items, and a $2.9 million increase due to the timing of receipts and payments in our ordinary course of business.

Current wording

Our primary method for funding operations and growth has been through cash flows generated from operating activities. Net cash provided by operating activities increased to $193.2 million during the six months ended March 31, 2024 from $182.2 million during the six months ended March 31, 2023. The $10.9 million increase was attributable to a $51.7 million increase in net income and a $10.0 million increase in non-cash items, partially offset by a $50.8 million decrease due to the timing of receipts and payments in our ordinary course of business.

Previous wording

Net cash used in financing activities increased to $99.9 million for the quarter ended December 31, 2023 from $79.6 million for the quarter ended December 31, 2022. The $20.2 million increase was primarily attributable to a $59.0 million increase in taxes paid related to net share settlement of equity awards, partially offset by a $32.0 million decrease in payments on our revolving line of credit and term loan.

Current wording

Net cash used in financing activities increased to $183.2 million for the six months ended March 31, 2024 from $173.2 million for the six months ended March 31, 2023. The $10.0 million increase was primarily attributable to a $60.1 million increase in taxes paid related to net share settlement of equity awards and a $59.2 million increase in repurchases of common stock, partially offset by a $111.0 million increase in proceeds, net of payments, from our revolving line of credit and term loan.

Previous wording

In October 2022, our Board of Directors approved a new stock repurchase program replacing our previously authorized program. This program was open-ended and authorized repurchases of shares of our common stock up to an aggregate cost of $500.0 million in the open market or in negotiated transactions. As of December 31, 2023, we had $48.8 million remaining under our then current stock repurchase program. During the quarters ended December 31, 2023 and 2022, we expended $71.7 million and $75.0 million, respectively, under our then current and previously authorized stock repurchase programs.

Current wording

In January 2024, our Board of Directors approved a new stock repurchase program replacing our previously authorized October 2022 stock repurchase program, which was terminated prior to its expiration. The current program is open-ended and authorizes repurchases of shares of our common stock from time to time up to an aggregate cost of $500.0 million in the open market or in negotiated transactions. This program remains in effect until the total authorized amount is expended or until further action by our Board of Directors. As of March 31, 2024, we had $366.7 million remaining under our current stock repurchase program. We expended $179.5 million and $116.3 million during the quarters ended March 31, 2024 and 2023, respectively, and $251.3 million and $191.3 million during the six months ended March 31, 2024 and 2023, respectively, under our current and previously authorized stock repurchase programs.

Previous wording

As of December 31, 2023, we had $403.0 million in borrowings outstanding under the revolving line of credit at a weighted-average interest rate of 6.708%, and $270.0 million in outstanding balance of the term loan at an interest rate of 6.713%. We were in compliance with all financial covenants under this credit agreement as of December 31, 2023.

Current wording

As of March 31, 2024, we had $488.0 million in borrowings outstanding under the revolving line of credit at a weighted-average interest rate of 6.673%, and $266.3 million in outstanding balance of the term loan at an interest rate of 6.674%. We were in compliance with all financial covenants under this credit agreement as of March 31, 2024.