CSI Reports Record Revenues and Net Income for First Quarter

Revenues Increase 6.4% to $69.0 Million

Net Income Per Share Rises 25.0% to $0.45

PADUCAH, Ky.–(BUSINESS WIRE)–$CSI–Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported growth in revenues and net income for the first quarter of fiscal 2020, which ended May 31, 2019.

CSI’s revenues rose 6.4% to $69.0 million for the first quarter of fiscal 2020 compared with $64.9 million for the first quarter of fiscal 2019. First quarter net income rose 24.2% to $12.5 million compared with $10.1 million for the first quarter of fiscal 2019. Net income per share rose 25.0% to $0.45 compared with $0.36 for the first quarter of fiscal 2019.

“Our record results for the first quarter highlight our continuing success at winning new business, renewing existing contracts and cross-selling services across our customer base,” stated Steven A. Powless, chairman and CEO of CSI. “Our sales momentum remains positive with the addition of new customers across our major business units, expansion into new geographic markets and solid customer demand for our products and services. We also entered fiscal 2020 with a very strong backlog of new business that will be transitioned to the CSI platform this year, further building on our future base of recurring revenues.

“New core customers are signing contracts that average longer than nine years. We believe these long-term contracts highlight the confidence that our new customers have in CSI’s existing platform of services as well as our focused development on new products and services to support their future growth. In addition, our retention rate for existing core customers remains excellent and is a tribute to our strong service and support teams combined with our market-leading solutions for our customers. We continue to make significant investments in our infrastructure, including major upgrades to our data center in Valparaiso, Indiana; new and expanded facilities for our managed services team in Fort Collins, Colorado; and establishing a new West Coast operations center in Sacramento, California. We expect these investments to augment our ability to manage existing volume while providing additional capacity to serve new customers.”

First Quarter Results

Consolidated revenues increased 6.4% to $69.0 million in the first quarter of fiscal 2020 compared with $64.9 million in the first 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 first quarter of fiscal 2020 included approximately $1.7 million in early contract termination fees compared with $1.3 million in the first quarter of fiscal 2019. Excluding the effect of early contract termination fees, net revenues increased approximately 5.8% in the first quarter of fiscal 2020 compared with the first 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 18.0% to $15.3 million for the first quarter of fiscal 2020 compared with $13.0 million for the first quarter of fiscal 2019. Operating margin rose to 22.2% in the first quarter of fiscal 2020 compared with 20.0% for the first quarter of fiscal 2019. The increase in operating income and margin benefited from higher sales and an increase in early contract termination fees received in the first quarter of fiscal 2020 compared with the first quarter of fiscal 2019. Excluding the effect of early contract termination fees, operating income rose 16.4%, or $1.9 million, in the first quarter of fiscal 2020 compared with the first quarter of fiscal 2019.

The provision for income tax was $3.1 million for the first quarter of fiscal 2020 compared with $3.0 million in the first quarter of fiscal 2019. The increase was due to a higher taxable income in the first quarter of fiscal 2020 compared with the first quarter of fiscal 2019, partially offset by a lower effective tax rate.

Net income for the first quarter of fiscal 2020 was up 24.2% to $12.5 million compared with $10.1 million for the first quarter of fiscal 2019. Net income per share increased 25.0% to $0.45 for the first quarter of fiscal 2020 on 27.7 million weighted average shares outstanding compared with $0.36 for the first quarter of fiscal 2019 on 27.9 million weighted average shares outstanding. The early contract termination fees benefited per share earnings by approximately $0.05 in the first quarter of fiscal 2020 compared with a $0.04 per share benefit in the first quarter of fiscal 2019.

CSI’s cash flow from operations increased 50.8% to $21.1 million in the first quarter of fiscal 2020 compared with $14.0 million in the first quarter of fiscal 2019. The increase in operating cash flow was primarily due to higher net income for the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019, a sizeable reduction in accounts receivable during the first quarter of fiscal 2020 and a one-time employee profit-sharing contribution granted during the fourth quarter of fiscal 2018 and paid during the first quarter of fiscal 2019. Cash and cash equivalents increased 18.7% to $67.1 million as of May 31, 2019, from $56.6 million as of February 28, 2019.

“CSI’s cash flow remains strong, and we continue to use our strong financial position to strengthen our infrastructure and return a portion of our earnings to shareholders,” Powless commented. “During the first quarter of fiscal 2020, we invested approximately $4.1 million in property, equipment and software to support our continued growth. In addition, we increased the return to shareholders. Cash dividend payments to shareholders totaled $5.0 million during the first quarter of the current fiscal year, representing an increase of 15.4% compared with the first quarter of last fiscal year. In addition, we repurchased $1.4 million of CSI stock during the quarter. At the end of our first quarter, we had a very strong cash position and no long-term debt. We expect to leverage CSI’s excellent cash flow from operations and our strong balance sheet by funding acquisitions, expanding our infrastructure and building long-term shareholder value,” 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 May 31,

2019

 

2018

 
Total Revenues

$

69,022

$

64,892

Operating expenses

 

53,679

 

51,893

Operating income

 

15,342

 

12,999

Interest income, net

 

323

 

98

Income before income taxes

 

15,665

 

13,097

Provision for income taxes

 

3,125

 

3,001

 
Net income

$

12,541

$

10,096

 
Earnings per share

$

0.45

$

0.36

 
Shares used in computing earnings per common and common equivalent share

 

27,686,388

 

27,868,000

 
 
COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
 
5/31/2019 2/28/2019 5/31/2018
(Unaudited) (Audited) (Restated)
ASSETS
Current assets
Cash and cash equivalents

$

67,133

$

56,553

$

45,268

Accounts receivable

 

32,387

 

38,727

 

29,893

Income tax receivable

 

 

1,666

 

844

Prepaid expenses and other current assets

 

18,834

 

18,675

 

15,772

Total current assets

 

118,354

 

115,621

 

91,777

Property and equipment, net of accumulated depreciation

 

41,268

 

41,600

 

36,303

Software and software licenses, net of accumulated amortization

 

20,040

 

19,563

 

22,961

Right of use assets – leases

 

6,269

 

 

Goodwill

 

60,115

 

60,115

 

60,115

Intangible assets

 

4,548

 

4,712

 

5,205

Other assets

 

61,105

 

54,871

 

41,775

 
Total assets

$

311,698

$

296,482

$

258,137

 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable

$

8,961

$

8,282

$

7,112

Accrued expenses

 

42,983

 

35,264

 

25,982

Right of use assets – lease liabilities, short-term

 

1,988

 

 

Deferred revenue

 

10,518

 

13,857

 

9,618

Income tax payable

 

1,449

 

 

Total current liabilities

 

65,899

 

57,403

 

42,712

Long-term liabilities
Deferred income taxes

 

17,787

 

17,787

 

14,438

Post Retirement Benefits

 

383

 

447

 

207

Right of use assets – lease liabilities, long-term

 

4,410

 

 

Other long-term liabilities

 

2,035

 

2,041

 

2,166

Total long-term liabilities

 

24,615

 

20,275

 

16,811

 
Total liabilities

 

90,514

 

77,678

 

59,523

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

 

 

 

Common stock, no par; 60,000,000 shares authorized; 13,846,368 shares issued as of February 28, 2019; 13,931,722 shares issued as of February 28, 2018

 

29,840

 

28,253

 

27,263

Retained earnings

 

188,142

 

186,934

 

166,496

Accumulated other comprehensive income

 

3,202

 

3,617

 

4,855

Total shareholders’ equity

 

221,184

 

218,804

 

198,614

 
Total liabilities and shareholders’ equity

$

311,698

$

296,482

$

258,137

 

Contacts

Andras Q. Bende, CFO

800-545-4274, ext. 10115 or

andras.bende@csiweb.com

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