What changed in this filing

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Item 1. Business

2023-11-08 compared with 2022-11-09 · 53 added, 47 removed, 351 unchanged (22% of the section changed)

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

Today, FICO’s software and the widely used FICO® Score operationalize analytics, enabling thousands of businesses in nearly 120 countries to uncover new opportunities, make timely decisions that matter, and execute them at scale.

Today, FICO’s software and the widely used FICO® Score operationalize analytics, enabling thousands of businesses in more than 100 countries to uncover new opportunities, make timely decisions that matter, and execute them at scale.

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

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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.

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, 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.

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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.

Our new FICO Scores are generally designed to provide greater predictive accuracy than the scores they replace, and to be 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.

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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.

FICO Scores have been made available in over 40 countries.

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

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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.

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

Principal Areas of Expertise

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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.

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

In addition, many core capabilities of FICO’s current software products are now part of FICO Platform, such as Originations and Fraud.

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 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 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.

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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.

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

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.

• FICO ® Fraud Solutions empower organizations to safeguard the business and their customers from payments fraud and application fraud.

Leveraging advanced analytic capabilities on a large scale and in real-time, FICO Fraud Solutions identify fraud and enable strategies designed to prevent fraud across payment cards, money transfers, and instances where stolen or synthetic identities are exploited to open accounts.

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.

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

Certain Fraud Solutions capabilities are available on FICO Platform today, and we plan to make additional Fraud Solutions capabilities available on FICO ® Platform in the future.

• 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.

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

Certain Originations capabilities are available on FICO Platform today, and we plan to make additional Originations capabilities available on FICO ® Platform in the future.

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

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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 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.

End users of our products include three-quarters of each of the largest 100 financial institutions in the U.S.

and 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;

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and more than 200 government or public agencies.

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.

Eight of the top ten companies on the 2023 Fortune 500 list use one or more of our solutions.

In addition, our consumer solutions are marketed to more than 200 million U.S.

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

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• neural network developers and artificial intelligence system builders;

• fraud and compliance solution providers;

• fraud solution providers;

• scoring model builders;

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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 fraud 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.

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

In the decision platform market, we compete with Pegasystems, IBM and SAS, among others.

PRODUCT PROTECTION AND TRADEMARKS

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In addition, patents may never be issued on our pending patent applications or on any future applications that we may submit.

We currently hold 188 U.S.

As of September 30, 2023, we held 196 U.S.

and 23 foreign patents, with 69 applications pending.

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We have used, registered and/or applied to register certain trademarks and service marks for our technologies, products and services.

We currently have 31 trademarks registered in the U.S.

As of September 30, 2023, we had 24 trademarks registered in the U.S.

and select foreign countries.

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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, 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.

and foreign jurisdictions have passed, or are currently contemplating, a variety of consumer protection, data privacy, and cyber 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.

personal data, a requirement for prompt notice of data breaches in certain circumstances, a requirement for implementation of certain approved safeguards (such as the use of approved “standard contractual clauses” and the performance of appropriate data transfer impact assessments) for transfers of personal data to other countries that have not been determined by the E.U.

to provide adequate data privacy protections, and possible substantial fines for any violations.

Our implementation of processes to meet such requirements 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 maintaining appropriate certifications, performing any necessary assessments, engaging in contract negotiations with third parties and implementing approved standard contractual clauses, 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 data privacy and cyber 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 January 1, 2023, the California Privacy Rights Act (the “CPRA”) will revise and significantly expand the scope of the CCPA.

Additionally, effective January 1, 2023, the California Privacy Rights Act (the “CPRA”) revised and significantly expanded 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.

For example, Virginia, Utah, Connecticut, and Colorado have passed new consumer privacy laws with effective dates in 2023, and Delaware, Indiana, Iowa, Montana, Oregon, Tennessee, and Texas have passed consumer privacy laws that will become effective in 2024, 2025, or 2026.

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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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.

In addition, the laws and regulations issued by U.S.

and foreign regulators of some of our largest financial institution customers may require them to flow down certain contractual obligations, 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.

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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.

regulators, such as the CFPB, relating to policy concerns regarding the operation of consumer reporting agencies, the use and accuracy of credit and alternative data, the use of credit scores and fair lending, and the use, transparency, and fairness of algorithms, artificial intelligence, and machine learning in business processes.

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.

The final version of the EU AI Act is expected to be published by the end of 2023 and is expected to become effective in 2026.

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

cybersecurity incident disclosure requirements for public companies under regulations issued by the SEC;

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, 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).

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• 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).

• Laws and regulations that apply to outsourcing of services by our clients, and that set forth 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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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 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, inclusion and belonging, 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.

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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.

For 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.

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

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, well-being, family building, childcare reimbursement and company-funded transportation programs, enhanced incentive plan funding and expanded investments in professional development and culture-based initiatives to promote inclusiveness and belonging.

Our engagement scores have steadily strengthened over the past year and nearly all driver scores remain well-above their published external benchmark.

Diversity, Inclusion and Belonging

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

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

All FICO ERGs are open to everyone at FICO to join.

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

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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.

In the United States, we maintain and continue to expand our partnership with the Management Leadership for Tomorrow (MLT.org) organization, which helps us connect with racially diverse 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 .

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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 through hiring manager education and use of decision tools.

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

We deploy selection practices which 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.

We have adopted a policy that seeks a level of qualified applicant pool diversity be achieved prior to offer extension as a strategy for building workforce diversity along with high quality hires.

Further, in the U.S., we detail our targeted base pay ranges on all public job postings and instruct our recruiters that they are prohibited from inquiring about a candidate’s current level of compensation.

Professional Development

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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 33% 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.

In addition, we offer an Employee Stock Purchase Plan for eligible employees, which is 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 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

We recently implemented a new global Family Building Benefit program, which provides infertility, cryopreservation, surrogacy and adoption support services.

In India, we recently implemented a new Childcare Reimbursement program to assist parents of young children.

Promoting a Healthy and Safe Work Environment

We are committed to providing a safe and healthy workplace.

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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.

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 foster a healthy work/life balance for our people via both remote and hybrid work location policies that provide significant flexibility surrounding work location and work schedules.

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