PADUCAH, Ky.--(BUSINESS WIRE)--Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported record revenues and net income for the fiscal year ended February 28, 2017. CSI’s record results for fiscal 2017 marked the company’s 17th consecutive year of revenue growth and 20th consecutive year of growth in net income.
CSI’s revenues for fiscal 2017 were a record $234.9 million and rose 4.5% compared with $224.7 million for fiscal 2016. Net income for fiscal 2017 was a record $30.9 million, a 6.1% increase compared with fiscal 2016 income of $29.1 million. Net income per share increased 6.8% to $2.21 compared with $2.07 in the prior fiscal year.
Fourth quarter revenues rose 5.2% to a record $60.3 million in fiscal 2017 compared with $57.3 million in the fourth quarter of fiscal 2016. Net income decreased 2.2% to $7.6 million, or $0.55 per share, in the fourth quarter of fiscal 2017 compared with $7.8 million, or $0.56 per share, in the fourth quarter of fiscal 2016.
“CSI’s record results for fiscal 2017 highlight our success in new account sales, cross-sales to existing customers and our high percentage of account renewals during the year,” stated Steven A. Powless, CEO of CSI. “This was our 17th consecutive year of revenue growth, 20th consecutive year of growth in net income and 45th consecutive year of increasing our cash dividend.
“We continue to win new customers from our competitors. We also believe that our high renewal rate from existing customers highlights their strong satisfaction with CSI and their confidence in our ability to deliver innovative services that support their future growth. We remain very positive about our continued growth prospects for fiscal 2018.”
Fiscal 2017 Results
Consolidated revenues rose 4.5% to $234.9 million for fiscal 2017 compared with $224.7 million for fiscal 2016. The growth in revenues benefited from the addition of new customers, cross-sales to existing customers, increases in transaction volumes from existing customers; growth in digital banking and cloud-based managed services; growth in homeland security, anti-money laundering and fraud prevention services; and an increase in plastic card reissuances, partially offset by lower revenue from early contract termination fees in fiscal 2017 compared with fiscal 2016. Early contract termination fees were $3.7 million in fiscal 2017 compared with $6.0 million in fiscal 2016. These fees are generated when a customer terminates its contract prior to the end of the contracted term, a circumstance that typically arises when an existing CSI customer is acquired by another financial institution that is not a CSI customer. These fees 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.
“We expect continued growth in fiscal 2018 based on new contracts signed, high contract renewal rates from existing customers, growth in cross-sales and other vertical markets,” Powless stated. “Our revenues and earnings for the first quarter of fiscal 2018 are expected to increase significantly compared with the first quarter of fiscal 2017 due to the timing of significant contract termination fees from certain CSI customers that have been acquired by non-CSI customers. Our growth rates for the remainder of fiscal 2018 are expected to return to more normative levels. We also expect the trailing effect of lost revenue from those acquired customers to dampen our revenue and earnings growth rates during the second half of fiscal 2018.”
Operating expenses rose 4.7% to $184.9 million in fiscal 2017 compared with $176.6 million for fiscal 2016. The increase in operating expenses was due primarily to higher employee-related expenses in fiscal 2017 compared with fiscal 2016 because of higher medical plan expenses, as well as slightly higher than average staffing and typical annual wage adjustments. Medical plan expenses increased approximately $2.8 million from fiscal 2016 due to lower than average medical expenses in the second half of 2016 compared with higher than average medical expenses in the second half of fiscal 2017. CSI also experienced higher cost of goods sold on growth in plastic card reissuance and digital banking revenue streams; higher depreciation, amortization and maintenance expenses on equipment, software and software licenses; higher data communication expenses; and higher professional fees and administrative expenses in fiscal 2017 compared with the prior year. The foregoing increases in operating expenses were offset partially by lower cost of goods sold on third-party software, hardware and maintenance sales, as well as savings realized from expense management initiatives that substantially reduced travel expenses compared to fiscal 2016.
Operating income rose 3.9% to $50.0 million in fiscal 2017 compared with $48.1 million in fiscal 2016. Operating margin decreased slightly to 21.3% in fiscal 2017 compared with 21.4% fiscal 2016.
Net income for fiscal 2017 rose 6.1% to $30.9 million compared with $29.1 million for fiscal 2016. Net income per share increased 6.8% to $2.21 for fiscal 2017 compared with $2.07 for fiscal 2016. CSI’s higher growth rate in per share earnings benefited from shares repurchased since the prior year. Weighted average shares outstanding declined 0.7% from fiscal year 2016 due to CSI shares repurchased under the company’s stock repurchase program. CSI repurchased 84,072 shares of its stock in fiscal 2017 and had approximately $1.2 million remaining under existing stock repurchase authorizations as of the end of fiscal 2017. In April 2017, the Company’s Board of Directors authorized an additional $10 million to the share repurchase program.
CSI’s cash flow from operations rose to $49.7 million in fiscal 2017. Cash and cash equivalents increased to $34.6 million as of February 28, 2017, up 99% from $17.4 million as of February 29, 2016.
“CSI’s financial position remains strong as highlighted by our growth in cash flow from operations that allowed us to continue our significant investments in hardware, software and new product development during fiscal 2017,” Powless continued. “We also increased our cash dividends paid to shareholders in fiscal 2017, our 45th consecutive year of increasing our cash dividend. During fiscal 2017, we returned $14.9 million to shareholders in cash dividends and $3.4 million in stock repurchases. We also invested $13.7 million in new property, equipment, hardware and software during fiscal 2017 to support our continued growth.”
Fourth Quarter Results
Fourth quarter 2017 consolidated revenue rose 5.2% to a record $60.3 million compared with $57.3 million for the fourth quarter ended February 29, 2016. The growth in revenues benefited from new customers added since last year, higher cross-sales of managed services and Internet and mobile banking products, and increased transaction volume, partially offset by the effect of CSI customers that were lost due to acquisitions.
Fourth quarter 2017 operating expenses increased 8.0% to $48.0 million compared with $44.4 million in the fourth quarter of 2016. The increase in fourth quarter operating expenses was primarily due to a $1.8 million increase in medical plan expenses compared with the fourth quarter of fiscal 2016.
Operating income for the fourth quarter declined 4.3% to $12.3 million in fiscal 2017 compared with $12.9 million in fiscal 2016. Operating margins decreased to 20.5% in the fourth quarter of fiscal 2017 compared with 22.5% in the fourth quarter of fiscal 2016. The decrease in CSI’s operating margin was due primarily to the higher medical plan expenses compared with the prior year.
Income before taxes decreased 4.2% to $12.4 million in the fourth quarter of fiscal 2017 compared with $12.9 million in the same quarter of fiscal 2016. Provision for income taxes decreased to $4.7 million in the fourth quarter of fiscal 2017 compared with $5.1 million in the fourth quarter of fiscal 2016. The effective income tax rate was 38.25% in the fourth quarter of fiscal 2017 compared with 39.50% in the fourth quarter of fiscal 2016.
Net income for the fourth quarter of fiscal 2017 was $7.6 million, or $0.55 per share, compared with $7.8 million, or $0.56 per share, for the fourth quarter of fiscal 2016. The decrease in net income was due primarily to higher medical expenses compared to the same quarter of the prior year, partially offset by the increase in fourth quarter revenue.
About Computer Services, Inc.
Computer Services, Inc. delivers core processing, managed services, digital banking, 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.
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 for us 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 Reports, Quarterly Reports, Information and Disclosure Statements and other documents posted from time to time on the OTCQX website (available either at www.otcmarkets.com or 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. Except as required by law or OTC Markets Group, Inc., CSI undertakes no obligation to update, and is not responsible for updating, the information contained or incorporated by reference in this report beyond the publication date, whether as a result of new information or future events, or to conform this document to actual results or changes in CSI’s expectations, or for changes made to this document by wire services or Internet services or otherwise.
|COMPUTER SERVICES, INC. AND SUBSIDIARIES|
|Condensed Consolidated Statements of Income|
|(in thousands, except share and per share data)|
|Change||Percentage of Revenues|
|Three months ended February 28 & 29,||2017||2016||Amount||Percentage||2017||2016|
|Interest income, net||28||15||13||86.7||%||0.0||%||0.0||%|
|Income before income taxes||12,377||12,917||(540||)||(4.2||%)||20.5||%||22.5||%|
|Provision for income taxes||4,734||5,102||(368||)||(7.2||%)||7.8||%||8.9||%|
|Earnings per share||$||0.55||$||0.56||$||(0.01||)||(1.8||%)|
Shares used in computing earnings per common share
|Change||Percentage of Revenues|
|Year ended February 28 & 29,||2017||2016||Amount||Percentage||2017||2016|
|Interest income, net||93||48||45||93.8||%||0.0||%||0.0||%|
|Income before income taxes||50,074||48,165||1,909||4.0||%||21.3||%||21.4||%|
|Provision for income taxes||19,153||19,025||128||0.7||%||8.2||%||8.5||%|
|Earnings per share||$||2.21||$||2.07||$||0.14||6.8||%|
Shares used in computing earnings per common share
|COMPUTER SERVICES, INC. AND SUBSIDIARIES|
|Condensed Consolidated Balance Sheets|
|(in thousands, except share data)|
|Cash and cash equivalents||$||34,552||$||17,397|
|Income tax receivable||1,121||78|
|Prepaid expenses and other current assets||13,143||11,978|
|Total current assets||77,065||57,498|
|Property and equipment, net of accumulated depreciation||35,420||34,655|
|Software and software licenses, net of accumulated amortization||19,778||21,683|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|Total current liabilities||33,048||27,111|
|Deferred income taxes||20,583||18,964|
|Other long-term liabilities||1,588||1,166|
|Total long-term liabilities||22,171||20,130|
|Preferred stock - 5,000,000 shares authorized; none issued||-||-|
Common stock - no par; 60,000,000 shares authorized; 13,955,403 shares issued as of February 28, 2017; 13,992,981 shares issued as of February 29, 2016
Total shareholders’ equity
Total liabilities and shareholders’ equity