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fico-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


☐			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		94-1499887
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

181 Metro Drive, Suite 700		95110-1346
San Jose,	California
(Address of principal executive offices)		(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	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	FICO	New York Stock Exchange

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	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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 Exchange Act. ☐

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


☐			Yes			☒			No

The number of shares of common stock outstanding on July 23, 2021 was 28,387,185 (excluding 60,469,598 shares held by us as treasury stock).

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TABLE OF CONTENTS


	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	39

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	54
Signatures		55

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2021		September 30, 2020
	(In thousands, except par value data)
Assets
Current assets:
Cash and cash equivalents	$	237,612	$	157,394
Accounts receivable, net	280,598		334,180
Prepaid expenses and other current assets	38,670		42,504

Total current assets	556,880		534,078
Marketable securities	33,046		25,513
Other investments	1,348		1,060
Property and equipment, net	31,565		46,419
Operating lease right-of-use assets	49,250		57,656
Goodwill	793,185		812,364
Intangible assets, net	4,685		9,236
Deferred income taxes	25,711		14,629
Other assets	93,485		105,285
Total assets	$	1,589,155	$	1,606,240
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	19,639	$	23,033
Accrued compensation and employee benefits	92,363		117,952
Other accrued liabilities	83,010		63,367
Deferred revenue	99,757		115,159
Current maturities on debt	250,000		95,000

Total current liabilities	544,769		414,511
Long-term debt	806,622		739,435
Operating lease liabilities	56,815		73,207
Other liabilities	56,111		48,005
Total liabilities	1,464,317		1,275,158
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 28,386 and 29,096 shares outstanding at June 30, 2021 and September 30, 2020, respectively)	284		291
Additional paid-in-capital	1,171,164		1,218,583
Treasury stock, at cost (60,471 and 59,761 shares at June 30, 2021 and September 30, 2020, respectively)	(3,482,483)		(2,997,856)
Retained earnings	2,499,423		2,193,059
Accumulated other comprehensive loss	(63,550)		(82,995)
Total stockholders’ equity	124,838		331,082
Total liabilities and stockholders’ equity	$	1,589,155	$	1,606,240

See accompanying notes.

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FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)


	Quarter Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(In thousands, except per share data)
Revenues:
Transactional and maintenance	$	288,078	$	246,829	$	821,147	$	707,905
Professional services	35,918		43,633		115,137		135,563
License	14,188		23,269		45,675		76,738
Total revenues	338,184		313,731		981,959		920,206
Operating expenses:
Cost of revenues	82,240		88,569		260,101		267,466
Research and development	45,826		41,411		130,089		119,793
Selling, general and administrative	107,729		99,832		298,912		315,318
Amortization of intangible assets	810		1,048		2,692		4,046
Restructuring and impairment charges	—		—		—		3,104
Gains on product line asset sales and business divestiture	(92,805)		—		(100,139)		—
Total operating expenses	143,800		230,860		591,655		709,727
Operating income	194,384		82,871		390,304		210,479
Interest expense, net	(10,018)		(11,223)		(29,602)		(32,245)
Other income, net	3,526		4,560		6,974		2,333
Income before income taxes	187,892		76,208		367,676		180,567
Income tax provision	36,694		12,132		61,312		3,282
Net income	151,198		64,076		306,364		177,285
Other comprehensive gain (loss):
Foreign currency translation adjustments	4,243		832		19,445		(4,132)
Comprehensive income	$	155,441	$	64,908	$	325,809	$	173,153
Earnings per share:
Basic	$	5.27	$	2.21	$	10.58	$	6.10
Diluted	$	5.18	$	2.15	$	10.38	$	5.92
Shares used in computing earnings per share:
Basic	28,687		29,005		28,967		29,075
Diluted	29,195		29,744		29,505		29,966

See accompanying notes.

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FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


	Common Stock			Additional Paid-in-Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
(In thousands)	Shares	Par Value
Balance at March 31, 2021	28,829	$	288	$	1,181,692	$	(3,239,109)	$	2,348,225	$	(67,793)	$	223,303
Share-based compensation	—	—		30,004		—		—		—		30,004
Issuance of treasury stock under employee stock plans	46	1		(532)		2,604		—		—		2,073
Repurchases of common stock	(489)	(5)		(40,000)		(245,978)		—		—		(285,983)
Net income	—	—		—		—		151,198		—		151,198
Foreign currency translation adjustments	—	—		—		—		—		4,243		4,243
Balance at June 30, 2021	28,386	$	284	$	1,171,164	$	(3,482,483)	$	2,499,423	$	(63,550)	$	124,838

	Common Stock			Additional Paid-in-Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
(In thousands)	Shares	Par Value
Balance at March 31, 2020	29,082	$	291	$	1,169,217	$	(2,930,165)	$	2,069,857	$	(95,049)	$	214,151
Share-based compensation	—	—		22,264		—		—		—		22,264
Issuance of treasury stock under employee stock plans	74	1		(3,764)		3,716		—		—		(47)
Repurchases of common stock	(157)	(2)		—		(53,988)		—		—		(53,990)
Net income	—	—		—		—		64,076		—		64,076
Foreign currency translation adjustments	—	—		—		—		—		832		832
Balance at June 30, 2020	28,999	$	290	$	1,187,717	$	(2,980,437)	$	2,133,933	$	(94,217)	$	247,286

	Common Stock			Additional Paid-in-Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
(In thousands)	Shares	Par Value
Balance at September 30, 2020	29,096	$	291	$	1,218,583	$	(2,997,856)	$	2,193,059	$	(82,995)	$	331,082
Share-based compensation	—	—		83,342		—		—		—		83,342
Issuance of treasury stock under employee stock plans	321	3		(90,761)		16,568		—		—		(74,190)
Repurchases of common stock	(1,031)	(10)		(40,000)		(501,195)		—		—		(541,205)
Net income	—	—		—		—		306,364		—		306,364
Foreign currency translation adjustments	—	—		—		—		—		19,445		19,445
Balance at June 30, 2021	28,386	$	284	$	1,171,164	$	(3,482,483)	$	2,499,423	$	(63,550)	$	124,838

	Common Stock			Additional Paid-in-Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
(In thousands)	Shares	Par Value
Balance at September 30, 2019	28,944	$	289	$	1,225,365	$	(2,802,450)	$	1,956,648	$	(90,085)	$	289,767
Share-based compensation	—	—		68,197		—		—		—		68,197
Issuance of treasury stock under employee stock plans	670	7		(105,845)		32,007		—		—		(73,831)
Repurchases of common stock	(615)	(6)		—		(209,994)		—		—		(210,000)
Net income	—	—		—		—		177,285		—		177,285
Foreign currency translation adjustments	—	—		—		—		—		(4,132)		(4,132)
Balance at June 30, 2020	28,999	$	290	$	1,187,717	$	(2,980,437)	$	2,133,933	$	(94,217)	$	247,286

See accompanying notes.

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FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended June 30,
	2021		2020
	(In thousands)
Cash flows from operating activities:
Net income	$	306,364	$	177,285
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	20,066		23,549
Share-based compensation	84,099		68,197
Deferred income taxes	(11,064)		(1,230)
Net gain on marketable securities	(4,706)		(998)
Non-cash operating lease costs	12,056		14,962
Provision for doubtful accounts, net	551		2,777
Net loss on sales and abandonment of property and equipment	107		61
Gains on product line asset sales and business divestiture	(100,139)		—
Changes in operating assets and liabilities:
Accounts receivable	56,655		(18,961)
Prepaid expenses and other assets	5,172		(9,734)
Accounts payable	(4,165)		(1,815)
Accrued compensation and employee benefits	(24,990)		(10,147)
Other liabilities	(5,388)		(12,330)
Deferred revenue	(2,556)		(2,886)
Net cash provided by operating activities	332,062		228,730
Cash flows from investing activities:
Purchases of property and equipment	(5,792)		(21,073)
Proceeds from sales of marketable securities	2,294		3,462
Purchases of marketable securities	(5,121)		(5,790)
Proceeds from product line asset sales and business divestiture	146,428		—

(Purchase of) distribution from equity investment	(210)		55
Net cash provided by (used in) investing activities	137,599		(23,346)
Cash flows from financing activities:
Proceeds from revolving line of credit	429,000		193,000
Payments on revolving line of credit	(208,000)		(435,000)
Proceeds from issuance of senior notes	—		350,000

Payments on debt issuance costs	—		(6,840)
Payments on finance leases	(177)		(811)
Proceeds from issuance of treasury stock under employee stock plans	14,580		26,235
Taxes paid related to net share settlement of equity awards	(88,770)		(100,067)
Repurchases of common stock including prepayment under accelerated share repurchase agreement	(541,205)		(210,000)
Net cash used in financing activities	(394,572)		(183,483)
Effect of exchange rate changes on cash	5,129		(2,654)
Increase in cash and cash equivalents	80,218		19,247
Cash and cash equivalents, beginning of period	157,394		106,426
Cash and cash equivalents, end of period	$	237,612	$	125,673
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds of $289 and $1,552 during the nine months ended June 30, 2021, and 2020, respectively	$	34,465	$	5,723
Cash paid for interest	$	36,764	$	34,844
Supplemental disclosures of non-cash investing and financing activities:
Purchase of property and equipment included in accounts payable	$	564	$	50

Finance lease obligations incurred	$	—	$	6,489

See accompanying notes.

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FAIR ISAAC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business

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 analytic 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 this Quarterly Report on Form 10-Q, Fair Isaac Corporation is referred to as “FICO,” “we,” “us,” “our,” or “the Company.”

Principles of Consolidation and Basis of Presentation

We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q and the applicable accounting guidance. Consequently, we have not necessarily included all information and footnotes required for audited financial statements. In our opinion, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments, except as otherwise indicated) necessary for a fair presentation of our financial position and results of operations. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with our audited consolidated financial statements and notes thereto presented in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. The interim financial information contained in this report is not necessarily indicative of the results to be expected for any other interim period or for the entire fiscal year.

The condensed 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 condensed 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 II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles—Goodwill and Other (Topic 350): Internal-Use Software (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted ASU 2018-15 in the first quarter of our fiscal 2021 and the adoption did not have a significant impact on our condensed consolidated financial statements.

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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-11 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. We adopted Topic 326 in the first quarter of our fiscal 2021 and the adoption did not have a significant impact on our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

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

2. Business Divestiture

On May 4, 2021, we entered into a definitive agreement to sell our Collections and Recovery (“C&R”) business to Jonas Collections and Recovery Inc. (“Jonas”), a company in the Jonas Software operating group of Constellation Software Inc. The decision to sell the C&R business was the result of management’s decision to divest certain software products that are not built on the FICO Decision Management Platform. This divestiture will allow us to focus our development and go to market resources on the growth of our Decision Management Platform products. On June 7, 2021, we completed the sale to Jonas. As the C&R business has the input, process and output elements defined in Accounting Standards Codification 805, Business Combinations, we concluded the sale qualified as a sale of a business. The gain recognized from the sale was $92.8 million, which was recorded in gains on product line asset sales and business divestiture within the accompanying condensed consolidated statements of income and comprehensive income. Our C&R business was part of the Applications segment.

3. 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 June 30, 2021 and September 30, 2020.

•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 June 30, 2021 and September 30, 2020. We measure the fair value of our senior notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities.

•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 June 30, 2021 and September 30, 2020.

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


June 30, 2021	Active Markets for Identical Instruments (Level 1)		Fair Value as of June 30, 2021
	(In thousands)
Assets:
Cash equivalents (1)	$	194	$	194
Marketable securities (2)	33,046		33,046
Total	$	33,240	$	33,240

September 30, 2020	Active Markets for Identical Instruments (Level 1)		Fair Value as of September 30, 2020
	(In thousands)
Assets:
Cash equivalents (1)	$	35,275	$	35,275
Marketable securities (2)	25,513		25,513
Total	$	60,788	$	60,788

(1)Included in cash and cash equivalents on our condensed consolidated balance sheets at June 30, 2021 and September 30, 2020. Not included in these tables are cash deposits of $237.4 million and $122.1 million at June 30, 2021 and September 30, 2020, respectively.

(2)Represents securities held under a supplemental retirement and savings plan for senior management employees, which are distributed upon termination or retirement of the employees. Included in marketable securities on our condensed consolidated balance sheets at June 30, 2021 and September 30, 2020.

See Note 8 for the fair value of our senior notes.

There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the quarters and nine-month periods ended June 30, 2021 and 2020.

4. Derivative Financial Instruments

We use derivative instruments to manage risks caused by fluctuations in foreign exchange rates. The primary objective of our derivative instruments is to protect the value of foreign-currency-denominated receivable and cash balances from the effects of volatility in foreign exchange rates that might occur prior to conversion to their respective functional currencies. We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates. We routinely enter into contracts to offset exposures denominated in the British pound, Euro, and Singapore dollar.

Foreign currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the effects of changes in foreign exchange rates reported in other income, net. The forward contracts are not designated as hedges and are marked to market through other income, net. 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 June 30, 2021 and September 30, 2020:


	June 30, 2021
	Contract Amount				Fair Value
	Foreign Currency		USD		USD
	(In thousands)
Sell foreign currency:

Euro (EUR)	EUR	16,600	$	19,715	$	—
Buy foreign currency:
British pound (GBP)	GBP	14,601	$	20,300	$	—
Singapore dollar (SGD)	SGD	5,363	$	4,000	$	—


	September 30, 2020
	Contract Amount				Fair Value
	Foreign Currency		USD		USD
	(In thousands)
Sell foreign currency:

Euro (EUR)	EUR	15,000	$	17,656	$	—
Buy foreign currency:
British pound (GBP)	GBP	16,555	$	21,300	$	—
Singapore dollar (SGD)	SGD	7,815	$	5,700	$	—

The foreign currency forward contracts were entered into on June 30, 2021 and September 30, 2020, respectively; therefore, their fair value was $0 on each of these dates.

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


	Quarter Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Gains (losses) on foreign currency forward contracts	$	88	$	(380)	$	3,003	$	(1,429)

5. Goodwill and Intangible Assets

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 condensed consolidated statements of income and comprehensive income. Amortization expense consisted of the following:


	Quarter Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(In thousands)
Completed technology	$	257	$	406	$	902	$	1,444
Customer contracts and relationships	510		561		1,659		2,359
Trade names	—		37		—		112
Non-compete agreements	43		44		131		131
Total	$	810	$	1,048	$	2,692	$	4,046

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Estimated future intangible asset amortization expense associated with intangible assets existing at June 30, 2021 was as follows:


Year Ending September 30,	(In thousands)
2021 (excluding the nine months ended June 30, 2021)	$	563
2022	2,105
2023	1,100
2024	917


Total	$	4,685

The following table summarizes changes to goodwill during the nine months ended June 30, 2021, both in total and as allocated to our segments:


	Applications		Scores		Decision Management Software		Total
	(In thousands)
Balance at September 30, 2020	$	596,804	$	146,648	$	68,912	$	812,364


Foreign currency translation adjustment	5,265		—		1,152		6,417
C&R business divestiture	$	(25,596)	$	—	$	—	(25,596)
Balance at June 30, 2021	$	576,473	$	146,648	$	70,064	$	793,185

6. Composition of Certain Financial Statement Captions

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


	June 30, 2021		September 30, 2020
	(In thousands)
Property and equipment, net:
Property and equipment	$	153,879	$	161,119
Less: accumulated depreciation and amortization	(122,314)		(114,700)
Total	$	31,565	$	46,419

Other assets:
Long-term receivables	$	41,492	$	54,074
Prepaid commissions	39,082		38,579
Other	12,911		12,632
Total	$	93,485	$	105,285

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7. Revolving Line of Credit

We have a $400 million unsecured revolving line of credit with a syndicate of banks that expires on May 8, 2023 with an option to increase it, subject to lender approval, 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 on an average trailing four-quarter basis, subject to a step up to 3.75 following certain permitted acquisitions; and a minimum interest coverage ratio of 3.00. The credit agreement also contains other covenants typical of unsecured facilities. As of June 30, 2021, we had $316.0 million in borrowings outstanding at a weighted-average interest rate of 1.216% and were in compliance with all financial covenants under this credit facility.

8. 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,” and with the 2018 Senior Notes, the “Senior Notes”). The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028.

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

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


	June 30, 2021				September 30, 2020
	Face Value (*)		Fair Value		Face Value (*)		Fair Value
	(In thousands)
The 2018 Senior Notes	400,000		449,000		400,000		442,000
The 2019 Senior Notes	350,000		359,625		350,000		358,750
Total	$	750,000	$	808,625	$	750,000	$	800,750

(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $9.4 million and $10.6 million at June 30, 2021 and September 30, 2020, respectively.

9. Accelerated Share Repurchase

We have authorization to make repurchases of shares of our common stock from time to time in the open market or in negotiated transactions. As part of the broader share repurchase program, we entered into an accelerated share repurchase agreement (“ASR Agreement”) with Wells Fargo on June 17, 2021 to repurchase $200.0 million of our common stock. The ASR Agreement was accounted for as two separate transactions (1) a repurchase of common stock and (2) an equity-linked contract on our own stock. Pursuant to the ASR Agreement, we paid $200.0 million to Wells Fargo and received an initial delivery of 319,400 shares of common stock, which approximated 80 percent of the total number of expected shares to be repurchased under the ASR Agreement. The final number of shares to be repurchased and the average price paid per share will be determined upon the expected settlement of the agreement during the fourth quarter of fiscal 2021. The final number of shares to be repurchased will be based on the volume-weighted average price of our common stock over the duration of the ASR Agreement, less a discount. The equity-linked contract for the remaining $40.0 million, representing remaining shares to be delivered by Wells Fargo under the ASR Agreement, was recorded as a reduction to stockholders’ equity as of June 30, 2021.

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10. Income Taxes

Effective Tax Rate

The effective income tax rates were 19.5% and 15.9% during the quarters ended June 30, 2021 and 2020, respectively, and 16.7% and 1.8% during the nine months ended June 30, 2021 and 2020, 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 nine months ended June 30, 2021 and 2020 were both impacted favorably by the recording of excess tax benefits relating to stock awards. In addition, the effective tax rate for the nine months ended June 30, 2021 was increased by the tax impact of the gain on the sale of C&R business.

The total unrecognized tax benefit for uncertain tax positions was estimated to be $12.1 million and $8.0 million at June 30, 2021 and September 30, 2020, respectively. We recognize interest expense related to unrecognized tax benefits and penalties as part of the provision for income taxes in our condensed consolidated statements of income and comprehensive income. We accrued interest of $0.6 million and $0.4 million related to unrecognized tax benefits as of June 30, 2021 and September 30, 2020, respectively.

11. Earnings per Share

The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) for the quarters and nine-month periods ended June 30, 2021 and 2020:


	Quarter Ended June 30,				Nine Months Ended June 30,
	2021		2020		2021		2020
	(In thousands, except per share data)
Numerator for diluted and basic earnings per share:
Net income	$	151,198	$	64,076	$	306,364	$	177,285
Denominator - share:
Basic weighted-average shares	28,687		29,005		28,967		29,075
Effect of dilutive securities	508		739		538		891
Diluted weighted-average shares	29,195		29,744		29,505		29,966
Earnings per share:
Basic	$	5.27	$	2.21	$	10.58	$	6.10
Diluted	$	5.18	$	2.15	$	10.38	$	5.92

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

12. 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 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”).

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•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 and services are either distributed through major credit reporting agencies worldwide or sold to our 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. Some of our 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 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, nor capital expenditures where depreciation amounts are allocated to the segments from their internal cost centers as described above.

The following tables summarize segment information for the quarters and nine-month periods ended June 30, 2021 and 2020:


	Quarter Ended June 30, 2021
	Applications		Scores		Decision Management Software		Unallocated Corporate Expenses		Total
	(In thousands)
Segment revenues:
Transactional and maintenance	$	99,822	$	170,415	$	17,841	$	—	$	288,078
Professional services	26,381		166		9,371		—		35,918
License	7,010		1,621		5,557		—		14,188
Total segment revenues	133,213		172,202		32,769		—		338,184
Segment operating expense	(97,784)		(25,418)		(