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; |
|
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 |
|||
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