Item 1. Unaudited Financial Statements

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Item 1. Unaudited Financial Statements

FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	December 31, 2023		September 30, 2023
	(In thousands, except par value data)
Assets
Current assets:
Cash and cash equivalents	$	160,421	$	136,778
Accounts receivable, net	367,478		387,947
Prepaid expenses and other current assets	37,364		31,723
Total current assets	565,263		556,448
Marketable securities	36,955		33,014
Other investments	1,258		1,223
Property and equipment, net	10,406		10,966
Operating lease right-of-use assets	18,916		25,703
Goodwill	777,195		773,327
Intangible assets, net	642		917
Deferred income taxes	63,725		59,136
Other assets	119,158		114,547
Total assets	$	1,593,518	$	1,575,281
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	18,584	$	19,009
Accrued compensation and employee benefits	68,216		102,471
Other accrued liabilities	46,487		59,478
Deferred revenue	146,822		136,730
Current maturities on debt	153,000		50,000
Total current liabilities	433,109		367,688
Long-term debt	1,808,655		1,811,658
Operating lease liabilities	11,899		23,903
Other liabilities	65,620		60,022
Total liabilities	2,319,283		2,263,271
Commitments and contingencies
Stockholders’ deficit:
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 24,879 and 24,770 shares outstanding at December 31, 2023 and September 30, 2023, respectively)	249		248
Additional paid-in-capital	1,239,131		1,350,713
Treasury stock, at cost (63,978 and 64,087 shares at December 31, 2023 and September 30, 2023, respectively)	(5,380,827)		(5,324,865)
Retained earnings	3,509,124		3,388,059
Accumulated other comprehensive loss	(93,442)		(102,145)
Total stockholders’ deficit	(725,765)		(687,990)
Total liabilities and stockholders’ deficit	$	1,593,518	$	1,575,281

See accompanying notes.

FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)


	Quarter Ended December 31,
	2023		2022
	(In thousands, except per share data)
Revenues:
On-premises and SaaS software	$	168,668	$	144,560
Professional services	21,279		22,322
Scores	192,112		177,988
Total revenues	382,059		344,870
Operating expenses:
Cost of revenues	83,461		76,569
Research and development	42,635		36,633
Selling, general and administrative	104,329		92,995
Amortization of intangible assets	275		275

Gain on product line asset sale	—		(1,941)
Total operating expenses	230,700		204,531
Operating income	151,359		140,339
Interest expense, net	(24,162)		(22,800)
Other income, net	3,393		364
Income before income taxes	130,590		117,903
Provision for income taxes	9,525		20,260
Net income	121,065		97,643
Other comprehensive income:
Foreign currency translation adjustments	8,703		18,381
Comprehensive income	$	129,768	$	116,024
Earnings per share:
Basic	$	4.89	$	3.90
Diluted	$	4.80	$	3.84
Shares used in computing earnings per share:
Basic	24,764		25,045
Diluted	25,219		25,443

See accompanying notes.

FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)


	Common Stock			Additional Paid-in-Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit
(In thousands)	Shares	Par Value
Balance at September 30, 2023	24,770	$	248	$	1,350,713	$	(5,324,865)	$	3,388,059	$	(102,145)	$	(687,990)
Share-based compensation	—	—		31,574		—		—		—		31,574
Issuance of treasury stock under employee stock plans	187	2		(143,156)		15,741		—		—		(127,413)
Repurchases of common stock	(78)	(1)		—		(71,703)		—		—		(71,704)
Net income	—	—		—		—		121,065		—		121,065
Foreign currency translation adjustments	—	—		—		—		—		8,703		8,703
Balance at December 31, 2023	24,879	$	249	$	1,239,131	$	(5,380,827)	$	3,509,124	$	(93,442)	$	(725,765)

	Common Stock			Additional Paid-in-Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit
(In thousands)	Shares	Par Value
Balance at September 30, 2022	25,154	$	252	$	1,299,588	$	(4,935,769)	$	2,958,684	$	(124,702)	$	(801,947)
Share-based compensation	—	—		29,702		—		—		—		29,702
Issuance of treasury stock under employee stock plans	180	2		(85,019)		14,147		—		—		(70,870)
Repurchases of common stock	(179)	(2)		—		(75,002)		—		—		(75,004)
Net income	—	—		—		—		97,643		—		97,643
Foreign currency translation adjustments	—	—		—		—		—		18,381		18,381
Balance at December 31, 2022	25,155	$	252	$	1,244,271	$	(4,996,624)	$	3,056,327	$	(106,321)	$	(802,095)

See accompanying notes.

FAIR ISAAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Quarter Ended December 31,
	2023		2022
	(In thousands)
Cash flows from operating activities:
Net income	$	121,065	$	97,643
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,824		4,280
Share-based compensation	31,574		29,702
Deferred income taxes	(4,435)		(8,507)
Net (gain) loss on marketable securities	(2,884)		348
Non-cash operating lease costs	3,500		3,779
Provision for doubtful accounts	419		369
Gain on product line asset sale	—		(1,941)
Net loss on sales and abandonment of property and equipment	400		16
Changes in operating assets and liabilities:
Accounts receivable	27,399		8,704
Prepaid expenses and other assets	(13,457)		(5,823)
Accounts payable	(642)		168
Accrued compensation and employee benefits	(35,141)		(37,883)
Other liabilities	(16,490)		(7,955)
Deferred revenue	7,988		9,540
Net cash provided by operating activities	122,120		92,440
Cash flows from investing activities:
Purchases of property and equipment	(1,361)		(850)
Proceeds from sales of marketable securities	13,167		2,393
Purchases of marketable securities	(14,224)		(4,558)
Cash transferred, net of proceeds, from product line asset sale	—		(7,575)


Net cash used in investing activities	(2,418)		(10,590)
Cash flows from financing activities:
Proceeds from revolving line of credit and term loan	170,000		169,000
Payments on revolving line of credit and term loan	(70,750)		(102,750)




Proceeds from issuance of treasury stock under employee stock plans	4,499		1,995
Taxes paid related to net share settlement of equity awards	(131,911)		(72,865)
Repurchases of common stock	(71,704)		(75,004)
Net cash used in financing activities	(99,866)		(79,624)
Effect of exchange rate changes on cash	3,807		4,428
Increase in cash and cash equivalents	23,643		6,654
Cash and cash equivalents, beginning of period	136,778		133,202
Cash and cash equivalents, end of period	$	160,421	$	139,856
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds of $10 and $8 during the quarters ended December 31, 2023 and 2022, respectively	$	4,926	$	13,412
Cash paid for interest	$	38,236	$	37,730
Supplemental disclosures of non-cash investing activities:
Purchase of property and equipment included in accounts payable	$	178	$	37

See accompanying notes.

FAIR ISAAC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business

Fair Isaac Corporation

Fair Isaac Corporation (NYSE: FICO) (together with its consolidated subsidiaries, the “Company,” which may also be referred to in this report as “we,” “us,” “our,” or “FICO”) is a leading applied analytics company. 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.

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, 2023. 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 condensed consolidated financial statements and the disclosures made in the accompanying notes. For example, we use estimates in determining the appropriate levels of various accruals; variable considerations included in the transaction price and standalone selling price of each performance obligation 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.

New Accounting Pronouncements

Recent Accounting Pronouncements Adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under Accounting Standards Codification Topic 606, Revenue from Contacts with Customers, in order to align the recognition of a contract liability with the definition of a performance obligation. We adopted ASU 2021-08 in the first quarter of fiscal 2024 and the adoption did not have a significant impact on our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, which means that it will be effective for our annual periods beginning October 1, 2024, and our interim periods beginning October 1, 2025. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our disclosures within our consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as disaggregated information on income tax paid. The standard is effective for fiscal years beginning after December 15, 2024, which means that it will be effective for our fiscal years beginning October 1, 2025. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our disclosures within our consolidated financial statements.

We do not expect that any other recently issued accounting pronouncements will have a significant effect on our consolidated 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 were comprised of money market funds and certain marketable securities and our Level 1 liabilities included senior notes as of December 31, 2023 and September 30, 2023.
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 or liabilities that are valued using inputs identified under a Level 2 hierarchy as of December 31, 2023 and September 30, 2023.
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, 2023 and September 30, 2023.

The following tables represent financial assets that we measured at fair value on a recurring basis at December 31, 2023 and September 30, 2023:


December 31, 2023	Active Markets for Identical Instruments (Level 1)		Fair Value as of December 31, 2023
	(In thousands)
Assets:
Cash equivalents (1)	$	40,253	$	40,253
Marketable securities (2)	36,955		36,955
Total	$	77,208	$	77,208

September 30, 2023	Active Markets for Identical Instruments (Level 1)		Fair Value as of September 30, 2023
	(In thousands)
Assets:
Cash equivalents (1)	$	23,621	$	23,621
Marketable securities (2)	33,014		33,014
Total	$	56,635	$	56,635

(1)Included in cash and cash equivalents on our condensed consolidated balance sheets at December 31, 2023 and September 30, 2023. Not included in these tables are cash deposits of $120.2 million and $113.2 million at December 31, 2023 and September 30, 2023, respectively.

(2)Represents securities held under a supplemental retirement and savings plan for certain officers and senior management employees, which are distributed upon termination or retirement of the employees. Included in marketable securities on our condensed consolidated balance sheets at December 31, 2023 and September 30, 2023.

See Note 6 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, 2023 and 2022.

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 functional currencies. We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates. We routinely enter into contracts to offset exposures denominated in the British pound, Euro, and Singapore dollar.

Foreign currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the effects of changes in foreign exchange rates reported in other income, net. The forward contracts are not designated as hedges and are marked to market through other income, net. Fair value changes in the forward contracts help mitigate the changes in the value of the remeasured receivable and cash balances attributable to changes in foreign exchange rates. The forward contracts are short-term in nature and typically have average maturities at inception of less than three months.

The following tables summarize our outstanding foreign currency forward contracts, by currency, at December 31, 2023 and September 30, 2023:


	December 31, 2023
	Contract Amount				Fair Value
	Foreign Currency		USD		USD
	(In thousands)
Sell foreign currency:

Euro (EUR)	EUR	9,900	$	10,941	$	—
Buy foreign currency:
British pound (GBP)	GBP	9,911	$	12,600	$	—
Singapore dollar (SGD)	SGD	10,400	$	7,900	$	—


	September 30, 2023
	Contract Amount				Fair Value
	Foreign Currency		USD		USD
	(In thousands)
Sell foreign currency:

Euro (EUR)	EUR	12,900	$	13,621	$	—
Buy foreign currency:
British pound (GBP)	GBP	10,700	$	13,100	$	—
Singapore dollar (SGD)	SGD	8,569	$	6,300	$	—

The foreign currency forward contracts were entered into on December 31, 2023 and September 30, 2023; therefore, their fair value was $0 on each of these dates.

Gains 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 December 31,
	2023		2022
	(In thousands)
Gains on foreign currency forward contracts	$	541	$	1,304

4. Goodwill

The following table summarizes changes to goodwill during the quarter ended December 31, 2023, both in total and as allocated to our segments. As of December 31, 2023, there was no accumulated goodwill impairment loss.


	Scores		Software		Total
	(In thousands)
Balance at September 30, 2023	$	146,648	$	626,679	$	773,327


Foreign currency translation adjustment	—		3,868		3,868

Balance at December 31, 2023	$	146,648	$	630,547	$	777,195

5. Composition of Certain Financial Statement Captions

The following table presents the composition of property and equipment, net and other accrued liabilities at December 31, 2023 and September 30, 2023:


	December 31, 2023		September 30, 2023
	(In thousands)
Property and equipment, net:
Property and equipment	$	97,699	$	98,967
Less: accumulated depreciation and amortization	(87,293)		(88,001)
Total	$	10,406	$	10,966

Other accrued liabilities:
Interest payable	$	7,056	$	20,770
Current operating leases	15,641		16,336
Other	23,790		22,372
Total	$	46,487	$	59,478

6. Debt

The following table represents our debt at carrying value at December 31, 2023 and September 30, 2023:


	December 31, 2023		September 30, 2023
	(In thousands)
Current maturities on debt:
Revolving line of credit	$	138,000	$	35,000
Term loan	15,000		15,000
Current maturities on debt	153,000		50,000
Long-term debt:
Revolving line of credit	265,000		265,000
Term loan	255,000		258,750
The 2018 Senior Notes	400,000		400,000
The 2019 Senior Notes and the 2021 Senior Notes	900,000		900,000
Less: debt issuance costs	(11,345)		(12,092)
Long-term debt	1,808,655		1,811,658
Total debt	$	1,961,655	$	1,861,658

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

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 and we were in compliance as of December 31, 2023.

The following table presents the face values and fair values for the Senior Notes at December 31, 2023 and September 30, 2023:


	December 31, 2023				September 30, 2023
	Face Value		Fair Value		Face Value		Fair Value
	(In thousands)
The 2018 Senior Notes	$	400,000	$	396,000	$	400,000	$	386,000
The 2019 Senior Notes and the 2021 Senior Notes	900,000		846,000		900,000		803,250
Total	$	1,300,000	$	1,242,000	$	1,300,000	$	1,189,250

7. Revenue from Contracts with Customers

Disaggregation of Revenue

The following tables provide information about disaggregated revenue by primary geographical market:


	Quarter Ended December 31, 2023
	Scores		Software		Total		Percentage
	(Dollars in thousands)
Americas	$	184,948	$	133,562	$	318,510	83	%
Europe, Middle East and Africa	1,308		35,060		36,368		10	%
Asia Pacific	5,856		21,325		27,181		7	%
Total	$	192,112	$	189,947	$	382,059	100	%


	Quarter Ended December 31, 2022
	Scores		Software		Total		Percentage
	(Dollars in thousands)
Americas	$	173,297	$	117,830	$	291,127	85	%
Europe, Middle East and Africa	1,348		30,992		32,340		9	%
Asia Pacific	3,343		18,060		21,403		6	%
Total	$	177,988	$	166,882	$	344,870	100	%

The following table provides information about disaggregated revenue for our Software segment by deployment method:


	Quarter Ended December 31,				Percentage of revenues
	2023		2022		2023		2022
	(Dollars in thousands)
On-premises software	$	72,472	$	64,922	43	%	45	%
SaaS software	96,196		79,638		57	%	55	%
Total on-premises and SaaS software	$	168,668	$	144,560	100	%	100	%

The following table provides information about disaggregated revenue for our Software segment by product features:


	Quarter Ended December 31,				Percentage of revenues
	2023		2022		2023		2022
	(Dollars in thousands)
Platform software	$	45,173	$	30,828	27	%	21	%
Non-platform software	123,495		113,732		73	%	79	%
Total on-premises and SaaS software	$	168,668	$	144,560	100	%	100	%

The following table provides information about disaggregated revenue for our Software segment by timing of revenue recognition:


	Quarter Ended December 31,				Percentage of revenues
	2023		2022		2023		2022
	(Dollars in thousands)
Software recognized at a point in time (1)	$	13,782	$	11,803	8	%	8	%
Software recognized over contract term (2)	154,886		132,757		92	%	92	%
Total on-premises and SaaS software	$	168,668	$	144,560	100	%	100	%

(1)Includes license portion of our on-premises subscription software and perpetual license, both of which are recognized when the software is made available to the customer, or at the start of the subscription.

(2)Includes maintenance portion and usage-based fees of our on-premises subscription software, maintenance revenue on perpetual licenses, as well as SaaS revenue.

The following table provides information about disaggregated revenue for our Scores segment by distribution method:


	Quarter Ended December 31,				Percentage of revenues
	2023		2022		2023		2022
	(Dollars in thousands)
Business-to-business Scores	$	140,442	$	124,905	73	%	70	%
Business-to-consumer Scores	51,670		53,083		27	%	30	%
Total	$	192,112	$	177,988	100	%	100	%

We derive a substantial portion of revenues from our contracts with the three major consumer reporting agencies, TransUnion, Equifax and Experian. Revenues collectively generated by agreements with these customers accounted for 39% and 36% of our total revenues in the quarters ended December 31, 2023 and 2022, respectively, with three and two consumer reporting agencies each contributing more than 10% of our total revenues in the quarters ended December 31, 2023 and 2022, respectively. At December 31, 2023 and September 30, 2023, one individual customer accounted for 10% or more of total consolidated receivables.

Contract Balances

We record a receivable when we satisfy a performance obligation prior to invoicing if only the passage of time is required before payment is due or if we have an unconditional right to consideration before we satisfy a performance obligation. We record a contract asset when we satisfy a performance obligation prior to invoicing but our right to consideration is conditional. We record deferred revenue when the payment is made or due before we satisfy a performance obligation.

Receivables at December 31, 2023 and September 30, 2023 consisted of the following:


	December 31, 2023		September 30, 2023
	(In thousands)
Billed	$	225,447	$	234,745
Unbilled	189,930		203,896
	415,377		438,641
Less: allowance for doubtful accounts	(5,406)		(4,978)
Net receivables	409,971		433,663
Less: long-term receivables (*)	(42,493)		(45,716)
Short-term receivables (*)	$	367,478	$	387,947

(*) Short-term receivables and long-term receivables were recorded in accounts receivable, net and other assets, respectively, within the accompanying condensed consolidated balance sheets.

Deferred revenue primarily relates to our maintenance and SaaS contracts billed annually in advance and generally recognized ratably over the term of the service period. Significant changes in the deferred revenues balances are as follows:


	Quarter Ended December 31, 2023
	(In thousands)
Deferred revenues, beginning balance (*)	$	143,235
Revenue recognized that was included in the deferred revenues balance at the beginning of the period	(67,037)
Increases due to billings, excluding amounts recognized as revenue during the period	77,207

Deferred revenues, ending balance (*)	$	153,405

(*) Deferred revenues at December 31, 2023 included current portion of $146.8 million and long-term portion of $6.6 million that were recorded in deferred revenue and other liabilities, respectively, within the condensed consolidated balance sheets. Deferred revenues at September 30, 2023 included current portion of $136.7 million and long-term portion of $6.5 million that were recorded in deferred revenue and other liabilities, respectively, within the condensed consolidated balance sheets.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to provide customers with financing or to receive financing from our customers. Examples include multi-year on-premises licenses that are invoiced annually with revenue recognized upfront and invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period.

Performance Obligations

Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include:

Usage-based revenue that will be recognized in future periods from on-premises software subscriptions;
Consumption-based variable fees from SaaS software that will be recognized in the distinct service period during which it is earned; and
Revenue from variable considerations that will be recognized in accordance with the “right-to-invoice” practical expedient, such as fees from our professional services billed based on a time and materials basis.

Revenue allocated to remaining performance obligations was $470.8 million as of December 31, 2023, approximately 50% of which we expect to recognize over the next 16 months and the remainder thereafter. Revenue allocated to remaining performance obligations was $470.5 million as of September 30, 2023.

8. Income Taxes

Effective Tax Rate

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

A provision enacted as part of the 2022 Inflation Reduction Act imposes a 15% corporate minimum tax. The provision is effective for tax years beginning after December 31, 2022, which means that it was effective for our fiscal year beginning October 1, 2023. We do not expect any impact to our fiscal 2024 effective tax rate from the corporate minimum tax provision.

The total unrecognized tax benefit for uncertain tax positions was estimated to be $14.8 million and $13.8 million at December 31, 2023 and September 30, 2023, 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 $1.2 million and $0.9 million related to unrecognized tax benefits as of December 31, 2023 and September 30, 2023, respectively.

9. Share-Based Employee Benefit Plans

We maintain the 2021 Long-Term Incentive Plan (the “2021 Plan”) under which we grant equity awards, including stock options, stock appreciation rights, restricted stock awards, stock unit awards and other share-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 2021 Plan. Stock option awards have a maximum term of ten years. In general, stock option awards and stock unit awards not subject to market or performance conditions vest annually over four years. Stock unit awards subject to market or performance conditions generally vest annually over three years based on the achievement of specified criteria.

We also 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. Eligible employees may elect to 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 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. No shares were purchased under the 2019 Purchase Plan during the quarter ended December 31, 2023.

Restricted Stock Units

The following table summarizes restricted stock unit activity during the quarter ended December 31, 2023:


	Shares	Weighted-average Grant-date Fair Value
	(In thousands)
Outstanding at September 30, 2023	376	$	508.23
Granted	91	1,129.77
Released	(132)	470.22
Forfeited	(11)	504.43
Outstanding at December 31, 2023	324	$	698.48

Performance Share Units

The following table summarizes performance share unit activity during the quarter ended December 31, 2023:


	Shares	Weighted-average Grant-date Fair Value
	(In thousands)
Outstanding at September 30, 2023	115	$	519.54
Granted	18	1,134.39
Released	(58)	502.66
Forfeited	(8)	529.92
Outstanding at December 31, 2023	67	$	695.06

Market Share Units

The following table summarizes market share unit activity during the quarter ended December 31, 2023:


	Shares	Weighted-average Grant-date Fair Value
	(In thousands)
Outstanding at September 30, 2023	87	$	844.24
Granted	64	1,014.75
Released	(84)	737.77
Forfeited	(5)	845.67
Outstanding at December 31, 2023	62	$	1,161.62

Stock Options

The following table summarizes option activity during the quarter ended December 31, 2023:


	Shares	Weighted-average Exercise Price		Weighted-average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)			(In years)	(In thousands)
Outstanding at September 30, 2023	227	$	387.95
Granted	6	1,133.87
Exercised	(31)	146.68

Outstanding at December 31, 2023	202	$	444.55	3.83	$	145,366
Exercisable at December 31, 2023	132	$	271.79	2.56	$	117,720
Vested or expected to vest at December 31, 2023	196	$	432.79	3.75	$	143,106

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, 2023 and 2022:


	Quarter Ended December 31,
	2023		2022
	(In thousands, except per share data)
Numerator for diluted and basic earnings per share:
Net income	$	121,065	$	97,643
Denominator — share:
Basic weighted-average shares	24,764		25,045
Effect of dilutive securities	455		398
Diluted weighted-average shares	25,219		25,443
Earnings per share:
Basic	$	4.89	$	3.90
Diluted	$	4.80	$	3.84

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

11. Segment Information

We are organized into two reportable segments: Scores and Software. Although we sell solutions and services to 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.

Scores. This 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.
Software. This 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. These offerings are available to our customers as SaaS or as on-premises software.

Our chief operating decision maker (“CODM”), who is 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, IT infrastructure, consulting, travel and depreciation. Indirect costs are allocated to the segments generally based on relative segment revenues, fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. We do not allocate broad-based incentive expense, share-based compensation expense, restructuring and acquisition-related expense, amortization expense, various corporate charges and certain other income and expense measures to our segments. These income and expense items are not allocated because they are not considered in evaluating the segment’s operating performance. Our CODM does not evaluate the financial performance of each segment based on its respective assets or capital expenditures; rather, depreciation amounts are allocated to the segments from their internal cost centers as described above.

The following tables summarize segment information for the quarters ended December 31, 2023 and 2022:


	Quarter Ended December 31, 2023
	Scores		Software		Unallocated Corporate Expenses		Total
	(In thousands)
Segment revenues:
On-premises and SaaS software	$	—	$	168,668	$	—	$	168,668
Professional services	—		21,279		—		21,279
Scores	192,112		—		—		192,112
Total segment revenues	192,112		189,947		—		382,059
Segment operating expense	(23,458)		(134,825)		(40,568)		(198,851)
Segment operating income	$	168,654	$	55,122	$	(40,568)	183,208
Unallocated share-based compensation expense							(31,574)
Unallocated amortization expense							(275)


Operating income							151,359
Unallocated interest expense, net							(24,162)
Unallocated other income, net							3,393
Income before income taxes							$	130,590
Depreciation expense	$	81	$	1,598	$	12	$	1,691


	Quarter Ended December 31, 2022
	Scores		Software		Unallocated Corporate Expenses		Total
	(In thousands)
Segment revenues:
On-premises and SaaS software	$	—	$	144,560	$	—	$	144,560
Professional services	—		22,322		—		22,322
Scores	177,988		—		—		177,988
Total segment revenues	177,988		166,882		—		344,870
Segment operating expense	(21,296)		(121,117)		(34,082)		(176,495)
Segment operating income	$	156,692	$	45,765	$	(34,082)	168,375
Unallocated share-based compensation expense							(29,702)
Unallocated amortization expense							(275)

Unallocated gain on product line asset sale							1,941
Operating income							140,339
Unallocated interest expense, net							(22,800)
Unallocated other income, net							364
Income before income taxes							$	117,903
Depreciation expense	$	151	$	2,974	$	22	$	3,147

12. Contingencies

We are in disputes with certain customers regarding amounts owed in connection with the sale of certain of our products and services. We also have had claims asserted by former employees relating to compensation and other employment matters. We are also involved in various other claims and legal actions arising in the ordinary course of business. We record litigation accruals for legal matters which are both probable and estimable. For legal proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable), we have determined we do not have a material exposure, either individually or in the aggregate.

13. Subsequent Events

In January 2024, our Board of Directors approved a new stock repurchase program, which replaced the previous stock repurchase program. The new 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. The new stock repurchase program became effective on January 23, 2024, and will remain in effect until the total authorized amount is expended or until further action by our Board of Directors.

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