Press release

CSI Reports Record Revenues and Net Income for Second Quarter

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Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported growth in revenues and net income for the second quarter and first six months of fiscal 2020, which ended August 31, 2019.

CSI’s second quarter revenues for fiscal 2020 rose 4.9% to $70.3 million compared with $67.1 million for the second quarter of fiscal 2019. Second quarter net income rose 0.5% to $13.1 million compared with $13.0 million for the second quarter of fiscal 2019. Net income per share remained the same at $0.47 for the second quarter of fiscal 2020 as the second quarter of fiscal 2019. The results for the prior year’s second fiscal quarter included approximately $3.9 million in non-operating income from a gain on a sale of an investment, offset partially by $1.2 million in a one-time operating charge related to payments processing business transaction accounts, and $2.6 million primarily from one-time expenses related to the gain on the sale of an investment and the planned retirement of company executives. There was only $57,000 of non-operating income in the second quarter of fiscal 2020 and no unusual expense items. Early contract termination fees totaled $1.1 million in the second quarter of 2020 compared with $4.2 million in the second quarter of fiscal 2019.

“CSI’s second quarter benefited from strong sales, 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 second quarter even though last year’s second quarter included a large gain on the sale of an investment and significantly higher fees from early contract termination fees. We continue to gain traction across our markets, and our outlook for the second half of fiscal 2020 is very positive. Based on our sales during the first half of fiscal 2020, we expect our recurring revenues to build as new business transitions to CSI over the next few quarters.

“We held our annual customer conference recently and had excellent turnout from across our customer base. We previewed several new products and services that we expect will strengthen CSI’s market-leading solutions for new and existing customers. We believe our continued investment in new hardware, software and product development will be important to our future growth. We expect these investments to expand our ability to handle current transactions while providing additional capacity to serve new customers.”

Second Quarter Results

Consolidated revenues increased 4.9% to $70.3 million in the second quarter of fiscal 2020 compared with $67.1 million in the second 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 second quarter of fiscal 2020 included approximately $1.1 million in early contract termination fees compared with $4.2 million in the second quarter of fiscal 2019. Excluding the effect of early contract termination fees, net revenues increased approximately 10.3% in the second quarter of fiscal 2020 compared with the second 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 26.9% to $16.1 million for the second quarter of fiscal 2020 compared with $12.7 million for the second quarter of fiscal 2019. Operating margin rose to 22.9% in the second quarter of fiscal 2020 compared with 18.9% for the second quarter of fiscal 2019. The increase in operating income and margin benefited from higher sales.

CSI generated $3.9 million in non-operating income in the second quarter of last fiscal year. The non-operating income was due to the sale of an investment that generated approximately $5.4 million in total consideration in the second quarter of fiscal 2019. Additional non-operating income of $57,000 related to the same transaction was realized in the second quarter of fiscal 2020.

The provision for income tax was $3.5 million for the second quarter of fiscal 2020 compared with $3.7 million in the second quarter of fiscal 2019. The decrease was due to a lower effective tax rate in the second quarter of fiscal 2020 compared with the second quarter of fiscal 2019.

Net income for the second quarter of fiscal 2020 was up 0.5% to $13.1 million compared with $13.0 million for the second quarter of fiscal 2019. Net income per share remained the same at $0.47 for the second quarter of fiscal 2020 on 27.7 million weighted average shares outstanding compared with $0.47 for the second quarter of fiscal 2019 on 27.9 million weighted average shares outstanding. Net income for the second quarter of fiscal 2019 benefitted from unusually high early contract termination fees and the non-operating income from the sale of an investment, both of which significantly affected the comparison of the current quarter net income to the prior year quarter.

Six Months Results

Consolidated revenues for the first six months of fiscal 2020 rose 5.6% to $139.4 million compared with $132.0 million for the first six months of fiscal 2019. CSI’s increase in revenues benefited from growth across all major product lines compared with the first six months of fiscal 2019. Fiscal year-to-date revenues also included $2.8 million in early contract termination fees compared with $5.6 million in the first six months of fiscal 2019. Excluding the effect of the early contract termination fees from both periods, fiscal year-to-date revenues increased approximately 8.0% compared with the first half of fiscal year 2019.

Operating income increased 22.4% to $31.5 million for the first six months of fiscal 2020 compared with $25.7 million for the first six months of fiscal 2019. Operating margin increased to 22.6% in the first six months of fiscal 2020 compared with 19.5% in the first six months of fiscal 2019.

Non-operating income was only $57,000 for the first six months of fiscal 2020 compared to $3.9 million in the first six months of fiscal 2019.

Net income for the first six months of fiscal 2020 increased by 10.8% to $25.6 million compared with $23.1 million in the first six months of fiscal 2019. Net income per share rose 10.8% to $0.92 per share for the first six months of fiscal 2020 compared with $0.83 for the first six months of fiscal 2019.

CSI’s cash flow from operations increased 20.4% to $35.5 million in the first six month of fiscal 2020 compared with $29.5 million in the first half of fiscal 2019. The increase in operating cash flow was primarily due to higher net income. Cash and cash equivalents increased 21.7% to $68.8 million as of August 31, 2019, from $56.6 million as of February 28, 2019.

“CSI’s financial position remains very strong with solid growth in cash and no long-term debt,” Powless commented. “We continue to use our excellent cash flow to fund new investments in our business and increase our returns to shareholders. We invested approximately $11.7 million in new hardware and software during the first six months of fiscal 2020. We remain focused on using our strong financial position and cash flow to invest in CSI’s technology, infrastructure and people to support our continued growth.

“During the first half of fiscal 2020, we also announced a 16.7% increase in the cash dividend, marking our 48th consecutive year of increasing our cash dividend paid to CSI shareholders. Shareholder returns rose 10.3% in the first six months of fiscal 2020 compared to the prior year. We returned approximately $12.6 million to shareholders in cash dividends and repurchases of common stock during the first six months of fiscal 2020 compared with $11.5 million distributed during the same period last year,” 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 August 31,   Six Months Ended August 31,
     

2019

 

2018

 

2019

 

2018

                   
Total Revenues

 $        70,346

 

 $        67,062

 

 $      139,368

 

 $      131,955

Operating expenses

           54,237

 

           54,373

 

         107,916

 

         106,266

  Operating income

           16,109

 

           12,690

 

           31,451

 

           25,689

Non-Operating Income

                 57

 

             3,858

 

                 57

 

             3,858

Interest income, net

               370

 

               192

 

               693

 

               290

  Income before income taxes

           16,536

 

           16,740

 

           32,202

 

           29,836

Provision for income taxes

             3,473

 

             3,737

 

             6,597

 

             6,738

                   
  Net income

 $        13,064

 

 $        13,003

 

 $        25,604

 

 $        23,099

                   
Earnings per share

 $            0.47

 

 $            0.47

 

 $            0.92

 

 $            0.83

                   
Shares used in computing earnings per              
  common and common equivalent share

27,708,696

 

27,860,650

 

27,697,542

 

27,864,326

                   
COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
                   
          8/31/2019   2/28/2019   8/31/2018
          (Unaudited)   (Audited)   (Restated)
ASSETS              
  Current assets          
    Cash and cash equivalents

 $    68,819

 

 $    56,553

 

 $    53,614

    Accounts receivable

       34,072

 

       38,727

 

       32,750

    Income tax receivable

               –

 

        1,666

 

        1,386

    Prepaid expenses and other current assets

       20,929

 

       18,675

 

       17,889

      Total current assets

     123,820

 

     115,621

 

     105,639

  Property and equipment, net of accumulated depreciation

       43,470

 

       41,600

 

       38,821

  Software and software licenses, net of accumulated amortization

       20,467

 

       19,563

 

       22,583

  Right of use assets – leases

        6,970

 

               –

 

               –

  Goodwill  

       60,115

 

       60,115

 

       60,115

  Intangible assets

        4,383

 

        4,712

 

        5,041

  Other assets

       63,205

 

       54,871

 

       42,525

                   
Total assets  

 $  322,431

 

 $  296,482

 

 $  274,724

                   
                   
LIABILITIES AND SHAREHOLDERS’ EQUITY          
  Current liabilities          
    Accounts payable

 $      8,408

 

 $      8,282

 

 $      7,146

    Accrued expenses

       47,229

 

       35,264

 

       33,323

    Right of use assets – lease liabilities, short-term

        2,129

 

               –

 

               –

    Deferred revenue

       10,548

 

       13,857

 

       10,039

    Income tax payable

        2,087

 

               –

 

               –

      Total current liabilities

       70,400

 

       57,403

 

       50,508

  Long-term liabilities          
    Deferred income taxes

       17,787

 

       17,787

 

       15,676

    Post retirement benefits

           318

 

           447

 

        5,359

    Right of use assets – lease liabilities, long-term

        4,977

 

               –

 

               –

    Other long-term liabilities

        2,036

 

        2,041

 

        2,097

      Total long-term liabilities

       25,119

 

       20,275

 

       23,132

                   
      Total liabilities

       95,519

 

       77,678

 

       73,640

                   
  Shareholders’ equity          
    Preferred stock; shares authorized, 5,000,000; none issued

               –

 

               –

 

               –

    Common stock, no par; 60,000,000 shares authorized;          
      27,691,393 shares issued as of August 31, 2019;          
      27,692,736 shares issued as of February 28, 2019;          
      27,849,066 shares issued as of August 31, 2018;  

       29,946

 

       28,253

 

       28,057

    Retained earnings

     194,179

 

     186,934

 

     173,027

    Accumulated other comprehensive income

        2,786

 

        3,617

 

               –

      Total shareholders’ equity

     226,911

 

     218,804

 

     201,084

                   
Total liabilities and shareholders’ equity

 $  322,431

 

 $  296,482

 

 $  274,724