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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number 001-35231
MITEK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware87-0418827
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
600 B Street, Suite 100
San Diego, California
92101
(Address of principal executive offices)(Zip Code)
(619269-6800
(Registrant’s telephone number, including area code)
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, par value $0.001 per shareMITK
The NASDAQ Capital Market
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 filerSmaller 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  ☒
There were 41,288,229 shares of the registrant’s common stock outstanding as of July 31, 2020.





MITEK SYSTEMS, INC.
FORM 10-Q
For The Quarterly Period Ended June 30, 2020
INDEX
 





PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MITEK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
 June 30, 2020 (Unaudited)September 30, 2019
ASSETS  
Current assets:  
Cash and cash equivalents$18,938  $16,748  
Short-term investments30,281  16,502  
Accounts receivable, net12,943  14,938  
Contract assets3,410  2,350  
Prepaid expenses2,016  1,487  
Other current assets1,454  2,105  
Total current assets69,042  54,130  
Long-term investments2,942  1,552  
Property and equipment, net3,638  4,231  
Right-of-use assets5,683  —  
Intangible assets, net20,151  24,405  
Goodwill34,249  32,636  
Deferred income tax assets, net15,875  16,596  
Other non-current assets5,647  2,347  
Total assets$157,227  $135,897  
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$4,304  $3,555  
Accrued payroll and related taxes7,375  6,410  
Deferred revenue, current portion9,089  5,612  
Lease liabilities, current portion1,651  —  
Acquisition-related contingent consideration686  1,036  
Restructuring accrual220  1,526  
Other current liabilities942  1,909  
Total current liabilities24,267  20,048  
Deferred revenue, non-current portion1,240  736  
Lease liabilities, non-current portion5,674  —  
Deferred income tax liabilities5,699  5,555  
Other non-current liabilities964  2,225  
Total liabilities37,844  28,564  
Stockholders’ equity:    
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding
    
Common stock, $0.001 par value, 60,000,000 shares authorized, 41,282,779 and 40,367,456 issued and outstanding, as of June 30, 2020 and September 30, 2019, respectively
41  40  
Additional paid-in capital140,915  132,160  
Accumulated other comprehensive loss(2,581) (4,061) 
Accumulated deficit(18,992) (20,806) 
Total stockholders’ equity119,383  107,333  
Total liabilities and stockholders’ equity$157,227  $135,897  
 
See accompanying notes to consolidated financial statements.
1




MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)  
(Unaudited)
(amounts in thousands except per share data)
 
 Three Months Ended June 30,Nine Months Ended June 30,
 2020201920202019
Revenue  
Software and hardware$13,212  $11,888  $36,180  $32,468  
Services and other12,201  10,018  34,492  27,104  
Total revenue25,413  21,906  70,672  59,572  
Operating costs and expenses  
Cost of revenue—software and hardware623  838  2,258  2,590  
Cost of revenue—services and other2,873  2,330  7,357  6,447  
Selling and marketing7,791  6,935  22,569  20,895  
Research and development5,111  4,663  14,540  14,441  
General and administrative5,884  5,074  16,382  15,743  
Acquisition-related costs and expenses1,697  1,761  4,884  5,361  
Restructuring costs  3,214  (114) 3,214  
Total operating costs and expenses23,979  24,815  67,876  68,691  
Operating income (loss)1,434  (2,909) 2,796  (9,119) 
Other income, net145  98  480  252  
Income (loss) before income taxes1,579  (2,811) 3,276  (8,867) 
Income tax benefit (provision)(231) 2,712  (460) 4,861  
Net income (loss)$1,348  $(99) $2,816  $(4,006) 
Net income (loss) per share—basic$0.03  $(0.00) $0.07  $(0.10) 
Net income (loss) per share—diluted$0.03  $(0.00) $0.07  $(0.10) 
Shares used in calculating net income (loss) per share—basic
41,483  39,936  41,251  39,034  
Shares used in calculating net income (loss) per share—diluted
42,428  39,936  42,239  39,034  
Other comprehensive income (loss)  
Net income (loss)$1,348  $(99) $2,816  $(4,006) 
Foreign currency translation adjustment1,135  814  1,324  (1,213) 
Unrealized gain on investments98  7  156  26  
Other comprehensive income (loss)$2,581  $722  $4,296  $(5,193) 
 
See accompanying notes to consolidated financial statements.
2



MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(amounts in thousands)

Three Months Ended June 30, 2020
Common Stock Outstanding SharesCommon StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
Balance, March 31, 202041,076  $41  $138,021  $(20,340) $(3,814) $113,908  
Exercise of stock options116  —  393  —  —  393  
Settlement of restricted stock units91  —  —  —  —    
Stock-based compensation expense—  —  2,501  —  —  2,501  
Components of other comprehensive income:
Net income—  —  —  1,348  —  1,348  
Currency translation adjustment—  —  —  —  1,135  1,135  
Change in unrealized gain (loss) on investments
—  —  —  —  98  98  
Total other comprehensive income
2,581  
Balance, June 30, 202041,283  $41  $140,915  $(18,992) $(2,581) $119,383  


Three Months Ended June 30, 2019
Common Stock
Outstanding
Shares
Common
Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Balance, March 31, 201939,348  $39  $124,613  $(23,989) $(2,594) $98,069  
Exercise of stock options726  1  2,264  —  —  2,265  
Settlement of restricted stock units103  —  —  —  —    
Stock-based compensation expense—  —  2,268  —  —  2,268  
Components of other comprehensive income:
Net loss—  —  —  (99) —  (99) 
Currency translation adjustment—  —  —  —  814  814  
Change in unrealized gain (loss) on investments
—  —  —  —  7  7  
Total other comprehensive income
722  
Balance, June 30, 201940,177  $40  $129,145  $(24,088) $(1,773) $103,324  

See accompanying notes to consolidated financial statements..
3



MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONTINUED
(Unaudited)
(amounts in thousands)

Nine Months Ended June 30, 2020
Common Stock Outstanding SharesCommon StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
Balance, September 30, 201940,367  $40  $132,160  $(20,806) $(4,061) $107,333  
Exercise of stock options301  —  1,038  —  —  1,038  
Settlement of restricted stock units677  1  (1) —  —    
Issuance of common stock under employee stock purchase plan
75  —  606  —  —  606  
Stock-based compensation expense—  —  7,112  —  —  7,112  
Repurchases and retirements of common stock
(137) —  —  (1,002) —  (1,002) 
Components of other comprehensive income:
Net income—  —  —  2,816  —  2,816  
Currency translation adjustment—  —  —  —  1,324  1,324  
Change in unrealized gain (loss) on investments
—  —  —  —  156  156  
Total other comprehensive income
4,296  
Balance, June 30, 202041,283  $41  $140,915  $(18,992) $(2,581) $119,383  

Nine Months Ended June 30, 2019
Common Stock Outstanding SharesCommon StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
Balance, September 30, 201837,961  $38  $116,944  $(21,002) $(586) $95,394  
Exercise of stock options1,362  1  4,420  —  —  4,421  
Settlement of restricted stock units786  1  (1) —  —    
Issuance of common stock under employee stock purchase plan
68  —  491  —  —  491  
Stock-based compensation expense—  —  7,291  —  —  7,291  
Cumulative-effect adjustment from the adoption of ASU 2014-09
—  —  —  920  —  920  
Components of other comprehensive loss:
Net loss—  —  —  (4,006) —  (4,006) 
Currency translation adjustment—  —  —  —  (1,213) (1,213) 
Change in unrealized gain (loss) on investments
—  —  —  —  26  26  
Total other comprehensive loss
(5,193) 
Balance, June 30, 201940,177  $40  $129,145  $(24,088) $(1,773) $103,324  

See accompanying notes to consolidated financial statements..
4



MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
 
Nine Months Ended June 30,
 20202019
Operating activities:  
Net income (loss)$2,816  $(4,006) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Stock-based compensation expense7,112  7,291  
Amortization of intangible assets4,786  5,298  
Depreciation and amortization1,143  1,047  
Amortization of investment premiums and other(3) (73) 
Net change in the estimated fair value of acquisition-related contingent consideration98    
Deferred taxes748  (5,232) 
Changes in assets and liabilities:  
Accounts receivable2,109  2,168  
Contract assets(4,802) (917) 
Other assets(175) 148  
Accounts payable724  28  
Accrued payroll and related taxes919  (1,995) 
Deferred revenue3,947  1,733  
Restructuring accrual(1,324) 3,082  
Other liabilities(723) (684) 
Net cash provided by operating activities17,375  7,888  
Investing activities:  
Purchases of investments(32,282) (14,175) 
Sales and maturities of investments17,272  10,830  
Purchases of property and equipment(520) (975) 
Net cash used in investing activities(15,530) (4,320) 
Financing activities:  
Proceeds from the issuance of equity plan common stock1,644  4,912  
Repurchases and retirements of common stock(1,002)   
Payment of acquisition-related contingent consideration(478) (1,030) 
Proceeds from other borrowings217    
Principal payments on other borrowings(121) (250) 
Net cash provided by financing activities260  3,632  
Foreign currency effect on cash and cash equivalents85  (136) 
Net increase in cash and cash equivalents2,190  7,064  
Cash and cash equivalents at beginning of period16,748  9,028  
Cash and cash equivalents at end of period$18,938  $16,092  
Supplemental disclosures of cash flow information:  
Cash paid for income taxes$  $310  
Supplemental disclosures of non-cash investing and financing activities:  
Unrealized holding gain on available for sale investments$156  $26  
 
See accompanying notes to consolidated financial statements. .. ..
5



MITEK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Mitek Systems, Inc. (“Mitek” or the “Company”) is a leading innovator of mobile image capture and digital identity verification solutions. Mitek is a software development company with expertise in computer vision, artificial intelligence, and machine learning. The Company is currently serving more than 7,500 financial services organizations and leading marketplace and financial technology (“fintech”) brands across the globe. The Company’s solutions are embedded in native mobile apps and browsers to facilitate better online user experiences, fraud detection and reduction, and compliant transactions.
Mitek’s Mobile Deposit® solution is used today by millions of consumers in the United States (“U.S.”) and Canada for mobile check deposit. Mobile Deposit® enables individuals and businesses to remotely deposit checks using their camera-equipped smartphone or tablet. Mitek’s Mobile Deposit® solution is embedded within the financial institutions’ digital banking apps used by consumers and has now processed over four billion check deposits. Mitek began selling Mobile Deposit® in early 2008 and received its first patent for this product in August 2010. As of June 30, 2020, the Company has been granted 64 patents and it has an additional 19 patent applications pending.
Mitek’s Mobile Verify® verifies a user’s identity online enabling organizations to build safer digital communities. Scanning an identity document helps enable an enterprise to verify the identity of the person with whom they are conducting business, to comply with growing governmental Anti-Money Laundering and Know Your Customer regulatory requirements, and to improve the overall customer experience for digital onboarding. To be sure the person submitting the identity document is who they say they are, Mitek’s Mobile Verify Face Comparison provides an additional layer of online verification and compares the face on the submitted identity document with the live selfie photo of the user.
The combination of identity document capture and data extraction process enables the organization to prefill the end user’s application, with far fewer key strokes, thus reducing keying errors, and improving both operational efficiency and the customer experience. Today, the financial services verticals (banks, credit unions, lenders, payments processors, card issuers, fintech companies, etc.) represent the greatest percentage of use of our solutions, but there is accelerated adoption by marketplaces, sharing economy, and hospitality sectors. Mitek uses artificial intelligence and machine learning to constantly improve the product performance of Mobile Verify® such as speed and accuracy of approvals of identification documents. The core of Mitek’s user experience is driven by Mitek MiSnap™, the leading image capture technology, which is incorporated across the Company’s product lines. It provides a simple, intuitive, and superior user-experience, making digital transactions faster, more accurate, and easier for the consumer. Mobile Fill® automates application prefill of any form with user data by simply snapping a picture of the driver’s license or other similar user identity document.
CheckReader enables financial institutions to automatically extract data from a check image received across any deposit channel—branch, ATM, remote deposit capture, and mobile. Through the automatic recognition of all fields on checks, whether handwritten or machine print, CheckReader speeds the time to deposit for financial institutions and enables them to comply with check clearing regulations.
The Company markets and sells its products and services worldwide through internal, direct sales teams located in the U.S., Europe, and Latin America as well as through channel partners. The Company’s partner sales strategy includes channel partners who are financial services technology providers and identity verification providers. These partners integrate the Company’s products into their solutions to meet the needs of their customers.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company as of June 30, 2020 have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, they do not include all information and footnote disclosures required by accounting principles generally accepted in the U.S. (“GAAP”). The Company believes the footnotes and other disclosures made in the financial statements are adequate for a fair presentation of the results of the interim periods presented. The financial statements include all adjustments (solely of a normal recurring nature) which are, in the opinion of management, necessary to make the information presented not misleading. Certain reclassifications were made to previously reported amounts in the consolidated statements of cash flows to make them consistent with the current period presentation. You should read these financial statements and the accompanying notes in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019, filed with the U.S. Securities and Exchange Commission on December 6, 2019.
6



Results for the nine months ended June 30, 2020 are not necessarily indicative of results for any other interim period or for a full fiscal year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Foreign Currency
The Company has foreign subsidiaries that operate and sell products and services in various countries and jurisdictions around the world. As a result, the Company is exposed to foreign currency exchange risks. For those subsidiaries whose functional currency is not the U.S. dollar, assets and liabilities are translated into U.S. dollars at the exchange rate in effect on the balance sheet date and revenues and expenses are translated into U.S. dollars using the average exchange rate over the period.  Resulting currency translation adjustments are recorded in accumulated other comprehensive loss in the consolidated balance sheets. The Company recorded a net gain resulting from foreign exchange translation of $1.1 million for the three months ended June 30, 2020 and a net gain resulting from foreign exchange translation of $0.8 million for the three months ended June 30, 2019. The Company recorded a net gain resulting from foreign exchange translation of $1.3 million for the nine months ended June 30, 2020 and a net loss resulting from foreign exchange translation of $1.2 million for the nine months ended June 30, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, deferred taxes, and related disclosure of contingent assets and liabilities. On an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates. These estimates include, but are not limited to, assessing the collectability of accounts receivable, estimation of the value of stock-based compensation awards, fair value of assets and liabilities acquired, impairment of goodwill, useful lives of intangible assets, standalone selling price related to revenue recognition, contingent consideration, and income taxes.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”). ASC 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. The core principle, involving a five-step process, of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company generates revenue primarily from the delivery of licenses (to both on premise and transactional software as a service (“SaaS”) products) and related services, as well as the delivery of hardware and professional services. Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer which may be at a point in time or over time. See Note 2 of the consolidated financial statements for additional details.
Contract Assets and Liabilities
The Company recognizes revenue when control of the license or transactional SaaS service is transferred to the customer. The Company records a contract asset when the revenue is recognized prior to the date payments become due. Contract assets that are expected to be paid within one year are recorded in current assets on the consolidated balance sheets. All other contract assets are recorded in other non-current assets in the consolidated balance sheet. Contract liabilities consist of deferred revenue. When the performance obligation is expected to be fulfilled within one year, the deferred revenue is recorded in current liabilities in the consolidated balance sheet. When the performance obligation is expected to be fulfilled beyond one year, the deferred revenue is recorded in non-current liabilities in the consolidated balance sheet. The Company reports net contract asset or liability positions on a contract-by-contract basis at the end of each reporting period.
Contract Costs
The Company incurs incremental costs to obtain a contract, consisting primarily of sales commissions incurred only if a contract is obtained. When the commission rate for a customer renewal is not commensurate with the commission rate for a new contract, the commission is capitalized if expected to be recovered. Such costs are capitalized and amortized using a portfolio approach consistent with the pattern of transfer of the good or service to which the asset relates. Contract costs are recorded in other current and non-current assets in the consolidated balance sheets.
7



Net Income (Loss) Per Share
The Company calculates net income (loss) per share in accordance with FASB ASC Topic 260, Earnings per Share. Basic net income (loss) per share is based on the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share also gives effect to all potentially dilutive securities outstanding during the period, such as restricted stock units (“RSUs”), stock options, and Employee Stock Purchase Plan (“ESPP”) shares, if dilutive. In a period with a net loss position, potentially dilutive securities are not included in the computation of diluted net loss per share because to do so would be antidilutive, and the number of shares used to calculate basic and diluted net loss per share is the same.
For the three and nine months ended June 30, 2020 and 2019, the following potentially dilutive common shares were excluded from the calculation of net income (loss) per share, as they would have been antidilutive (amounts in thousands):
 Three Months Ended June 30,Nine Months Ended June 30,
 2020201920202019
Stock options207  1,664  270  1,664  
RSUs1,718  2,498  1,577  2,498  
ESPP common stock equivalents73  65    65  
Performance RSUs67    26    
Total potentially dilutive common shares outstanding2,065  4,227  1,873  4,227  
The calculation of basic and diluted net income (loss) per share is as follows (amounts in thousands, except per share data):
 Three Months Ended June 30,Nine Months Ended June 30,
 2020201920202019
Net income (loss)$1,348  $(99) $2,816  $(4,006) 
Weighted-average shares outstanding—basic41,483  39,936  41,251  39,034  
Common stock equivalents945    988    
Weighted-average shares outstanding—diluted42,428  39,936  42,239  39,034  
Net income (loss) per share:
Basic$0.03  $0.00  $0.07  $(0.10) 
Diluted$0.03  $0.00  $0.07  $(0.10) 
Investments
Investments consist of corporate notes and bonds, commercial paper, U.S. Treasury securities, and asset-backed securities. The Company classifies investments as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date. All investments are recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive loss, a component of stockholders’ equity. The Company evaluates its investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. Impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before the recovery of its cost basis. Realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in other income, net in the consolidated statements of operations and other comprehensive income (loss). No other-than-temporary impairment charges were recognized in the three and nine months ended June 30, 2020 and 2019.
All investments whose maturity or sale is expected within one year are classified as “current” on the consolidated balance sheets. All other securities are classified as “long-term” on the consolidated balance sheets.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the contractual payment terms. Allowances for doubtful accounts are established based on various factors, including credit profiles of the Company’s customers, contractual terms and conditions, historical payments, and current economic trends. The Company reviews its allowances by assessing individual accounts receivable over a specific aging and amount. Accounts receivable are written off on a case-by-case basis, net of any amounts that may be collected. The Company had $0.1 million write-offs to the allowance for doubtful accounts in each of the nine months ended June 30, 2020 and 2019. The Company maintained an allowance for doubtful accounts of $0.2 million as of both June 30, 2020 and September 30, 2019.
8



Capitalized Software Development Costs
Costs incurred for the development of software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. Software development costs consist primarily of compensation of development personnel and related overhead incurred to develop new products and upgrade and enhance the Company’s current products, as well as fees paid to outside consultants. Capitalization of software development costs ceases, and amortization of capitalized software development costs commences when the products are available for general release. For the nine months ended June 30, 2020 and 2019, no software development costs were capitalized because the time period and costs incurred between technological feasibility and general release for all software product releases were not material or were not realizable. We had no amortization expense from capitalized software costs during the nine months ended June 30, 2020 and 2019.
Costs related to software acquired, developed, or modified solely to meet our internal requirements, with no substantive plans to market such software at the time of development, are capitalized. Costs incurred during the preliminary planning and evaluation stage of the project and during the post-implementation operational stage are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. The Company defines the design, configuration, and coding process as the application development stage. The Company capitalized $0.1 million and $0.2 million of costs related to computer software developed for internal use during the nine months ended June 30, 2020 and 2019, respectively. The Company had $0.3 million in amortization expense from internal use software during each of the nine months ended June 30, 2020 and 2019.
Goodwill and Purchased Intangible Assets
The Company’s goodwill and intangible assets resulted from prior acquisitions. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually or as circumstances indicate that their value may no longer be recoverable. In accordance with ASC Topic 350, Intangibles—Goodwill and Other (“ASC 350”), the Company reviews its goodwill and indefinite-lived intangible assets for impairment at least annually in its fiscal fourth quarter and more frequently if events or changes in circumstances occur that indicate a potential reduction in the fair value of its reporting unit and/or its indefinite-lived intangible asset below their respective carrying values. Examples of such events or circumstances include: a significant adverse change in legal factors or in the business climate, a significant decline in the Company’s stock price, a significant decline in the Company’s projected revenue or cash flows, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, or the presence of other indicators that would indicate a reduction in the fair value of a reporting unit. No such events or circumstances have occurred since the last impairment assessment was performed.
The Company’s goodwill is considered to be impaired if management determines that the carrying value of the reporting unit to which the goodwill has been assigned exceeds management’s estimate of its fair value. Based on the guidance provided by ASC 350 and ASC Topic 280, Segment Reporting, management has determined that the Company operates in one segment and consists of