CSI Reports Record Revenues and Net Income for Third Quarter

Earnings per Share Up 9.7% for First Nine Months

PADUCAH, Ky.--()--Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported record revenues and net income for the third quarter and first nine months of fiscal 2020 that ended November 30, 2019.

CSI’s third quarter revenues for fiscal 2020 rose 6.6% to $72.1 million compared with $67.6 million for the third quarter of fiscal 2019. Third quarter net income rose 5.8% to $12.0 million compared with $11.4 million for the third quarter of fiscal 2019. Net income per share increased to $0.43 for the third quarter of fiscal 2020 compared to $0.41 for the third quarter of fiscal 2019. The results for the prior year’s third fiscal quarter included approximately $235,000 in non-operating income from a gain on sale of an investment, and there was no comparable non-operating income in the third quarter of fiscal 2020. Operating expenses for the third quarter of fiscal 2020 included a one-time charge of $1.0 million related to a true-up to the timing of the expense recognition for restricted stock compensation. Early contract termination fees totaled $1.0 million in the third quarter of 2020 compared with $3.0 million in the third quarter of fiscal 2019.

“CSI’s third quarter benefited from strong sales, continued high levels of contract renewals and cross sales to existing customers,” stated Steven A. Powless, chairman and CEO of CSI. “Our sales and net income set new records in the third quarter even though last year’s third quarter included a gain on the sale of an investment and significantly higher early contract termination fees. We continue to gain traction across our markets, and we expect our recurring revenues to build as new business transitions to CSI. We expect to report increased revenues in the fourth quarter and record annual results for fiscal 2020.”

Third Quarter Results

Consolidated revenues increased 6.6% to $72.1 million in the third quarter of fiscal 2020 compared with $67.6 million in the third quarter of fiscal 2019. The growth in revenues benefited from higher sales of core processing, digital banking, regulatory compliance services and managed services. The results for the third quarter of fiscal 2020 included approximately $1.0 million in early contract termination fees compared with $3.0 million in the third quarter of fiscal 2019. Excluding the effect of early contract termination fees, net revenues increased approximately 10.1% in the third quarter of fiscal 2020 compared with the third quarter of fiscal 2019. The early contract termination 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.

Operating income increased 4.6% to $14.9 million for the third quarter of fiscal 2020 compared with $14.3 million for the third quarter of fiscal 2019. Operating margin was 20.7% in the third quarter of fiscal 2020 compared with 21.1% for the third quarter of fiscal 2019. Operating expenses for the third quarter of fiscal 2020 included a one-time charge of $1.0 million to accelerate the recognition of expense related to the company’s restricted stock compensation program in order to better match the expense recognition with the period of service in which the compensation was earned.

CSI had non-operating income of $235,000 in the third quarter of fiscal 2019 from the sale of an investment that generated approximately $5.7 million in total consideration during both fiscal years. There was no comparable non-operating income in the third quarter of fiscal 2020.

The provision for income tax was $3.2 million for the third quarter of fiscal 2020 compared with $3.3 million in the third quarter of fiscal 2019. The decrease was due to a lower effective tax rate in the third quarter of fiscal 2020 compared with the third quarter of fiscal 2019.

Net income for the third quarter of fiscal 2020 was up 5.8% to $12.0 million compared with $11.4 million for the third quarter of fiscal 2019. Net income per share increased to $0.43 for the third quarter of fiscal 2020 on 27.7 million weighted average shares outstanding compared with $0.41 for the third quarter of fiscal 2019 on 27.8 million weighted average shares outstanding. Net income for the third quarter of fiscal 2019 benefited from unusually high early contract termination fees and non-operating income from the sale of an investment, both of which affected the comparison of the current quarter net income to the prior year’s third quarter.

Nine Months Results

Consolidated revenues for the first nine months of fiscal 2020 rose 6.0% to $211.5 million compared with $199.6 million for the first nine months of fiscal 2019. CSI’s increase in revenues benefited from growth across all major product lines compared with the first nine months of fiscal 2019. Fiscal year-to-date revenues also included $3.8 million in early contract termination fees compared with $8.6 million in the first nine months of fiscal 2019. Excluding the effect of the early contract termination fees from both periods, fiscal year-to-date revenues increased approximately 8.7% compared with the first nine months of fiscal year 2019.

Operating expenses for the first nine months of fiscal 2020 included a one-time charge of $1.0 million related to a true-up to the timing of the expense recognition for restricted stock compensation. Operating expenses for the first nine months of fiscal 2019 included a $1.2 million one-time operating charge related to payments processing business transaction accounts, and $2.6 million in one-time compensation expenses related to the gain on sale of an investment and the planned retirement of company executives.

Operating income increased 16.1% to $46.4 million for the first nine months of fiscal 2020 compared with $40.0 million for the first nine months of fiscal 2019. Operating margin increased to 21.9% in the first nine months of fiscal 2020 compared with 20.0% in the first nine months of fiscal 2019.

Non-operating income was $57,000 for the first nine months of fiscal 2020 compared with $4.1 million in the first nine months of fiscal 2019. Non-operating income for both fiscal years reflected the gain associated with the sale of an investment.

Net income for the first nine months of fiscal 2020 increased by 9.2% to $37.7 million compared with $34.5 million in the first nine months of fiscal 2019. Net income per share rose 9.7% to $1.36 per share for the first nine months of fiscal 2020 compared with $1.24 for the first nine months of fiscal 2019.

CSI’s cash flow from operations increased 2.2% to $48.5 million in the first nine months of fiscal 2020 compared with $47.5 million in the first nine months of fiscal 2019. The increase in operating cash flow was due primarily to higher net income.

“CSI’s strong cash flow from operations continues to fund our cash dividend and stock repurchase programs,” stated Powless. “In fiscal 2020, we increased our cash dividend to $0.21 per share, marking our 48th consecutive annual increase in cash dividends paid to shareholders. In addition, we continued to make capital investments to support our future growth. During the first nine months of fiscal 2020, we invested $16.5 million in new hardware and software.

“Our cash position increased 24.1% in the first nine months of fiscal 2020 to $70.2 million at November 30, 2019, and we have no long-term debt. We believe our strong financial position provides CSI with increased opportunities to pursue acquisitions and invest in new technology and infrastructure to support new and existing customer demand,” Powless concluded.

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, American Banker’s Best Fintechs to Work For and MSPmentor Top 501 Global Managed Service Providers List. CSI’s stock is traded on OTCQX under the symbol CSVI. CSVI meets the financial media’s “Dividend Aristocrats” criterion of having 25+ years of consecutive annual dividend increases. 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 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 at www.otcmarkets.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
(Unaudited)
(in thousands, except share and per share data)
   
 

Three Months Ended November 30,

 

Nine Months Ended November 30,

 

2019

 

2018

 

2019

 

2018

   
Total Revenues  

$

72,115

$

67,638

$

211,483

$

199,593

Operating expenses  

 

57,202

 

53,376

 

165,118

 

159,642

Operating income  

 

14,913

 

14,262

 

46,365

 

39,951

Non-Operating Income  

 

-

 

235

 

57

 

4,093

Interest income, net  

 

323

 

234

 

1,016

 

523

Income before income taxes  

 

15,236

 

14,730

 

47,438

 

44,567

Provision for income taxes  

 

3,200

 

3,349

 

9,797

 

10,087

   
Net income  

$

12,037

$

11,381

$

37,641

$

34,480

   
Earnings per share  

$

0.43

$

0.41

$

1.36

$

1.24

   
Shares used in computing earnings per common and common equivalent share  

27,685,814

27,807,716

27,693,661

27,845,592

 
COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
   
  11/30/2019 2/28/2019 11/30/2018
  (Unaudited) (Audited) (Restated)
ASSETS  
Current assets  
Cash and cash equivalents  

$

70,206

$

56,553

$

60,752

Accounts receivable  

 

35,855

 

38,727

 

34,627

Income tax receivable  

 

-

 

1,666

 

99

Prepaid expenses and other current assets  

 

22,016

 

18,675

 

17,528

Total current assets  

 

128,077

 

115,621

 

113,006

Property and equipment, net of accumulated depreciation  

 

44,725

 

41,600

 

39,579

Software and software licenses, net of accumulated amortization  

 

19,340

 

19,562

 

21,188

Right of use assets - leases  

 

7,914

 

-

 

-

Goodwill  

 

60,115

 

60,115

 

60,115

Intangible assets  

 

4,219

 

4,712

 

4,876

Other assets  

 

69,261

 

54,871

 

46,382

   
Total assets  

$

333,651

$

296,482

$

285,147

   
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities  
Accounts payable  

$

8,829

$

8,282

$

7,823

Accrued expenses  

 

52,983

 

35,264

 

40,275

Right of use assets - lease liabilities, short-term  

 

2,243

 

-

 

-

Deferred revenue  

 

9,895

 

13,857

 

8,484

Income tax payable  

 

1,742

 

-

 

-

Total current liabilities  

 

75,693

 

57,403

 

56,582

Long-term liabilities  
Deferred income taxes  

 

17,787

 

17,787

 

15,675

Post retirement benefits  

 

254

 

447

 

5,599

Right of use assets - lease liabilities, long-term  

 

5,979

 

-

 

-

Other long-term liabilities  

 

1,984

 

2,041

 

1,977

Total long-term liabilities  

 

26,003

 

20,275

 

23,252

   
Total liabilities  

 

101,696

 

77,677

 

79,834

   
Shareholders' equity  

Preferred stock; shares authorized, 5,000,000; none issued

 

Common stock, no par; 60,000,000 shares authorized;
27,673,760 shares issued as of November 30, 2019;
27,692,736 shares issued as of February 28, 2019;
27,761,646 shares issued as of November 30, 2018;

 

 

30,053

 

28,253

 

28,125

Retained earnings  

 

199,530

 

186,934

 

177,188

Accumulated other comprehensive income  

 

2,371

 

3,617

 

-

Total shareholders' equity  

 

231,954

 

218,805

 

205,313

   
Total liabilities and shareholders' equity  

$

333,651

$

296,482

$

285,147

 

Contacts

Brian K. Brown, CFO
800-545-4274, ext. 10689 or
brian.brown@csiweb.com

$Cashtags

Contacts

Brian K. Brown, CFO
800-545-4274, ext. 10689 or
brian.brown@csiweb.com