CSI Reports Growth in Second Quarter Revenues and Net Income

Net Income Up 11.3% to $0.59 Per Share

PADUCAH, Ky.--()--Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported higher revenues and net income for the second quarter ended August 31, 2016, compared with the second quarter of the prior fiscal year.

CSI’s revenues grew 3.1% to $57.9 million for the second quarter of fiscal 2017 compared with $56.2 million for the second quarter of fiscal 2016. Net income increased by 8.6% to $8.2 million for the second quarter of fiscal 2017 compared with $7.5 million in the second quarter of fiscal 2016. Net income per share increased by 11.3% to $0.59 for the second quarter of fiscal 2017 compared with $0.53 for the prior year’s second quarter.

“CSI’s growth in revenues, earnings and margins benefitted from increased business from existing customers and new customers added since the second quarter of last year,” stated Chief Executive Officer Steven A. Powless. “We also continue to benefit from our high contract renewal rate from existing customers, increased cross-sales and higher revenue from transaction-based services. Our outlook for the second half of fiscal 2017 is positive based on new core customers signed and increased sales to existing customers. Our pipeline for new business remains strong, and we expect our growth in the second half to offset the effect of lower early contract termination fees in the first half of this fiscal year.”

Second Quarter Results

Consolidated revenues increased 3.1% to $57.9 million in the second quarter of fiscal 2017 compared with $56.2 million in the second quarter of fiscal 2016. Processing revenues rose 3.1% to $37.2 million compared with $36.0 million for the second quarter of fiscal 2016. The growth in processing revenues was primarily driven by the addition of new customers, cross-sales to existing customers and increases in transaction volumes from existing customers, partially offset by the effect of lost business and a decrease in early contract termination fees. Processing revenues included early contract termination fees of $932,000 in the second quarter of fiscal 2017 compared with $1.8 million in the second quarter of 2016. These fees can be generated when an existing customer is acquired by another financial institution and can vary significantly from period to period based on the number and size of customers that are acquired and how early in the contract term a customer is acquired.

Other revenues increased by 3.1% to $20.8 million compared with the second quarter of fiscal 2016. Other revenues were higher due primarily to growth in mobile and Internet banking services, growth in homeland security and fraud prevention services, and growth in infrastructure network and security management services, partially offset by lower transaction item capture revenue and lower non-recurring revenues from third-party equipment, software, and maintenance agreement resale arrangements. Other revenues included one-time early contract termination fees of $2,000 in the second quarter of fiscal 2017 compared with $48,000 in the second quarter of fiscal 2016.

Operating income increased 6.3% to $13.2 million for the second quarter of fiscal 2017 compared with $12.5 million for the second quarter of fiscal 2016. Operating margin rose to 22.9% in the second quarter of fiscal 2017 compared with 22.2% for the second quarter of fiscal 2016.

Net income for the second quarter of fiscal 2017 was up 8.6% to $8.2 million compared with $7.5 million for the second quarter of fiscal 2016. Net income per share increased 11.3% to $0.59 for the second quarter of fiscal 2017 on 14.0 million weighted average shares outstanding compared with $0.53 for the second quarter of fiscal 2016 on 14.1 million weighted average shares outstanding.

“CSI’s cash flow remained strong in the first six months of fiscal 2017 with cash flow from operations rising 13.8% to $32.2 million,” Powless said. “This contributed to our total cash position rising 104% to $34.3 million at August 31, 2016, compared with the same date last year. At the end of the quarter, we had no long-term debt and had available lines of credit to fund future growth opportunities.

“We continue to use our cash generated from operations to invest in our business and return a portion of our earnings to shareholders. During the second quarter of fiscal 2017, we invested approximately $3.8 million in new property, equipment and software. We also returned $3.5 million to shareholders in cash dividends. During the second quarter, CSI’s Board of Directors declared a cash dividend of $0.28 per share. The dividend was paid on September 26, 2016, to shareholders of record as of the close of business on September 1, 2016.”

Six Months Results

Consolidated revenues for the first six months of fiscal 2017 rose 0.7% to $114.1 million compared with $113.3 million for the first six months of fiscal 2016. CSI’s increase in revenues benefited from growth in other revenues categories offset partially by a decrease in processing revenues. Processing revenues declined primarily due to lower early contract termination fees of $944,000 in the first six months of fiscal 2017 compared with $4.1 million in the first six months of fiscal 2016.

“CSI’s results for the first half of fiscal 2017 were affected by the comparison of unusually high early contract termination fees in the first half of last year,” Powless stated. “Last year, we experienced a higher level of merger and acquisition activity among community banks that resulted in recognition of these fees as CSI customer banks were acquired and merged into other financial institutions that were not CSI customers.”

Operating income declined 3.3% to $24.2 million for the first six months of fiscal 2017 compared with $25.0 million for the first six months of fiscal 2016. Operating margin was 21.2% in the first six months of fiscal 2017 compared with 22.0% in the first six months of fiscal 2016.

Net income for the first six months of fiscal 2017 declined 1.2% to $14.9 million compared with $15.1 million in the first six months of fiscal 2016. Net income per share was $1.07 for both the first six months of fiscal 2017 and the first six months of fiscal 2016.

About Computer Services, Inc.

Computer Services, Inc. delivers core processing, managed services, mobile and Internet solutions, payments processing, print and electronic distribution, and regulatory compliance solutions to financial institutions and corporate customers across the nation. Exceptional service, dynamic solutions and superior results are the foundation of CSI’s reputation, and have resulted in the company’s inclusion in such top industry-wide rankings as the FinTech 100, Talkin’ Cloud 100 and MSPmentor Top 501 Global Managed Service Providers List. CSI’s stock is traded on OTCQX under the symbol CSVI. For more information about CSI, visit www.csiweb.com.

Forward-Looking Statements

This news release contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. All statements except historical statements contained herein constitute “forward-looking statements.” Forward-looking statements are inherently uncertain and are based only on current expectations and assumptions that are subject to future developments that may cause results to differ materially. Readers should carefully consider: (i) economic, competitive, technological and governmental factors affecting CSI’s operations, customers, markets, services, products and prices; (ii) risk factors affecting the financial services information technology industry generally including, but not limited to, cybersecurity risks that may result in increased costs to CSI to protect against the risks, as well as liability or reputational damage to CSI in the event of a breach of our security; and (iii) other factors discussed in CSI’s Annual Report, Quarterly Reports, Information and Disclosure Statements and other documents posted from time to time on the OTCQX website (www.otcqx.com), including without limitation, the description of the nature of CSI’s business and its management discussion and analysis of financial condition and results of operations for reported periods. Unless required by law, CSI undertakes no obligation to update, and is not responsible for updating, the information contained in this report beyond the publication date, whether as a result of new information or future events, or to conform the statement to actual results or changes in CSI’s expectations, or otherwise or for changes made to this document by wire services or Internet services.

 
 
 
 
 
COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except share and per share data)
                   
Three Months Ended August 31, Six Months Ended August 31,
          2016     2015     2016     2015
 
Processing revenues $ 37,177 $ 36,042 $ 72,826 $ 73,405
Other revenues         20,752       20,123       41,226       39,908
Total revenues 57,929 56,165 114,052 113,313
Operating expenses         44,691       43,710       89,889       88,330
Operating income 13,238 12,455 24,163 24,983
Interest income         20       9       39       20
Income before income taxes 13,258 12,464 24,202 25,003
Provision for income taxes         5,071       4,923       9,257       9,876
 
  Net income       $ 8,187     $ 7,541     $ 14,945     $ 15,127
 
 
Earnings per share $ 0.59 $ 0.53 $ 1.07 $ 1.07
 

Shares used in computing earnings per common share

14,025,285 14,144,707 14,010,253 14,132,556
 
 
 
 
 
 
COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
                 
08/31/2016 02/29/2016 08/31/2015
        (Unaudited)     (Audited)     (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 34,327 $ 17,397 $ 16,832
Accounts receivable 23,151 28,045 22,254
Income tax receivable - 78 -
    Prepaid expenses and other current assets       11,610     11,978     12,194
Total current assets 69,088 57,498 51,280
Property and equipment, net of accumulated depreciation 35,049 34,655 36,045
Software and software licenses, net of accumulated amortization 21,437 21,683 23,963
Goodwill 60,115 60,115 60,115
Intangible assets 6,433 6,390 6,715
  Other assets       21,561     22,874     21,091
 
Total assets       $ 213,683     $ 203,215     $ 199,209
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 24,071 $ 18,709 $ 24,014
Deferred revenue 7,585 8,402 7,332
    Income tax payable       901     -     374
Total current liabilities 32,557 27,111 31,720
Long-term liabilities
Deferred income taxes 18,964 18,964 15,547
    Other long-term liabilities       1,544     1,166     954
      Total long-term liabilities       20,508     20,130     16,501
 
Total liabilities 53,065 47,241 48,221
 
Shareholders' equity
Preferred stock; shares authorized, 5,000,000; none issued - - -

Common stock, no par; shares authorized, 60,000,000 in fiscal 2017 and 2016; shares issued and outstanding, 14,027,304 at August 31, 2016, 13,992,981 at February 29, 2016 and 14,142,972 at August 31, 2015

24,401 23,118 23,082
    Retained earnings       136,217     132,856     127,906
      Total shareholders' equity       160,618     155,974     150,988
 
Total liabilities and shareholders' equity       $ 213,683     $ 203,215     $ 199,209
 
 
 
 

Contacts

Computer Services, Inc.
David L. Simon, Treasurer & CFO, 800-545-4274, ext. 10126
dsimon@csiweb.com

$Cashtags

Contacts

Computer Services, Inc.
David L. Simon, Treasurer & CFO, 800-545-4274, ext. 10126
dsimon@csiweb.com