FAIR ISAAC CORP 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Fair Isaac Corporation San Jose, California Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Fair Isaac Corporation and subsidiaries (the "Company") as of September 30, 2020 and 2019, and the related consolidated statements of Income and comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended September 30, 2020, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of operations and cash flows for each of the three years in the period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America . Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. Change in Accounting Principle As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in fiscal year 2020 due to adoption of the new lease standard (Topic 842). The Company adopted the new lease standard using the modified retrospective approach. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain 52 Table of Contents to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenues -Refer to Note 1 to the financial statement Critical Audit Matter Description The company recognizes revenue when control of the promised goods or services in a contract is transferred to the customer, in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. The Company's revenue is primarily derived from term-based or perpetual licensing of software and scoring products and solutions, and associated maintenance; software-as-a service (SaaS) subscription services; scoring and credit monitoring services for customers; and professional services. The Company's contracts with customers often includes promises to transfer multiple products and services to a customer. For contracts with customers that contain various combinations of products and services, the Company evaluates weather the product or service are distinct. Distinct product or services will be accounted for as separate performance obligations, while non distinct products or services are combined with others to form a single performance obligation. For transactional revenue, the transaction price for contracts with customers typically includes a fixed consideration in the form of a guaranteed minimum that allows up to a certain level of usage and a variable consideration in the form of usage or transaction-based fees in excess of the minimum threshold; or usage or transaction-based variable amount not subject to a minimum threshold. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative standalone selling price (“SSP”) basis. The Company determines the SSP using data from historical standalone sales, or, in instances where such information is not available, the Company considers factors such as the stated contract prices, their overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. Given the complexity of certain of the Company’s contracts, together with the judgment involved in identifying performance obligations, estimating variable consideration, and determining SSP, auditing the related revenue required both extensive audit effort due to the volume and complexity of the contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to revenue recognition and the Company’s identification of performance obligations, estimation of variable consideration, and determination of SSP included the following, among others: • We tested the effectiveness of controls over contract revenue, including management’s controls over the identification of performance obligations, estimation of variable consideration, and determination of the SSP. • We selected a sample of contracts and performed the following procedures: 53 Table of Contents -Obtained and read the contract, including master agreements, renewal agreements, and other source documents that were part of the contract. -Obtained other contracts with the same customer that were entered into at or near the same time and evaluated management’s conclusion of whether two or more contracts for multiple products and services promised to a customer should be combined and accounted for as a single contract for revenue recognition. -Confirmed the terms of the contract directly with the customer, including whether there are side agreements and terms not formally included in the contract that may impact the identification of performance obligations and revenue recognition and performed alternative procedures in the event of nonreplies. -Evaluated internal certification letters provided by the Company’s sales personnel to identify the existence of side agreements that may impact the identification of performance obligations and revenue recognition. -Tested management’s identification of the performance obligations within the customer contract, including whether material rights that gave rise to a performance obligation were identified. -Tested management’s estimation of variable consideration in the transaction price by evaluating the reasonableness of the inputs used in management’s estimates. -Tested the accuracy and completeness of the data and factors used in management’s determination of the SSP for each performance obligation. -Evaluated the consistency of the methodologies used to develop the SSP for each performance obligation. /s/ Deloitte & Touche LLP San Diego, CA November 10, 2020 We have served as the Company’s auditor since 2004. 54 Table of Contents FAIR ISAAC CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 2020 2019 (In thousands, except par value data) Assets Current assets: Cash and cash equivalents $ 157,394 $ 106,426 Accounts receivable, net 334,180 297,427 Prepaid expenses and other current assets 42,504 51,853 Total current assets 534,078 455,706 Marketable securities 25,513 20,222 Other investments 1,060 1,643 Property and equipment, net 46,419 53,027 Operating lease right-of-use assets 57,656 — Goodwill 812,364 803,542 Intangible assets, net 9,236 14,139 Deferred income taxes 14,629 6,006 Other assets 105,285 79,163 Total assets $ 1,606,240 $ 1,433,448 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 23,033 $ 23,118 Accrued compensation and employee benefits 117,952 106,240 Other accrued liabilities 63,367 32,454 Deferred revenue 115,159 111,016 Current maturities on debt 95,000 218,000 Total current liabilities 414,511 490,828 Long-term debt 739,435 606,790 Operating lease liabilities 73,207 — Other liabilities 48,005 46,063 Total liabilities 1,275,158 1,143,681 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 29,096 and 28,944 shares outstanding at September 30, 2020 and September 30, 2019, respectively) 291 289 Paid-in-capital 1,218,583 1,225,365 Treasury stock, at cost (59,761 and 59,913 shares at September 30, 2020 and September 30, 2019, respectively) ( 2,997,856 ) ( 2,802,450 ) Retained earnings 2,193,059 1,956,648 Accumulated other comprehensive loss ( 82,995 ) ( 90,085 ) Total stockholders’ equity 331,082 289,767 Total liabilities and stockholders’ equity $ 1,606,240 $ 1,433,448 See accompanying notes. 55 Table of Contents FAIR ISAAC CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year Ended September 30, 2020 2019 2018 (In thousands, except per share data) Revenues: Transactional and maintenance $ 973,933 $ 860,948 $ 750,603 Professional services 183,040 184,095 176,910 License 137,589 115,040 72,633 Total revenues 1,294,562 1,160,083 1,000,146 Operating expenses: Cost of revenues 361,142 336,845 312,898 Research and development 166,499 149,478 128,383 Selling, general and administrative 420,930 414,086 376,912 Amortization of intangible assets 4,993 6,126 6,594 Restructuring and impairment charges 45,029 — — Total operating expenses 998,593 906,535 824,787 Operating income 295,969 253,548 175,359 Interest expense, net ( 42,177 ) ( 39,752 ) ( 31,311 ) Other income, net 3,208 2,276 12,884 Income before income taxes 257,000 216,072 156,932 Provision for income taxes 20,589 23,948 30,450 Net income 236,411 192,124 126,482 Other comprehensive income (loss): Foreign currency translation adjustments 7,090 ( 13,664 ) ( 9,926 ) Comprehensive income $ 243,501 $ 178,460 $ 116,556 Basic earnings per share $ 8.13 $ 6.63 $ 4.26 Shares used in computing basic earnings per share 29,067 28,980 29,711 Diluted earnings per share $ 7.90 $ 6.34 $ 4.06 Shares used in computing diluted earnings per share 29,932 30,294 31,180 See accompanying notes. 56 Table of Contents FAIR ISAAC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Years Ended September 30, 2020, 2019 and 2018 Common Stock Accumulated Other Comprehensive Loss Total Stockholders’ Equity (In thousands) Shares Par Value Paid-in- Capital Treasury Stock Retained Earnings Balance at September 30, 2017 30,243 $ 302 $ 1,195,431 $ ( 2,301,097 ) $ 1,638,042 $ ( 66,495 ) $ 466,183 Share-based compensation — — 74,814 — — — 74,814 Issuance of treasury stock under employee stock plans 633 7 ( 59,194 ) 26,006 — — ( 33,181 ) Repurchases of common stock ( 1,861 ) ( 19 ) — ( 336,916 ) — — ( 336,935 ) Net income — — — — 126,482 — 126,482 Foreign currency translation adjustments — — — — — ( 9,926 ) ( 9,926 ) Balance at September 30, 2018 29,015 290 1,211,051 ( 2,612,007 ) 1,764,524 ( 76,421 ) 287,437 Share-based compensation — — 82,973 — — — 82,973 Issuance of treasury stock under employee stock plans 854 8 ( 68,659 ) 38,442 — — ( 30,209 ) Repurchases of common stock ( 925 ) ( 9 ) — ( 228,885 ) — — ( 228,894 ) Net income — — — — 192,124 — 192,124 Foreign currency translation adjustments — — — — — ( 13,664 ) ( 13,664 ) Balance at September 30, 2019 28,944 289 1,225,365 ( 2,802,450 ) 1,956,648 ( 90,085 ) 289,767 Share-based compensation — — 93,681 — — — 93,681 Issuance of treasury stock under employee stock plans 827 9 ( 100,463 ) 39,810 — — ( 60,644 ) Repurchases of common stock ( 675 ) ( 7 ) — ( 235,216 ) — — ( 235,223 ) Net income — — — — 236,411 — 236,411 Foreign currency translation adjustments — — — — — 7,090 7,090 Balance at September 30, 2020 29,096 $ 291 $ 1,218,583 $ ( 2,997,856 ) $ 2,193,059 $ ( 82,995 ) $ 331,082 See accompanying notes. 57 Table of Contents FAIR ISAAC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended September 30, 2020 2019 2018 (In thousands) Cash flows from operating activities: Net income $ 236,411 $ 192,124 $ 126,482 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 30,367 31,612 30,182 Share-based compensation 93,681 82,973 74,814 Deferred income taxes ( 8,639 ) 7,701 10,584 Non-cash operating lease costs 20,011 — — Impairment loss on operating lease assets 28,016 — — Provision of doubtful accounts 3,199 518 623 Net gain (loss) on marketable securities ( 2,071 ) 761 ( 1,449 ) Gain on sale of equity investments — — ( 10,000 ) Net loss on sales and abandonment of property and equipment 5,249 127 231 Changes in operating assets and liabilities: Accounts receivable ( 59,889 ) ( 36,176 ) ( 8,266 ) Prepaid expenses and other assets ( 960 ) ( 55,507 ) ( 9,790 ) Accounts payable 1,059 1,885 843 Accrued compensation and employee benefits 12,065 22,380 7,352 Other liabilities 693 1,463 6,246 Deferred revenue 5,724 10,489 ( 4,800 ) Net cash provided by operating activities 364,916 260,350 223,052 Cash flows from investing activities: Purchases of property and equipment ( 21,989 ) ( 23,981 ) ( 31,299 ) Proceeds from sales of marketable securities 3,470 3,480 3,230 Purchases of marketable securities ( 6,119 ) ( 6,404 ) ( 6,050 ) Proceeds from sale of equity investments — — 20,000 Distribution from equity investments 55 — — Cash paid for acquisitions, net of cash acquired — ( 15,855 ) — Net cash used in investing activities ( 24,583 ) ( 42,760 ) ( 14,119 ) Cash flows from financing activities: Proceeds from revolving line of credit 263,000 229,000 427,000 Payments on revolving line of credit ( 513,000 ) ( 141,000 ) ( 531,000 ) Proceeds from issuance of senior notes 350,000 — 400,000 Payments on senior notes ( 85,000 ) ( 28,000 ) ( 131,000 ) Payments on debt issuance costs ( 6,840 ) — ( 7,849 ) Payments on finance leases ( 1,716 ) ( 945 ) — Proceeds from issuance of treasury stock under employee stock plans 42,258 22,788 11,023 Taxes paid related to net share settlement of equity awards ( 102,903 ) ( 52,996 ) ( 44,205 ) Repurchases of common stock ( 235,223 ) ( 228,894 ) ( 342,596 ) Net cash used in financing activities ( 289,424 ) ( 200,047 ) ( 218,627 ) Effect of exchange rate changes on cash 59 ( 1,140 ) ( 5,901 ) Increase (decrease) in cash and cash equivalents 50,968 16,403 ( 15,595 ) Cash and cash equivalents, beginning of year 106,426 90,023 105,618 Cash and cash equivalents, end of year $ 157,394 $ 106,426 $ 90,023 Supplemental disclosures of cash flow information: Cash paid for income taxes, net of refunds of $1,931, $1,372 and $3,079 during the years ended September 30, 2020, 2019 and 2018, respectively $ 10,152 $ 18,779 $ 13,398 Cash paid for interest $ 37,735 $ 39,924 $ 26,106 Supplemental disclosures of non-cash investing and financing activities: Finance lease obligation incurred $ 1,387 $ 5,803 $ — Purchase of property and equipment included in accounts payable $ 166 $ 1,448 $ 1,913 See accompanying notes. 58 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 1. Nature of Business and Summary of Significant Accounting Policies 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 these consolidated financial statements, FICO is referred to as “we,” “us,” “our,” or “the Company.” Principles of Consolidation and Basis of Presentation Effective October 1, 2019, we adopted ASU No. 2016-02, “ Leases (Topic 842) ” and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”) using the modified retrospective approach, under which financial results reported in prior periods were not restated. As a result, the consolidated balance sheet as of September 30, 2020 is not comparable with that as of September 30, 2019. See our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 filed with the SEC on November 8, 2019 for lease policies that were in effect in prior periods before adoption of Topic 842. The 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 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 I, Item 1A “Risk Factors” of this Annual Report on Form 10-K. Cash and Cash Equivalents Cash and cash equivalents consist of cash in banks and investments with an original maturity of 90 days or less at time of purchase. Fair Value of Financial Instruments The fair value of certain of our financial instruments, including cash and cash equivalents, receivables, other current assets, accounts payable, accrued compensation and employee benefits, other accrued liabilities and amounts outstanding under our revolving line of credit, approximate their carrying amounts because of the short-term maturity of these instruments. The fair values of our cash and cash equivalents and marketable security investments are disclosed in Note 4. The fair value of our derivative instruments is disclosed in Note 5. The fair value of our senior notes is disclosed in Note 9. 59 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Investments We categorize our investments in debt and equity instruments as trading, available-for-sale or held-to-maturity at the time of purchase. Trading securities are carried at fair value with unrealized gains or losses included in income (expense). Available-for-sale securities are carried at fair value measurements using quoted prices in active markets for identical assets or liabilities with unrealized gains or losses included in accumulated other comprehensive income (loss). Held-to-maturity securities are carried at amortized cost. Dividends and interest income are accrued as earned. Realized gains and losses are determined on a specific identification basis and are included in other income (expense). We review marketable securities for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. We did not classify any securities as held-to-maturity or available-for-sale during each of the three years ended September 30, 2020, 2019 and 2018 . Investments with remaining maturities over one year are classified as long-term investments. We have certain other investments for which there is no readily determinable fair value. These investments are recorded at cost, less impairment (if any) plus or minus adjustments for observable price changes. The carrying value of these investments was $ 1.1 million and $ 1.6 million at September 30, 2020 and 2019, respectively, and they are reported in other assets on our consolidated balance sheets. At September 30, 2020 , we reviewed the carrying value of these investments and concluded that they were not impaired and as of that date, we were unable to exercise significant influence over the investees. Concentration of Risk Financial instruments that potentially expose us to concentrations of risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable, which are generally not collateralized. Our policy is to place our cash, cash equivalents, and marketable securities with high quality financial institutions, commercial corporations and government agencies in order to limit the amount of credit exposure. We have established guidelines relative to diversification and maturities for maintaining safety and liquidity. We generally do not require collateral from our customers, but our credit extension and collection policies include analyzing the financial condition of potential customers, establishing credit limits, monitoring payments, and aggressively pursuing delinquent accounts. We maintain allowances for potential credit losses. A significant portion of our revenues are derived from the sales of products and services to the consumer credit and banking industries. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation and amortization. Major renewals and improvements are capitalized, while repair and maintenance costs are expensed as incurred. Assets acquired under capital leases are included in property and equipment with corresponding depreciation included in accumulated depreciation. Depreciation and amortization charges are calculated using the straight-line method over the following estimated useful lives: Estimated Useful Life Data processing equipment and software 3 years to 6 years Office furniture and equipment 3 years to 7 years Leasehold improvements Shorter of estimated useful life or lease term Equipment under capital lease Shorter of estimated useful life or lease term The cost and accumulated depreciation for property and equipment sold, retired or otherwise disposed of are removed from the applicable accounts and resulting gains or losses are recorded in our consolidated statements of income and comprehensive income. Depreciation and amortization on property and equipment totaled $ 23.5 million , $ 24.2 million and $ 22.6 million during fiscal 2020, 2019 and 2018 , respectively. 60 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Internal-Use Software Costs incurred to develop internal-use software during the application development stage are capitalized and reported at cost. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs of significant upgrades and enhancements that result in additional functionality are also capitalized whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized costs are amortized using the straight-line method over two to three years . Software development costs required to be capitalized for internal-use software have not been material to date. Capitalized Software and Research and Development Costs Software development costs relating to products to be sold in the normal course of business are expensed as incurred as research and development costs until technological feasibility is established. Technological feasibility for our products occurs approximately concurrently with the general release of our products; accordingly, we have not capitalized any development or production costs. Costs we incur to maintain and support our existing products after the general release of the product are expensed in the period they are incurred and included in research and development costs in our consolidated statements of income and comprehensive income. Goodwill, Acquisition Intangibles and Other Long-Lived Assets Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. We assess goodwill for impairment for each of our reporting units on an annual basis during our fourth fiscal quarter using a July 1 measurement date unless circumstances require a more frequent measurement. We have determined that our reporting units are the same as our reportable segments. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value, referred to as a “step zero” approach. If, based on the review of the qualitative factors, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying value, we would bypass the two-step impairment test. Events and circumstances we consider in performing the “step zero” qualitative assessment include macro-economic conditions, market and industry conditions, internal cost factors, share price fluctuations, and the operational stability and the overall financial performance of the reporting units. If we conclude that it is more likely than not that a reporting unit's fair value is less than its carrying amount, we would perform the first step (“step one”) of the two-step impairment test and calculate the estimated fair value of the reporting unit by using discounted cash flow valuation models and by comparing our reporting units to guideline publicly-traded companies. These methods require estimates of our future revenues, profits, capital expenditures, working capital, and other relevant factors, as well as selecting appropriate guideline publicly-traded companies for each reporting unit. We estimate these amounts by evaluating historical trends, current budgets, operating plans, industry data, and other relevant factors. Alternatively, we may bypass the qualitative assessment described above for any reporting unit in any period and proceed directly to performing step one of the goodwill impairment test. For fiscal 2017, we elected to proceed directly to the step one quantitative analysis for all of our reporting units. There was a substantial excess of fair value over carrying value for each of our reporting units and we determined goodwill was not impaired for any of our reporting units for fiscal 2017. For fiscal 2018, 2019 and 2020, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment. After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of any of our reporting units was less their carrying amounts. Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for any of our reporting units for fiscal 2018, 2019 and 2020. We amortize our finite-lived intangible assets which result from our acquisitions over the following estimated useful lives: Estimated Useful Life Completed technology 4 years to 10 years Customer contracts and relationships 5 years to 10 years Trade names 1 year to 3 years Non-compete agreements 2 years 61 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Our intangible assets that have finite useful lives and other long-lived assets are assessed for potential impairment when there is evidence that events and circumstances related to our financial performance and economic environment indicate the carrying amount of the assets may not be recoverable. When impairment indicators are identified, we test for impairment using undiscounted cash flows. If such tests indicate impairment, then we measure and record the impairment as the difference between the carrying value of the asset and the fair value of the asset. We did not recognize any impairment charges on intangible assets that have finite useful lives or other long-lived assets in fiscal 2020, 2019 and 2018 . Revenue Recognition Contracts with Customers Our revenue is primarily derived from term-based or perpetual licensing of software and scoring products and solutions, and associated maintenance; software-as-a-service (“SaaS”) subscription services; scoring and credit monitoring services for consumers; and professional services. For contracts with customers that contain various combinations of products and services, we evaluate whether the products or services are distinct — distinct products or services will be accounted for as separate performance obligations, while non-distinct products or services are combined with others to form a single performance obligation. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative SSP basis. Revenue is recognized when control of the promised goods or services is transferred to our customers. License revenue is derived from contracts in which we grant our direct customers or distributors the right to deploy or resell our software and scoring products and solutions on-premises. Our software offerings often include a perpetual or term-based license and post-contract support or maintenance, both of which generally represent distinct performance obligations and are accounted for separately. The transaction price is either in the form of a fixed consideration with separately stated prices for license and maintenance, a single subscription with license and maintenance bundled, or a usage-based royalty — sometimes subject to a guaranteed minimum — for the license and maintenance bundle. When the amount is in the form of a fixed consideration, including the guaranteed minimum in usage-based royalty, license revenue from distinct on-premises license is recognized at the point in time when the software or scoring solution is made available to the customer or distributor. Any royalties not subject to the guaranteed minimum or earned in excess of the minimum amount are recognized as transactional revenue when the subsequent sales or usage occurs. Revenue allocated to maintenance is generally recognized ratably over the contract period as customers simultaneously consume and receive benefits. In addition to usage-based royalty on our software and scoring products, transactional revenue is also derived from SaaS contracts in which we provide customers with access to and standard support for our software application either in the FICO ® Analytic Cloud or Amazon Web Services (“AWS”), our primary cloud infrastructure provider, on a subscription basis. The transaction price typically includes a fixed consideration in the form of a guaranteed minimum that allows up to a certain level of usage and a variable consideration in the form of usage or transaction-based fees in excess of the minimum threshold; or usage or transaction-based variable amount not subject to a minimum threshold. We determined the nature of our SaaS arrangements is to provide continuous access to our hosted application in the cloud, i.e., a stand-ready obligation that comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). We estimate the total variable consideration at contract inception — subject to any constraints that may apply — and update the estimates as new information becomes available and recognize the amount ratably over the SaaS service period, unless we determine it is appropriate to allocate the variable amount to each distinct service period and recognize revenue as each distinct service period is performed. We also derive transactional revenue from credit scoring and monitoring services that provide consumers access to their credit reports and enable them to monitor their credit. These are provided as either a one-time or ongoing subscription service renewed monthly or annually, all with a fixed consideration. We determined the nature of the subscription service is a stand-ready obligation to generate credit reports, provide credit monitoring and other services for our customers, which comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). Revenue from one-time or monthly subscription services is recognized during the period when service is performed. Revenue from annual subscription services is recognized ratably over the subscription period. 62 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Professional services include software or SaaS implementation, consulting, model development, training services and premium cloud support. They are sold either standalone, or together with other products or services and generally represent distinct performance obligations. The transaction price can be a fixed amount or on a time and materials basis. Revenue on fixed-price services is recognized using an input method based on labor hours expended which we believe provides a faithful depiction of the transfer of services. Revenue on services provided on a time and materials basis is recognized applying the “right-to-invoice” practical expedient as the amount to which we have a right to invoice the customer corresponds directly with the value of our performance to the customer. In addition, we sell premium cloud support on a subscription basis for a fixed amount, and revenue is recognized ratably over the contract term. Significant Judgments Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct and should be accounted for separately may require significant judgment. Specifically, when implementation service is included in the original software or SaaS offerings, judgment is required to determine if the implementation service significantly modifies or customizes the software or SaaS service in such a way that the risks of providing it and the customization service are inseparable. In rare instances, contracts may include significant modification or customization of the software of SaaS service and will result in the combination of software or SaaS service and implementation service as one performance obligation. We determine the SSPs using data from our historical standalone sales, or, in instances where such information is not available (such as when we do not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. When the selling price of a product or service is highly variable, we may use the residual approach to determine the SSP of that product or service. Significant judgment may be required to determine the SSP for each distinct performance obligation when it involves the consideration of many market conditions and entity-specific factors discussed above. Significant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts with a fixed consideration, in which we measure progress using an input method based on labor hours expended. In order to estimate the total hours of the project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others. For certain complex projects, due to the risks and uncertainties inherent with the estimation process and factors relating to the assumptions, actual progress may differ due to the change in estimated total hours. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and, accordingly, recognized revenues are subject to revisions as the contract progresses to completion. Capitalized Commission Costs We capitalize incremental commission fees paid as a result of obtaining customer contracts. Capitalized commission costs, which are recorded in other assets within the accompanying consolidated balance sheets, were $ 38.6 million and $ 33.7 million at September 30, 2020 and 2019 , respectively. Capitalized commission costs are amortized on a straight-line basis over ten years — determined using a portfolio approach — based on the transfer of goods or services to which the assets relate, taking into consideration both the initial and future contracts as we do not typically pay a commission on a contract renewal. The amortization costs are included in selling, general, and administrative expenses of our consolidated statements of income and comprehensive income. The amount of amortization was $ 5.7 million , $ 5.0 million and $ 4.5 million during the years ended September 30, 2020, 2019 and 2018 , respectively. There was no impairment loss in relation to the costs capitalized. We apply a practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. These costs are recorded within selling, general, and administrative expenses. See Note 15 for our discussion on disaggregation of revenues, and Note 16 for contract balances and performance obligations. 63 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Business Combinations Accounting for our acquisitions requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income and comprehensive income. Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date, including our estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies and contingent consideration, where applicable. If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, we will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Subsequent to the measurement period, changes in our estimates of such contingencies will affect earnings and could have a material effect on our consolidated results of operations and financial position. Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to: (i) future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts and acquired developed technologies and patents; (ii) expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed; and (iii) the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period. Subsequent to the measurement period or our final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our consolidated statements of income and comprehensive income and could have a material impact on our consolidated results of operations and financial position. Income Taxes We estimate our income taxes based on the various jurisdictions where we conduct business, which involves significant judgment in determining our income tax provision. We estimate our current tax liability using currently enacted tax rates and laws and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities recorded on our consolidated balance sheets using the currently enacted tax rates and laws that will apply to taxable income for the years in which those tax assets are expected to be realized or settled. We then assess the likelihood our deferred tax assets will be realized and to the extent we believe realization is not more likely than not, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a corresponding income tax expense in our consolidated statements of income and comprehensive income. In assessing the need for the valuation allowance, we consider future taxable income in the jurisdictions we operate; our ability to carry back tax attributes to prior years; an analysis of our deferred tax assets and the periods over which they will be realizable; and ongoing prudent and feasible tax planning strategies. An increase in the valuation allowance would have an adverse impact, which could be material, on our income tax provision and net income in the period in which we record the increase. 64 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the technical merits of the tax position indicate it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount more than 50% likely of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions and they are evaluated on a quarterly basis. Our evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results. A description of our accounting policies associated with tax-related contingencies and valuation allowances assumed as part of a business combination is provided under “Business Combinations” above. Earnings per Share Basic earnings per share are computed on the basis of the weighted-average number of common shares outstanding during the period under measurement. Diluted earnings per share are based on the weighted-average number of common shares outstanding and potential common shares. Potential common shares result from the assumed exercise of outstanding stock options or other potentially dilutive equity instruments, when they are dilutive under the treasury stock method. Comprehensive Income Comprehensive income is the change in our equity (net assets) during each period from transactions and other events and circumstances from non-owner sources. It includes net income, foreign currency translation adjustments and unrealized gains and losses on our investments in marketable securities, net of tax. Foreign Currency and Derivative Financial Instruments We have determined that the functional currency of each foreign operation is the local currency. Assets and liabilities denominated in their local foreign currencies are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates of exchange prevailing during the period. Foreign currency translation adjustments are accumulated as a separate component of consolidated stockholders’ equity. We utilize derivative instruments to manage market risks associated with fluctuations in certain foreign currency exchange rates as they relate to specific balances of accounts receivable and cash denominated in foreign currencies. We principally utilize foreign currency forward contracts to protect against market risks arising in the normal course of business. Our policies prohibit the use of derivative instruments for the sole purpose of trading for profit on price fluctuations or to enter into contracts that intentionally increase our underlying exposure. All of our foreign currency forward contracts have maturity periods of less than three months. At the end of the reporting period, foreign-currency-denominated assets and liabilities are remeasured into the functional currencies of the reporting entities at current market rates. The change in value from this remeasurement is reported as a foreign exchange gain or loss for that period in other income, net in the accompanying consolidated statements of income and comprehensive income. We recorded transactional foreign exchange losses of $ 1.0 million , $ 0.0 million and $ 0.4 million during fiscal 2020, 2019 and 2018 , respectively. Share-Based Compensation We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock award (generally three to four years ). See Note 13 for further discussion of our share-based employee benefit plans. Advertising and Promotion Costs 65 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Advertising and promotion costs are expensed as incurred and are included in selling, general and administrative expenses in the accompanying consolidated statements of income and comprehensive income. Advertising and promotion costs totaled $ 8.7 million , $ 3.6 million and $ 4.1 million in fiscal 2020, 2019 and 2018 , respectively. New Accounting Pronouncements Recently Adopted Accounting Pronouncements In February 2016, the FASB issued Topic 842, which requires the recognition of operating lease assets and lease liabilities on the balance sheet. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new standard, disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. In the first quarter of fiscal 2020, we adopted Topic 842 using the “Comparatives Under 840 Option” approach to transition. In accordance with the standard, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Topic 842 provided a package of practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the lease classification of any expired or existing lease, and (3) initial direct costs for any existing leases. We elected to apply the package of practical expedients, and did not elect the hindsight practical expedient in determining the lease term for existing leases as of October 1, 2019. Adoption of Topic 842 did not result in the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The most significant impact of adoption was the recognition of operating lease assets and operating lease liabilities of $ 89.8 million and $ 98.9 million , respectively, while our accounting for existing capital leases (now referred to as finance leases) remained substantially unchanged. We expect the impact of adoption to be immaterial to our consolidated statements of income and comprehensive income and consolidated statements of cash flows on an ongoing basis. As part of our adoption, we also modified our control procedures and processes, none of which materially affected our internal control over financial reporting. See Note 17 for additional information regarding our accounting policy for leases and additional disclosures. Recent Accounting Pronouncements Not Yet Adopted In August 2018, the FASB issued ASU No. 2018-15, “ Intangibles—Goodwill and Other (Topic 350): Internal-Use Software. ” 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. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, which means that it will be effective for our fiscal year beginning October 1, 2020. We do not believe that adoption of ASU 2018-15 will have a significant impact on our consolidated financial statements. 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 and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, which means it will be effective for our fiscal year beginning October 1, 2020. We do not believe that adoption of Topic 326 will have a significant impact on our consolidated financial statements. We do not expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements. 2. Business Combinations There were no acquisitions incurred during fiscal 2020. In fiscal 2019, we acquired 100 % of the equity of eZmCom, Inc. for $ 18.6 million in cash. We recorded $ 6.0 million of intangible assets which are being amortized using the straight-line method over a weighted-average useful life of 4.73 years . We allocated $ 11.2 million of goodwill to our Applications segment that is deductible for tax purposes. There were no acquisitions incurred during fiscal 2018. 66 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 3. Cash, Cash Equivalents and Marketable Securities The following is a summary of cash, cash equivalents and marketable securities at September 30, 2020 and 2019 : September 30, 2020 September 30, 2019 Amortized Cost Fair Value Amortized Cost Fair Value (In thousands) Cash and Cash Equivalents: Cash $ 122,119 $ 122,119 $ 77,525 $ 77,525 Money market funds 35,275 35,275 22,102 22,102 Bank time deposits — — 6,799 6,799 Total $ 157,394 $ 157,394 $ 106,426 $ 106,426 Long-term Marketable Securities: Marketable securities $ 20,195 $ 25,513 $ 17,193 $ 20,222 The assets included in marketable securities represent long-term marketable equity 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. These investments are treated as trading securities and recorded at fair value. 4. 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 September 30, 2020 and 2019 . • 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 September 30, 2020 and 2019 . We measure the fair value of the 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 September 30, 2020 and 2019 . The following table represents financial assets that we measured at fair value on a recurring basis at September 30, 2020 and 2019 : 67 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 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 September 30, 2019 Active Markets for Identical Instruments (Level 1) Fair Value as of September 30, 2019 (In thousands) Assets: Cash equivalents (1) $ 28,901 $ 28,901 Marketable securities (2) 20,222 20,222 Total $ 49,123 $ 49,123 (1) Included in cash and cash equivalents on our consolidated balance sheets at September 30, 2020 and 2019 . Not included in this table are cash deposits of $ 122.1 million and $ 77.5 million at September 30, 2020 and 2019 , 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 long-term marketable securities on our consolidated balance sheets at September 30, 2020 and 2019 . For the fair value of our derivative instruments and senior notes, see Note 5 and Note 9, respectively. There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the years ended September 30, 2020 , 2019 or 2018 . 5. 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 September 30, 2020 and 2019 : 68 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 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 — September 30, 2019 Contract Amount Fair Value Foreign Currency USD USD (In thousands) Sell foreign currency: Euro (EUR) EUR 10,800 $ 11,723 — Buy foreign currency: British pound (GBP) GBP 5,200 $ 6,400 — Singapore dollar (SGD) SGD 5,798 $ 4,200 — The foreign currency forward contracts were entered into on September 30 of each fiscal year; therefore, their fair value was $ 0 at September 30, 2020 and 2019 . Losses on derivative financial instruments are recorded in our consolidated statements of income and comprehensive income as a component of other income, net. These amounts are shown below for the years ended September 30, 2020, 2019 and 2018 : Year Ended September 30, 2020 2019 2018 (In thousands) Loss on foreign currency forward contracts $ 347 $ 896 $ 476 6. Goodwill and Intangible Assets Intangible assets that are subject to amortization consisted of the following at September 30, 2020 and 2019 : September 30, 2020 September 30, 2019 Gross Carrying Amount Accumulated Amortization Net Average Life Gross Carrying Amount Accumulated Amortization Net Average Life (In thousands, except average life) Completed technology $ 83,764 $ ( 80,136 ) $ 3,628 5 $ 82,724 $ ( 77,331 ) $ 5,393 5 Customer contracts and relationships 19,332 ( 13,870 ) 5,462 9 30,583 ( 22,283 ) 8,300 8 Trade names — — — 0 150 ( 25 ) 125 1 Non-compete agreements 350 ( 204 ) 146 2 350 ( 29 ) 321 2 $ 103,446 $ ( 94,210 ) $ 9,236 $ 113,807 $ ( 99,668 ) $ 14,139 69 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 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 consolidated statements of income and comprehensive income. Amortization expense consisted of the following: Year Ended September 30, 2020 2019 2018 (In thousands) Completed technology $ 1,766 $ 1,974 $ 2,380 Customer contracts and relationships 2,927 4,098 4,214 Trade names 125 25 — Non-compete agreements 175 29 — Total $ 4,993 $ 6,126 $ 6,594 Estimated future intangible asset amortization expense associated with intangible assets existing at September 30, 2020 , was as follows (in thousands): Year Ending September 30, 2021 $ 3,646 2022 3,356 2023 1,317 2024 917 2025 — Thereafter — Total $ 9,236 The following table summarizes changes to goodwill during fiscal 2020 and 2019 , both in total and as allocated to our operating segments. We have not recognized any goodwill impairment losses to date. Applications Scores Decision Management Software Total (In thousands) Balance at September 30, 2018 $ 585,161 $ 146,648 $ 69,081 $ 800,890 Addition from acquisitions 11,233 — — 11,233 Foreign currency translation adjustment ( 7,780 ) — ( 801 ) ( 8,581 ) Balance at September 30, 2019 588,614 146,648 68,280 803,542 Foreign currency translation adjustment 8,190 — 632 8,822 Balance at September 30, 2020 $ 596,804 $ 146,648 $ 68,912 $ 812,364 70 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 7. Composition of Certain Financial Statement Captions The following table presents the composition of property and equipment, net and other assets at September 30, 2020 and 2019 : September 30, 2020 2019 (In thousands) Property and equipment: Data processing equipment and software $ 108,913 $ 110,874 Office furniture and equipment 20,478 21,443 Leasehold improvements 25,239 33,360 Equipment under capital lease 6,489 6,398 Less: accumulated depreciation and amortization ( 114,700 ) ( 119,048 ) Total $ 46,419 $ 53,027 Other assets: Long-term receivables $ 54,074 $ 34,370 Prepaid commissions 38,579 33,700 Others 12,632 11,093 Total $ 105,285 $ 79,163 As a strategic cost initiative in fiscal 2020 we committed to a course of action to adjust our facilities footprint in light of post-pandemic workforce patterns. As a result of this initiative, we recorded a net impairment loss of $ 5.2 million on abandonment of property and equipment. See Note 11 for additional information regarding our restructuring and impairment charges. 8. Revolving Line of Credit On May 8, 2018, we amended our credit agreement with a syndicate of banks, extending the maturity date of the unsecured revolving line of credit from December 30, 2019 to May 8, 2023 , while reducing our borrowing capacity to $ 400 million 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 and (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 , subject to a step up to 3.75 following certain permitted acquisitions; and a minimum fixed charge ratio of 2.50 through the maturity of our 2010 Senior Notes in July 2020, following which maintaining a minimum interest coverage ratio of 3.00 is required. The credit agreement also contains other covenants typical of unsecured facilities. As of September 30, 2020 , we had $ 95.0 million in borrowings outstanding at a weighted-average interest rate of 1.285 % and we were in compliance with all financial covenants under this credit facility. 9. Senior Notes On July 14, 2010, we issued $ 245 million of senior notes in a private placement to a group of institutional investors (the “2010 Senior Notes”). The 2010 Senior Notes were issued in four series as follows: 71 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Series Amount Interest Rate Maturity Date (In millions) E $ 60.0 4.72 % July 14, 2016 F $ 72.0 5.04 % July 14, 2017 G $ 28.0 5.42 % July 14, 2019 H $ 85.0 5.59 % July 14, 2020 On July 14, 2020, the aggregate principal amount of Series H of 2010 Senior Notes was repaid at maturity. At September 30, 2020, the 2010 Senior Notes were no longer outstanding. 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,” along with the 2010 Senior Notes and 2018 Senior Notes, the “Senior Notes”). We used the net proceeds to repay a large portion of the outstanding balance on our revolving credit facility. 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 2018 Senior Notes and the 2019 Senior Notes contain certain covenants typical of unsecured obligations. The following table presents the carrying amounts and fair values for the Senior Notes at September 30, 2020 and 2019 : September 30, 2020 September 30, 2019 Face Value (*) Fair Value Face Value (*) Fair Value (In thousands) The 2010 Senior Notes $ — $ — $ 85,000 $ 86,121 The 2018 Senior Notes 400,000 442,000 400,000 428,000 The 2019 Senior Notes 350,000 358,750 — — Total $ 750,000 $ 800,750 $ 485,000 $ 514,121 (*) The carrying value of the Senior Notes was reduced by the net debt issuance costs of $ 10.6 million and $ 5.2 million at September 30, 2020 and 2019 , respectively. Future principal payments for the Senior Notes are as follows (in thousands): Year Ending September 30, 2021 $ — 2022 — 2023 — 2024 — 2025 — Thereafter 750,000 Total $ 750,000 72 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 10. Employee Benefit Plans Defined Contribution Plans We sponsor the Fair Isaac Corporation 401(k) plan for eligible employees in the U.S. Under this plan, eligible employees may contribute up to 25 % of compensation, not to exceed statutory limits. We also provide a company matching contribution. Investment in FICO common stock is not an option under this plan. Our contributions into all 401(k) plans, including former-acquired-company-sponsored plans that have since merged into the Fair Isaac Corporation 401(k) plan or have been frozen, totaled $ 10.1 million , $ 10.3 million and $ 8.8 million during fiscal 2020, 2019 and 2018 , respectively. Employee Incentive Plans We maintain various employee incentive plans for the benefit of eligible employees, including officers. The awards generally are based on the achievement of certain financial and performance objectives subject to the discretion of management. Total expenses under our employee incentive plans were $ 60.6 million , $ 57.5 million and $ 48.4 million during fiscal 2020, 2019 and 2018 , respectively. 11. Restructuring and Impairment Charges During fiscal 2020, we incurred net charges totaling $ 45.0 million consisting of $ 28.0 million in impairment loss on operating lease assets, $ 5.2 million in impairment loss on disposals of property and equipment and $ 11.8 million in restructuring charges. The impairment losses were associated with closing certain non-core offices and reducing office space in other locations to better align with anticipated needs in light of post-pandemic workforce patterns. The restructuring charges related to employee separation costs as a result of eliminating 209 positions throughout the Company. Cash payments for all the employee separation costs will be paid by the end of our fiscal 2021. There were no restructuring and impairment charges incurred during fiscal 2019 and 2018. The following tables summarize our restructuring accruals associated with the employee separation actions. The current portion and non-current portion were recorded in other accrued liabilities and other liabilities, respectively, within the accompanying consolidated balance sheets. Accrual at September 30, 2018 Expense Additions Cash Payments Accrual Adjustments Accrual at September 30, 2019 (In thousands) Facilities charges $ 5,228 $ — $ ( 3,850 ) $ — $ 1,378 Less: current portion ( 3,850 ) ( 1,378 ) Non-current $ 1,378 $ — Accrual at September 30, 2019 Expense Additions Cash Payments Accrual Adjustments (*) Accrual at September 30, 2020 (In thousands) Facilities charges $ 1,378 $ — $ — $ ( 1,378 ) $ — Employee separation — 11,768 ( 3,577 ) — 8,191 1,378 $ 11,768 $ ( 3,577 ) $ ( 1,378 ) 8,191 Less: current portion ( 1,378 ) ( 8,191 ) Non-current $ — $ — (*) Upon adoption of Topic 842, accrued lease exit obligations of $ 1.4 million , which were associated with vacating excess leased space in fiscal 2017, were reclassified to operating lease liabilities. 73 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 12. Income Taxes The provision for income taxes was as follows during fiscal 2020, 2019 and 2018 : Year ended September 30, 2020 2019 2018 (In thousands) Current: Federal $ 14,566 $ 1,299 $ 8,071 State 2,180 ( 423 ) 2,236 Foreign 12,482 15,371 9,559 29,228 16,247 19,866 Deferred: Federal ( 8,575 ) 7,003 13,987 State ( 957 ) 947 132 Foreign 893 ( 249 ) ( 3,535 ) ( 8,639 ) 7,701 10,584 Total provision $ 20,589 $ 23,948 $ 30,450 The foreign provision was based on foreign pre-tax earnings of $ 42.2 million , $ 36.0 million and $ 10.8 million in fiscal 2020, 2019 and 2018 , respectively. Current foreign tax expense related to foreign tax withholdings was $ 6.4 million , $ 6.5 million and $ 6.0 million in fiscal 2020, 2019 and 2018 , respectively. Foreign withholding tax and related foreign tax credits are included in current tax expense above. Deferred tax assets and liabilities at September 30, 2020 and 2019 were as follows: September 30, 2020 2019 (In thousands) Deferred tax assets: Loss and credit carryforwards $ 31,015 $ 26,702 Compensation benefits 29,640 23,931 Operating lease liabilities 21,827 — Other assets 9,000 9,393 91,482 60,026 Less: valuation allowance ( 24,563 ) ( 19,231 ) Total deferred tax assets 66,919 40,795 Deferred tax liabilities: Intangible assets ( 14,715 ) ( 15,114 ) Deferred commission ( 9,027 ) ( 7,920 ) Property and equipment ( 3,135 ) ( 3,511 ) Operating lease right-of-use assets ( 13,719 ) — Other liabilities ( 11,694 ) ( 8,244 ) Total deferred tax liabilities ( 52,290 ) ( 34,789 ) Deferred tax assets, net $ 14,629 $ 6,006 Based upon the level of historical taxable income and projections for future taxable income over the periods that the deferred tax assets will reverse, management believes it is more likely than not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowance at September 30, 2020. 74 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 As of September 30, 2020 , we had available U.S. federal, state and foreign net operating loss (“NOL”) carryforwards of approximately $ 7.6 million , $ 0.1 million , and $ 31.3 million , respectively. The U.S. federal NOLs were acquired in connection with our acquisitions of Adeptra in fiscal 2012 and Infoglide in fiscal 2013. The U.S. federal NOL carryforward will expire at various dates beginning in fiscal 2024, if not utilized. The state NOL carryforward will expire at various dates beginning in fiscal 2021 , if not utilized. The $ 31.3 million of foreign NOL includes $ 5.5 million related to China and $ 19.5 million related to Germany. Due to a limited ability to utilize the China and Germany NOLs, a full valuation allowance has been recorded on the China and Germany NOLs, resulting in no tax benefit. Utilization of the U.S. federal and state NOLs are subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. In fiscal 2020 we generated approximately $ 4.7 million of excess federal research credits which are expected to be utilized fully in future tax years. We also have available excess California state research credit of approximately $ 16.6 million . The California state research credit does not have an expiration date; however, based on enacted law and expected future cash taxes, we have recorded a valuation allowance of $ 16.6 million . A reconciliation of the provision for income taxes, with the amount computed by applying the U.S. federal statutory income tax rate ( 21 % in each of fiscal 2020 and fiscal 2019, and 24.5 % in fiscal 2018) to income before provision for income taxes for fiscal 2020, 2019 and 2018 is shown below: Year Ended September 30, 2020 2019 2018 (In thousands) Income tax provision at U.S. federal statutory rate $ 53,970 $ 45,375 $ 38,495 State income taxes, net of U.S. federal benefit 4,619 4,194 2,755 Foreign tax rate differential 493 839 ( 649 ) Research credits ( 5,868 ) ( 5,761 ) ( 3,486 ) Domestic production deduction — — ( 2,421 ) Amended returns/audit settlements/statute expirations ( 1,085 ) ( 2,268 ) ( 2,349 ) Foreign 7,513 11,177 4,040 Valuation allowance 5,332 ( 333 ) 1,907 Foreign tax credit and foreign withholding tax 2,086 ( 464 ) 1,320 Excess tax benefits relating to stock-based compensation ( 45,086 ) ( 24,891 ) ( 22,253 ) Tax effect of the Tax Act — — 16,719 GILTI, FDII and BEAT 5,050 1,931 — Other ( 6,435 ) ( 5,851 ) ( 3,628 ) Recorded income tax provision $ 20,589 $ 23,948 $ 30,450 The decrease in our income tax provision in fiscal 2020 compared to fiscal 2019 was due to an increase in the excess tax benefits related to stock-based compensation in fiscal 2020. The decrease in our income tax provision in fiscal 2019 compared to fiscal 2018 was due to the decrease in the overall federal tax rate from the blended 24.5 % in fiscal 2018 to 21 % in fiscal 2019 and the recording of several one-time items in fiscal 2018 related to the enactment of the Tax Act. As of September 30, 2020, we had approximately $ 111.7 million of unremitted earnings of non-U.S. subsidiaries. The Company generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned to the U.S. from the foreign entities. In the event these earnings are later remitted to the U.S., any estimated withholding tax and state income tax due upon remittance of those earnings is expected to be immaterial to the income tax provision. Unrecognized Tax Benefit for Uncertain Tax Positions We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. With a few exceptions, we are no longer subject to U.S. federal, state, local, or foreign income tax examinations for fiscal years prior to 2015. 75 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Year Ended September 30, 2020 2019 2018 (In thousands) Gross unrecognized tax benefits at beginning of year $ 5,834 $ 6,113 $ 6,480 Gross increases for tax positions in prior years 883 509 404 Gross decreases for tax positions in prior years ( 65 ) ( 611 ) — Gross increases based on tax positions related to the current year 2,260 1,439 1,625 Decreases for settlements and payments — ( 637 ) — Decreases due to statute expiration ( 918 ) ( 979 ) ( 2,396 ) Gross unrecognized tax benefits at end of year $ 7,994 $ 5,834 $ 6,113 We had $ 8.0 million of total unrecognized tax benefits as of September 30, 2020 , including $ 7.8 million of tax benefits that, if recognized, would impact the effective tax rate. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a significant reduction of the uncertain tax benefits in the next twelve months. We recognize interest expense and penalties related to unrecognized tax benefits and penalties as part of the provision for income taxes in our consolidated statements of income and comprehensive income. We recognize interest earned related to income tax matters as interest income in our consolidated statements of income and comprehensive income. As of September 30, 2020 , we had accrued interest of $ 0.4 million related to the unrecognized tax benefits. 13. Stock-Based Employee Benefit Plans Description of Stock Option and Share Plans We maintain the 2012 Long-Term Incentive Plan (the “2012 Plan”) under which we are authorized to issue 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. At September 30, 2020 , there were 4,998,722 shares available for issuance under the 2012 Plan. Description of Employee Stock Purchase Plan 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 common stock to eligible employees. Employees may 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 on the last trading day of each offering period. Offering period means 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. At September 30, 2020 , there were 949,702 shares available for issuance under the 2019 Purchase Plan. We satisfy stock option exercises, vesting of restricted stock units and the 2019 Purchase Plan issuances from treasury shares. Share-Based Compensation Expense and Related Income Tax Benefits We recorded share-based compensation expense of $ 93.7 million , $ 83.0 million and $ 74.8 million in fiscal years 2020, 2019 and 2018 , respectively. The total tax benefit related to this share-based compensation expense was $ 13.2 million , $ 12.5 million and $ 15.7 million in fiscal 2020, 2019 and 2018 , respectively. As of September 30, 2020 , there was $ 127.7 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted-average period of 2.33 years. In fiscal 2020 we received $ 25.4 million in cash from stock option exercises, with the tax benefit realized for the tax deductions from these exercises of $ 30.2 million . 76 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Stock-Based Activity Stock Options We estimate the fair value of stock options granted using the Black-Scholes option valuation model and we amortize the fair value on a straight-line basis over the vesting period. We used the following assumptions to estimate the fair value of our stock options during fiscal 2020, 2019 and 2018 : Year Ended September 30, 2020 2019 2018 Stock Options: Weighted-average expected term (years) 4.46 4.26 4.78 Expected volatility (range) 30.0 - 35.9 % 31.1 - 32.4 % 33.6 % - 35.1 % Weighted-average volatility 30.6 % 32.2 % 34.6 % Risk-free interest rate (range) 0.36 - 1.68 % 2.50 - 2.68 % 2.03 % - 2.65 % Weighted-average expected dividend yield — % — % — % Expected Volatility. We estimate the volatility of our common stock at the date of grant based on a combination of the implied volatility of publicly traded options on our common stock and our historical volatility rate. Expected Term. The expected term represents the period that our stock options are expected to be outstanding. We estimate the expected term based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. Dividends. We have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future. Consequently, we used an expected dividend yield of zero in the years presented. Risk-Free Interest Rate. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our employee options. Forfeitures. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. The following table summarizes option activity during fiscal 2020 : Shares Weighted- average Exercise Price Weighted- average Remaining Contractual Term Aggregate Intrinsic Value (In thousands) (In years) (In thousands) Outstanding at September 30, 2019 616 $ 89.36 Granted 32 364.23 Exercised ( 401 ) 63.47 Forfeited ( 1 ) 185.05 Outstanding at September 30, 2020 246 $ 166.80 3.84 $ 63,605 Exercisable at September 30, 2020 168 $ 130.87 3.06 $ 49,435 Vested and expected to vest at September 30, 2020 243 $ 165.32 3.82 $ 63,125 The weighted-average fair value of options granted were $ 99.30 , $ 59.63 and $ 56.61 during fiscal 2020, 2019 and 2018 , respectively. The aggregate intrinsic value of options outstanding at September 30, 2020 was calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the 0.2 million outstanding options, which had exercise prices lower than the $ 425.38 market price of our common stock at September 30, 2020 . The total intrinsic value of options exercised was $ 132.6 million , $ 99.1 million and $ 41.4 million during fiscal 2020, 2019 and 2018 , respectively, determined as of the date of exercise. 77 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Restricted Stock Units The fair value of restricted stock units (“RSUs”) granted is the closing market price of our common stock on the date of grant, adjusted for the expected dividend yield, if applicable. We amortize the fair value on a straight-line basis over the vesting period. The following table summarizes the RSUs activity during fiscal 2020 : Shares Weighted-average Grant-date Fair Value (In thousands) Outstanding at September 30, 2019 998 $ 159.99 Granted 218 356.66 Released ( 434 ) 138.04 Forfeited ( 61 ) 200.38 Outstanding at September 30, 2020 721 $ 229.10 The weighted-average fair value of the RSUs granted were $ 356.66 , $ 206.29 and $ 161.85 during fiscal 2020, 2019 and 2018 , respectively. The total intrinsic value of the RSUs that vested was $ 159.0 million , $ 91.2 million and $ 70.7 million during fiscal 2020, 2019 and 2018 , respectively, determined as of the date of vesting. Performance Share Units Performance share units (“PSUs”) are granted to our senior officers and earned based on pre-established performance goals approved by the Leadership Development and Compensation Committee of our Board of Directors for any given performance period. The range of payout is zero to 200 % of the number of target PSUs, based on the outcome of the performance conditions. We estimate the fair value of the PSUs using the closing market price of our common stock on the date of grant, adjusted for the expected dividend yield if applicable, based on the performance condition that is probable of achievement. We amortize the fair values over the requisite service period for each vesting tranche of the award. We reassess the probability at each reporting period and recognize the cumulative effect of the change in estimate in the period of change. The following table summarizes the PSUs activity during fiscal 2020 : Shares Weighted- average Grant-date Fair Value (In thousands) Outstanding at September 30, 2019 195 $ 163.38 Granted 53 354.18 Released ( 101 ) 152.45 Forfeited ( 20 ) 175.50 Outstanding at September 30, 2020 127 $ 248.97 The weighted-average fair value of the PSUs granted were $ 354.18 , $ 185.05 and $ 157.17 during fiscal 2020, 2019 and 2018 , respectively. The total intrinsic value of the PSUs that vested was $ 36.5 million , $ 19.3 million and $ 15.1 million during fiscal 2020, 2019 and 2018 , respectively, determined as of the date of vesting. 78 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Market Share Units Market share units (“MSUs”) are granted to our senior officers and earned based on our total stockholder return relative to the Russell 3000 Index over performance periods of one , two and three years . We estimate the fair value of MSUs granted using the Monte Carlo valuation model and amortize the fair values over the requisite service period for each vesting tranche of the award. In addition, we do not reverse the compensation cost solely because the market condition is not satisfied, and the award is therefore not earned by the employee, provided the requisite service is rendered. We used the following assumptions to estimate the fair value of our MSUs during fiscal 2020, 2019 and 2018 : Year Ended September 30, 2020 2019 2018 Expected volatility in FICO’s stock price 25.2 % 24.6 % 24.6 % Expected volatility in Russell 3000 Index 12.9 % 12.8 % 12.7 % Correlation between FICO and the Russell 3000 Index 64.0 % 66.6 % 63.1 % Risk-free interest rate 1.67 % 2.73 % 1.92 % Average expected dividend yield — % — % — % The expected volatility was determined based on daily historical movements in our stock price and the Russell 3000 Index for the three years preceding the grant date. The correlation between FICO and the Russell 3000 Index was determined based on historical daily stock price movements for the three years preceding the grant date. Because we have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future, we used an expected dividend yield of zero. The risk-free rate was determined based on U.S. Treasury zero-coupon yields over the three -year performance period. The following table summarizes the MSUs activity during fiscal 2020 : Shares Weighted- average Grant-date Fair Value (In thousands) Outstanding at September 30, 2019 100 $ 188.63 Granted 96 249.13 Released ( 123 ) 171.42 Forfeited ( 10 ) 202.48 Outstanding at September 30, 2020 63 $ 311.91 The weighted-average fair value of the MSUs granted were $ 249.13 , $ 169.46 and $ 151.78 during fiscal 2020, 2019 and 2018 , respectively. The total intrinsic value of the MSUs that vested was $ 44.6 million , $ 21.6 million and $ 18.7 million during fiscal 2020, 2019 and 2018 , respectively, determined as of the date of vesting. Employee Stock Purchase Plan The compensation expense on the employee stock purchase plan arises from the 15 % discount offered to participants. During fiscal 2020, a total of 50,298 shares of our common stock with a weighted-average purchase price of $ 334.21 per share was issued under the 2019 Purchase Plan. As our first semi-annual offering period started on September 1, 2019, there were no shares purchased during fiscal 2019. 79 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 14. Earnings per Share The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) during fiscal 2020, 2019 and 2018 : Year Ended September 30, 2020 2019 2018 (In thousands, except per share data) Numerator for basic and diluted earnings per share — net income $ 236,411 $ 192,124 $ 126,482 Denominator — share: Basic weighted-average shares 29,067 28,980 29,711 Effect of dilutive securities 865 1,314 1,469 Diluted weighted-average shares 29,932 30,294 31,180 Earnings per share: Basic $ 8.13 $ 6.63 $ 4.26 Diluted $ 7.90 $ 6.34 $ 4.06 Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented. 15. Segment Information We are organized into the following three operating segments, each of which is a reportable segment, to align with internal management of our worldwide business operations based on product offerings. • Applications. This segment includes 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, SaaS applications through the FICO ® Analytic Cloud or 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 are distributed through major credit reporting agencies worldwide, as well as services through which we provide our scores to 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. 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 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 Chief Executive Officer 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. 80 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 The following tables summarize segment information for fiscal 2020, 2019 and 2018 : Year Ended September 30, 2020 Applications Scores Decision Management Software Unallocated Corporate Expenses Total (In thousands) Segment revenues: Transactional and maintenance $ 393,994 $ 517,024 $ 62,915 $ — $ 973,933 Professional services 136,677 1,600 44,763 — 183,040 License 71,375 9,923 56,291 — 137,589 Total segment revenues 602,046 528,547 163,969 — 1,294,562 Segment operating expense ( 448,505 ) ( 74,237 ) ( 187,444 ) ( 144,704 ) ( 854,890 ) Segment operating income (loss) $ 153,541 $ 454,310 $ ( 23,475 ) $ ( 144,704 ) $ 439,672 Unallocated share-based compensation expense ( 93,681 ) Unallocated amortization expense ( 4,993 ) Unallocated restructuring and impairment charges ( 45,029 ) Operating income 295,969 Unallocated interest expense, net ( 42,177 ) Unallocated other income, net 3,208 Income before income taxes $ 257,000 Depreciation expense $ 18,021 $ 617 $ 4,397 $ 418 $ 23,453 Year Ended September 30, 2019 Applications Scores Decision Management Software Unallocated Corporate Expenses Total (In thousands) Segment revenues: Transactional and maintenance $ 395,398 $ 415,288 $ 50,262 $ — $ 860,948 Professional services 137,258 2,157 44,680 — 184,095 License 72,378 3,732 38,930 — 115,040 Total segment revenues 605,034 421,177 133,872 — 1,160,083 Segment operating expense ( 443,872 ) ( 59,821 ) ( 168,988 ) ( 144,755 ) ( 817,436 ) Segment operating income (loss) $ 161,162 $ 361,356 $ ( 35,116 ) $ ( 144,755 ) 342,647 Unallocated share-based compensation expense ( 82,973 ) Unallocated amortization expense ( 6,126 ) Operating income 253,548 Unallocated interest expense, net ( 39,752 ) Unallocated other income, net 2,276 Income before income taxes $ 216,072 Depreciation expense $ 18,766 $ 498 $ 4,036 $ 904 $ 24,204 81 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Year Ended September 30, 2018 Applications Scores Decision Management Software Unallocated Corporate Expenses Total (In thousands) Segment revenues: Transactional and maintenance $ 372,283 $ 331,662 $ 46,658 $ — $ 750,603 Professional services 142,736 1,900 32,274 — 176,910 License 49,356 2,308 20,969 — 72,633 Total segment revenues 564,375 335,870 99,901 — 1,000,146 Segment operating expense ( 420,411 ) ( 63,452 ) ( 134,261 ) ( 125,255 ) ( 743,379 ) Segment operating income (loss) $ 143,964 $ 272,418 $ ( 34,360 ) $ ( 125,255 ) 256,767 Unallocated share-based compensation expense ( 74,814 ) Unallocated amortization expense ( 6,594 ) Operating income 175,359 Unallocated interest expense, net ( 31,311 ) Unallocated other income, net 12,884 Income before income taxes $ 156,932 Depreciation expense $ 15,651 $ 555 $ 5,471 $ 956 $ 22,633 Information about disaggregated revenue by product deployment methods was as follows: Year Ended September 30, 2020 Reportable Segments On-Premises SaaS Scores Total Percentage (Dollars in thousands) Applications $ 340,702 $ 261,344 $ — $ 602,046 46 % Scores — — 528,547 528,547 41 % Decision Management Software 125,269 38,700 — 163,969 13 % Total $ 465,971 $ 300,044 $ 528,547 $ 1,294,562 100 % Year Ended September 30, 2019 Reportable Segments On-Premises SaaS Scores Total Percentage (Dollars in thousands) Applications $ 360,105 $ 244,929 $ — $ 605,034 52 % Scores — — 421,177 421,177 36 % Decision Management Software 108,447 25,425 — 133,872 12 % Total $ 468,552 $ 270,354 $ 421,177 $ 1,160,083 100 % 82 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Year Ended September 30, 2018 Reportable Segments On-Premises SaaS Scores Total Percentage (Dollars in thousands) Applications $ 337,162 $ 227,213 $ — $ 564,375 56 % Scores — — 335,870 335,870 34 % Decision Management Software 86,172 13,729 — 99,901 10 % Total $ 423,334 $ 240,942 $ 335,870 $ 1,000,146 100 % We derive a significant portion of revenues internationally, and 32 % , 34 % , and 35 % of total consolidated revenues were derived from clients outside the U.S. during fiscal 2020, 2019 and 2018 , respectively. Information about disaggregated revenue by primary geographical markets was as follows: Year Ended September 30, 2020 Reportable Segments North America Latin America Europe, Middle East and Africa Asia Pacific Total (In thousands) Applications $ 331,290 $ 40,047 $ 157,793 $ 72,916 $ 602,046 Scores 511,333 3,576 6,385 7,253 528,547 Decision Management Software 87,305 18,674 39,406 18,584 163,969 Total $ 929,928 $ 62,297 $ 203,584 $ 98,753 $ 1,294,562 Year Ended September 30, 2019 Reportable Segments North America Latin America Europe, Middle East and Africa Asia Pacific Total (In thousands) Applications $ 338,990 $ 42,656 $ 155,539 $ 67,849 $ 605,034 Scores 404,778 4,591 6,359 5,449 421,177 Decision Management Software 63,397 18,040 33,288 19,147 133,872 Total $ 807,165 $ 65,287 $ 195,186 $ 92,445 $ 1,160,083 Year Ended September 30, 2018 Reportable Segments North America Latin America Europe, Middle East and Africa Asia Pacific Total (In thousands) Applications $ 318,836 $ 39,136 $ 141,358 $ 65,045 $ 564,375 Scores 328,990 1,366 3,989 1,525 335,870 Decision Management Software 53,184 5,035 24,245 17,437 99,901 Total $ 701,010 $ 45,537 $ 169,592 $ 84,007 $ 1,000,146 Within our Applications segment our fraud solutions accounted for 15 % , 18 % and 17 % of total revenues in each of fiscal 2020, 2019 and 2018 , respectively, and our customer communication services accounted for 8 % , 9 % and 10 % of total revenues in each of these periods, respectively. 83 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Revenue generated from a single customer or a group of customers which represented 10% or greater of total revenue are summarized below for fiscal 2020, 2019 and 2018 : Year Ended September 30, 2020 2019 2018 (Dollars in thousands) Experian $ 181,036 14 % $ 148,037 13 % $ 109,097 11 % TransUnion and Equifax 239,166 18 % 183,523 16 % 142,179 14 % Other customers 874,360 68 % 828,523 71 % 748,870 75 % Total $ 1,294,562 100 % $ 1,160,083 100 % $ 1,000,146 100 % At September 30, 2020 and 2019 , no individual customer accounted for 10% or more of total consolidated receivables. Our property and equipment, net, on a geographical basis are summarized below at September 30, 2020 and 2019 : September 30, 2020 2019 (Dollars in thousands) United States $ 29,375 63 % $ 38,058 72 % United Kingdom 8,776 19 % 7,801 15 % Other countries 8,268 18 % 7,168 13 % Total $ 46,419 100 % $ 53,027 100 % 16. Contract Balances and Performance Obligations 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 September 30, 2020 and 2019 consisted of the following: September 30, 2020 2019 (In thousands) Billed $ 211,776 $ 206,714 Unbilled 181,550 127,651 393,326 334,365 Less: allowance for doubtful accounts ( 5,072 ) ( 2,568 ) Net receivables 388,254 331,797 Less: long-term receivables * ( 54,074 ) ( 34,370 ) Short-term receivables * 334,180 297,427 (*) Short-term receivables and long-term receivables were recorded in accounts receivable, net and other assets, respectively, within the accompanying consolidated balance sheets. 84 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 Activity in the allowance for doubtful accounts was as follows: Year Ended September 30, 2020 2019 (In thousands) Allowance for doubtful accounts, beginning balance $ 2,568 $ 3,439 Add: expense 3,199 518 Less: write-offs (net of recoveries) ( 695 ) ( 1,389 ) Allowance for doubtful accounts, ending balance $ 5,072 $ 2,568 Contract assets balance at September 30, 2020 and 2019 was immaterial. 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: Year Ended September 30, 2020 2019 (In thousands) Deferred revenues, beginning balance $ 116,320 $ 108,118 Revenue recognized that was included in the deferred revenues balance at the beginning of the period ( 101,640 ) ( 93,265 ) Increases due to billings, excluding amounts recognized as revenue during the period 107,461 101,467 Deferred revenues, ending balance (*) $ 122,141 $ 116,320 (*) Ending balance at September 30, 2020 included current portion of $ 115.1 million and long-term portion of $ 7.0 million that were recorded in deferred revenue and other liabilities, respectively, within the consolidated balance sheets. Ending balance at September 30, 2019 included current portion of $ 111.0 million and long-term portion of $ 5.3 million that were recorded in deferred revenue and other liabilities, respectively, within the 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: • Revenue that will be recognized in future periods from usage-based royalty from license sales; • SaaS transactional revenue from variable considerations 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 $ 298.0 million as of September 30, 2020, of which we expect to recognize approximately 50 % over the next 18 months and the remainder thereafter. Revenue allocated to remaining performance obligations was $ 238.4 million as of September 30, 2019. 85 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 17. Leases We lease office space and data centers under operating lease arrangements, which constitute the majority of our lease obligations. We also enter into finance lease agreements from time to time for certain computer equipment. For any lease with a lease term in excess of 12 months, the related lease assets and liabilities are recognized on our consolidated balance sheets as either operating or finance leases at the commencement of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components, and we have elected to combine these components together and account for them as a single lease component for all classes of assets. Leases with a lease term of 12 months or less are not recorded on our consolidated balance sheets. Furthermore, we recognize lease expense for these leases on a straight-line basis over the lease term. Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We use a collateralized incremental borrowing rate based on the information available at the commencement date, including the lease term, in determining the present value of future payments. In calculating the incremental borrowing rates, we consider recent ratings from credit agencies and current lease demographic information. Our operating leases also typically require payment of real estate taxes, common area maintenance, insurance and other operating costs as well as payments that are adjusted based on a consumer price index. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Operating lease assets also include prepaid lease payments and initial direct costs, and are reduced by lease incentives. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term. As a strategic cost initiative in fiscal 2020 we committed to a course of action to adjust our facilities footprint in light of post-pandemic workforce patterns, including closing certain non-core offices and reducing office space in other locations to better align with anticipated needs. As a result of this initiative, we recorded a net impairment of $ 28.0 million on operating lease right-of-use assets. Prior to the adoption of ASC 842, these adjustments were described as restructuring expenses - facilities charges. See Note 11 for additional information regarding our restructuring and impairment charges. The following table presents the lease balances within the accompanying consolidated balance sheet as of September 30, 2020: Balance Sheet Location September 30, 2020 (In thousands) Assets Operating leases Operating lease right-of-use assets $ 57,656 Finance leases (*) Property and equipment, net 5,021 Total lease assets $ 62,677 Liabilities Current: Operating leases Other accrued liabilities $ 22,787 Finance leases Other accrued liabilities 2,186 Non-current: Operating leases Operating lease liabilities 73,207 Finance leases Other liabilities 3,076 Total lease liabilities $ 101,256 (*) Finance leases are recorded net of accumulated depreciation of $ 1.5 million . 86 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 The components of our operating and finance lease expenses were as follows: Year Ended September 30, 2020 (In thousands) Operating lease cost $ 23,624 Finance lease cost: Depreciation of lease assets 2,078 Interest on lease liabilities 186 Short-term lease cost 1,171 Variable lease cost 3,264 Total lease cost $ 30,323 The following table presents weighted-average remaining lease term and weighted-average discount rates related to our operating and finance leases: September 30, 2020 Operating Leases Finance Leases Weighted-average remaining lease term (in months) 63 29 Weighted-average discount rate 3.86 % 2.56 % Supplemental cash flow information related to our operating and finance leases was as follows: Year Ended September 30, 2020 (In thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflow for operating leases $ 18,801 Operating cash outflow for finance leases 186 Financing cash outflow for finance leases 1,716 Lease assets obtained in exchange for new lease liabilities: Operating leases 11,457 Finance leases 1,387 Future lease payments under our non-cancellable leases as of September 30, 2020 were as follows: (In thousands) Operating Leases Finance Leases Fiscal 2021 $ 26,047 $ 2,397 Fiscal 2022 21,925 2,240 Fiscal 2023 17,109 784 Fiscal 2024 14,384 — Fiscal 2025 9,004 — Thereafter 17,131 — Total future undiscounted lease payments 105,600 5,421 Less imputed interest ( 9,606 ) ( 159 ) Total reported lease liability $ 95,994 $ 5,262 In accordance with the prior guidance—ASC 840, Leases—our leases were previously designated as either capital or operating. Previously designated capital leases are now considered finance leases under the new guidance, Topic 842. The 87 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 designation of operating leases remains substantially unchanged under the new guidance. The future minimum lease payments by fiscal year as determined prior to the adoption of Topic 842 under our previously designated capital and operating leases as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, were as follows: (In thousands) Operating Leases Capital Leases Fiscal 2020 $ 19,842 $ 1,935 Fiscal 2021 19,969 1,934 Fiscal 2022 17,677 1,934 Fiscal 2023 16,940 — Fiscal 2024 14,887 — Thereafter 24,431 — Total minimum lease payments $ 113,746 5,803 Less amount representing interest ( 379 ) Present value of minimum lease payments $ 5,424 18. Commitments In the ordinary course of business, we enter into contractual purchase obligations and other agreements that are legally binding and specify certain minimum payment terms. We are also a party to a management agreement with 23 of our executives providing for certain payments and other benefits in the event of a qualified change in control of FICO, coupled with a termination of the officer during the following year. 19. 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 material exposure on an aggregate basis. 20. Guarantees In the ordinary course of business, we are not subject to potential obligations under guarantees , except for standard indemnification and warranty provisions that are contained within many of our customer license and service agreements and certain supplier agreements, including underwriter agreements, as well as standard indemnification agreements that we have executed with certain of our officers and directors, and give rise only to the disclosure in the consolidated financial statements. In addition, we continue to monitor the conditions that are subject to the guarantees and indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses under the guarantees and indemnifications when those losses are estimable. Indemnification and warranty provisions contained within our customer license and service agreements and certain supplier agreements are generally consistent with those prevalent in our industry. The duration of our product warranties generally does not exceed 90 days following delivery of our products. We have not incurred significant obligations under customer indemnification or warranty provisions historically and do not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential customer indemnification or warranty-related obligations. The indemnification agreements that we have executed with certain of our officers and directors would require us to indemnify such officers and directors in certain instances. We have not incurred obligations under these indemnification agreements historically and do not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential officer or director indemnification obligations. The maximum potential amount of future payments that we could be required to make under the indemnification provisions in our customer license and service agreements, and officer and director agreements is unlimited. 88 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2020, 2019 and 2018 21. Supplementary Financial Data (Unaudited) The following table presents selected unaudited consolidated financial results for each of the eight quarters in the two-year period ended September 30, 2020 . In the opinion of management, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting of only normal recurring adjustments, except as noted below) necessary for a fair statement of the consolidated financial information for the period presented. Quarter Ended September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 (In thousands, except per share data) Revenues $ 374,356 $ 313,731 $ 307,971 $ 298,504 Cost of revenues (1) 93,676 88,569 88,139 90,758 Gross profit 280,680 225,162 219,832 207,746 Net income $ 59,126 $ 64,076 $ 58,288 $ 54,921 Earnings per share (2): Basic $ 2.04 $ 2.21 $ 2.00 $ 1.89 Diluted $ 1.98 $ 2.15 $ 1.94 $ 1.82 Shares used in computing earnings per share: Basic 29,045 29,005 29,194 29,025 Diluted 29,833 29,744 29,985 30,169 Quarter Ended September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018 (In thousands, except per share data) Revenues $ 305,344 $ 314,249 $ 278,234 $ 262,256 Cost of revenues (1) 87,996 87,215 85,568 76,066 Gross profit 217,348 227,034 192,666 186,190 Net income $ 54,584 $ 64,152 $ 33,381 $ 40,007 Earnings per share (2): Basic $ 1.89 $ 2.21 $ 1.15 $ 1.38 Diluted $ 1.80 $ 2.12 $ 1.10 $ 1.32 Shares used in computing earnings per share: Basic 28,918 28,967 29,074 28,961 Diluted 30,290 30,292 30,259 30,336 (1) Cost of revenues excludes amortization expense of $ 0.3 million , $ 0.4 million , $ 0.5 million , $ 0.6 million , $ 0.5 million , $ 0.5 million , $ 0.5 million and $ 0.5 million for the quarters ended September 30, 2020 , June 30, 2020 , March 31, 2020 , December 31, 2019 , September 30, 2019 , June 30, 2019 , March 31, 2019 and December 31, 2018 , respectively. (2) Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts may not equal the totals for the respective years. 22. Subsequent Events In October 2020, we entered into a purchase agreement with Rackspace US, Inc. (“Rackspace”) pursuant to which Rackspace will provide to us primary cloud infrastructure services as a reseller of AWS. The initial term is a five-year period for which we have a minimum purchase obligation of $ 120 million over the first 3 years with the ability to roll up to $ 12 million into a fourth year if we spend less than the minimum commitment. The purpose of this agreement is to replace services that were previously provided directly through AWS. 89 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.