What changed in this filing

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Item 1. Business

2024-11-06 compared with 2023-11-08 · 86 added, 50 removed, 354 unchanged (28% of the section changed)

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

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

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

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

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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 10 T, were introduced in January 2020.

FICO ® Score 9 introduced the utilization of reported rental payment history, while also de-emphasizing medical debt and disregarding paid collections.

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

To increase its predictive power, FICO Score 10 T 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.

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.

Updated versions of our 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.

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

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

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

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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 have been made available in over 40 countries.

FICO Scores have been made available in over 40 countries and we have also developed client-specific versions of the FICO Score in over ten countries that we sell directly to end-user customers.

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

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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.

Consumers can also subscribe to credit monitoring, which delivers 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.

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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, 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.

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

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 FICO 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 $227.0 million as of September 30, 2024, representing 31% of our total software ARR.

For information about ARR, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Annual Recurring Revenue , in this Annual Report on Form 10-K.

Our Offerings

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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:

Key FICO solutions currently offered include:

• 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.

Our models are continually improved using a proprietary, global data set of transaction data contributed by more than 10,000 institutions that participate in the FICO ® Falcon ® Intelligence Network.

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.

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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.

Certain Customer Communication capabilities are available on FICO ® Platform today, and we plan to make additional Customer Communication capabilities 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.

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• FICO ® Implementation Services.

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

We often sell software implementation and configuration services in conjunction with our on-premises and SaaS subscriptions, and our 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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and the largest 100 banks in the world.

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

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.

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

Seven of the top ten companies on the 2024 Fortune 500 list use one or more of our solutions.

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

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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.

As more capabilities 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 91% of our total revenue in 2023.

Our largest geographic market is the Americas, representing 85% of our total revenue in 2023.

Our largest market segment is financial services, representing 92% of our total revenue during fiscal 2024.

Our largest geographic market is the Americas, representing 84% of our total revenue during fiscal 2024.

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

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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).

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

consumer reporting agencies), which is selling a credit scoring product competitive with our products.

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

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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.

Numerous 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”) 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 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 CPRA also created a new agency, the California Privacy Protection Agency, authorized to implement and enforce the CCPA and the CPRA.

Numerous other U.S.

states have considered similar privacy laws, with many of those states having passed such laws with respective effective dates ranging from 2023 through 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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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.

Further, the CFPB has authority to issue 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, which the CFPB has done for several markets including the consumer reporting market.

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 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 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.

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

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 costs of consumer reports and credit scores, the use of credit scores and fair lending, and the use, transparency, and fairness of algorithms, artificial intelligence, and machine learning in business processes.

For example, the CFPB has initiated a public request for information relating to fees charged by providers of mortgages and related settlement services, including fees for consumer reports and credit scores.

In addition, the CFPB has indicated that it intends to issue rules under the FCRA that would extend the FCRA to certain business practices not currently subject to that statute.

The European Commission has finalized the EU AI Act, which establishes requirements for the provision and use of products that leverage artificial intelligence systems, including in credit scoring.

The EU AI Act entered into force on August 1, 2024 and its provisions take effect between six and 36 months after that date, with most of those provisions becoming effective in 2026.

Other countries, as well as the executive branch of the U.S.

government and a number of U.S.

states, are considering or have implemented regulations or standards applicable to artificial intelligence technologies.

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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• 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).

• Laws and regulations relating to the environmental, social and governance, or sustainability, practices of companies, including enhanced climate-related disclosure requirements from regulators, such as California and the SEC, and the E.U.’s Corporate Sustainability Reporting Directive.

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

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As of September 30, 2024, we employed 3,586 persons across 27 countries.

Of these, our largest representation includes 1,283 (37%) based in the United States, 1,259 (36%) based in India and 270 (8%) based in the United Kingdom.

Of these, our largest representation includes 1,309 (36%) based in the U.S., 1,367 (38%) based in India and 264 (7%) based in the U.K.

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 2024.

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, inclusion and belonging, 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, retention, health and safety, organizational culture, employee engagement, diversity, and compensation and benefit programs.

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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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, 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.

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

We involve designated human resources business partners and learning consultants 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, policies designed to ensure applicant pools are appropriately diverse prior to hiring decisions taking place, broadened and more frequent company-wide communications, increased employee stock ownership by significantly expanding the recipients of equity-based awards, 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 targeting leadership and technical skills, as well as 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

We have recently experienced a remarkably low undesired attrition rate which, over the past 12-month period, is the lowest we have experienced in decades and well below competitive market rates.

Organizational Culture

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

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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.

In addition, in the U.S.

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.

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

Across our global workforce, as of September 30, 2024, the percentage of males and females was 67% and 33%, respectively.

Looking at our U.S.

workforce, as of September 30, 2024, 45% were racially/ethnically diverse employees who are members of a protected class.

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

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.

In the U.S., 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.

Also in the U.S., our FICO Educational Analytics Challenge program involves close partnerships with Historically Black Colleges and Universities through which we sponsor data science-focused projects with these experiences helping to fuel diversity recruiting efforts.

In addition, our campus recruiting program in India, which targets software engineering and data science graduates, has yielded a female hiring ratio averaging near 50% annually in each of the past several years, helping us increase the percentage of women in our organization.

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 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.

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

We deploy selection practices designed 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 have adopted a policy that seeks a level of qualified applicant pool diversity to 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 prohibit our recruiters from inquiring about a candidate’s current level of compensation.

Our focus on the professional development of our people drives the internal posting of virtually all job opportunities.

And, consistent with our remarkably low undesired attrition rate, FICO has significantly strengthened its position as an employer of choice over the past year, resulting in very attractive external candidate pools.

Professional Development

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

We have defined specific career paths for all major functions in our organization so that our people understand how they can progress in their career by expanding their knowledge and skills.

In doing so, our job titling system reflects both individual contributor (or technical) career tracks and people management career tracks to reinforce our philosophy that people can grow professionally in either track.

To further consistent administration, we conduct annual company-wide performance reviews supported by the use of performance rubrics for each major function.

These rubrics set forth clear behavioral expectations for each function through a set of objective descriptors organized across our three levels of performance (Improvement Needed, Achieved Expectations, and Outstanding).

In addition to rubrics, outcome-based goals are established for each individual based upon his/her specific role and priorities.

Evaluation across both behavioral and outcome-based dimensions yields an overall performance assessment.

We define a “promotion” as an increase in pay band linked to the proven ability to be successful in the next level of responsibility.

Our structured promotion process takes place twice annually with promotions to all job levels including senior job levels occurring with our year-end cycle (October/November) and promotions to lower and middle job levels taking place with our mid-year cycle (April/May).

This process supports an integrated approach yielding improved consistency in promotion decisions, including that all groups are representatively recognized.

Approximately 20% of our people are recognized via promotion each year.

Succession Planning

We actively assess talent across the organization to optimize deployment of resources, encourage professional development, drive accountability, and identify and take actions to mitigate undesired attrition risk.

At the mid-point of each fiscal year, talent assessments are performed by people managers for each team member.

These assessments include a mid-year performance rating and a leadership strength rating, the combination of which yields a Talent Management Score ranging from one to nine with recommended follow-up actions associated with each score.

In addition, managers identify any significant attrition risks and underlying drivers and develop related mitigation plans.

Finally, for each senior leader role, managers identify potential successor candidates along with targeted development needs to encourage readiness.

For vice president-level roles, the executive team plays a central role through a process we refer to as “Session C.” This process involves a detailed evaluation of each vice president incumbent using several tools including a personal biography written by the incumbent identifying key accomplishments, career growth aspirations, and champions that can articulate their contributions.

In addition, managers complete a Leader Profile for each vice president incumbent highlighting key strengths, development progress over the past year, go-forward development plans, attrition risks and drivers, and succession insights.

All of these materials are centrally reviewed and discussed by the executive team during a multi-day meeting.

After discussing incumbent vice presidents, the executive team evaluates any proposed candidates for promotion to vice president using a combination of promotion recommendation forms prepared by the sponsoring manager, a 360-degree performance evaluation involving self-evaluation, manager evaluation, direct report evaluation, and insights gathered from key stakeholders.

Candidates for vice president-level promotion are placed “on-deck” for a one- to three-year period for observation prior to any promotion decision being finalized.

This approach drives high quality, consistent decisions while ensuring our highest potential candidates are properly developed and ready when promoted.

Compensation and Benefit Programs

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 regularly participate in market-based compensation surveys, seek the advice of outside experts, and leverage new hire, peer equity, 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 decade, we’ve steadily and significantly expanded participation in our annual performance-based equity program from 7% to nearly 33% of our workforce.

Beyond our structured promotion cycles, all compensation actions are determined in November following the conclusion of the year-end performance review process in October.

This includes promotion and market-based base pay adjustments, annual bonus awards, and long-term incentive awards.

This rewards-planning cycle ensures strong linkage between performance and rewards, and it allows for centralized review and refinement of reward recommendations leading to high quality and representative decisions.

Over the course of the past decade, we’ve steadily and significantly expanded participation in our annual performance-based equity program from 7% to just over 33% of our workforce.

In addition, we offer an Employee Stock Purchase Plan for eligible employees, which is designed to promote even broader equity participation.

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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.

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.

In addition, we have a global Family Building Benefit program, which provides infertility, cryopreservation, surrogacy and adoption support services.

In India, we have a Childcare Reimbursement program to assist parents of young children.

Promoting a Healthy and Safe Work Environment

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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