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Item 1. Business

2021-11-10 compared with 2020-11-12 · 343 added, 331 removed, 50 unchanged (93% of the section changed)

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,” and “FICO”) provides products, solutions and services that enable businesses to automate, improve and connect decisions to enhance business performance.

Our predictive analytics, which includes the industry-standard FICO ® Score, and our decision management systems leverage the use of big data and mathematical algorithms to predict consumer behavior and power hundreds of billions of customer decisions each year.

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

We were founded in 1956 on the premise that data, used intelligently, can improve business decisions.

Today, we help thousands of companies in over 120 countries use our decision management technology to target and acquire customers more efficiently, increase customer value, reduce fraud and credit losses, lower operating expenses, and enter new markets more profitably.

Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, automotive companies, pharmaceutical companies, healthcare organizations, public agencies and organizations in other industries.

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 companies, 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 manage their financial health.

of consumer credit risk, empowering them to increase financial literacy and manage their financial health.

More information about us can be found on our website, www.fico.com.

We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as amendments to those reports, available free of charge through our website as soon as reasonably practicable after we electronically file them with the SEC.

We make our Annual Reports on Forms 10-K, Quarterly Reports on Forms 10-Q, and Current Reports on Forms 8-K, as well as amendments to those reports, available free of charge through our website as soon as reasonably practicable after we electronically file them with the U.S.

Securities and Exchange Commission (“SEC”).

References to our website address in this report do not constitute an incorporation by reference.

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PRODUCTS AND SERVICES

We use analytics to help businesses automate, improve and connect decisions across their enterprise, an approach we commonly refer to as decision management.

Most of our solutions address customer engagement, including customer acquisition, customer onboarding, customer servicing and management, and customer protection.

We also help businesses improve non-customer decisions such as transaction and claims processing.

Our solutions enable users to make decisions that are more precise, consistent and agile, and that systematically advance business goals.

This helps our clients reduce the cost of doing business and losses from risks and fraud, while helping increase revenues, profitability, and customer loyalty.

We categorize our products and services into the following three operating segments:

Applications.

This segment includes pre-configured decision management applications designed for a specific type of business problem or process — such as marketing, account origination, customer management, fraud, financial crimes compliance, collections and insurance claims management — as well as associated professional services.

These applications are available to our customers as on-premises software, and many are available as hosted, software-as-a-service (“SaaS”) applications through the FICO ® Analytic Cloud or Amazon Web Services (“AWS”).

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 ® 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 Solutions

Our solutions involve four fundamental disciplines:

Analytics, which include predictive analytics that identify risks and opportunities associated with individual customers, prospects and transactions, in order to detect patterns such as risk, fraud or profitability, as well as optimization analytics that are used to mathematically improve the design of decision logic or “strategies.”

Data management and transaction profiling that bring extensive consumer information to every decision.

Software such as decision management systems that author and implement business rules, models and decision strategies, often in a real-time environment, as well as software for managing customer engagement.

This software is increasingly deployed as a platform solution that enables previously disparate use cases to be connected in a manner that provides a centralized or 360-degree view of a customer’s journey through traditionally siloed client offerings.

Consulting services that help clients make the most of investments in FICO applications, tools and scores in the shortest possible time.

All of our solutions are designed to help businesses make decisions that are faster, more precise, more consistent and more agile, while reducing costs and risks incurred in making decisions.

In addition, we offer our clients a portfolio of applications, tools and services in the cloud, which allow them to create, customize, deploy and manage powerful analytic services.

We develop industry-tailored decision management applications, which apply analytics, data management and decision management software to specific business challenges and processes.

Our applications primarily serve clients in the banking, insurance, telecommunications, healthcare, retail and public sectors.

During fiscal 2020, we continued to expand our product offerings for the FICO ® Analytic Cloud and AWS, resulting in increased sales opportunities by accommodating customers that can benefit from the power, flexibility and modularity of these solutions.

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.

Origination Applications

We provide solutions that enable banks, credit unions, finance companies, alternative peer-to-peer and online lenders, auto lenders, and other companies to automate and improve the processing of requests for credit or service.

These solutions increase the speed and efficiency with which requests are handled, reduce losses, and increase approval rates through analytics that assess applicant risk and reduce the need for manual review by loan officers.

FICO ® Origination Manager, an application-to-decision processing solution, is available both on-premises and in the FICO ® Analytic Cloud, and we plan to make it available in the AWS cloud in fiscal 2021 with the launch of FICO ® Origination Manager 5.0.

Other solutions include the web-based FICO ® LiquidCredit ® service, which is primarily focused on credit decisions and offered largely to mid-tier banking institutions.

FICO ® Small Business Scoring Service℠ (SBSS) is recognized as the industry leader in assessing the risk of U.S.

small business credit applicants.

SBSS is delivered via our LiquidCredit service infrastructure and it brings the speed of consumer lending to small business lending decisions.

With SBSS, clients can typically make decisions in hours rather than days to improve customer satisfaction and help attract more small businesses.

Delivered as a cloud service, FICO ® Origination Manager Essentials offers mid-market organizations the ability to inexpensively set up and process small business applications quickly, without a long or difficult implementation process.

Origination Manager Essentials will be phased out in August 2021.

To support origination, we also offer custom and consortium-based credit risk and application fraud models.

Customer Management Applications

Our customer portfolio management products and services enable businesses to automate and improve risk-based decisions for their existing customers.

These solutions help businesses apply advanced analytics in account and customer decisions to increase portfolio revenue, decrease risk exposure and losses, and reduce customer attrition, while improving operational efficiencies.

We provide customer portfolio management solutions for banking, telecommunications and retail.

FICO ® TRIAD ® Customer Manager, a leading credit management system, is available both on-premises and in the FICO ® Analytic Cloud.

FICO ® Strategy Director is the newest, more flexible customer management application available on the FICO Analytic Cloud and AWS.

These solutions enable businesses to rapidly adapt to changing business and internal conditions by designing and testing new strategies in a “champion/challenger” environment.

The current versions enable users to manage risk and communications at both the account and customer level from a single platform.

We market and sell FICO ® TRIAD ® Customer Manager and FICO ® Strategy Director software licenses, maintenance, consulting services, and strategy design and evaluation.

Additionally, we provide TRIAD and Strategy Director services and similar credit account management services through third-party credit card processors worldwide, including two of the largest processors in the U.S.

Fraud Protection and Compliance Applications

Our fraud protection and compliance products improve our clients’ profitability by providing protections across the customer lifecycle from account origination to digital customer interactions—such as online or mobile logins—to non-monetary transactions—such as address changes or pin changes—to payment transactions.

Our fraud and financial crimes solutions analyze activity in real time and generate recommendations for immediate action.

These defenses are critical to stopping synthetic identity fraud, first-party fraud, and third-party fraud, as well as identifying money laundering activity to help our clients stay compliant and secure while safeguarding the customer experience.

Our fraud solutions are designed to detect and prevent a wide variety of risk types.

By looking across products and channels—including real-time payments, peer-to-peer transactions, digital payments, card payments (credit, debit, prepaid), and deposits—FICO helps financial institutions reduce losses and damaged customer relationships caused by fraud and related criminal behavior.

FICO fraud solutions also help protect retailers, insurance companies and government agencies.

Our leading fraud detection solution is the FICO ® Falcon ® Platform, which is recognized as a global leader in fraud detection.

The Falcon Platform examines transactional, account, customer, device and merchant data to detect a wide range of fraud indicators quickly and accurately by utilizing artificial intelligence technology.

It analyzes transactions in real time, assesses the risk of fraud in a fraud score, and provides the ability for user-defined variables and rules strategies to be used in conjunction with the fraud score to prevent fraud while expediting legitimate transactions.

Adaptive analytics, a form of self-learning models, can also be employed to accelerate our customers’ response to evolving fraud tactics.

FICO ® Fraud Predictor with Merchant Profiles is used in conjunction with the FICO ® Falcon ® Platform to improve fraud detection rates through the inclusion of merchant profiles, which is especially important for online transactions.

Merchant profiles are built using fraud and transactional data that include characteristics revealing which merchants have a history of higher fraud volumes, and which purchase types and ticket sizes have most often been fraudulent at a particular merchant, among others.

FICO ® Falcon ® Compromise Manager is used in conjunction with the FICO ® Falcon ® Platform to identify point-of-sale and e-commerce card compromises with analytically derived recommended actions—such as card block and reissue, or watch-listing—to optimize loss prevention.

Separately, the FICO ® Card Alert Service prevents ATM debit fraud by identifying counterfeit or compromised payment cards and reporting them to issuers.

The service analyzes daily transactions from participating networks and uses this data to identify common points of compromise and suspect cards most likely to incur fraud.

We offer a wide range of solutions focused on preventing and detecting identity fraud.

In August 2019, we introduced our identity proofing and user authentication solutions, FICO ® Falcon ® Identity Proofing and FICO ® Falcon ® Authentication Suite.

Identity proofing is the digital process of onboarding new customers without requiring face-to-face verification.

The technology provides an extra layer of security that is easy to use with minimal customer inconvenience, thereby preventing fraud as well as ensuring regulatory compliance standards such as e-KYC are met.

User authentication is the real-time corroboration of an identity previously established to enable access to an electronic or digital asset.

As an authentication hub, our technology includes multifactor, biometric, and behavioral (user and device-based) capabilities.

By bringing digital identity verification into our broader portfolio, we give our clients the ability to strengthen fraud and financial crimes defenses with more contextual data and decisioning.

FICO ® Application Fraud Manager helps businesses prevent both first- and third-party fraud during the application process.

By preventing fraud prior to account origination, we help our customers avoid future losses as well as unnecessary collections costs.

FICO ® Identity Resolution Engine helps organizations detect and investigate organized criminal behavior using graph analytics to identify entities and their connections across federated data sources.

We also offer a comprehensive modular set of compliance solutions to fight money-laundering, terrorist financing, and to fulfill custom requirements for governance, risk and compliance.

Solutions include, but are not limited to, Know Your Customer (“KYC”), Anti-Money Laundering (“AML”), and Sanctions Screening.

In September 2019, FICO introduced FICO ® Falcon ® X, a unified platform for the detection and investigation of both fraud and financial crimes.

We also announced FICO ® Analytics Workbench™—Falcon Edition, which allows banks’ data science teams to develop machine learning models using open source libraries, as well as FICO machine learning libraries, and then deploy the models on Falcon X for operational use.

Prior to October 2020, when we divested this business, the FICO ® Cyber Risk Score was part of the FICO ® Enterprise Security Suite and it provided an empirically derived score that conveyed the security posture of an organization and the likelihood of a material data breach in the following twelve months.

The score was used by customers to manage the cyber risk of an enterprise, assess third-party risk that may be introduced by third- and fourth-party partners and suppliers, and provide an effective tool for cyber insurance underwriting.

Collections & Recovery Applications

FICO ® Debt Manager ™ , FICO ® Debt Manager ™ Pro, FICO ® Debt Manager ™ Pro Plus, FICO ® PlacementsPlus ® service, FICO ® Network and FICO ® Placement Optimizer SM solution (collectively, the “FICO Debt Management Solutions”) automate the full cycle of collections and recovery, including early collections, late collections, asset disposal, agency placement and optimization, recovery, litigation, bankruptcy, asset management and residual balance recovery.

PlacementsPlus service facilitates control over the distribution and management of accounts to agencies, attorneys, debt buyers and internal recovery departments.

FICO Network provides creditors with a single, secure and compliant channel to exchange data with collection agencies, credit bureaus, debt buyers, attorneys, and other vendors.

Placement Optimizer maximizes the effectiveness of the placement strategy once accounts are outsourced.

FICO Debt Management Solutions also include assessments, models and scores, predictive analytics, advanced customer engagement and optimization.

FICO ® Debt Manager ™ is available both on premises and in the FICO ® Analytic Cloud.

Customer Communication Services

FICO ® Customer Communication Services is an intelligent omnichannel digital communication manager for executing customer lifecycle decisions.

It enables businesses to automate individualized dialogues with the consistency and regulatory compliance of their human agents.

With Customer Communication Services, businesses can be available 24/7 for one-way or two-way communication through any channel consumers choose.

Customers can rapidly launch mobile alerts, messaging, virtual agents, self-service options and other auto-resolution capabilities.

It helps make the full customer journey—account origination and onboarding, customer management account notifications and engagement campaigns, fraud management and debt collection—more digital and raises the level of data-driven intelligence behind lifecycle communications.

In addition to its own rules-based communication logic and embedded rules engine, Customer Communication Services can execute complex multi-step strategies shaped by risk-based segmentation, predictive scores, machine learning insights and mathematical optimization.

Marketing Applications

FICO ® Marketing Solutions Suite is made up of products, capabilities and services designed to integrate the technology and analytic services needed to perform context-sensitive customer acquisition, cross-selling and retention programs and deliver mathematically optimized offers.

The Marketing Solutions Suite enables companies that offer multiple products and use multiple channels (companies such as large financial institutions, consumer branded goods companies, pharmaceutical companies, retail merchants and hospitality companies) to execute more efficient and profitable customer interactions.

Services offered in our marketing solutions include customer data integration services;

services that enable real-time marketing through direct consumer interaction channels;

campaign management, messaging and optimization services;

interactive tools that automate the design, execution and collection of customer response data across multiple channels;

and customer data collection, management and profiling services.

Analytic Services

We perform custom analytics (descriptive, predictive and prescriptive) as well as decision modeling and related analytic and machine learning projects for clients in multiple industries.

This enables them to improve critical business processes and operationalize analytics across the customer lifecycle.

We do so with our advanced analytic methodologies and domain expertise to solve risk management, fraud, marketing and other challenges for a single business, using that business’s unique data and industry position to develop a highly customized solution.

Most of this work falls under predictive analytics, decision modeling and optimization, which provide greater insight into customer preferences, predict future customer behavior and operationalize these analytics.

Within decision analysis and optimization, we apply data and proprietary algorithms to design customer treatment strategies and improve business outcomes.

Our FICO ® Scores are used in the majority of U.S.

credit decisions, by nearly all of the major banks, credit card organizations, mortgage lenders and auto loan originators.

These credit scores, developed based on third-party data, provide a consistent and objective measure of an individual’s credit risk.

Credit grantors use our FICO ® Scores in a variety of ways:

to prescreen candidates for marketing programs;

to evaluate applicants for new credit;

and to manage existing customer accounts.

FICO ® Score is a three-digit score ranging from 300-850.

They are calculated by running data from the three U.S.

national credit reporting agencies, Experian, TransUnion and Equifax, through one of several proprietary scoring models developed by FICO.

Lenders generally pay the credit reporting agencies scoring fees based on usage, and the credit reporting agencies pay an associated fee to us.

FICO ® Score 10 and FICO ® Score 10 T, the most recent versions of the FICO ® Score, are anticipated to be released at the three U.S.

national credit reporting agencies by the end of calendar year 2020.

While the core FICO ® Score is the foundation of our scoring portfolio, we offer a number of other broad-based scores, including several specific FICO ® Industry Scores.

Our business consists of two operating segments:

Scores and Software.

Our Scores 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.

Our Software 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, financial crimes compliance, 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.

Our offerings are available to our customers as software-as-a-service (“SaaS”) or as on-premises software.

Our B2B scoring solutions include the FICO ® Score, which is the standard measure of consumer credit risk in the U.S.

It is used in most U.S.

credit decisions, by nearly all major banks, credit card issuers, mortgage lenders, and auto loan originators.

Our B2B scoring solutions are primarily distributed through major consumer reporting agencies worldwide.

Our B2C scores are sold directly to consumers through our myFICO.com website and other direct-to-consumer channels.

The FICO ® Score is a three-digit number ranging from 300-850.

Our proprietary analytic algorithms are applied to credit data collected and maintained by the three U.S.

national consumer reporting agencies — Experian, TransUnion and Equifax — to produce standard scores that are used across the credit lifecycle, including in origination, account management and consumer marketing.

Users of our scores generally pay the consumer reporting agencies a fee for each individual score generated by our algorithms, and the consumer reporting agencies pay an associated fee to us.

Except for product development using de-personalized data, FICO does not collect or store the consumer credit data used in the calculation of our scores, and in most cases, we do not sell our scores directly to lenders or other end-users.

Since the introduction of the FICO ® Score in the U.S.

in 1989, we have regularly updated the score to take advantage of newly available data and enhanced analytics.

Our most recent and most predictive scores, FICO ® Score 10 and 10T, were introduced in January 2020.

To increase its predictive power, FICO Score 10T builds on FICO Score 10 but also incorporates trended credit data.

Trended data considers a longer historical view, giving lenders even more insight into how individuals are managing their credit.

When we introduced FICO ® Score 9 in 2015, it also made use of newly available data such as reported rental payment history, while also de-emphasizing medical debt and disregarding paid collections.

Most of our scores distributed today are FICO ® Score 8 and FICO ® Score 9.

While our newer scores generally provide greater predictive accuracy than the scores they replace, we ensure that new versions of the standard FICO ® Score are compatible with prior versions of the FICO Score.

In addition to the FICO ® Score, we offer several other broad-based scores, including specific FICO ® Industry Scores.

For example, in July 2021 we introduced Bankcard and Auto Industry versions of FICO ® Score 10.

We also develop various custom scores for our financial services clients.

Additionally, we continue to innovate by investing in the development of scores that can help expand the scorable population using alternative credit data.

FICO ® Score XD looks at public records and property data, and a consumer’s history with mobile, landline phone and cable payments, to generate scores on the same 300-850 scale as standard FICO ® Scores.

FICO ® Score XD is available to lenders from LexisNexis Risk Solutions and Equifax.

The UltraFICO ™ Score considers consumer permissioned data from accounts such as checking, savings, or money market accounts.

Incorporating consumer contributed data is a unique approach to helping empower consumers to establish or improve their creditworthiness by using data that reflects sound financial activity but that is not part of a traditional credit report.

This can help consumers qualify for the credit they seek under more competitive terms.

This approach is particularly helpful for consumers who may have very sparse or inactive credit files and are seeking a path toward greater financial inclusion in mainstream banking.

Outside the U.S., we offer FICO ® Scores, including scores using alternative data, for consumers, and in some cases for small and medium enterprises, through credit reporting agencies.

We also have installed client-specific versions of the FICO ® Score in over ten countries.

Like FICO ® Scores in the U.S., these scores help lenders in multiple countries leverage the FICO ® Score’s predictive analysis to assess the risk of marketing prospects and credit applicants.

FICO ® Scores are in use or being implemented in 30 different countries across five continents outside the U.S.

We also have scoring systems for insurance underwriters and marketers.

Our FICO ® Insurance Scores use the same underlying statistical technology as our FICO ® Scores, but are designed to predict future personal auto and homeowner insurance losses for new applicants and existing policyholders.

Our insurance scores are available to the insurance industry throughout the U.S.

During fiscal 2020, we announced the launch of the FICO ® Resilience Index, a new analytic tool designed to complement FICO ® Score models by identifying those consumers who are most resilient to economic stress relative to other consumers within the same FICO ® Score bands.

FICO ® Resilience Index would enable industry participants to more precisely assess credit risk and extend credit to more consumers throughout the economic cycle by managing the risk that emerges during periods of economic stress.

We also provide FICO ® Score based products, education and information on FICO ® Scores to consumers.

They are distributed directly by us through our myFICO ® service and through licensed distribution partners, including Experian and certain lenders, for use in customer and non-customer programs.

The myFICO ® products and subscription offerings are available online at www.myfico.com.

Consumers can use the myFICO.com website to purchase their FICO ® Scores, including credit reports associated with the scores, explanations of the factors affecting their scores, and customized information on how to manage their scores.

We make available the 28 most widely used versions of the FICO ® Score from the three major U.S.

credit bureaus through our myFICO ® service, representing approximately 95% of all FICO ® Scores sold and used by lenders.

Customers can use products to simulate how taking specific actions could affect their FICO ® Score 8.

Consumers can also subscribe to monitoring services, which deliver alerts via email and text when changes to a user’s FICO ® Scores or other credit report content are detected.

In addition, consumers can purchase identity theft monitoring products that alert consumers of potential risks of identity fraud with comprehensive detection and identity restoration services.

Decision Management Software

We provide an analytics and decision management platform that businesses use to build their own tailored, analytically-powered decision management applications.

The FICO ® Decision Management Platform adds scalable and flexible decision management capabilities to virtually any application or operational system .

Together, these tools are sold as licensed software or as a SaaS offering in the cloud, and can be used standalone, or in conjunction with third-party solutions, to advance a client’s decision management initiatives.

We use these tools as foundational components for our own decision management solutions, described above in the “Applications” section, enhancing the cross-compatibility and extensibility of all of the software solutions we build and deliver.

We also partner with third-party providers within given industry markets and with major software companies to embed our tools and other FICO Decision Management Platform components within their existing applications.

During fiscal 2020, FICO continued to enhance the FICO ® Decision Management Platform and related services for building, extending, deploying and scaling decision management applications and solutions.

These services are collectively referred to as the FICO ® Decision Management Suite, and include capabilities for authoring, customizing, executing, and managing predictive analytic, decisioning, and optimization components and services;

developing, orchestrating and publishing analytics-powered applications;

and visualizing, analyzing and reporting data trends.

Component capabilities include:

FICO ® Decision Management Platform, which connects, executes and powers proprietary platform services that dramatically improve performance, data interchange, model tracking and user collaboration;

FICO ® Decision Modeler, the core decision rules modeling tool, which enables users to flexibly author and manage decision rules and strategies;

FICO ® Analytics Workbench™, the consolidated predictive analytics modeling authoring tool, with data wrangling, machine learning and explainable AI;

FICO ® Applications Workbench, an agile application UI builder, which leverages platform services to speed time to application deployment;

FICO ® Strategy Director, which helps organizations proactively manage consumer accounts to increase revenue, decrease risk and improve customer retention;

FICO ® Decision Central™ (formerly known as Model Central), a solution which enables users to monitor, manage, measure and control the deployment and performance of all decision assets including analytic models and rules-based decision strategies;

FICO ® Xpress Optimization, an optimization modeling suite which includes both the solver technology, Mosel, as well as a general-purpose optimization solver, Xpress Insight;

FICO ® Decision Management Platform Streaming, a real-time and batch data ingestion solution that uniquely delivers in-stream analytics for real-time data insights and complex event processing.

The FICO ® Decision Management Suite enables FICO’s clients to combine big data, predictive analytics and decision execution together in an easy-to-use, integrated development and deployment environment.

It enables organizations to rapidly create innovative analytic applications;

dramatically increase developer and business user productivity with support for a broad range of analytic and decision tools;

and execute decisions in real time.

It also empowers business analysts and other domain experts to modify systems without IT involvement, providing organizations with the agility they need to rapidly respond to customer, regulatory and business changes.

In addition, FICO offers certain decision management software tools for use outside of the context of the FICO Decision Management Platform, including:

Rules Management .

The FICO ® Blaze Advisor ® decision rules management system is used to design, develop, execute and maintain rules-based business applications.

The Blaze Advisor system enables business users to propose and preview the impact of changes to decisioning logic, to review and approve proposed changes, and to commit those changes to production decisioning, all without demanding IT cycles.

The Blaze Advisor system is sold as an end-user tool and is also the rules engine within several of our decision management applications.

The Blaze Advisor system, available in six languages, is a multi-platform solution that:

embeds rules management within existing applications;

supports Web Services and service-oriented architecture, Java 2 Enterprise Edition platforms, and COBOL for z/OS mainframes;

and is the first rules engine to support Java and COBOL deployment of the same rules.

It also incorporates the exclusive Rete III rules execution technology, which improves the efficiency and speed with which the Blaze Advisor system is able to process and execute complex, high-volume decision rules.

Predictive Modeling.

FICO ® Decision Central ™ is a comprehensive offering to help banks and other organizations-including insurance, retail and health care companies-streamline their predictive and decision model governance and meet stricter regulations for model management.

It complements FICO ® Analytics Workbench™, which enables the user to develop and deploy sophisticated predictive models for use in automated decisions.

This software is based on the methodology and tools FICO uses to build both client-level and industry-level predictive models, which it developed from countless client engagements.

The predictive models and strategies produced can be embedded in custom production applications, the FICO ® Platform, or one of our decision management applications.

FICO ® Analytics Workbench is available for on-premises or cloud implementation.

Optimization.

FICO ® Xpress Optimization provides operations research professionals with world-class solvers and high-productivity tools to quickly design and deliver custom, mathematically optimal solutions for a wide range of industry problems.

Xpress includes a powerful modeling and programming language, with robust scalability, to quickly model and solve even the largest optimization problems.

Xpress tools are licensed to end users, consultants and independent software vendors in several industries, and are a core component within FICO ® Decision Optimizer.

Decision Optimizer is a software tool that enables complex, large-scale optimizations involving dozens of networked action-effect models, and enables exploration and simulation of many optimized scenarios along an efficient frontier of options.

The data-driven strategies produced by these tools can be executed by the FICO ® Blaze Advisor ® system or one of our Decision Management applications.

FICO’s solution for creating or executing optimization solutions is available on-premises or in the cloud.

The market for our advanced solutions is intensely competitive and is constantly changing.

Our competitors vary in size and in the scope of the products and services they offer.

We encounter competition from a number of sources, including:

in-house analytic and systems developers;

scoring model builders;

enterprise resource planning and customer relationship management packaged solutions providers;

business intelligence solutions providers;

business process management and decision rules management providers;

providers of credit reports and credit scores;

providers of automated application processing services;

data vendors;

neural network developers and artificial intelligence system builders;

third-party professional services and consulting organizations;

providers of account/workflow management software;

software companies supplying predictive analytic modeling, rules, or analytic development tools;

collections and recovery solutions providers;

entity resolution and social network analysis solutions providers;

providers of cloud-based customer engagement and risk management solutions.

We believe our competitors are presently unable to provide the mix of products, expertise in predictive analytics and integration with decision management software, and enhanced customer management capabilities that we are able to deliver.

However, certain competitors may have larger shares of particular geographic or product markets than we do.

The competition for our Applications varies by both application and industry.

In the marketing services market, we compete with Pegasystems, Equifax, Experian, SAS, Adobe and Salesforce, among others.

We also compete with traditional advertising agencies and companies’ internal information technology and analytics departments.

In the customer origination market, we compete with Experian, Equifax, Moody’s, Meridian Link, and CGI, among others.

In the customer strategy management market, we compete with Experian and SAS, among others.

In the fraud and financial crimes market for banking, we compete primarily with Nice Actimize, Experian, BAE Systems Applied Intelligence, SAS, ACI Worldwide, IBM, Feedzai and Featurespace.

In the collections and recovery market, we compete with both outside suppliers and in-house scoring and computer systems departments for software and ASP servicing.

Major competitors include CGI, the three major U.S.

credit reporting agencies and various boutique firms.

In this segment, we compete with both outside suppliers and in-house analytics departments for scoring business.

Primary competitors among outside suppliers of scoring models are the three major credit reporting agencies in the U.S.

and Canada, which are also our partners in offering our scoring solutions, and VantageScore (a joint venture entity established by the major U.S.

credit reporting agencies).

Additional competitors include CRIF and other credit reporting agencies outside the U.S., and other data providers like LexisNexis and ChoicePoint, some of which also are among our partners.

For our “direct-to-consumer” services that deliver credit scores, credit reports and consumer credit education services, we compete with other direct to consumer credit and identity services.

Decision Management Software

Our primary competitors in this segment include IBM, Experian, SAS, Pegasystems and Gurobi, along with a number of smaller, specialized vendors providing industry-specific solutions.

Competitive Factors

We believe the principal competitive factors affecting our markets include:

technical performance;

access to unique proprietary databases;

availability in SaaS format;

product attributes like adaptability, scalability, interoperability, functionality and ease-of-use;

product price;

customer service and support;

the effectiveness of sales and marketing efforts;

existing market penetration;

and reputation.

Although we believe our products and services compete favorably with respect to these factors, we may not be able to maintain our competitive position against current and future competitors.

MARKETS AND CUSTOMERS

Our products and services serve clients in multiple industries, including primarily banking, insurance, retail, healthcare and public agencies.

End users of our products include 96 of the 100 largest financial institutions in the U.S., and two-thirds of the largest 100 banks in the world.

Our clients also include more than 600 insurers, including nine of the top ten U.S.

property and casualty insurers;

more than 300 retailers and general merchandisers;

more than 200 government or public agencies;

and more than 200 healthcare and pharmaceuticals companies, including nine of the world’s top ten pharmaceuticals companies.

Eight of the top ten companies on the 2020 Fortune 500 list use one or more of our solutions.

In addition, our consumer services are marketed to an estimated 200 million U.S.

consumers whose credit relationships are reported to the three major U.S.

credit reporting agencies.

In the U.S., we market our products and services primarily through our own direct sales organization that is organized around vertical markets.

Sales groups are based in our headquarters and in field offices strategically located both in and outside the U.S.

We also market our products through indirect channels, including alliance partners and other resellers.

Our scores are marketed and sold through credit reporting agencies.

During fiscal 2020, 2019 and 2018, revenues generated from our agreements with Experian, TransUnion and Equifax collectively accounted for 32%, 29% and 25% of our total revenues, respectively.

Outside the U.S., we market our products and services primarily through our subsidiary sales organizations.

Our subsidiaries license and support our products in their local countries as well as within other foreign countries where we do not operate through a direct sales subsidiary.

We also market our products through resellers and independent distributors in international territories not covered by our subsidiaries’ direct sales organizations.

Our largest market segments outside the U.S.

are the United Kingdom and Canada.

In addition, we have delivered products to users in more than 120 countries.

We specialize in analytics software and decision management technologies that analyze data and drive decision strategies and customer engagement.

We maintain active research in a number of fields for the purposes of deriving greater insight and predictive value from data, making various forms of data more usable and valuable to the model-building process, and automating and applying analytics to the various business processes involved in making high-volume decisions in real time.

We are widely recognized as a leader in predictive analytics due to our pioneering work in credit scoring and fraud detection.

We believe that our tools and processes are among the very best commercially available, and that we are uniquely able to integrate advanced analytic, software and data technologies into mission-critical business solutions that offer superior returns on investment.

In fiscal 2020, we continued to make progress with our FICO ® Decision Management Suite and FICO ® Decision Management Platform initiatives.

Most significantly for the fiscal year, we added new Platform Service functionality to provide cross-application enablement of centralized services (for example, enabling authentication, provisioning, data ingestion, and similar functions).

We have seen initial success in delivering platform-centric solutions that provide unique value to enterprise clients in tracking and visualizing a buyer’s journey across otherwise siloed offerings.

In addition, we continue to expand the integration of capabilities that make many of our software solutions, which were previously available only as on-premises software installations, into SaaS solutions hosted on the FICO ® Analytic Cloud and/or in AWS.

The FICO ® Decision Management Suite enables clients to use FICO tools, along with rapid application development tools and visualization tools, to quickly develop their own decision management applications and services.

We continue to add functionality to the platform as well as host additional FICO applications in the cloud.

These ongoing initiatives are driven by enhancing our core technical capabilities listed below, and extending them through partnerships with other technology providers as well as through employing open source software.

The FICO ® Resilience Index is a recently introduced offering designed to complement FICO ® Score models by identifying those consumers who are more resilient to economic stress relative to other consumers within the same FICO Score bands.

The FICO Resilience Index is designed to enable lenders to continue to lend and better manage risk by providing a more precise assessment of loan default risk during periods of economic stress.

FICO has invested significant resources in the development of scores that can help expand credit access and lower borrowing costs for consumers that have limited credit history or who have sparse or inactive credit files.

These scores use alternative data sources to enhance conventional credit bureau data and generate scores for otherwise un-scorable consumers and in many cases improve the credit scores of scorable consumers.

• FICO ® Score XD uses public records and property data, and a consumer’s history with mobile phone, landline phone and cable payments, to generate scores on the same 300-850 scale as standard FICO ® Scores.

FICO Score XD is available to lenders through our distribution partners, LexisNexis Risk Solutions and Equifax.

• The UltraFICO TM Score uses consumer-permissioned data such as checking, savings, or money market account data, to generate scores on the same 300-850 scale as standard FICO ® Scores.

Incorporating consumer-permissioned data helps empower consumers to establish or improve their creditworthiness by using data that reflects sound financial activity, but that is not part of a conventional credit report.

Both scores maintain the same score to risk relationship as standard FICO ® Scores, enhancing their compatibility with existing credit underwriting systems and models.

Outside the U.S., we offer FICO ® Scores for consumer loans, and in some cases for small and medium business loans.

These scores are typically sold to end-users through consumer reporting agencies in those countries, as they are in the U.S.

We have also developed client-specific versions of the FICO Score in over ten countries that we sell directly to end-user customers.

FICO Scores are currently in use or being implemented in 30 different countries across five continents outside the U.S.

We also provide FICO ® Scores to consumers in the U.S.

through our B2C scoring solutions.

These Scores are distributed directly by us through our myFICO.com subscription offering and indirectly through our licensed distribution partners, including Experian and certain lenders through the FICO ® Score Open Access Program.

Through myFICO.com and other direct-to-consumer channels, consumers can purchase their FICO Scores, including credit reports associated with the scores, explanations of the factors affecting their scores, and customized educational information on how to manage their scores.

Consumers can use products to simulate how taking specific actions could affect their FICO Score.

Consumers can also subscribe to credit monitoring, which deliver alerts via email and text when changes to a user’s FICO Scores or other credit report content are detected.

In addition, consumers can purchase identity theft monitoring products that alert them to potential risks of identity fraud.

Our software harnesses the power of analytics and digital decisioning technology to help businesses automate, improve, and connect decisions across their enterprise.

Most of our solutions address customer engagement, including acquisition and pricing, onboarding, servicing and management, and fraud protection.

We also help businesses improve non-customer facing decisions such as supply chain optimization, scheduling management and policy adherence.

FICO provides software solutions to business customers in more than 120 countries around the world.

Our software can be deployed in the cloud as SaaS utilizing FICO’s infrastructure or third-party cloud services, or on-premises using our customers’ IT infrastructure.

We typically sell our software as multi-year subscriptions, with payments based on usage metrics such as the number of accounts, transactions or decisioning use cases deployed, often subject to contracted minimum payments.

A significant and growing number of our software solutions run natively on FICO ® Platform, a modular software offering designed to support advanced analytics and decisioning use cases.

While not all our software runs on FICO Platform today, we are investing significant development resources to enable substantially all of our software to run on FICO Platform in the future.

Principal Areas of Expertise

We specialize in solutions that empower businesses to operationalize analytics to uncover new opportunities, make timely decisions that matter, and execute them at scale.

With more than 60 years of analytics and software experience, we have found that bringing human and digital intelligence together allows our customers to target and acquire customers more efficiently, increase customer value, reduce fraud and credit losses, lower operating expenses, and enter new markets more profitably.

Our principal areas of research and development expertise are focused on the following four analytic domains.

• Predictive Modeling

Predictive modeling identifies and mathematically represents underlying relationships in historical data in order to explain the data and make predictions or classifications about future events.

Our models summarize large quantities of data to amplify its value.

Predictive models typically analyze current and historical data on individuals to produce easily understood metrics such as scores.

These scores rank-order individuals by likely future performance, e.g., their likelihood of making credit payments on time, or of responding to a particular offer for services.

We also include in this category models that detect the likelihood of a transaction being fraudulent.

Our predictive models are frequently operationalized in mission-critical transactional systems and drive decisions and actions in near real time.

A number of analytic methodologies underlie our products in this area.

These include proprietary applications of both linear and nonlinear mathematical programming algorithms, in which one objective is optimized within a set of constraints, and advanced neural systems, which learn complex patterns from large data sets to predict the probability that a new individual will exhibit certain behaviors of business interest.

We also apply various related statistical techniques for analysis and pattern detection within large datasets, and have enhanced our abilities to derive insights and predictive variables from various forms of so-called big data, including unstructured data, such as text.

We have enhanced our predictive analytic capabilities to include the development of machine learning algorithms and artificial intelligence.

FICO has focused on making artificial intelligence explainable to auditors, developers and decision makers so that it can be deployed responsibly.

Predictive modeling identifies and mathematically represents underlying relationships in historical data to make predictions or classifications about future events.

Predictive models typically analyze current and historical data about individuals to produce easily understood metrics such as scores.

These scores rank-order individuals or specific transactions against a particular variable such as the likelihood of making credit payments on time, the likelihood of a transaction being fraudulent or the probability of responding to a particular offer for services.

Our predictive models are frequently used in mission-critical transactional systems and drive decisions and actions in near real time.

Several analytic methodologies underlie our products in this area.

These include proprietary applications of both linear and nonlinear optimization algorithms, advanced neural systems, machine learning and AI.

We also apply various statistical techniques for analysis and pattern detection within large datasets and can derive insights and predictive features from various forms of data, including unstructured data.

• Decision Analysis and Optimization

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Whereas predictive models analyze multiple aspects of individual behavior to forecast future behavior, decision analysis analyzes multiple aspects of a given decision to identify the most effective action to take to reach a desired result.

We have developed an integrated approach to decision analysis that incorporates the development of a decision model that mathematically maps the entire decision structure;

This is often referred to as prescriptive analytics.

Our integrated approach to decision analysis incorporates a decision model that mathematically maps the entire decision structure;

proprietary optimization technology that identifies the most effective strategies, given both the performance objective and constraints;

the development of designed testing required for active, continuous learning;

testing and simulation required for active, continuous learning;

and the robust extrapolation of an optimized strategy to a wider set of scenarios than historically encountered.

Our optimization capabilities also include a proprietary mathematical modeling and programming language, an easy-to-use development environment, and a state-of-the-art set of optimization algorithms.

Our optimization capabilities also include native support for Python modeling, as well as our own proprietary mathematical modeling and programming language, an easy-to-use authoring environment, a configurable business simulation and scenario management interface and a set of pre-built optimization algorithms.

• Transaction Profiling

Transaction profiling is a patent-protected technique used to extract meaningful information and reduce the complexity of transaction data used in modeling.

Many of our products operate using transactional data, such as credit card purchase transactions, or other types of data that change over time.

Many of our products operate using transactional data, such as credit card purchase transactions, consumer interactions, or other types of data that change over time.

In its raw form, this data is very difficult to use in predictive models for several reasons.

First, an isolated transaction contains very little information about the behavior of the individual who generated the transaction.

In addition, transaction patterns change rapidly over time.

Finally, this type of data can often be highly complex.

Second, transaction patterns change rapidly over time.

Third, this type of data can often be highly complex.

To overcome these issues, we have developed a set of techniques that transform raw transactional data into a mathematical representation that reveals latent information, and which make the data more usable by predictive models.

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• Customer Data Integration

Decisions made on customers or prospects can benefit from data stored in multiple sources, both inside and outside the enterprise.

We have focused on developing data integration processes that are able to assemble and integrate those disparate data sources into a unified view of the customer or household, through the application of persistent keying technology.

Decisions made about customers or prospects can benefit from data stored in multiple sources, both inside and outside the enterprise.

In the areas of analytics and digital decisioning, more data is generally better.

We have developed proprietary data ingestion and management tools that are able to assemble and integrate disparate data sources into a unified view of the customer, household, or other subject through the application of persistent keying technology.

This data can include structured or unstructured data.

Recent innovations include a solution that can integrate multiple data sources in real time and make them available for analysis and decisions.

Decision Management Software.

In order to make a decision strategy operational, various steps and rules need to be programmed or exported into the business's software infrastructure, where they can communicate with front-end, customer-facing systems and back-end systems such as billing systems.

We have developed software systems, sometimes known as decision engines and decision rules management systems, which perform the necessary functions to execute a decision strategy.

Our software includes very efficient programs for these functions, facilitating, for example, business user definition of extremely complex decision strategies using graphical user interfaces;

simultaneous testing of hundreds of decision strategies in “champion/challenger” (test/control) mode;

high-volume processing and analysis of transactions in real time;

integration of multiple data sources;

and execution of predictive models for improved behavior forecasts and finer segmentation.

Decision management software is an integral part of our decision management applications, described earlier.

Customer Engagement .

We have advanced technology for customer engagement, which enables the execution of decisions and customer contact through SMS, email, automated voice, mobile applications and other channels.

This technology enables FICO to extend decision management beyond the rendering of the decision to the final resolution with a customer, using the most effective method of communication for a given event and customer.

Integrating this technology with our decision management systems has proven to decrease costs, improve staff efficiency, increase customer satisfaction and improve the return from marketing, fraud and collections activities.

Network Analytics.

We have advanced technology for identity resolution and network analysis, which enables users to understand the relationships between their organization, customers, events, and third-party actors.

Businesses can perform real-time searches across their enterprise data to find, match, and link similar entities and uncover hidden relationships between people, places and things.

This technology complements FICO’s capabilities in the area of fraud and financial crime analytics.

Identity and Authentication.

We have advanced technology for digital identity verification and authentication.

As part of a unified digital identity suite, this technology provides a mobile and seamless method for validating identities during the customer onboarding process, and enrolling them as trusted entities for multifactor, biometric and behavioral authentication across digital interactions.

It also helps organizations take a balanced approach to security and the user experience, providing easy-to-use, integrated security across the customer lifecycle.

In addition, our technology can integrate multiple data sources in real-time and make them available for rapid analysis and decisions such as credit approval, fraud detection and “next best offer” workflows.

We believe our analytic tools and solutions are among the best commercially available, and that we are uniquely positioned to integrate advanced analytic, software and data technologies into mission-critical business solutions that offer superior returns on investment.

FICO ® Platform

FICO ® Platform is an analytic and decisioning environment that empowers businesses to configure solutions that orchestrate and operationalize high velocity decisions that matter, at scale.

Users of FICO Platform can bring together data from multiple sources, apply advanced analytics to derive insights, and translate those insights into actions and workflows that can be executed in real-time.

Based on a modular cloud architecture, FICO Platform can be configured by our customers to solve a vast array of business challenges.

FICO Platform delivers increasing value to our customers over time as they add additional analytic capabilities, configure their own solutions or utilize pre-configured solutions to address a diverse set of use cases and integrate disparate analytic and decisioning silos onto a centralized, scalable platform.

This drives additional subscription software revenue for FICO over time as customers purchase more FICO Platform capabilities and pay for more usage of those capabilities.

Our goal is to move substantially all of FICO’s current software products onto FICO ® Platform.

For example, FICO’s industry leading rules-based decisioning engine, FICO ® Blaze Advisor ® decision rules management system, is now available on FICO Platform as FICO ® Decision Modeler.

Some FICO pre-configured solutions are now available on FICO Platform, including FICO ® Originations Solution and FICO ® Strategy Director.

We believe this strategy of moving our software products to FICO Platform will result in revenue growth through follow-on “land and expand” sales to existing Platform customers and more sales to medium-sized businesses typically served through value-added resellers and systems integrators.

Our annual recurring revenue (“ARR”) from FICO ® Platform based products was $75.2 million as of September 30, 2021, representing 14% of our total software ARR.

Our Offerings

We sell our software primarily as analytic and decisioning software or pre-configured solutions.

Our software offerings are sold both individually and as integrated bundles of multiple products.

Analytic and Decisioning Software

FICO analytic and decisioning software offerings use proprietary and open source microservices and capabilities to enable both business users and data scientists to develop and execute advanced analytics and decision modeling.

Our key products in this category include:

• FICO ® Decision Modeler and FICO ® Blaze Advisor ® are our core decision rules modeling tools, which enable users to flexibly author and manage decision rules and strategies.

FICO Decision Modeler delivers the functionality of our industry leading FICO Blaze Advisor product, with the added benefit of seamless integration into FICO ® Platform.

FICO Blaze Advisor, the predecessor to FICO Decision Modeler, is available as an off-platform product.

• FICO ® Xpress Optimization provides operations research professionals and business analysts with world-class solvers and productivity tools to determine optimal outcomes for a wide range of industry problems.

FICO Xpress Optimization includes a powerful modeling and programming language to quickly model and solve even the largest optimization problems.

FICO Xpress Optimization runs on FICO ® Platform.

• FICO ® Analytics Workbench TM is a predictive analytics tool that allows businesses to create and deploy explainable machine learning models for use in decisions that typically require strict governance and compliance, often including regulatory oversight.

FICO Analytics Workbench runs on FICO ® Platform.

• FICO ® Studio is a powerful, low-code / no-code application development environment that gives users the ability to quickly build enterprise-grade decision applications using FICO ® Platform.

• FICO ® Data Orchestrator is a data retrieval and mapping solution that can access, gather, and transform data from corporate or public facing information services, such as credit reference agencies.

FICO Data Orchestrator runs on FICO ® Platform.

• FICO ® DMP Streaming is a real-time and batch data ingestion solution that uniquely delivers in-stream analytics for real-time data insights and complex event processing.

• FICO ® Business Outcome Simulator enables business users to run a wide variety of insightful scenarios to assess how their business is likely to perform under varying conditions and assumptions.

It unlocks insights into how key outcomes will likely shift in the face of changing competitor strategy, macroeconomic changes, evolving customer preferences, and more.

FICO Business Outcome Simulator runs on FICO ® Platform.

• FICO ® Decision Optimizer helps business users understand how different customers will react to a variety of different actions that are being considered.

Once that link is understood, FICO Decision Optimizer identifies the combination of actions most likely to lead to the desired portfolio outcomes through decisions such as who to offer a new product, what limit and/or price to offer, or how to treat delinquent customers.

FICO Decision Optimizer runs on FICO ® Platform.

Pre-Configured Solutions

FICO's pre-configured solutions optimize customer interactions in real-time, driving greater customer engagement and improving business results.

They enable acquisition and growth marketing, account activation and management, omni-channel communication, risk assessment, fraud detection and prevention, and financial crime compliance.

Key FICO solutions offered today include:

• FICO ® Fraud and Financial Crimes Solutions help our clients detect and prevent transactional financial fraud and violations of global financial compliance regulations.

Our solutions analyze activities such as credit card transactions and account openings to generate real time recommendations for immediate action.

These defenses are critical to identifying and mitigating identity fraud, payments fraud and money laundering.

Our models that identify transaction fraud are continually improved using a proprietary, global data set of transaction data contributed by more than 9,000 institutions that participate in the FICO ® Falcon ® Intelligence Network.

FICO ® Falcon ® X is a suite of some of our Fraud and Compliance capabilities that run on FICO ® Platform.

We plan to offer most of our Fraud and Compliance solutions as platform-native Falcon X products in the future.

• FICO ® Originations Solution is an application-to-decision credit originations solution.

It enables banks, credit unions, finance companies, online lenders, auto lenders, and other companies to automate and improve the processing of requests for credit.

Our Originations Solution increases the speed, consistency and efficiency with which requests are handled, reducing losses, and increasing approval rates through the application of sophisticated policies and analytics that assess applicant risk and reduce the need for manual review by underwriters.

The current version of FICO Originations Solution runs on FICO ® Platform.

• FICO ® Customer Communication Service is an intelligent omnichannel digital communication manager for resolving customer interactions.

It enables businesses to automate individualized customer dialogues with the same consistency and regulatory compliance as their human agents.

With Customer Communication Service, businesses can be available 24/7 for one-way or two-way communication through any channel their consumers choose.

Businesses can rapidly launch mobile alerts, messaging, virtual agents, self-service options, and other auto-resolution capabilities.

It helps make the full customer journey more efficient and raises the level of data-driven digital intelligence behind lifecycle communications.

Certain Customer Communication products are available on FICO Platform today, and we plan to make additional Customer Communication products available on FICO ® Platform in the future.

• FICO ® Strategy Director and FICO ® TRIAD ® Customer Manager enable businesses to automate and improve risk-based decisions for their existing credit customers.

These products help businesses apply advanced analytics in credit account and customer decisions to increase portfolio revenue and reduce risk exposure and losses, while improving customer retention.

They also allow users to manage risk and communications at both the account and customer level from a single place.

FICO Strategy Director runs on FICO ® Platform.

FICO TRIAD Customer Manager, the predecessor to FICO Strategy Director, is available as an off-platform product.

FICO ® Professional Services

FICO offers a range of professional services designed to help customers install and configure our software, develop and deploy advanced analytics using our software, and improve customer satisfaction and retention.

• FICO ® Implementation Services.

We often sell software implementation and configuration services in conjunction with our software license and SaaS subscriptions.

The FICO implementation services team leverages their deep expertise in our products and their extensive industry-specific knowledge to help our customers implement and configure FICO software rapidly and effectively.

• FICO ® Analytic Services.

We build custom analytics, decision models and related analytics, and perform machine learning projects for clients in multiple industries.

These analytic services help to improve critical business processes and operationalize analytics using FICO software products.

Most of our engagements utilize predictive analytics, decision modeling and optimization to provide greater insight into customer preferences and help predict future customer behavior.

• FICO ® Advisors.

FICO Advisors are business consultants accelerating the practical use of FICO solutions through data-driven analytics, strategic design, and software applications.

Our seasoned practitioners are uniquely valued for their credit lifecycle risk and fraud knowledge and can help drive measurable results in an ever-dynamic economic market.

Our professional services are sold on an hourly time and materials basis or for a fixed project fee.

MARKETS AND CUSTOMERS

Our scores and software products and services serve clients in multiple industries, including banking, insurance, retail, healthcare and public agencies.

End users of our products include 96 of the 100 largest financial institutions in the U.S., and two-thirds of the largest 100 banks in the world.

Our clients also include more than 600 insurers, including nine of the top ten U.S.

property and casualty insurers;

more than 300 retailers and general merchandisers;

and more than 200 government or public agencies.

All top ten companies on the 2021 Fortune 500 list use one or more of our solutions.

In addition, our consumer solutions are marketed to an estimated 200 million U.S.

consumers whose credit relationships are reported to the three major U.S.

consumer reporting agencies.

The majority of our scores are marketed and sold through consumer reporting agencies.

During fiscal 2021, 2020 and 2019, revenues generated from our agreements with Experian, TransUnion and Equifax collectively accounted for 38%, 33% and 29% of our total revenues, respectively.

We also sell our scores and credit monitoring directly to consumers through our myFICO.com on-line subscription offerings.

Outside of the U.S., we sell our scores through consumer reporting agencies, other third-party distributors, and in some cases directly to large end-users.

We market our software products and services primarily through our own direct sales organization that is organized around vertical and geographic markets.

Sales teams are based in our headquarters and in field offices strategically located around the world.

We also market our products through indirect channels, including alliance partners and other resellers.

As more of our products are made available on FICO ® Platform, we expect our sales through indirect channels to grow.

We are investing significant resources to develop our indirect channel relationships.

Our largest market segment is financial services, representing 89% of our total revenue in 2021.

Our largest geographic market is the Americas, representing 80% of our total revenue in 2021.

The market for our solutions is intensely competitive and is constantly changing.

Our competitors vary both in size and in the scope of the products and services they offer.

We encounter competition from several sources, including:

• in-house analytic and systems developers;

• neural network developers and artificial intelligence system builders;

• fraud and compliance solution providers;

• scoring model builders;

• providers of credit reports and credit scores;

• software companies supplying predictive analytic modeling, rules, or analytic development tools;

• entity resolution and social network analysis solutions providers;

• providers of customer engagement and risk management solutions;

• providers of account/workflow management software;

• business process management and decision rules management providers;

• enterprise resource planning and customer relationship management solutions providers;

• business intelligence solutions providers;

• providers of automated application processing services;

• third-party professional services and consulting organizations.

We believe we offer customers a unique mix of products, expertise and capabilities that allows us to compete effectively in our target markets.

However, many of our competitors are larger than FICO, have more development, sales and marketing resources than FICO, and some have larger shares of our target geographic or product markets.

We believe the principal competitive factors affecting our markets include technical performance;

access to unique proprietary analytical models and data;

product attributes like adaptability, scalability, interoperability, functionality, and ease-of-use;

on-premises and SaaS product availability;

product price;

customer service and support;

the effectiveness of sales and marketing efforts;

existing market penetration;

and reputation.

Although we believe our products and services compete favorably with respect to these factors, we may not be able to maintain our competitive position against current and future competitors.

In our Scores segment, we compete with both outside suppliers and in-house analytics.

Primary competitors among outside suppliers of scoring models are the three major consumer reporting agencies in the U.S.

and Canada, which are also our partners in offering our scoring solutions, and VantageScore (a joint venture entity established by the major U.S.

consumer reporting agencies).

Additional competitors include consumer reporting agencies outside the U.S.

like CRIF Ratings, which operates in the European Union, and other data providers like LexisNexis and ChoicePoint, some of which also are our partners.

For our offerings that deliver credit scores, credit reports and consumer credit education solutions directly to consumers, we compete with other direct to consumer credit and identity services such as Credit Karma, Credit Sesame, Experian and TransUnion, some of which are also our partners.

The competition in our Software segment varies by application.

In the fraud and financial crimes market for banking, we compete primarily with Nice Actimize, Experian, Pegasystems, BAE Systems Applied Intelligence, SAS, ACI Worldwide, IBM, Feedzai and Featurespace.

In the customer origination market, we compete with Experian, Equifax, Moody’s, Meridian Link, and CGI, among others.

In the customer management market, we compete with Experian and SAS, among others.

In the marketing services market, we compete with Pegasystems, Equifax, Experian, SAS, Adobe and Salesforce, among others.

PRODUCT PROTECTION AND TRADEMARKS

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and select foreign countries.

As of September 30, 2020 , we employed 4,003 persons worldwide.

Of these, 175 full-time employees were located in our San Jose, California office, 404 full-time employees were located in our San Diego, California office, 170 full-time employees were located in our Roseville, Minnesota office, 166 full-time employees were located in our San Rafael, California office, 129 full-time employees were located in our Fairfax, Virginia office, 1,178 full-time employees were located in our India-based offices and 379 full-time employees were located in our United Kingdom-based offices.

None of our employees are covered by a collective bargaining agreement other than to the extent mandated by applicable law in certain foreign jurisdictions, and no work stoppages were experienced during fiscal 2020 .

Information regarding our executive officers is included in Item 10, Directors, Executive Officers and Corporate Governance , of this Annual Report on Form 10-K.

GOVERNMENTAL REGULATION

We are subject to a number of U.S.

federal, state, local and foreign laws and regulations that involve matters central to our business.

Laws and governmental regulation affect how our business is conducted and, in some cases, subject us to the possibility of government supervision and future lawsuits arising from our products and services.

Laws and governmental regulations also influence our current and prospective customers’ activities, as well as their expectations and needs in relation to our products and services.

Laws and regulations that may affect our business and our current and prospective customers’ activities include, but are not limited to, those summarized below.

and foreign jurisdictions have passed, or are currently contemplating, a variety of consumer protection, privacy, and data security laws and regulations that may relate to our business or affect the demand for our products and services.

For example, the United Kingdom (“U.K.”) and European Union (“E.U.”) General Data Protection Regulation (the “GDPR”) impose, among other things, strict obligations and restrictions on the ability to collect, analyze and transfer U.K.

personal data, a requirement for prompt notice of data breaches in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual revenue under the E.U.

GDPR and up to the greater of 17.5 million Pounds or 4% of annual global turnover under the U.K.

A decision in July 2020 by the Court of Justice of the European Union ( i.e.

, Schrems II), called into question certain data transfer mechanisms between the E.U.

In June 2021, the European Commission issued new standard contractual clauses (“SCCs”) governing cross-border data transfers and data exchanges among controllers and processors, which reflect more recent data protection laws, such as the GDPR, and account for the analysis in the Schrems II decision.

Our transition to the new SCCs, which may involve interpretive issues and may have an adverse impact on cross-border transfers of personal data, may subject us to additional scrutiny from E.U.

regulators or may increase our costs of compliance.

Brazil, India, South Africa, Japan, China, Israel, Canada, and several other countries have introduced and, in some cases, enacted, similar privacy and data security laws.

The California Consumer Privacy Act of 2018 (“CCPA”) gives California residents certain privacy rights in the collection and disclosure of their personal information and requires businesses to make certain disclosures and take certain other acts in furtherance of those rights.

Additionally, effective starting January 1, 2023, the California Privacy Rights Act (the “CPRA”) will revise and significantly expand the scope of the CCPA.

The CPRA also creates a new California data protection agency authorized to implement and enforce the CCPA and the CPRA, which could result in increased privacy and information security enforcement .

states have considered and/or enacted similar privacy laws, including Virginia and Colorado, which passed new consumer privacy laws in 2021.

The Gramm-Leach-Bliley Act ("GLBA") regulates, among other things, the receipt, use, disclosure, and security of non-public personal information of consumers held by “financial institutions” and applies indirectly to companies that provide services to financial institutions.

As a provider of services to financial institutions, portions of our business are subject to obligations to comply with certain GLBA provisions, including limitations on the use or disclosure of the underlying data and rules relating to the technological, physical and administrative safeguarding of non-public personal information.

The Health Insurance Portability and Accountability Act of 1996, as amended by the American Recovery and Reinvestment Act of 2009 (“HIPAA”) and the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and their respective implementing regulations impose specified requirements relating to the privacy, security and transmission of individually identifiable health information.

Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates.” We function as a business associate for certain of our customers that are HIPAA-covered entities and service providers and, in that context, we are regulated as a business associate for the purposes of HIPAA.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) prohibits unfair, deceptive, or abusive acts or practices (“UDAAP”) with respect to consumer financial services practices and provides the Consumer Financial Protection Bureau (the “CFPB”) with enforcement authority to enforce those provisions.

In certain circumstances, the CFPB also has examination and supervision powers with respect to service providers who provide a material service to a financial institution offering consumer financial products and services.

Further, the CFPB has authority to designate non-depository “larger participants” in certain markets for consumer financial services and products for purposes of the CFPB’s supervisory authority under the Dodd-Frank Act.

Such designated “larger participants” are subject to reporting and on-site compliance examinations by the CFPB, which may result in increased compliance costs and potentially greater enforcement risks based on these supervisory activities.

In addition, the regulators of some of our largest financial institution customers may require them to exercise greater oversight and perform more rigorous audits of their key service providers such as us.

The Federal Trade Commission Act (the “FTC Act”) prohibits unfair methods of competition and unfair or deceptive acts or practices.

Under the FTC Act, the FTC’s jurisdiction includes the ability to bring enforcement actions based on the security measures we employ to safeguard the personal data of consumers.

Allegations that we failed to safeguard or handle such data in a reasonable manner may subject us to regulatory scrutiny or enforcement action.

Fair Credit Reporting Act (the “FCRA”) applies to consumer reporting agencies, as well as data furnishers, and users of consumer reports such as banks and other companies, many of which are our customers.

The FCRA provisions govern the accuracy, fairness and privacy of information in the files of consumer reporting agencies that engage in the practice of assembling or evaluating information relating to consumers for certain specified purposes.

The FCRA limits the type of information that may be reported by consumer reporting agencies, limits the distribution and use of consumer reports, establishes consumer rights to access and dispute their own credit files, includes provisions designed to prevent identity theft and assist fraud victims, requires consumer reporting agencies to make a free annual credit report available to consumers and imposes many other requirements on consumer reporting agencies, data furnishers and users of consumer report information.

These requirements can affect the manner and extent to which our customers use our products and services.

A number of states have enacted requirements similar to the FCRA.

Some of these state laws impose additional, or more stringent, requirements than the FCRA, especially in connection with investigations and responses to reported inaccuracies in consumer reports.

The FCRA preempts some of these state laws, but the scope of preemption continues to be defined by the courts.

Various consumer credit laws and regulations in the foreign countries where we conduct business also affect the products and services we offer to our customers.

The Credit Repair Organizations Act (the “CROA”) regulates companies that claim to be able to assist consumers in improving their credit standing.

There have been efforts to apply the CROA to credit monitoring services offered by consumer reporting agencies and others, which may impact certain of our products and services.

Special requirements may apply to us when providing services directly or indirectly to U.S.

federal, state and local government agencies.

The applicable requirements depend upon the monetary value of the awarded contract, the particular government agency awarding or funding the contract, the scope of services to be delivered, and the level of access that the agency will need to provide to us to enable us to perform the contract.

For example, we may need to abide by the Privacy Act of 1974, the Internal Revenue Service’s Publication 4812, and the Federal Acquisition Regulation and associated supplemental contract clauses.

Each of these laws, regulations and contract clauses imposes certain requirements, including measures for the protection of personal information or information that is otherwise categorized as sensitive by the government.

Government agencies frequently modify or supplement these requirements, and consequences for violations of applicable requirements may include penalties, civil liability and for severe infractions, criminal liability.

Additional laws and regulations that may affect our business and our current and prospective customers’ activities include, but are not limited to, those in the following significant regulatory areas:

• Laws and regulations that limit the use of credit scoring models (e.g., state “mortgage trigger” or “inquiries” laws, state insurance restrictions on the use of credit-based insurance scores, and the E.U.

Consumer Credit Directive).

• Fair lending laws (e.g., the Equal Credit Opportunity Act and Regulation B, and the Fair Housing Act).

• The Cybersecurity Act of 2015;

Department of Commerce’s National Institute of Standards and Technology’s Cybersecurity Framework;

the Clarifying Lawful Overseas Use of Data Act;

and identity theft, file freezing, and similar state privacy laws.

• Laws and regulations related to extension of credit to consumers through the Electronic Fund Transfers Act and Regulation E, as well as non‑governmental VISA and MasterCard electronic payment standards.

• Laws and regulations applicable to secondary market participants (e.g., The Federal National Mortgage Association (“Fannie Mae”) and The Federal Home Loan Mortgage Corporation (“Freddie Mac”)) that could have an impact on our scoring products and revenues, including 12 CFR Part 1254 (Validation and Approval of Credit Score Models) issued by the Federal Housing Finance Agency in accordance with Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (Public Law 115-174), and any regulations, standards or criteria established pursuant to such laws or regulations.

• Laws and regulations applicable to our customer communication clients and their use of our products and services (e.g., the Telemarketing Sales Rule, Telephone Consumer Protection Act, the CAN-SPAM Act, the Fair Debt Collection Practices Act, and regulations promulgated thereunder).

• Laws and regulations applicable to our insurance clients and their use of our insurance products and services.

• The application or extension of consumer protection laws, including implementing regulations (e.g., the Consumer Financial Protection Act, the Truth In Lending Act and Regulation Z, the Fair Debt Collection Practices Act, the Servicemembers Civil Relief Act, and the Military Lending Act).

• Laws and regulations governing the use of the Internet and social media, telemarketing, advertising, endorsements and testimonials.

• Anti-money laundering laws and regulations (e.g., the Bank Secrecy Act and the USA PATRIOT Act).

• Laws and regulations restricting transactions with sanctioned parties and regarding export controls as they apply to FICO products delivered in non-U.S.

countries (e.g., Office of Foreign Asset Control sanctions, and Export Administration Regulations).

We are also subject to federal and state laws that are generally applicable to any U.S.

business with national or international operations, such as antitrust laws, the Foreign Corrupt Practices Act, the Americans with Disabilities Act, state unfair or deceptive practices acts and various employment laws.

HUMAN CAPITAL RESOURCES

As of September 30, 2021, we employed 3,662 persons across 31 countries.

Of these, our largest representation includes 1,299 (36%) based in the United States, 1,296 (35%) based in India and 331 (9%) based in the United Kingdom.

Other than to the extent mandated by applicable law in certain foreign jurisdictions, none of our employees are covered by a collective bargaining agreement, and no work stoppages were experienced during fiscal 2021.

Our Board of Directors (our “Board”) and executive leadership team believe that our people are vital to our success.

The Leadership Development and Compensation Committee (the “LDCC”) of our Board oversees all human capital management policies, programs and strategies, including but not limited to those regarding talent recruitment, development and retention, health and safety, organizational culture, employee engagement, diversity, equity and inclusion, and compensation and benefits.

The LDCC also periodically reviews and reports to the Board with respect to succession planning for our Chief Executive Officer and other senior management positions.

In addition, our Chief Human Resources Officer reports to our Board periodically on people-focused programs.

Employee Engagement

For much of the past decade, we have conducted quarterly workforce surveys to measure employee engagement and gain feedback and insights from our people about ways to improve the employee experience and the effectiveness of our business operations.

The results and insights of these studies are shared with the work team, executive team and our Board and are leveraged to drive positive organizational change.

Examples of organizational changes that have been driven by the insights from these surveys include investments in expanded workforce capacity, targeted recruiting of under-represented groups, broadened and more frequent company-wide communications, expanded employee stock ownership, expanded benefit programs including paid parental leave, enhanced incentive plan funding and expanded investments in professional development and culture-based initiatives to promote inclusiveness and belonging.

Diversity, Equity and Inclusion

FICO is committed to building and reinforcing a culture where individual differences and perspectives are valued.

We believe that diverse teams can better relate to and deliver against the many and varied needs of our clients.

We also believe that promoting a culture where individual differences are both welcomed and valued allows us to attract the best talent while allowing people to reach their full potential.

Foundationally, we have adopted a “Commitment to Inclusion and Belonging Policy” which provides that all employment-related decisions be made in compliance with established equal opportunity statutes.

Accordingly, all decisions to employ, transfer, promote, train, compensate or otherwise provide access to benefit programs are to be made in accordance with these statutes.

In addition, in the United States we have established an Affirmative Action Program and underlying plans for office locations with 50 or more employees to formally measure, report on and identify needed actions to close any gaps involving the utilization and advancement of women, minorities, disabled persons and veterans.

All employees receive mandatory training and testing on this and other foundational and compliance policies during the on-boarding process and every two years thereafter, with people managers receiving training regarding their unique leadership responsibilities.

As examples, we have a mandatory training program to identify, prevent and combat prohibited harassment, as well as training and “dialogue sessions” designed to build understanding of unconscious biases and strategies to overcome them.

Building on this foundation, we sponsor and provide dedicated funding to multiple employee resource groups (“ERGs”) that help support our goals of workforce engagement and a strong sense of inclusion and belonging.

FICO ERGs focus on women, race/ethnicity, LGBTQ+ and community support groups.

Our FICO Cares ERG encourages our people to connect with and contribute to their community.

We encourage employees to participate in volunteer activities by providing work schedule flexibility and paid Community Volunteer Leave.

We also support employee cash donations to qualified charitable organizations through our Corporate Matching Gift Program.

As one strategy to accelerate progress in expanding workforce diversity, we engaged in targeted campus recruiting efforts.

In the United States, we formed a new partnership with the Management Leadership for Tomorrow (MLT.org) organization, which helped us connect with Black, Latinx and Native American college students for summer internships followed by offers of full-time employment upon graduation.

Additional information on our diversity metrics and programs, including our EEO-1 survey results, will be available soon

on the Corporate Responsibility page of our website at www.fico.com/en/corporate-responsibility .

Information contained on our website is not deemed part of or incorporated by reference into this Annual Report on Form 10-K.

Talent Recruitment

We leverage our organizational culture as a competitive advantage in our efforts to attract talent from the broadest possible pool.

We deploy structured selection practices to ensure strong alignment between candidate qualifications and knowledge and skills needed for success in each role, while avoiding unconscious biases.

Professional Development

To support professional development, we offer a structured onboarding program with training specific to a variety of identified career paths to help new employees become rapidly engaged and productive.

We have invested in building the FICO Integrated Learning Organization (“ILO”), which is led by our Chief Learning Officer.

The ILO develops customized learning content for colleagues, clients and partners around the world.

We deliver high quality, targeted new hire onboarding, technology and product skill training, compliance and management and leadership education through this “FICO Learning” platform.

This allows our employees to obtain the knowledge and skills to effectively perform in their current roles, while also preparing them for new opportunities.

We also offer financial support for degreed programs through a tuition reimbursement program.

Compensation and Benefit Programs

We regularly participate in market-based compensation surveys and seek the advice of outside experts to ensure that our base pay and incentive structures are competitive.

We create a strong sense of shared purpose by having our CEO and each member of our executive leadership team participate in the same annual cash incentive bonus plan, as all non-sales employees across our organization.

Over the course of the past five years, we’ve steadily and significantly expanded participation in our annual performance-based equity program from 7% to nearly 25% of our workforce.

In addition, two years ago, we adopted an Employee Stock Purchase Plan for eligible employees designed to promote even broader equity participation.

We offer competitive health and welfare benefit plans with significant company subsidies to offset premiums, retirement plans with a competitive company match to encourage participation and flexible paid-time-off programs including vacation, sick time and disability time.

We have adopted paid Maternity and Parental Leave benefits totaling up to 12 weeks.

Health and Safety

We are committed to providing a safe and healthy workplace.

We continuously strive to meet or exceed compliance with all laws, regulations and accepted practices pertaining to workplace safety.

All employees and contractors are required to comply with established safety policies, standards and procedures.

As the COVID-19 pandemic persists, our focus remains on promoting employee health and safety, serving our customers and ensuring business continuity.

Beginning in March 2020, our employees were instructed to work from home in each country where we operate.

As certain offices have reopened due to the lifting of local government restrictions, we have maintained a “Voluntary Work-From-Home Policy” providing our people with valued flexibility.

In addition, we have implemented a post-pandemic “Remote Work Policy” permitting our people in countries other than India to elect to work primarily from home on an ongoing basis with 75 percent of eligible employees electing to do so.

We have also substantially reduced employee travel to only essential business needs in favor of ongoing video-based meetings.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business