The company behind the FICO credit score, Fair Isaac Corporation (FICO 3.25%), reported a 13% increase in revenue and a 22% increase in net income in its fiscal first-quarter earnings report. Price increases in its credit scoring segment and gains in applications sold to banking institutions helped the company log year-over-year gains in revenue and profit.
Check out the latest Fair Isaac earnings call transcript.
Fair Isaac's Q1: By the numbers
Here's a quick look at key metrics for Fair Isaac Corporation in its fiscal first quarter compared to the year-ago period.
|
Metric |
Fiscal Q1 2019 |
Fiscal Q1 2018 |
Year-Over-Year Change |
|---|---|---|---|
|
Total revenue |
$262 million |
$232 million |
13% |
|
Operating income |
$49 million |
$36.8 million |
33% |
|
Net income |
$40 million |
$32.9 million |
22% |
|
Diluted EPS |
$1.32 |
$1.04 |
27% |
Data source: Fair Isaac Corporation.
The company also reiterated its guidance for 2019, which it issued in its fiscal fourth-quarter earnings report.
Image source: Fair Isaac Corporation.
What happened this quarter
Here are the major themes that played into Fair Isaac's fiscal first quarter:
- Scores revenue increased 25% year over year. Business-to-business (B2B) scores revenue grew 36%, and business-to-consumer revenue increased 9% year over year. On the conference call with analysts, management said that B2B revenue was partially driven by volume growth in the "low single-digits," so price increases put in place earlier this year did most of the heavy lifting.
- Applications revenue increased roughly 5% year over year. On the conference call, management noted sales of fraud and compliance solutions as being particularly strong during the quarter, with two new contracts coming from Latin America.
- The company added USAA to its list of partners, which will soon provide free FICO scores to its members, paying Fair Isaac for the right to do so. With more than 11 million members, according to its website, USAA is a big win for Fair Isaac's score business.
- Buybacks continue to eat away at its share count. The company repurchased 425,000 shares at an average price of $195 in the first quarter. Its share count declined by 3.9% year over year, owed to regular repurchases of its common stock.
Looking ahead
Price increases put into place in early 2018 provided a tailwind to Fair Isaac's results throughout the calendar year. In 2019, Fair Isaac will broadly raise prices on "a number of different parts of the [scores] portfolio," according to conference call commentary. In addition, it will have a special (read: larger) price increase for one area of its scores business, which it didn't name.
While one shouldn't expect that price increases in 2019 will be as impactful as the 2018 increase in prices in scores for mortgages -- those price hikes resulted in a rare increase in earnings guidance for the year -- the reality is that the credit scoring business has incredible pricing power.
For banks, FICO scores remain a highly effective way to manage and measure credit risk. For consumers, getting a free FICO score by having a certain credit card or bank account adds real value. Consumers can also subscribe to Fair Isaac's MyFICO product, which provides scores from all three major credit bureaus for a recurring fee.
