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fico-20201231

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 December 31, 2020


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

For the transition period from to

Commission File Number 1-11689

Fair Isaac Corporation

(Exact name of registrant as specified in its charter)


Delaware		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 January 15, 2021 was 29,236,110 (excluding 59,620,673 shares held by us as treasury stock).

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	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	33

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	48
Item 6.	Exhibits	49
Signatures		50

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	December 31, 2020		September 30, 2020
	(In thousands, except par value data)
Assets
Current assets:
Cash and cash equivalents	$	144,662	$	157,394
Accounts receivable, net	310,626		334,180
Prepaid expenses and other current assets	53,153		42,504
Total current assets	508,441		534,078
Marketable securities	28,455		25,513
Other investments	1,327		1,060
Property and equipment, net	39,011		46,419
Operating lease right-of-use assets	56,030		57,656
Goodwill	817,777		812,364
Intangible assets, net	8,367		9,236
Deferred income taxes	15,003		14,629
Other assets	102,452		105,285
Total assets	$	1,576,863	$	1,606,240
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	21,749	$	23,033
Accrued compensation and employee benefits	73,231		117,952
Other accrued liabilities	49,254		63,367
Deferred revenue	115,808		115,159
Current maturities on debt	131,000		95,000
Total current liabilities	391,042		414,511
Long-term debt	739,831		739,435
Operating lease liabilities	69,815		73,207
Other liabilities	52,054		48,005
Total liabilities	1,252,742		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 29,236 and 29,096 shares outstanding at December 31, 2020 and September 30, 2020, respectively)	292		291
Additional paid-in-capital	1,145,893		1,218,583
Treasury stock, at cost (59,621 and 59,761 shares at December 31, 2020 and September 30, 2020, respectively)	(3,035,668)		(2,997,856)
Retained earnings	2,279,551		2,193,059
Accumulated other comprehensive loss	(65,947)		(82,995)
Total stockholders’ equity	324,121		331,082
Total liabilities and stockholders’ equity	$	1,576,863	$	1,606,240

See accompanying notes.

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FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)


	Quarter Ended December 31,
	2020		2019
	(In thousands, except per share data)
Revenues:
Transactional and maintenance	$	252,150	$	220,374
Professional services	41,425		44,025
License	18,839		34,105
Total revenues	312,414		298,504
Operating expenses:
Cost of revenues	89,528		90,758
Research and development	40,651		38,943
Selling, general and administrative	93,911		112,021
Amortization of intangible assets	937		1,796
Restructuring and impairment charges	—		3,104
Gain on sale of product line assets	(7,334)		—
Total operating expenses	217,693		246,622
Operating income	94,721		51,882
Interest expense, net	(9,641)		(9,768)
Other income (expense), net	2,880		(219)
Income before income taxes	87,960		41,895
Income tax provision (benefit)	1,468		(13,026)
Net income	86,492		54,921
Other comprehensive gain:
Foreign currency translation adjustments	17,048		14,092
Comprehensive income	$	103,540	$	69,013
Earnings per share:
Basic	$	2.97	$	1.89
Diluted	$	2.90	$	1.82
Shares used in computing earnings per share:
Basic	29,127		29,025
Diluted	29,789		30,169

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 September 30, 2020	29,096	$	291	$	1,218,583	$	(2,997,856)	$	2,193,059	$	(82,995)	$	331,082
Share-based compensation	—	—		25,132		—		—		—		25,132
Issuance of treasury stock under employee stock plans	241	2		(97,822)		12,198		—		—		(85,622)
Repurchases of common stock	(101)	(1)		—		(50,010)		—		—		(50,011)
Net income	—	—		—		—		86,492		—		86,492
Foreign currency translation adjustments	—	—		—		—		—		17,048		17,048
Balance at December 31, 2020	29,236	$	292	$	1,145,893	$	(3,035,668)	$	2,279,551	$	(65,947)	$	324,121

	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	—	—		23,145		—		—		—		23,145
Issuance of treasury stock under employee stock plans	410	4		(100,320)		19,361		—		—		(80,955)
Repurchases of common stock	(168)	(1)		—		(60,008)		—		—		(60,009)
Net income	—	—		—		—		54,921		—		54,921
Foreign currency translation adjustments	—	—		—		—		—		14,092		14,092
Balance at December 31, 2019	29,186	$	292	$	1,148,190	$	(2,843,097)	$	2,011,569	$	(75,993)	$	240,961

See accompanying notes.

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FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Quarter Ended December 31,
	2020		2019
	(In thousands)
Cash flows from operating activities:
Net income	$	86,492	$	54,921
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,026		7,856
Share-based compensation	25,132		23,145
Deferred income taxes	(298)		(1,016)
Net gain on marketable securities	(1,768)		(944)
Non-cash operating lease costs	4,000		4,493
Provision for doubtful accounts, net	219		281
Net loss on sales and abandonment of property and equipment	62		48
Gain on sale of product line assets	(7,334)		—
Changes in operating assets and liabilities:
Accounts receivable	33,130		22,391
Prepaid expenses and other assets	(7,310)		(21,711)
Accounts payable	(1,479)		10,349
Accrued compensation and employee benefits	(46,704)		(35,566)
Other liabilities	(12,241)		(4,379)
Deferred revenue	(980)		497
Net cash provided by operating activities	77,947		60,365
Cash flows from investing activities:
Purchases of property and equipment	(3,045)		(6,500)
Proceeds from sales of marketable securities	567		167
Purchases of marketable securities	(1,741)		(2,733)
Proceeds from sale of product line assets	8,291		—

(Purchase of) distribution from equity investment	(210)		55
Net cash provided by (used in) investing activities	3,862		(9,011)
Cash flows from financing activities:
Proceeds from revolving line of credit	116,000		117,000
Payments on revolving line of credit	(80,000)		(367,000)
Proceeds from issuance of senior notes	—		350,000

Payments on debt issuance costs	—		(6,805)
Payments on finance leases	(176)		(425)
Proceeds from issuance of treasury stock under employee stock plans	57		5,091
Taxes paid related to net share settlement of equity awards	(85,678)		(86,047)
Repurchases of common stock	(50,011)		(60,009)
Net cash used in financing activities	(99,808)		(48,195)
Effect of exchange rate changes on cash	5,267		1,631
Increase (decrease) in cash and cash equivalents	(12,732)		4,790
Cash and cash equivalents, beginning of period	157,394		106,426
Cash and cash equivalents, end of period	$	144,662	$	111,216
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds of $221 and $154 during the quarters ended December 31, 2020, and 2019, respectively	$	3,186	$	2,391
Cash paid for interest	$	17,858	$	12,856
Supplemental disclosures of non-cash investing and financing activities:
Purchase of property and equipment included in accounts payable	$	13	$	93

Finance lease obligations incurred	$	—	$	3,045

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 analytical solutions, credit scoring and credit account management products and services to banks, credit reporting agencies, credit card processing agencies, insurers, retailers, healthcare organizations and public agencies.

In 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. 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 December 31, 2020 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 December 31, 2020 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 December 31, 2020 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 December 31, 2020 and September 30, 2020:


December 31, 2020	Active Markets for Identical Instruments (Level 1)		Fair Value as of December 31, 2020
	(In thousands)
Assets:
Cash equivalents (1)	$	10,694	$	10,694
Marketable securities (2)	28,455		28,455
Total	$	39,149	$	39,149

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 December 31, 2020 and September 30, 2020. Not included in these tables are cash deposits of $134.0 million and $122.1 million at December 31, 2020 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 December 31, 2020 and September 30, 2020.

See Note 7 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 ended December 31, 2020 and 2019.

3. 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 December 31, 2020 and September 30, 2020:


	December 31, 2020
	Contract Amount				Fair Value
	Foreign Currency		USD		USD
	(In thousands)
Sell foreign currency:

Euro (EUR)	EUR	18,900	$	23,068	$	—
Buy foreign currency:
British pound (GBP)	GBP	12,034	$	16,400	$	—
Singapore dollar (SGD)	SGD	6,725	$	5,100	$	—


	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 December 31, 2020 and September 30, 2020, respectively; therefore, their fair value was $0 on each of these dates.

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


	Quarter Ended December 31,
	2020		2019
	(In thousands)
Gains on foreign currency forward contracts	$	1,686	$	1,145

4. 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 December 31,
	2020		2019
	(In thousands)
Completed technology	$	322	$	575
Customer contracts and relationships	571		1,140
Trade names	—		37
Non-compete agreements	44		44
Total	$	937	$	1,796

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Estimated future intangible asset amortization expense associated with intangible assets existing at December 31, 2020 was as follows:


Year Ending September 30,	(In thousands)
2021 (excluding the quarter ended December 31, 2020)	$	2,742
2022	3,392
2023	1,316
2024	917


Total	$	8,367

The following table summarizes changes to goodwill during the quarter ended December 31, 2020, 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	4,568		—		845		5,413
Balance at December 31, 2020	$	601,372	$	146,648	$	69,757	$	817,777

5. Composition of Certain Financial Statement Captions

The following table presents the composition of property and equipment, net and other assets at December 31, 2020 and September 30, 2020:


	December 31, 2020		September 30, 2020
	(In thousands)
Property and equipment, net:
Property and equipment	$	156,053	$	161,119
Less: accumulated depreciation and amortization	(117,042)		(114,700)
Total	$	39,011	$	46,419

Other assets:
Long-term receivables	$	50,566	$	54,074
Prepaid commissions	40,159		38,579
Others	11,727		12,632
Total	$	102,452	$	105,285

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6. 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 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 December 31, 2020, we had $131.0 million in borrowings outstanding at a weighted-average interest rate of 1.284% and were in compliance with all financial covenants under this credit facility.

7. 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 December 31, 2020 and September 30, 2020:


	December 31, 2020				September 30, 2020
	Face Value (*)		Fair Value		Face Value (*)		Fair Value
	(In thousands)
The 2018 Senior Notes	400,000		452,000		400,000		442,000
The 2019 Senior Notes	350,000		364,000		350,000		358,750
Total	$	750,000	$	816,000	$	750,000	$	800,750

(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $10.2 million and $10.6 million at December 31, 2020 and September 30, 2020, respectively.

8. Income Taxes

Effective Tax Rate

The effective income tax rate was 1.7% and (31.1)% during the quarters ended December 31, 2020 and 2019, 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 quarters ended December 31, 2020 and 2019 were both impacted by the recording of excess tax benefits relating to stock awards. The impact is dependent upon grants of stock-based compensation and the future stock price in relation to the fair value of awards on the grant date. The increase in stock price for awards that vested in December 2019 was significantly larger than the increase in stock price for the awards that vested in December 2020.

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The total unrecognized tax benefit for uncertain tax positions was estimated to be $9.0 million and $8.0 million at December 31, 2020 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 $0.5 million and $0.4 million related to unrecognized tax benefits as of December 31, 2020 and September 30, 2020, respectively.

9. Stock-Based Employee Benefit Plans

We maintain the 2012 Long-Term Incentive Plan (the “2012 Plan”) under which we grant equity awards, including stock options, stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards. All employees, consultants and advisors of FICO or any subsidiary, as well as all non-employee directors, are eligible to receive awards under the 2012 Plan. Stock option awards have a maximum term of seven years. In general, stock option awards and restricted stock unit awards not subject to market or performance conditions vest annually over four years. Restricted stock unit awards subject to market or performance conditions generally vest annually over three years based on the achievement of specified criteria.

We maintain the 2019 Employee Stock Purchase Plan (the “2019 Purchase Plan”) under which we are authorized to issue up to 1,000,000 shares of our common stock to eligible employees. Employees have up to 15% of their eligible pay withheld through payroll deductions to purchase FICO common stock during semi-annual offering periods. The purchase price of the stock is 85% of the closing sales price of FICO common stock on the last trading day of each offering period. Offering period means the approximately six-month long periods commencing (a) on the first trading day on or after September 1 and terminating on the last trading day in the following February, and (b) on the first trading day on or after March 1 and terminating on the last trading day in the following August.

Stock Options

The following table summarizes option activity during the quarter ended December 31, 2020:


	Shares	Weighted-average Exercise Price		Weighted-average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)			(In years)	(In thousands)
Outstanding at September 30, 2020	246	$	166.80
Granted	12	506.91


Outstanding at December 31, 2020	258	$	182.79	3.75	$	84,688
Exercisable at December 31, 2020	188	$	140.06	3.05	$	69,796
Vested or expected to vest at December 31, 2020	255	$	180.76	3.72	$	84,191

Restricted Stock Units

The following table summarizes restricted stock unit activity during the quarter ended December 31, 2020:


	Shares	Weighted-average Grant-date Fair Value
	(In thousands)
Outstanding at September 30, 2020	721	$	229.10
Granted	159	506.38
Released	(273)	187.57
Forfeited	(19)	241.04
Outstanding at December 31, 2020	588	$	323.15

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Performance Share Units

The following table summarizes performance share unit activity during the quarter ended December 31, 2020:


	Shares	Weighted-average Grant-date Fair Value
	(In thousands)
Outstanding at September 30, 2020	127	$	248.97
Granted	33	506.91
Released	(68)	217.36

Outstanding at December 31, 2020	92	$	366.08

Market Share Units

The following table summarizes market share unit activity during the quarter ended December 31, 2020:


	Shares	Weighted-average Grant-date Fair Value
	(In thousands)
Outstanding at September 30, 2020	63	$	311.91
Granted	67	471.16
Released	(67)	257.15

Outstanding at December 31, 2020	63	$	541.41

Employee Stock Purchase Plan

As the 2019 Purchase Plan has semi-annual offering periods with shares purchased on the last trading day in the months of February and August, no shares were purchased during the quarter ended December 31, 2020.

10. Earnings per Share

The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) for the quarters ended December 31, 2020 and 2019:


	Quarter Ended December 31,
	2020		2019
	(In thousands, except per share data)
Numerator for diluted and basic earnings per share:
Net income	$	86,492	$	54,921
Denominator - share:
Basic weighted-average shares	29,127		29,025
Effect of dilutive securities	662		1,144
Diluted weighted-average shares	29,789		30,169
Earnings per share:
Basic	$	2.97	$	1.89
Diluted	$	2.90	$	1.82

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

11. 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.

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•Applications. This segment includes pre-configured decision management applications designed for a specific type of business problem or process — such as marketing, account origination, customer management, fraud, financial crimes compliance, collections and insurance claims management — as well as associated professional services. These applications are available to our customers as on-premises software, and many are available as hosted, software-as-a-service (“SaaS”) applications through the FICO® Analytic Cloud or Amazon Web Services (“AWS”).

•Scores. This segment includes our business-to-business scoring solutions and services, our business-to-consumer scoring solutions and services including myFICO® solutions for consumers, and associated professional services. Our scoring solutions give our clients access to analytics that can be easily integrated into their transaction streams and decision-making processes. Our scoring solutions 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 ended December 31, 2020 and 2019:


	Quarter Ended December 31, 2020
	Applications		Scores		Decision Management Software		Unallocated Corporate Expenses		Total
	(In thousands)
Segment revenues:
Transactional and maintenance	$	97,731	$	138,590	$	15,829	$	—	$	252,150
Professional services	30,605		117		10,703		—		41,425
License	7,025		5,944		5,870		—		18,839
Total segment revenues	135,361		144,651		32,402		—		312,414
Segment operating expense	(99,859)		(21,626)		(47,220)		(30,253)		(198,958)
Segment operating income (loss)	$	35,502	$	123,025	$	(14,818)	$	(30,253)	113,456
Unallocated share-based compensation expense									(25,132)
Unallocated amortization expense									(937)

Unallocated gain on sale of product line assets									7,334
Operating income									94,721
Unallocated interest expense, net									(9,641)
Unallocated other income, net									2,880
Income before income taxes									$	87,960
Depreciation expense	$	4,374	$	194	$	984	$	33	$	5,585

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	Quarter Ended December 31, 2019
	Applications		Scores		Decision Management Software		Unallocated Corporate Expenses		Total
	(In thousands)
Segment revenues:
Transactional and maintenance	$	98,837	$	107,446	$	14,091	$	—	$	220,374
Professional services	34,023		264		9,738		—		44,025
License	19,318		7,428		7,359		—		34,105
Total segment revenues	152,178		115,138		31,188		—		298,504
Segment operating expense	(116,010)		(17,712)		(50,645)		(34,210)		(218,577)
Segment operating income (loss)	$	36,168	$	97,426	$	(19,457)	$	(34,210)	79,927
Unallocated share-based compensation expense									(23,145)
Unallocated amortization expense									(1,796)
Unallocated restructuring and impairment charges									(3,104)
Operating income									51,882
Unallocated interest expense, net									(9,768)
Unallocated other expense, net									(219)
Income before income taxes									$	41,895
Depreciation expense	$	4,349	$	116	$	986	$	225	$	5,676

Information about disaggregated revenue by product deployment methods was as follows:


	Quarter Ended December 31, 2020
Reportable Segments	On-Premises		SaaS		Scores		Total		Percentage
	(Dollars in thousands)
Applications	$	71,220	$	64,141	$	—	$	135,361	43	%
Scores	—		—		144,651		144,651		46	%
Decision Management Software	22,778		9,624		—		32,402		11	%
Total	$	93,998	$	73,765	$	144,651	$	312,414	100	%


	Quarter Ended December 31, 2019
Reportable Segments	On-Premises		SaaS		Scores		Total		Percentage
	(Dollars in thousands)
Applications	$	85,978	$	66,200	$	—	$	152,178	51	%
Scores	—		—		115,138		115,138		39	%
Decision Management Software	23,679		7,509		—		31,188		10	%
Total	$	109,657	$	73,709	$	115,138	$	298,504	100	%

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Information about disaggregated revenue by primary geographical markets was as follows:


	Quarter Ended December 31, 2020
Reportable Segments	North America		Latin America		Europe, Middle East and Africa		Asia Pacific		Total
	(In thousands)
Applications	$	79,337	$	9,227	$	35,257	$	11,540	$	135,361
Scores	140,410		303		1,713		2,225		144,651
Decision Management Software	16,547		2,913		8,578		4,364		32,402
Total	$	236,294	$	12,443	$	45,548	$	18,129	$	312,414

Quarter Ended December 31, 2019

Reportable Segments

North America

Latin America

Europe, Middle East and Africa

Asia Pacific

Total

(In thousands)

Applications