Fair or not, Fair Isaac has a lot to say about whether you get that loan approval. Also known as FICO, the company provides credit scores and risk management tools for businesses worldwide, including banks, credit card issuers, mortgage and auto lenders, retailers, insurance firms, and health care providers. FICO is the creator of the FICO Score, one of the most widely-used scoring systems to determine borrowers' creditworthiness. FICO also provides software for managing decisions and, for consumers, online credit management tools. While the US accounts for nearly 60% of its revenue, the company operates globally in more than 100 countries.
FICO Scores are determined by using a secret formula, which the company tweaks as the economic landscape changes. The newest FICO formula reduces penalties for multiple accounts and is more lenient on occasional late payments, which don't necessarily indicate a poor credit risk. Additionally, authorized credit card users (such as teenagers on a parent's account) no longer benefit from activities of the account owners, which prevents artificial score inflation.
FICO's Applications segment generates nearly two-thirds of the company's revenue and includes services such as direct marketing, account origination, customer management, and fraud control.
The company's other two segments are Scores, which provides business and individual credit scores; and Tools, which is used by businesses to build their own applications.
San Jose-based FICO operates in 25 locations in the US, Canada, Latin America, the Carribean, Europe, the Middle East and Africa, and the Asia Pacific region. Nearly 60% of revenue comes from the US, while another roughly 15% of revenue comes from the UK.
Sales and Marketing
FICO's client base includes 700 insurers, 400 retailers and general merchandisers, 150 government or public sector agencies, and 150 health and pharmaceutical companies.
The company markets its products and services through their own direct sales division that is organized around its vertical markets. Outside of the US, FICO markets through subsidiary sales organizations that promote FICO products in their local countries where its direct marketing does not cover. FICO also markets through indirect channels that include alliance partners and other resellers.
FICO's top three clients are credit agencies Equifax, TransUnion, and Experian, which account for 15% of the company's total revenue. Other clients include BMW, Chase, CITI, eBay, General Motors, Sprint, Southwest Airlines, and Wal-Mart, among others.
In fiscal 2014, FICO boosted its advertisement and promotion spend by 51% to $3.8 million.
Business has been good in recent years for FICO as the financial sector has improved with the economy. Revenue grew for its fifth straight year in fiscal 2014 (ended September), jumping by 6% to $789 million, thanks to growth in the company's Application segment -- mostly from its fraud and customer communication solutions. FICO's tools segment also helped add to the the top line as sales from optimization and predictive modeling tools grew.
Higher revenues also pushed FICO's profit up for the fifth straight year, as net income grew by 5% to $94.9 million.
Operations provided $175 million, or 29% more cash than in fiscal 2013, due to the timing of receipts and payments in its ordinary course of business -- mostly related to payments on accrued compensation and employee benefits.
The company continues to invest in research and development activities to create applications to meet its growing customer needs. in fiscal 2014, FICO boosted its R&D spending by nearly 25% to $83.4 million toward improving its core technology, enhancing its existing products, and developing new products and tools. That year, it introduced a full suite of applications for its FICO Analytic Cloud platform to allow simple and affordable use among small-to-midsize businesses. To spread brand awareness, the company also released its FICO Score Open Access program to allow more than 30 million customers access their their FICO Score at no cost. The company expects the number of Open access users to grow to more than 60 million in 2015.
In addition to creating its own innovative software solutions, the company has been acquiring specialized software companies to grow its product offerings in recent years. In 2015, the company purchased TONBELLER to strengthen its application offerings in the quickly growing financial crime and compliance market. In 2014, it purchased both InfoCentricity and Big Data analytics software from Karmasphere to broaden its predictive analytics and data services. In 2013, it bought Infoglide Software to enhance its FICO Analytics platform with fraud, security, and compliance features.
The company has also been targeting growth by expanding outside of the mature US market, especially into nations with developing economies. In 2014, the company opened a new office in Johannesburg, South Africa, to meet the increasing demand for analytics-powered solutions in the region and to support its clients, which include the country's "big four" banks and major retailers.
Mergers and Acquisitions
In 2015, FICO acquired Germany-based TONBELLER, which provides protection against white-collar and financial crime through risk management and monitoring, analysis, and reporting. The purchase helps FICO as it moves into the growing financial crime and compliance (FCC) market.
FICO in early 2014 purchased InfoCentricity, a California-based software-as-a-service-based predictive analytics software company. The move makes FICO the supplier of the broadest offering for predictive analytics modeling, both on the cloud and on-premise. It's leveraging InfoCentricity's Xeno model development software and Strategy Trees decision strategy software to add to the FICO Analytics Cloud. Also in 2014, FICO bought Big Data analytics software technology from Karmasphere, Inc, which is designed for query construction and collaboration using Hadoop data stores.
In 2013, the company purchased Infoglide Software, an entity resolution and social network analysis solutions provider, which is mostly used to help with fraud detection, security, and compliance. The new software enables FICO Analytics to have fraud, security, compliance features and will also help differentiate the company's fraud solutions in the banking, insurance, healthcare, and retail sectors.
In 2012, FICO bought Adeptra, which provides a risk intervention platform for financial services clients and others, for some $115 million.