10-Q 1 fico-20221231.htm 10-Q Q1-23 fico-20221231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-11689  
Fair Isaac Corporation
(Exact name of registrant as specified in its charter) 
Delaware94-1499887
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
5 West Mendenhall, Suite 10559715
Bozeman,Montana
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 406-982-7276  
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareFICONew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The number of shares of common stock outstanding on January 13, 2023 was 25,154,777 (excluding 63,702,006 shares held by us as treasury stock).


TABLE OF CONTENTS
 
 


i

PART I – FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31,
2022
September 30, 2022
 (In thousands, except par value data)
Assets
Current assets:
Cash and cash equivalents$139,856 $133,202 
Accounts receivable, net308,234 322,410 
Prepaid expenses and other current assets35,732 29,103 
Total current assets483,822 484,715 
Marketable securities26,332 24,515 
Other investments1,206 1,135 
Property and equipment, net14,976 17,580 
Operating lease right-of-use assets32,366 36,688 
Goodwill771,455 761,067 
Intangible assets, net1,742 2,017 
Deferred income taxes20,635 11,803 
Other assets 106,159 102,514 
Total assets$1,458,693 $1,442,034 
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable$16,838 $17,273 
Accrued compensation and employee benefits59,876 97,893 
Other accrued liabilities51,378 66,248 
Deferred revenue126,896 120,045 
Current maturities on debt100,000 30,000 
Total current liabilities354,988 331,459 
Long-term debt 1,820,666 1,823,669 
Operating lease liabilities32,400 39,192 
Other liabilities52,734 49,661 
Total liabilities2,260,788 2,243,981 
Commitments and contingencies
Stockholders’ deficit:
Preferred stock ($0.01 par value; 1,000 shares authorized; none issued and outstanding)
  
Common stock ($0.01 par value; 200,000 shares authorized, 88,857 shares issued and 25,155 and 25,154 shares outstanding at December 31, 2022 and September 30, 2022, respectively)
252 252 
Additional paid-in-capital1,244,271 1,299,588 
Treasury stock, at cost (63,702 and 63,703 shares at December 31, 2022 and September 30, 2022, respectively)
(4,996,624)(4,935,769)
Retained earnings3,056,327 2,958,684 
Accumulated other comprehensive loss(106,321)(124,702)
Total stockholders’ deficit(802,095)(801,947)
Total liabilities and stockholders’ deficit$1,458,693 $1,442,034 
See accompanying notes.
1

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

 Quarter Ended December 31,
 20222021
 (In thousands, except per share data)
Revenues:
On-premises and SaaS software$144,560 $126,338 
Professional services22,322 26,536 
Scores177,988 169,487 
Total revenues344,870 322,361 
Operating expenses:
Cost of revenues76,569 69,203 
Research and development36,633 38,980 
Selling, general and administrative92,995 98,048 
Amortization of intangible assets275 544 
Gain on product line asset sale(1,941) 
Total operating expenses204,531 206,775 
Operating income140,339 115,586 
Interest expense, net(22,800)(12,195)
Other income, net364 1,429 
Income before income taxes117,903 104,820 
Provision for income taxes20,260 19,861 
Net income97,643 84,959 
Other comprehensive income (loss):
Foreign currency translation adjustments18,381 (2,138)
Comprehensive income$116,024 $82,821 
Earnings per share:
Basic$3.90 $3.13 
Diluted$3.84 $3.09 
Shares used in computing earnings per share:
Basic25,045 27,167 
Diluted25,443 27,524 

See accompanying notes.

2

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
Common StockAdditional
Paid-in-Capital
Treasury StockRetained EarningsAccumulated Other
Comprehensive Loss
Total
Stockholders’ Deficit
(In thousands) SharesPar Value
Balance at September 30, 202225,154 $252 $1,299,588 $(4,935,769)$2,958,684 $(124,702)$(801,947)
Share-based compensation— — 29,702 — — — 29,702 
Issuance of treasury stock under employee stock plans180 2 (85,019)14,147 — — (70,870)
Repurchases of common stock(179)(2)— (75,002)— — (75,004)
Net income— — — — 97,643 — 97,643 
Foreign currency translation adjustments— — — — — 18,381 18,381 
Balance at December 31, 202225,155 $252 $1,244,271 $(4,996,624)$3,056,327 $(106,321)$(802,095)
Common StockAdditional
Paid-in-Capital
Treasury StockRetained EarningsAccumulated Other
Comprehensive Loss
Total
Stockholders’ Deficit
(In thousands) SharesPar Value
Balance at September 30, 202127,568 $276 $1,237,348 $(3,857,855)$2,585,143 $(75,854)$(110,942)
Share-based compensation— — 29,878 — — — 29,878 
Issuance of treasury stock under employee stock plans185 1 (58,861)12,386 — — (46,474)
Repurchases of common stock(1,244)(12) (493,570)— — (493,582)
Net income— — — — 84,959 — 84,959 
Foreign currency translation adjustments— — — — — (2,138)(2,138)
Balance at December 31, 202126,509 $265 $1,208,365 $(4,339,039)$2,670,102 $(77,992)$(538,299)

See accompanying notes.
3

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Quarter Ended December 31,
 20222021
 (In thousands)
Cash flows from operating activities:
Net income$97,643 $84,959 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization4,280 5,227 
Share-based compensation29,702 29,878 
Deferred income taxes(8,507)3,905 
Net loss on marketable securities348 592 
Non-cash operating lease costs3,779 4,115 
Provision for doubtful accounts369 325 
Gain on product line asset sale(1,941) 
Net loss on sales and abandonment of property and equipment16 51 
Changes in operating assets and liabilities:
Accounts receivable8,704 58,428 
Prepaid expenses and other assets(5,823)157 
Accounts payable168 (268)
Accrued compensation and employee benefits(37,883)(40,335)
Other liabilities(7,955)(14,904)
Deferred revenue9,540 (7,249)
Net cash provided by operating activities 92,440 124,881 
Cash flows from investing activities:
Purchases of property and equipment(850)(895)
Proceeds from sales of marketable securities2,393 129 
Purchases of marketable securities(4,558)(2,763)
Proceeds from product line asset sales, net of cash transferred(7,575)2,257 
Net cash used in investing activities(10,590)(1,272)
Cash flows from financing activities:
Proceeds from revolving line of credit and term loan169,000 620,000 
Payments on revolving line of credit and term loan(102,750)(788,000)
Proceeds from issuance of senior notes 550,000 
Payments on debt issuance costs (8,200)
Proceeds from issuance of treasury stock under employee stock plans1,995 550 
Taxes paid related to net share settlement of equity awards(72,865)(47,024)
Repurchases of common stock(75,004)(482,755)
Net cash used in financing activities (79,624)(155,429)
Effect of exchange rate changes on cash4,428 (1,377)
Increase (decrease) in cash and cash equivalents6,654 (33,197)
Cash and cash equivalents, beginning of period133,202 195,354 
Cash and cash equivalents, end of period$139,856 $162,157 
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds of $8 and $72 during the quarters ended December 31, 2022 and 2021, respectively
$13,412 $1,570 
Cash paid for interest$37,730 $19,396 
Supplemental disclosures of non-cash investing and financing activities:
Purchase of property and equipment included in accounts payable$37 $67 
Unsettled repurchases of common stock$ $18,870 
See accompanying notes.
4

FAIR ISAAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business
Fair Isaac Corporation
Fair Isaac Corporation (NYSE: FICO) (together with its consolidated subsidiaries, the “Company,” which may also be referred to in this report as “we,” “us,” “our,” or “FICO”) is a leading applied analytics company. We were founded in 1956 on the premise that data, used intelligently, can improve business decisions. Today, FICO’s software and the widely used FICO® Score operationalize analytics, enabling thousands of businesses in nearly 120 countries to uncover new opportunities, make timely decisions that matter, and execute them at scale. Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, automotive lenders, consumer reporting agencies, public agencies, and organizations in other industries. We also serve consumers through online services that enable people to access and understand their FICO® Scores — the standard measure in the U.S. of consumer credit risk — empowering them to increase financial literacy and manage their financial health.
Principles of Consolidation and Basis of Presentation
We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q and the applicable accounting guidance. Consequently, we have not necessarily included all information and footnotes required for audited financial statements. In our opinion, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments, except as otherwise indicated) necessary for a fair presentation of our financial position and results of operations. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with our audited consolidated financial statements and notes thereto presented in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022. The interim financial information contained in this report is not necessarily indicative of the results to be expected for any other interim period or for the entire fiscal year.
The condensed consolidated financial statements include the accounts of FICO and its subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
We make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures made in the accompanying notes. For example, we use estimates in determining the appropriate levels of various accruals; variable considerations included in the transaction price and standalone selling price of each performance obligation for our customer contracts; labor hours in connection with fixed-fee service contracts; the amount of our tax provision; and the realizability of deferred tax assets. We also use estimates in determining the remaining economic lives and carrying values of acquired intangible assets, property and equipment, and other long-lived assets. In addition, we use assumptions to estimate the fair value of reporting units and share-based compensation. Actual results may differ from our estimates.
New Accounting Pronouncements
Recent Accounting Pronouncements Not Yet Adopted
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under Accounting Standards Codification Topic 606, Revenue from Contacts with Customers, in order to align the recognition of a contract liability with the definition of a performance obligation. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which means that it will be effective for our fiscal year beginning October 1, 2023. Early adoption is permitted. We do not believe that adoption of ASU 2021-08 will have a significant impact on our condensed consolidated financial statements.
We do not expect that any other recently issued accounting pronouncements will have a significant effect on our financial statements.
5

2. Fair Value Measurements
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.
Level 1 — uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. Our Level 1 assets were comprised of money market funds and certain marketable securities and our Level 1 liabilities included senior notes as of December 31, 2022 and September 30, 2022.
Level 2 — uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. We did not have any assets or liabilities that are valued using inputs identified under a Level 2 hierarchy as of December 31, 2022 and September 30, 2022.
Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation. We did not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy as of December 31, 2022 and September 30, 2022.
The following tables represent financial assets that we measured at fair value on a recurring basis at December 31, 2022 and September 30, 2022:
December 31, 2022Active Markets for
Identical Instruments
(Level 1)
Fair Value as of
December 31, 2022
(In thousands)
Assets:
Cash equivalents (1)
$18,166 $18,166 
Marketable securities (2)
26,332 26,332 
Total$44,498 $44,498 
September 30, 2022Active Markets for
Identical Instruments
(Level 1)
Fair Value as of September 30, 2022
(In thousands)
Assets:
Cash equivalents (1)
$19,314 $19,314 
Marketable securities (2)
24,515 24,515 
Total$43,829 $43,829 
(1)Included in cash and cash equivalents on our condensed consolidated balance sheets at December 31, 2022 and September 30, 2022. Not included in these tables are cash deposits of $121.7 million and $113.9 million at December 31, 2022 and September 30, 2022, respectively.
(2)Represents securities held under a supplemental retirement and savings plan for certain officers and senior management employees, which are distributed upon termination or retirement of the employees. Included in marketable securities on our condensed consolidated balance sheets at December 31, 2022 and September 30, 2022.
See Note 7 for the fair value of our senior notes.
There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the quarters ended December 31, 2022 and 2021.
6

3. Derivative Financial Instruments
We use derivative instruments to manage risks caused by fluctuations in foreign exchange rates. The primary objective of our derivative instruments is to protect the value of foreign-currency-denominated receivable and cash balances from the effects of volatility in foreign exchange rates that might occur prior to conversion to their functional currencies. We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates. We routinely enter into contracts to offset exposures denominated in the British pound, Euro, and Singapore dollar.
Foreign currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the effects of changes in foreign exchange rates reported in other income, net. The forward contracts are not designated as hedges and are marked to market through other income, net. Fair value changes in the forward contracts help mitigate the changes in the value of the remeasured receivable and cash balances attributable to changes in foreign exchange rates. The forward contracts are short-term in nature and typically have average maturities at inception of less than three months.
The following tables summarize our outstanding foreign currency forward contracts, by currency, at December 31, 2022 and September 30, 2022:
 December 31, 2022
 Contract AmountFair Value
 Foreign
Currency
USDUSD
 (In thousands)
Sell foreign currency:
Euro (EUR)EUR 10,100 $10,766 $ 
Buy foreign currency:
British pound (GBP)GBP 7,072 $8,500 $ 
Singapore dollar (SGD)SGD4,688 $3,500 $ 
 September 30, 2022
 Contract AmountFair Value
 Foreign
Currency
USDUSD
 (In thousands)
Sell foreign currency:
Euro (EUR)EUR 13,500 $13,158 $ 
Buy foreign currency:
British pound (GBP)GBP 11,848 $13,100 $ 
Singapore dollar (SGD)SGD6,169 $4,300 $ 
The foreign currency forward contracts were entered into on December 31, 2022 and September 30, 2022; therefore, their fair value was $0 on each of these dates.
Gains on derivative financial instruments were recorded in our condensed consolidated statements of income and comprehensive income as a component of other income, net, and consisted of the following: 
 Quarter Ended December 31,
 20222021
 (In thousands)
Gains on foreign currency forward contracts$1,304 $562 

7

4. Goodwill and Intangible Assets
Amortization expense associated with our intangible assets is reflected as a separate operating expense caption — amortization of intangible assets — and is excluded from cost of revenues and selling, general and administrative expenses within the accompanying condensed consolidated statements of income and comprehensive income. Amortization expense consisted of the following: 
 Quarter Ended December 31,
 20222021
 (In thousands)
Completed technology$125 $125 
Customer contracts and relationships150 419 
       Total$275 $544 

Estimated future intangible asset amortization expense associated with intangible assets existing at December 31, 2022 was as follows:
Year Ending September 30,(In thousands)
2023 (excluding the quarter ended December 31, 2022)$825 
2024917 
       Total$1,742 
The following table summarizes changes to goodwill during the quarter ended December 31, 2022, both in total and as allocated to our segments. We have not recognized any goodwill impairment losses to date. 
ScoresSoftwareTotal
 (In thousands)
Balance at September 30, 2022$146,648 $614,419 $761,067 
Foreign currency translation adjustment 10,388 10,388 
Balance at December 31, 2022$146,648 $624,807 $771,455 
5. Composition of Certain Financial Statement Captions
The following table presents the composition of property and equipment, net and other accrued liabilities at December 31, 2022 and September 30, 2022:
December 31,
2022
September 30,
2022
 (In thousands)
Property and equipment, net:
       Property and equipment$112,926 $112,411 
       Less: accumulated depreciation and amortization(97,950)(94,831)
           Total$14,976 $17,580 
Other accrued liabilities:
Interest payable$6,349 $21,314 
Current operating leases18,360 19,369 
Other26,669 25,565 
     Total$51,378 $66,248 
8

6. Revolving Line of Credit and Term Loan
We have a $600 million unsecured revolving line of credit and a $300 million unsecured term loan with a syndicate of banks that mature on August 19, 2026. Borrowings under the revolving line of credit and term loan can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of our common stock. The term loan requires principal payments in consecutive quarterly installments of $3.75 million on the last business day of each quarter. In November 2022, we amended our credit agreement to replace the LIBOR reference rate with the Secured Overnight Financing Rate (“SOFR”) reference rate. Interest rates on amounts borrowed under the revolving line of credit and term loan are based on (i) an adjusted base rate, which is the greatest of (a) the prime rate, (b) the Federal Funds rate plus 0.5%, and (c) one-month adjusted term SOFR rate plus 1%, plus, in each case, an applicable margin, or (ii) an adjusted term SOFR rate plus an applicable margin. The applicable margin for base rate borrowings and for SOFR borrowings is determined based on our consolidated leverage ratio. The applicable margin for base rate borrowings ranges from 0% to 0.75% per annum and for SOFR borrowings ranges from 1% to 1.75% per annum. In addition, we must pay certain credit facility fees. The revolving line of credit and term loan contain certain restrictive covenants including a maximum consolidated leverage ratio of 3.5 to 1.0, subject to a step up to 4.0 to 1.0 following certain permitted acquisitions and subject to certain conditions, and a minimum interest coverage ratio of 3.0 to 1.0. The credit agreement also contains other covenants typical of unsecured credit facilities.
As of December 31, 2022, we had $350.0 million in borrowings outstanding under the revolving line of credit at a weighted-average interest rate of 5.817%, and $285.0 million in outstanding balance of the term loan at an interest rate of 6.051%, of which $535.0 million was classified as a long-term liability and recorded in long-term debt within the accompanying condensed consolidated balance sheets. We were in compliance with all financial covenants under this credit agreement as of December 31, 2022.
7. Senior Notes
On May 8, 2018, we issued $400 million of senior notes in a private offering to qualified institutional investors (the “2018 Senior Notes”). The 2018 Senior Notes require interest payments semi-annually at a rate of 5.25% per annum and will mature on May 15, 2026.
On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes”). The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028.
On December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes in a private offering to qualified institutional investors (the “2021 Senior Notes,” and collectively with the 2018 Senior Notes and the 2019 Senior Notes, the “Senior Notes”). The 2021 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028, the same date as the 2019 Senior Notes.
The indentures for the Senior Notes contain certain covenants typical of unsecured obligations and we were in compliance as of December 31, 2022.
The following table presents the face values and fair values for the Senior Notes at December 31, 2022 and September 30, 2022:
 December 31, 2022September 30, 2022
 Face Value (*)Fair ValueFace Value (*) Fair Value
 (In thousands)
The 2018 Senior Notes$400,000 $390,000 $400,000 $381,500 
The 2019 Senior Notes and the 2021 Senior Notes900,000 812,250 900,000 767,250 
       Total $1,300,000 $1,202,250 $1,300,000 $1,148,750 
(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $13.6 million and $14.3 million at December 31, 2022 and September 30, 2022, respectively.
9

8. Revenue from Contracts with Customers
Disaggregation of Revenue
The following tables provide information about disaggregated revenue by primary geographical market:

Quarter Ended December 31, 2022
ScoresSoftwareTotalPercentage
(Dollars in thousands)
Americas$173,297 $117,830 $291,127 85 %
Europe, Middle East and Africa1,348 30,992 32,340 9 %
Asia Pacific3,343 18,060 21,403 6 %
      Total$177,988 $166,882 $344,870 100 %

Quarter Ended December 31, 2021
ScoresSoftwareTotalPercentage
(Dollars in thousands)
Americas$165,712 $99,185 $264,897 82 %
Europe, Middle East and Africa1,493 37,398 38,891 12 %
Asia Pacific2,282 16,291 18,573 6 %
      Total$169,487 $152,874 $322,361 100 %
The following table provides information about disaggregated revenue for our Software segment by deployment method:
Quarter Ended December 31,Percentage of revenues
2022202120222021
(Dollars in thousands)
On-premises software$64,922 $57,295 45 %45 %
SaaS software79,638 69,043 55 %55 %
     Total on-premises and SaaS software$144,560 $126,338 100 %100 %
The following table provides information about disaggregated revenue for our Software segment by product features:
Quarter Ended December 31,Percentage of revenues
2022202120222021
(Dollars in thousands)
Platform software (*)$30,828 $22,072 21 %17 %
Non-platform software113,732 104,266 79 %83 %
     Total on-premises and SaaS software$144,560 $126,338 100 %100 %
(*) The FICO platform software is a set of interoperable capabilities which use software assets owned and/or governed by FICO for building solutions and services which conform to FICO architectural standards based on key elements of Cloud Native Computing design principles. These standards encompass shared security context and access using FICO standard application programming interfaces.
10

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

Quarter Ended December 31,Percentage of revenues
2022202120222021
(Dollars in thousands)
Software recognized at a point in time (1)
$11,803 $7,159 8 %6 %
Software recognized over contract term (2)
132,757 119,179 92 %94 %
     Total on-premises and SaaS software$144,560 $126,338 100 %100 %
(1)Includes license portion of our on-premises subscription software and perpetual license, both of which are recognized when the software is made available to the customer, or at the start of the subscription.
(2)Includes maintenance portion and usage-based fees of our on-premises subscription software, maintenance revenue on perpetual licenses, as well as SaaS revenue.
The following table provides information about disaggregated revenue for our Scores segment by distribution method:

Quarter Ended December 31,Percentage of revenues
2022202120222021
(Dollars in thousands)
Business-to-business Scores$124,905 $112,968 70 %67 %
Business-to-consumer Scores53,083 56,519 30 %33 %
     Total$177,988 $169,487 100 %100 %
We derive a substantial portion of revenues from our contracts with the three major consumer reporting agencies, TransUnion, Equifax and Experian. Revenues collectively generated by agreements with these customers accounted for 36% and 38% of our total revenues in the quarters ended December 31, 2022 and 2021, respectively, with two consumer reporting agencies each contributing more than 10% of our total revenues in each of the quarters ended December 31, 2022 and 2021.
Contract Balances
We record a receivable when we satisfy a performance obligation prior to invoicing if only the passage of time is required before payment is due or if we have an unconditional right to consideration before we satisfy a performance obligation. We record a contract asset when we satisfy a performance obligation prior to invoicing but our right to consideration is conditional. We record deferred revenue when the payment is made or due before we satisfy a performance obligation.
Receivables at December 31, 2022 and September 30, 2022 consisted of the following: 
 December 31, 2022September 30, 2022
 (In thousands)
Billed$183,266 $203,351 
Unbilled175,200 165,386 
358,466 368,737 
Less: allowance for doubtful accounts(4,218)(4,218)
Net receivables354,248 364,519 
    Less: long-term receivables (*)(46,014)(42,109)
    Short-term receivables (*)$308,234 $322,410 
(*) Short-term receivables and long-term receivables were recorded in accounts receivable, net and other assets, respectively, within the accompanying condensed consolidated balance sheets.
Deferred revenue primarily relates to our maintenance and SaaS contracts billed annually in advance and generally recognized ratably over the term of the service period. Significant changes in the deferred revenues balances are as follows:
11

Quarter Ended  
December 31, 2022
(In thousands)
Deferred revenues, beginning balance (*)$126,560 
Revenue recognized that was included in the deferred revenues balance at the beginning of the period(55,674)
Increases due to billings, excluding amounts recognized as revenue during the period62,702 
Deferred revenues, ending balance (*)$133,588 
(*) Deferred revenues at December 31, 2022 included current portion of $126.9 million and long-term portion of $6.7 million that were recorded in deferred revenue and other liabilities, respectively, within the condensed consolidated balance sheets.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to provide customers with financing or to receive financing from our customers. Examples include multi-year on-premises licenses that are invoiced annually with revenue recognized upfront and invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period.
Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include:
Usage-based revenue that will be recognized in future periods from on-premises software subscriptions;
Consumption-based variable fees from SaaS software that will be recognized in the distinct service period during which it is earned; and
Revenue from variable considerations that will be recognized in accordance with the “right-to-invoice” practical expedient, such as fees from our professional services billed based on a time and materials basis.
Revenue allocated to remaining performance obligations was $406.8 million as of December 31, 2022, approximately 51% of which we expect to recognize over the next 17 months and the remainder thereafter. Revenue allocated to remaining performance obligations was $357.4 million as of September 30, 2022.
9. Income Taxes
Effective Tax Rate
The effective income tax rate was 17.2% and 18.9% during the quarters ended December 31, 2022 and 2021, respectively. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the full fiscal year. The effective tax rate in any quarter can also be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution.
The effective tax rates for the quarters ended December 31, 2022 and 2021 were both favorably impacted by the recording of excess tax benefits relating to stock awards. The impact is dependent upon grants of share-based compensation and the future stock price in relation to the fair value of awards on the grant date. The increase in stock price for awards that vested in December 2022 resulted in an increased net excess tax benefit for the quarter ended December 31, 2022, as compared to the quarter ended December 31, 2021.
A provision enacted as part of the 2017 Tax Cuts and Jobs Act requires companies to capitalize research and experimental expenditures for tax purposes. The provision is effective for fiscal years beginning after December 31, 2021, which means that it was effective for our fiscal year beginning October 1, 2022. While this provision is not expected to have a material impact on our fiscal 2023 effective tax rate, we expect our fiscal 2023 cash tax payments and related deferred tax asset positions to increase significantly compared to fiscal 2022.
12

The total unrecognized tax benefit for uncertain tax positions was estimated to be $13.8 million and $13.0 million at December 31, 2022 and September 30, 2022, respectively. We recognize interest expense related to unrecognized tax benefits and penalties as part of the provision for income taxes in our condensed consolidated statements of income and comprehensive income. We accrued interest of $0.7 million and $0.5 million related to unrecognized tax benefits as of December 31, 2022 and September 30, 2022, respectively.
10. Share-Based Employee Benefit Plans
We maintain the 2021 Long-Term Incentive Plan (the “2021 Plan”) under which we grant equity awards, including stock options, stock appreciation rights, restricted stock awards, stock unit awards and other share-based awards. All employees, consultants and advisors of FICO or any subsidiary, as well as all non-employee directors, are eligible to receive awards under the 2021 Plan. Stock option awards have a maximum term of ten years. In general, stock option awards and stock unit awards not subject to market or performance conditions vest annually over four years. Stock unit awards subject to market or performance conditions generally vest annually over three years based on the achievement of specified criteria.
We also maintain the 2019 Employee Stock Purchase Plan (the “2019 Purchase Plan”) under which we are authorized to issue up to 1,000,000 shares of our common stock to eligible employees. Eligible employees may elect to have up to 15% of their eligible pay withheld through payroll deductions to purchase FICO common stock during semi-annual offering periods. The purchase price of the stock is 85% of the closing sales price of FICO common stock on the last trading day of each offering period. Offering period means the approximately six-month periods commencing (a) on the first trading day on or after September 1 and terminating on the last trading day in the following February, and (b) on the first trading day on or after March 1 and terminating on the last trading day in the following August. No shares were purchased under the 2019 Purchase Plan during the quarter ended December 31, 2022.
Restricted Stock Units
The following table summarizes restricted stock unit activity during the quarter ended December 31, 2022:
SharesWeighted-average Grant-date Fair Value
(In thousands)
Outstanding at September 30, 2022
415 $398.07 
       Granted149 610.04 
       Released(146)349.76 
       Forfeited(18)420.56 
Outstanding at December 31, 2022
400 $493.36 
Performance Share Units
The following table summarizes performance share unit activity during the quarter ended December 31, 2022:
SharesWeighted-average Grant-date Fair Value
(In thousands)
Outstanding at September 30, 2022
144 $432.73 
       Granted30 615.45 
       Released(66)428.90 
       Forfeited(10)436.82 
Outstanding at December 31, 2022
98 $490.75 
13

Market Share Units
The following table summarizes market share unit activity during the quarter ended December 31, 2022:
SharesWeighted-average Grant-date Fair Value
(In thousands)
Outstanding at September 30, 2022
92 $586.91 
       Granted58 733.42 
       Released(69)502.41 
       Forfeited(7)642.47 
Outstanding at December 31, 2022
74 $773.82 
Stock Options
The following table summarizes option activity during the quarter ended December 31, 2022:
SharesWeighted-average Exercise PriceWeighted-average Remaining Contractual TermAggregate Intrinsic Value
(In thousands)(In years)(In thousands)
Outstanding at September 30, 2022
209 $247.56 
       Granted2 615.45 
       Exercised(20)102.15 
Outstanding at December 31, 2022
191 $266.44 3.35$63,594 
Exercisable at December 31, 2022
164 $236.68 3.00$59,350 
Vested or expected to vest at December 31, 2022
190 $264.95 3.33$63,366 

11. Earnings per Share
The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) for the quarters ended December 31, 2022 and 2021: 
 Quarter Ended December 31,
 20222021
 (In thousands, except per share data)
Numerator for diluted and basic earnings per share:
Net income$97,643 $84,959 
Denominator — share:
Basic weighted-average shares25,045 27,167 
Effect of dilutive securities398 357 
Diluted weighted-average shares25,443 27,524 
Earnings per share:
Basic$3.90 $3.13 
Diluted$3.84 $3.09 
Anti-dilutive share-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.
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12. Segment Information
We are organized into two reportable segments: Scores and Software. Although we sell solutions and services to a large number of end user product and industry markets, our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance.
Scores. This segment includes our business-to-business (“B2B”) scoring solutions and services which give our clients access to predictive credit and other scores that can be easily integrated into their transaction streams and decision-making processes. This segment also includes our business-to-consumer (“B2C”) scoring solutions, including our myFICO.com subscription offerings.
Software. This segment includes pre-configured analytic and decision management solutions designed for a specific type of business need or process — such as account origination, customer management, customer engagement, fraud detection, and marketing — as well as associated professional services. This segment also includes FICO® Platform, a modular software offering designed to support advanced analytic and decision use cases, as well as stand-alone analytic and decisioning software that can be configured by our customers to address a wide variety of business use cases. These offerings are available to our customers as SaaS or as on-premises software.
Our chief operating decision maker (“CODM”), who is our Chief Executive Officer, evaluates segment financial performance based on segment revenues and segment operating income. Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, IT infrastructure, consulting, travel and depreciation. Indirect costs are allocated to the segments generally based on relative segment revenues, fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. We do not allocate broad-based incentive expense, share-based compensation expense, restructuring and acquisition-related expense, amortization expense, various corporate charges and certain other income and expense measures to our segments. These income and expense items are not allocated because they are not considered in evaluating the segment’s operating performance. Our CODM does not evaluate the financial performance of each segment based on its respective assets or capital expenditures; rather, depreciation amounts are allocated to the segments from their internal cost centers as described above.
We have recast certain prior period amounts within this note to conform to the way we internally managed and monitored segment performance during the current fiscal year, reflecting immaterial movements of business activities between segments and changes in cost allocations.
The following tables summarize segment information for the quarters ended December 31, 2022 and 2021:
 Quarter Ended December 31, 2022
 ScoresSoftwareUnallocated
Corporate
Expenses
Total
 (In thousands)
Segment revenues:
On-premises and SaaS software$ $144,560 $— $144,560 
Professional services 22,322 — 22,322 
Scores177,988  — 177,988 
Total segment revenues177,988 166,882 — 344,870 
Segment operating expense(21,296)(121,117)(34,082)(176,495)
Segment operating income$156,692 $45,765 $(34,082)168,375 
Unallocated share-based compensation expense(29,702)
Unallocated amortization expense(275)
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