What changed in this filing

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Item 1. Business

2022-11-09 compared with 2021-11-10 · 55 added, 50 removed, 343 unchanged (23% of the section changed)

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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.

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

We also serve consumers through online services that enable people to access and understand their FICO Scores — the standard measure in the U.S.

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

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 offering is 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.

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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.

Our software can be deployed in the cloud utilizing 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.

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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.

In addition, some FICO pre-configured solutions are now available on FICO Platform.

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.

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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 WorkbenchTM 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 is a data retrieval and mapping solution that can access, gather, and transform data from corporate or public facing information services.

FICO Data Orchestrator runs on FICO ® Platform.

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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.

We plan to offer most of our Fraud capabilities on FICO Platform.

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

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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.

We plan to offer most of our Originations capabilities on FICO Platform.

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

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• FICO ® Implementation Services.

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

We often sell software implementation and configuration services in conjunction with our on-premise and SaaS subscriptions, and our perpetual license sales.

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.

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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.

End users of our products include 92 of the 100 largest financial institutions in the U.S., and three-quarters of the largest 100 banks in the world.

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

property and casualty insurers;

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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.

Seven of the top ten companies on the 2022 Fortune 500 list use one or more of our solutions.

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

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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 regulation affect how our business is conducted and, in some cases, subject us to the possibility of government supervision or enforcement 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.

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

For example, the General Data Protection Regulation (the “GDPR”) in the United Kingdom (“U.K.”) and the European Union (“E.U.”) imposes, among other things, strict obligations and restrictions on the collection and use of U.K.

personal data, a requirement for prompt notice of data breaches in certain circumstances, a requirement for implementation of certain approved safeguards for transfers of personal data to third countries, and possible substantial fines for any violations.

and the U.K each have issued new standard contractual clauses (“SCCs”) as an approved safeguard for cross-border transfer of E.U.

personal data along with guidance imposing further obligations on controllers and processors that rely on SCCs for such transfers, including carrying out an appropriate data transfer impact assessment to evaluate whether adequate protection will be afforded to the data in the destination country.

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

regulators or may increase our costs of compliance associated with performing any necessary assessments, engaging in contract negotiations with third parties, and/or (if appropriate) localizing certain data processing activities.

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.

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

The CPRA also created a new agency, the California Privacy Protection Agency, authorized to implement and enforce the CCPA and the CPRA, which could result in increased privacy and information security regulatory actions.

states have considered and/or enacted similar privacy laws.

For example, Virginia, Utah, Connecticut, and Colorado have passed new consumer privacy laws that become effective in 2023.

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.

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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.

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 the offering of consumer financial products and services and provides the Consumer Financial Protection Bureau (the “CFPB”) with enforcement authority to enforce those provisions as well as certain enumerated federal consumer financial laws.

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

Further, the CFPB has authority to issues rules designating 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.

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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.

There has been an increased focus on laws and regulations related to our business and the business of our customers, including by the current U.S.

presidential administration, the U.S.

Congress, and U.S.

regulators, such as the CFPB, relating to policy concerns regarding the operation of consumer reporting agencies, the use and accuracy of credit data, the use of credit scores, algorithm accountability and transparency, and fair lending.

The European Commission has also released draft proposed regulations (i.e., the EU AI Act) that would establish requirements for the provision and use of products that leverage artificial intelligence, machine learning, and similar analytic and statistical modeling technologies, including credit scoring.

The EU AI Act is expected to be finalized in 2024 or 2025.

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:

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Consumer Credit Directive).

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

• Fair lending laws (e.g., the Equal Credit Opportunity Act and Regulation B, and the Fair Housing Act) and laws and regulations that may impose requirements relating to algorithmic fairness or accountability.

• The Cybersecurity Act of 2015;

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the Clarifying Lawful Overseas Use of Data Act;

cyber incident notice requirements for banks and their service providers under rules and regulations issued by federal banking regulators;

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

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• 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 customer communication clients and their use of our products and services (e.g., the Telemarketing Sales Rule, the Telephone Consumer Protection Act, the CAN-SPAM Act, the Fair Debt Collection Practices Act, and regulations promulgated thereunder, and similar state laws and similar laws in other countries).

• 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).

• 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 and Regulation F, the Servicemembers Civil Relief Act, and the Military Lending Act, and similar state consumer protection laws).

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

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• 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).

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

• Financial regulatory standards (e.g., Sarbanes-Oxley Act requirements to maintain and verify internal process controls, including controls for material event awareness and notification).

• Regulatory requirements for managing third parties (e.g., vendors, contractors, suppliers and distributors).

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

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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.

Detailed findings from these surveys are promptly communicated to all employees, individual work teams, the executive team and our Board and the findings are leveraged to drive positive organizational change.

We involve designated employee “ambassadors” who work with senior leaders to explore findings, identify high value actions and amplify messaging to help our people understand how survey participation can connect to positive 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 and well-being programs, enhanced incentive plan funding and expanded investments in professional development and culture-based initiatives to promote inclusiveness and belonging.

Diversity, Equity and Inclusion

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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 .

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

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

In the United States, we maintained and expanded our 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 programs and efforts are available 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.

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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.

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 through hiring manager education and use of decision tools.

Professional Development

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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.

We also offer financial support for degreed or certificated 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 regularly participate in market-based compensation surveys, seek the advice of outside experts and leverage new hire and unplanned attrition trend data 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.

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

In addition, three 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.

We have paid Maternity and Parental Leave benefits totaling up to 12 weeks, and we have adopted a Well-Being Program designed to provide broad-based physical and mental health education and personal health coaching, as well as quarterly cash Wellness Awards designed to help employees fund wellness-related purchases which they find most valuable.

Health and Safety

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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 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 the vast majority electing to do so.

For our offices in India, we have adopted a “hybrid” approach under which employees may elect to work from home up to two days per week and have flexibility to adjust office attendance hours to best manage commuting challenges.

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