Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, share repurchases, 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 or strategic divestitures; (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 and services, their characteristics, performance, sales potential or effect in use by 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 Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 and in subsequent filings with the SEC. 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 Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

OVERVIEW

We were founded in 1956 on the premise that data, used intelligently, can improve business decisions. Today, FICO’s software and the widely used FICO® Score operationalize analytics, enabling thousands of businesses in more than 100 countries to uncover new opportunities, make timely decisions that matter, and execute them at scale. Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, automotive lenders, consumer reporting agencies, public agencies, and organizations in other industries. We also serve consumers through online services that enable people to access and understand their FICO® Scores — the standard measure in the U.S. of consumer credit risk — empowering them to increase financial literacy and manage their financial health.

Our business consists of two operating segments: Scores and Software.

Our Scores segment includes our business-to-business (“B2B”) scoring solutions and services which give our clients access to predictive credit and other scores that can be easily integrated into their transaction streams and decision-making processes. This segment also includes our business-to-consumer (“B2C”) scoring solutions, including our myFICO.com subscription offerings.

Our Software segment includes pre-configured analytic and decision management solutions designed for a specific type of business need or process — such as account origination, customer management, customer engagement, fraud detection, and marketing — as well as associated professional services. This segment also includes FICO® Platform, a modular software offering designed to support advanced analytic and decision use cases, as well as stand-alone analytic and decisioning software that can be configured by our customers to address a wide variety of business use cases. Our offerings are available to our customers as software-as-a-service (“SaaS”) or as on-premises software.

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

• Total revenue was $433.8 million during the quarter ended March 31, 2024, a 14% increase from the quarter ended March 31, 2023, and $815.9 million during the six months ended March 31, 2024, a 13% increase from the six months ended March 31, 2023.

• 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.

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

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

• Operating income was $194.8 million during the quarter ended March 31, 2024, a 22% increase from the quarter ended March 31, 2023, and $346.2 million during the six months ended March 31, 2024, a 15% increase from the six months ended March 31, 2023.

• Net income was $129.8 million during the quarter ended March 31, 2024, a 28% increase from the quarter ended March 31, 2023, and $250.9 million during the six months ended March 31, 2024, a 26% increase from the six months ended March 31, 2023.

• Diluted EPS was $5.16 during the quarter ended March 31, 2024, a 29% increase from the quarter ended March 31, 2023, and $9.96 during the six months ended March 31, 2024, a 27% increase from the six months ended March 31, 2023.

• Cash flows from operating activities were $193.2 million during the six months ended March 31, 2024, compared with $182.2 million during the six months ended March 31, 2023.

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

• Total debt balance was $2.0 billion as of March 31, 2024, compared with $1.9 billion as of September 30, 2023.

• 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.

Key performance metrics for Software segment

Annual Contract Value Bookings (“ACV Bookings”)

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.

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.

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.

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

			Quarter Ended March 31,												Six Months Ended March 31,
			2024						2023						2024						**2023 ***
			(In millions)
Total on-premises and SaaS software			$	16.8					$	23.3					$	35.1					$	44.8

(*) 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.

Annual Recurring Revenue (“ARR”)

Accounting Standards Codification Topic 606, Revenue from Contacts with Customers, requires us to recognize a significant portion of revenue from our on-premises software subscriptions at the point in time when the software is first made available to the customer, or at the beginning of the subscription term, despite the fact that our contracts typically call for billing these amounts ratably over the life of the subscription. The remaining portion of our on-premises software subscription revenue including maintenance and usage-based fees are recognized over the life of the contract. This point-in-time recognition of a portion of our on-premises software subscription revenue creates significant variability in the revenue recognized period to period based on the timing of the subscription start date and the subscription term. Furthermore, this point-in-time revenue recognition can create a significant difference between the timing of our revenue recognition and the actual customer billing under the contract. We use ARR to measure the underlying performance of our subscription-based contracts and mitigate the impact of this variability. ARR is defined as the annualized revenue run-rate of on-premises and SaaS software agreements within a quarterly reporting period, and as such, is different from the timing and amount of revenue recognized. All components of our software licensing and subscription arrangements that are not expected to recur (primarily perpetual licenses) are excluded. We calculate ARR as the quarterly recurring revenue run-rate multiplied by four.

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

			June 30, 2022						September 30, 2022						December 31, 2022						March 31, 2023						June 30, 2023						September 30, 2023						December 31, 2023						March 31, 2024
ARR (*)			(In millions)
Platform			$	107.2					$	113.1					$	132.8					$	152.5					$	164.1					$	173.2					$	190.3					$	201.4
Non-platform			432.3						437.0						450.1						461.0						481.8						496.2						497.4						495.6
Total			$	539.5					$	550.1					$	582.9					$	613.5					$	645.9					$	669.4					$	687.7					$	697.0
Percentage
Platform			20		%				21		%				23		%				25		%				25		%				26		%				28		%				29		%
Non-platform			80		%				79		%				77		%				75		%				75		%				74		%				72		%				71		%
Total			100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%
YoY Change
Platform			62		%				54		%				46		%				60		%				53		%				53		%				43		%				32		%
Non-platform			2		%				2		%				4		%				7		%				11		%				14		%				11		%				8		%
Total			10		%				10		%				11		%				17		%				20		%				22		%				18		%				14		%

(*) 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.

Dollar-Based Net Retention Rate (“DBNRR”)

We consider DBNRR to be an important measure of our success in retaining and growing revenue from our existing customers. To calculate DBNRR for any period, we compare the ARR at the end of the prior comparable quarter (“base ARR”) to the ARR from that same cohort of customers at the end of the current quarter (“retained ARR”); we then divide the retained ARR by the base ARR to arrive at the DBNRR. Our calculation includes the positive impact among this cohort of customers of selling additional products, price increases and increases in usage-based fees, and the negative impact of customer attrition, price decreases, and decreases in usage-based fees during the period. However, the calculation does not include the positive impact from sales to any new customers acquired during the period. Our DBNRR may increase or decrease from period to period as a result of various factors, including the timing of new sales and customer renewal rates.

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

			June 30, 2022						September 30, 2022						December 31, 2022						March 31, 2023						June 30, 2023						September 30, 2023						December 31, 2023						March 31, 2024
DBNRR (*)
Platform			137		%				129		%				130		%				146		%				142		%				145		%				136		%				126		%
Non-platform			101		%				101		%				103		%				105		%				109		%				111		%				108		%				106		%
Total			109		%				109		%				110		%				114		%				117		%				120		%				114		%				112		%

(*) 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.

RESULTS OF OPERATIONS

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

Segment revenues, operating income, and related financial information, including disaggregation of revenue, are set forth in Note 7 and Note 10 to the accompanying condensed consolidated financial statements.

Revenues

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:

			Quarter Ended March 31,												Percentage of Revenues												Period-to-Period Change						Period-to-Period Percentage Change
Segment			2024						2023						2024						2023
			(In thousands)																								(In thousands)
Scores			$	236,885					$	198,507					55		%				52		%				$	38,378					19		%
Software			196,924						181,759						45		%				48		%				15,165						8		%
Total			$	433,809					$	380,266					100		%				100		%				53,543						14		%
			Six Months Ended March 31,												Percentage of Revenues												Period-to-Period Change						Period-to-Period Percentage Change
Segment			2024						2023						2024						2023
			(In thousands)																								(In thousands)
Scores			$	428,997					$	376,495					53		%				52		%				$	52,502					14		%
Software			386,871						348,641						47		%				48		%				38,230						11		%
Total			$	815,868					$	725,136					100		%				100		%				90,732						13		%

Quarter Ended March 31, 2024 Compared to Quarter Ended March 31, 2023

Scores

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.

Software

			Quarter Ended March 31,												Period-to-Period Change						Period-to-Period Percentage Change
			2024						2023
			(In thousands)												(In thousands)
On-premises and SaaS software			$	177,180					$	154,584					$	22,596					15		%
Professional services			19,744						27,175						(7,431)						(27)		%
Total			$	196,924					$	181,759					15,165						8		%

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.

Six Months Ended March 31, 2024 Compared to Six Months Ended March 31, 2023

Scores

Scores segment revenues increased $52.5 million due to an increase of $56.2 million in our business-to-business scores revenue, partially offset by a decrease of $3.7 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.

Software

			Six Months Ended March 31,												Period-to-Period Change						Period-to-Period Percentage Change
			2024						2023
			(In thousands)												(In thousands)
On-premises and SaaS software			$	345,848					$	299,144					$	46,704					16		%
Professional services			41,023						49,497						(8,474)						(17)		%
Total			$	386,871					$	348,641					38,230						11		%

Software segment revenues increased $38.2 million due to a $46.7 million increase in our on-premises and SaaS software revenue, partially offset by an $8.5 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.

Operating Expenses and Other Income (Expense), Net

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:

			Quarter Ended March 31,												Percentage of Revenues												Period-to-Period Change						Period-to- Period Percentage Change
			2024						2023						2024						2023
			(In thousands, except employees)																								(In thousands, except employees)
Revenues			$	433,809					$	380,266					100		%				100		%				$	53,543					14		%
Operating expenses:
Cost of revenues			86,946						79,806						20		%				21		%				7,140						9		%
Research and development			40,880						40,266						9		%				11		%				614						2		%
Selling, general and administrative			110,867						100,158						26		%				26		%				10,709						11		%
Amortization of intangible assets			275						275						—		%				—		%				—						—		%
Total operating expenses			238,968						220,505						55		%				58		%				18,463						8		%
Operating income			194,841						159,761						45		%				42		%				35,080						22		%
Interest expense, net			(26,093)						(23,897)						(6)		%				(6)		%				(2,196)						9		%
Other income, net			3,986						1,605						1		%				—		%				2,381						148		%
Income before income taxes			172,734						137,469						40		%				36		%				35,265						26		%
Provision for income taxes			42,935						35,919						10		%				9		%				7,016						20		%
Net income			$	129,799					$	101,550					30		%				27		%				28,249						28		%
Number of employees at quarter end			3,550						3,320																		230						7		%

			Six Months Ended March 31,												Percentage of Revenues												Period-to-Period Change						Period-to- Period Percentage Change
			2024						2023						2024						2023
			(In thousands)																								(In thousands)
Revenues			$	815,868					$	725,136					100		%				100		%				$	90,732					13		%
Operating expenses:
Cost of revenues			170,407						156,375						21		%				21		%				14,032						9		%
Research and development			83,515						76,899						10		%				11		%				6,616						9		%
Selling, general and administrative			215,196						193,153						27		%				27		%				22,043						11		%
Amortization of intangible assets			550						550						—		%				—		%				—						—		%
Gain on product line asset sale			—						(1,941)						—		%				—		%				1,941						(100)		%
Total operating expenses			469,668						425,036						58		%				59		%				44,632						11		%
Operating income			346,200						300,100						42		%				41		%				46,100						15		%
Interest expense, net			(50,255)						(46,697)						(6)		%				(6)		%				(3,558)						8		%
Other income, net			7,379						1,969						1		%				—		%				5,410						275		%
Income before income taxes			303,324						255,372						37		%				35		%				47,952						19		%
Provision for income taxes			52,460						56,179						6		%				8		%				(3,719)						(7)		%
Net income			$	250,864					$	199,193					31		%				27		%				51,671						26		%

Cost of Revenues

Cost of revenues consists primarily of employee salaries, incentives, and benefits for personnel directly involved in delivering software products, operating SaaS infrastructure, and providing support, implementation and consulting services; 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 quarter-over-prior year quarter increase in cost of revenues of $7.1 million was primarily attributable to a $2.5 million increase in infrastructure and facilities costs, a $2.0 million increase in personnel and labor costs, and a $2.0 million increase in direct materials costs. The increase in infrastructure and facilities costs was primarily attributable to increased third-party data center hosting 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 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 decreased to 20% during the quarter ended March 31, 2024 from 21% during the quarter ended March 31, 2023, primarily due to increased sales of our higher-margin Scores products and decreased sales of lower-margin professional services.

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.

Research and Development

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

The quarter-over-prior year quarter increase in research and development expenses of $0.6 million was primarily attributable to an increase in third-party consulting expenses. Research and development expenses as a percentage of revenues decreased to 9% during the quarter ended March 31, 2024 from 11% during the quarter ended March 31, 2023.

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.

Selling, General and Administrative

Selling, general and administrative expenses consist principally of employee salaries, incentives, commissions and benefits; travel costs; overhead costs; advertising and other promotional expenses; corporate facilities expenses; legal expenses; and business development expenses.

The quarter-over-prior year quarter increase in selling, general and administrative expenses of $10.7 million was primarily attributable to a $9.9 million increase in personnel and labor costs and a $1.1 million increase in travel costs. The increase in personnel and labor costs was primarily attributable to increased share-based compensation expense, increased headcount, and increased fringe benefit costs related to our supplemental retirement and savings plan, partially offset by decreased incentive expense. The increase in travel costs was primarily attributable to promotional and corporate events. Selling, general and administrative expenses as a percentage of revenues remained consistent at 26% during the quarters ended March 31, 2024 and 2023.

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.

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, consisting primarily of completed technology and customer contracts and relationships, are amortized using the straight-line method over five years.

Amortization expense was $0.3 million during each of the quarters ended March 31, 2024 and 2023.

Amortization expense was $0.6 million during each of the six months ended March 31, 2024 and 2023.

Gain on Product Line Asset Sale

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.

Interest Expense, Net

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

The year-to-date period-over-period increase in interest expense of $3.6 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 six months ended March 31, 2024.

Other Income, Net

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

The 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.

The year-to-date period-over-period increase in other income, net of $5.4 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.

Provision for Income Taxes

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.

Operating Income

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.

			Quarter Ended March 31,												Period-to-Period Change						Period-to-Period Percentage Change
Segment			2024						2023
			(In thousands)												(In thousands)
Scores			$	212,208					$	175,405					$	36,803					21		%
Software			64,162						54,867						9,295						17		%
Unallocated corporate expenses			(45,806)						(43,183)						(2,623)						6		%
Total segment operating income			230,564						187,089						43,475						23		%
Unallocated share-based compensation			(35,448)						(27,053)						(8,395)						31		%
Unallocated amortization expense			(275)						(275)						—						—		%
Operating income			$	194,841					$	159,761					35,080						22		%

			Scores																								Software
			Quarter Ended March 31,												Percentage of Revenues												Quarter Ended March 31,												Percentage of Revenues
			2024						2023						2024						2023						2024						2023						2024						2023
			(In thousands)																								(In thousands)
Segment revenues			$	236,885					$	198,507					100		%				100		%				$	196,924					$	181,759					100		%				100		%
Segment operating expense			(24,677)						(23,102)						(10)		%				(12)		%				(132,762)						(126,892)						(67)		%				(70)		%
Segment operating income			$	212,208					$	175,405					90		%				88		%				$	64,162					$	54,867					33		%				30		%

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.

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.

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%.

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.

			Six Months Ended March 31,												Period-to-Period Change						Period-to-Period Percentage Change
Segment			2024						2023
			(In thousands)												(In thousands)
Scores			$	380,862					$	332,097					$	48,765					15		%
Software			119,284						100,632						18,652						19		%
Unallocated corporate expenses			(86,374)						(77,265)						(9,109)						12		%
Total segment operating income			413,772						355,464						58,308						16		%
Unallocated share-based compensation			(67,022)						(56,755)						(10,267)						18		%
Unallocated amortization expense			(550)						(550)						—						—		%
Unallocated gain on product line asset sale			—						1,941						(1,941)						(100)		%
Operating income			$	346,200					$	300,100					46,100						15		%

			Scores																								Software
			Six Months Ended March 31,												Percentage of Revenues												Six Months Ended March 31,												Percentage of Revenues
			2024						2023						2024						2023						2024						2023						2024						2023
			(In thousands)																								(In thousands)
Segment revenues			$	428,997					$	376,495					100		%				100		%				$	386,871					$	348,641					100		%				100		%
Segment operating expense			(48,135)						(44,398)						(11)		%				(12)		%				(267,587)						(248,009)						(69)		%				(71)		%
Segment operating income			$	380,862					$	332,097					89		%				88		%				$	119,284					$	100,632					31		%				29		%

The year-to-date period-over-period increase of $46.1 million in operating income was primarily attributable to a $90.7 million increase in segment revenues, partially offset by a $23.3 million increase in segment operating expenses, a $10.3 million increase in share-based compensation cost, and a $9.1 million increase in corporate expenses.

At the segment level, the year-to-date period-over-period increase of $58.3 million in segment operating income was the result of a $48.8 million increase in our Scores segment operating income and an $18.7 million increase in our Software segment operating income, partially offset by a $9.1 million increase in corporate expenses.

The year-to-date period-over-period $48.8 million increase in Scores segment operating income was attributable to a $52.5 million increase in segment revenue, partially offset by a $3.7 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Scores increased to 89% from 88%.

The year-to-date period-over-period $18.7 million increase in Software segment operating income was attributable to a $38.2 million increase in segment revenue, partially offset by a $19.5 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Software increased to 31% from 29%, 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.

CAPITAL RESOURCES AND LIQUIDITY

Outlook

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.

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

			Six Months Ended March 31,												Period-to-Period Change
			2024						2023
			(In thousands)
Cash provided by (used in):
Operating activities			$	193,155					$	182,244					$	10,911
Investing activities			(12,040)						(11,887)						(153)
Financing activities			(183,222)						(173,245)						(9,977)
Effect of exchange rate changes on cash			996						7,457						(6,461)
Increase (decrease) in cash and cash equivalents			$	(1,111)					$	4,569					(5,680)

Cash Flows from Operating Activities

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.

Cash Flows from Investing Activities

Net cash used in investing activities was $12.0 million for the six months ended March 31, 2024, compared with $11.9 million for the six months ended March 31, 2023.

Cash Flows from Financing Activities

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.

Repurchases of Common Stock

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.

Revolving Line of Credit and Term Loan

We have a $600 million unsecured revolving line of credit and a $300 million unsecured term loan with a syndicate of banks that mature on August 19, 2026. Borrowings under the revolving line of credit and term loan can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of our common stock. The term loan requires principal payments in consecutive quarterly installments of $3.75 million on the last business day of each quarter. Interest rates on amounts borrowed under the revolving line of credit and term loan are based on (i) an adjusted base rate, which is the greatest of (a) the prime rate, (b) the Federal Funds rate plus 0.5%, and (c) one-month adjusted term Secured Overnight Financing Rate (“SOFR”) rate plus 1%, plus, in each case, an applicable margin, or (ii) an adjusted term SOFR rate plus an applicable margin. The applicable margin for base rate borrowings and for SOFR borrowings is determined based on our consolidated leverage ratio. The applicable margin for base rate borrowings ranges from 0% to 0.75% per annum and for SOFR borrowings ranges from 1% to 1.75% per annum. In addition, we must pay certain credit facility fees. The revolving line of credit and term loan contain certain restrictive covenants including a maximum consolidated leverage ratio of 3.5 to 1.0, subject to a step up to 4.0 to 1.0 following certain permitted acquisitions and subject to certain conditions, and a minimum interest coverage ratio of 3.0 to 1.0. The credit agreement also contains other covenants typical of unsecured credit facilities.

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.

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”). The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028. On December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes in a private offering to qualified institutional investors (the “2021 Senior Notes,” and collectively with the 2018 Senior Notes and the 2019 Senior Notes, the “Senior Notes”). The 2021 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028, the same date as the 2019 Senior Notes. The indentures for the Senior Notes contain certain covenants typical of unsecured obligations. As of March 31, 2024, the carrying value of the Senior Notes was $1.3 billion and we were in compliance with all financial covenants under these obligations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. 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 condensed consolidated 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 resulting from business combinations and other long-lived assets — impairment assessment, 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 and such differences could be material to our financial condition and results of operations. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.

You should carefully consider the critical accounting estimates disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (“Annual Report on Form 10-K”). There have been no significant changes from the critical accounting estimates disclosed in our Annual Report on Form 10-K.

New Accounting Pronouncements

For information about recent accounting pronouncements recently adopted and not yet adopted and the impact on our consolidated financial statements, refer to Part I, Item 1, “Unaudited Financial Statements,” Note 1, “Nature of Business” in our accompanying Notes to Condensed Consolidated Financial Statements.