CSI Reports Growth in Third Quarter Revenues and Net Income

Net Income Up 34.4% to $8.3 Million

PADUCAH, Ky.--()--Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported higher revenues and net income for the third quarter and nine months ended November 30, 2016, compared with the third quarter of the prior fiscal year.

CSI’s revenues grew 11.9% to $60.5 million for the third quarter of fiscal 2017 compared with $54.1 million for the third quarter of fiscal 2016. Net income increased by 34.4% to $8.3 million for the third quarter of fiscal 2017 compared with $6.2 million in the third quarter of fiscal 2016. Net income per share increased by 34.1% to $0.59 for the third quarter of fiscal 2017 compared with $0.44 for the prior year’s third quarter.

“CSI’s revenues picked up momentum in the third quarter and benefited from sales to new customers, increased cross sales and growth in transaction volume,” stated Chief Executive Officer Steven A. Powless. “We expect to report record revenues and net income for fiscal 2017 based on our pipeline of new business, increased cross-sales to existing customers and higher revenue from transaction-based services. We recently signed several prominent customers for our regulatory compliance solutions, and we believe these additions highlight our excellent services and our improved market visibility.”

Third Quarter Results

Consolidated revenues increased 11.9% to $60.5 million in the third quarter of fiscal 2017 compared with $54.1 million in the third quarter of fiscal 2016. The growth in revenues was primarily driven by the addition of new customers, cross-sales to existing customers, growth in transaction volume from existing customers, and an increase in early contract termination fees, partially offset by the effect of lost business. Revenues included early contract termination fees of $1.3 million in the third quarter of fiscal 2017 compared with $41,000 in the third 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.

Revenues were higher due primarily to growth in mobile and Internet banking services, debit card transaction processing and plastic card replacements, homeland security and fraud prevention services, and 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.

Operating income increased 31.6% to $13.5 million for the third quarter of fiscal 2017 compared with $10.2 million for the third quarter of fiscal 2016. Operating margin rose to 22.2% in the third quarter of fiscal 2017 compared with 18.9% for the third quarter of fiscal 2016 and benefited from the 11.9% growth in revenues and operating expenses that rose only 7.3% compared with the third quarter of last fiscal year.

Net income for the third quarter of fiscal 2017 was up 34.4% to $8.3 million compared with $6.2 million for the third quarter of fiscal 2016. Net income per share increased 34.1% to $0.59 for the third quarter of fiscal 2017 on 14.0 million weighted average shares outstanding compared with $0.44 for the third quarter of fiscal 2016 on 14.1 million weighted average shares outstanding.

“We ended the third quarter with a very strong balance sheet,” Powless said. “Our cash flow from operations rose 20% to $44.6 million for the first nine months of fiscal 2017 and contributed to our total cash position rising 119% to $38.4 million since the same time 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.

“During the first nine months of fiscal 2017, we invested approximately $11.3 million in new property, equipment and software. We also returned $10.9 million to shareholders in cash dividends and repurchased $1.2 million in CSI shares. We will continue to focus on using our cash generated from operations to invest in our business and return a portion of our earnings to shareholders.

“During the third quarter, CSI’s Board of Directors declared a cash dividend of $0.28 per share. The dividend was paid on December 27, 2016, to shareholders of record as of the close of business on December 1, 2016.”

Nine Months Results

Consolidated revenues for the first nine months of fiscal 2017 rose 4.3% to $174.6 million compared with $167.4 million for the first nine months of fiscal 2016. CSI’s increase in revenues for the first nine months was driven primarily by the addition of new customers, cross-sales to existing customers and increases in transaction volumes from existing customers, partially offset by a decrease in early contract termination fees of $2.0 million. Early contract termination fees were $2.3 million for the first nine months of fiscal 2017 compared to $4.3 million for the first nine months of fiscal 2016. Early contract termination fees generated during the first nine months of fiscal 2016 were unusually high due to 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 increased 6.9% to $37.6 million for the first nine months of fiscal 2017 compared with $35.2 million for the first nine months of fiscal 2016. Operating margin rose to 21.6% in the first nine months of fiscal 2017 compared with 21.0% in the first nine months of fiscal 2016.

Net income for the first nine months of fiscal 2017 rose 9.2% to $23.3 million compared with $21.3 million in the first nine months of fiscal 2016. Net income per share increased 9.9% to $1.66 for the first nine months of fiscal 2017 compared with $1.51 the first nine 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)
               
Change

Percentage of

Revenues

Three months ended November 30,   2016   2015   Amount   Percentage   2016   2015
 
Revenues $ 60,539 $ 54,093 $ 6,446 11.9 % 100.0 % 100.0 %
Operating expenses     47,070     43,861     3,209     7.3 %   77.8 %   81.1 %
Operating income 13,469 10,232 3,237 31.6 % 22.2 % 18.9 %
Interest income (expense), net     26     13     13     nmf   0.0 %   0.0 %
Income before income taxes 13,495 10,245 3,250 31.7 % 22.3 % 18.9 %
Provision for income taxes     5,162     4,047     1,115     27.6 %   8.5 %   7.5 %
 
  Net income   $ 8,333   $ 6,198   $ 2,135     34.4 %   13.8 %   11.5 %
 
 
Earnings per share $ 0.59 $ 0.44 $ 0.15 34.1 %
 

Shares used in computing earnings per common share

14,023,840 14,118,406 (94,566 ) (0.7 %)
 
 
 
Change

Percentage of

Revenues

Nine months ended November 30,   2016   2015   Amount   Percentage   2016   2015
 
Revenues $ 174,591 $ 167,406 $ 7,185 4.3 % 100.0 % 100.0 %
Operating expenses     136,959     132,191     4,768     3.6 %   78.4 %   79.0 %
Operating income 37,632 35,215 2,417 6.9 % 21.6 % 21.0 %
Interest income (expense), net     65     33     32     nmf   0.0 %   0.0 %
Income before income taxes 37,697 35,248 2,449 6.9 % 21.6 % 21.1 %
Provision for income taxes     14,419     13,923     496     3.6 %   8.3 %   8.3 %
 
  Net income   $ 23,278   $ 21,325   $ 1,953     9.2 %   13.3 %   12.7 %
 
 
Earnings per share $ 1.66 $ 1.51 $ 0.15 9.9 %
 

Shares used in computing earnings per common share

14,014,749 14,127,874 (113,125 ) (0.8 %)
 
     
COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
   
11/30/2016 02/29/2016 11/30/2015
            (Unaudited)   (Audited)   (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 38,397 $ 17,397 $ 17,514
Accounts receivable 25,594 28,045 25,484
Income tax receivable - 78 -
    Prepaid expenses and other current assets     12,135     11,978     12,238
Total current assets 76,126 57,498 55,236
Property and equipment, net 35,453 34,655 35,389
Software and software licenses, net 20,916 21,683 22,991
Goodwill 60,115 60,115 60,115
Intangible assets 6,258 6,390 6,546
  Other assets     23,080     22,874     21,634
 
Total assets     $ 221,948   $ 203,215   $ 201,911
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 27,770 $ 18,709 $ 25,821
Deferred revenue 8,128 8,402 8,345
    Income tax payable     1,321     -     66
Total current liabilities 37,219 27,111 34,232
Long-term liabilities
Deferred income taxes 18,964 18,964 15,547
    Other long-term liabilities     1,558     1,166     963
      Total long-term liabilities     20,522     20,130     16,510
 
Total liabilities 57,741 47,241 50,742
 
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, 14,005,724 at November 30, 2016, 13,992,981 at February 29, 2016, and 14,075,596 at November 30, 2015

24,436 23,118 23,182
    Retained earnings     139,771     132,856     127,987
      Total shareholders' equity     164,207     155,974     151,169
 
Total liabilities and shareholders' equity   $ 221,948   $ 203,215   $ 201,911
 

Contacts

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

Contacts

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