- Net Income Increases for 18th Consecutive Year -
PADUCAH, Ky. (April 29, 2015) – Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported record revenues and net income in the fiscal year ended February 28, 2015. CSI’s record results in fiscal 2015 marked the company’s 15th consecutive year of revenue growth and 18th consecutive year of growth in net income. CSI also concluded the year by celebrating its 50th year of operations.
CSI’s revenues in fiscal 2015 were a record $221.4 million and rose 4.0% compared with $212.9 million in fiscal 2014. Net income in fiscal 2015 was a record $27.8 million, a 4.4% increase compared with fiscal 2014 income of $26.7 million. Net income per fully diluted share increased 6.5% to $1.97 compared with $1.85 in the prior fiscal year.
Fourth quarter revenues rose 2.1% to a record $55.3 million in fiscal 2015 compared with $54.1 million in the fourth quarter of fiscal 2014. Net income was $6.7 million, or $0.48 per fully diluted share, in the fourth quarter of fiscal 2015 compared with $7.4 million, or $0.52 per fully diluted share, in the fourth quarter of fiscal 2014.
“In fiscal 2015, we completed our most successful year in CSI’s 50 years of operations,” stated Chief Executive Officer Steven A. Powless. “We reported record revenues and net income, and we continued to invest in CSI to support our future growth. We also increased our cash dividends paid to shareholders in fiscal 2015, marking our 43rd consecutive year of raising our cash dividend.
“Our excellent results continue to benefit from new core customer sales and high renewal rates that we are achieving on long-term contracts. We believe our customers’ high satisfaction levels with our service highlight the strength of our recurring revenue base from long-term contracts,” continued Mr. Powless.
Fiscal 2015 Results
Consolidated revenues rose 4.0% to $221.4 million in fiscal 2015 compared with $212.9 million in fiscal 2014. CSI’s growth in revenues reflects new customers added since last year, cross-sales to existing customers and increased transaction volume. Processing revenues rose 4.7% to $140.5 million in fiscal 2015 compared with $134.1 million in fiscal 2014. The growth in processing revenues included record sales to new customers, cross-sales to existing customers and increases in transaction volumes from existing customers, partially offset by the effect of lost business. Processing revenues included early contract termination fees of $3.0 million in fiscal 2015 compared with $3.2 million in fiscal 2014. Other revenues increased 2.7% to $80.9 million in fiscal 2015 compared with $78.8 million in fiscal 2014. The increase in other revenues was due primarily to growth in mobile and Internet banking services, growth in homeland security and fraud prevention services, and higher eBusiness group revenues.
“We expect that CSI’s processing revenues will be affected by increased merger and acquisition activity among banks during fiscal 2016,” stated Powless. “We benefit from one-time early termination fees when a customer is acquired, but it also reduces our recurring revenues due to the contract’s termination. Merger and acquisition activity has picked up over the past year due to improved bank earnings and the improved economy. We expect our bank customers to be active in this market as both buyers and sellers, resulting in higher early contract termination fees when CSI customers are acquired by non-CSI customer banks, or increased processing fees generated by our customers when they acquire non-CSI customer banks.”
Operating expenses rose 4.0% to $175.6 million in fiscal 2015 compared with fiscal 2014. The increase in operating expenses was due primarily to higher cost of goods sold on higher software, equipment and maintenance contract sales; higher group medical plan expenses on abnormally high claims activity in fiscal 2015; and higher commission expenses due to the expense recognition effects of a change in accounting policy in fiscal 2014.
“We continued to expand our sales and marketing initiatives in fiscal 2015,” continued Powless. “We expect these investments will accelerate our revenue and earnings growth potential, as well as be key in our ability to build shareholder value in the future.”
Operating income rose 3.9% to $45.8 million in fiscal 2015 compared with $44.1 million in fiscal 2014. Operating margins were 20.7% in both fiscal 2015 and fiscal 2014.
Net income in fiscal 2015 rose 4.4% to $27.8 million compared with $26.7 million in fiscal 2014. Net income per fully diluted share increased 6.5% to $1.97 in fiscal 2015 compared with $1.85 in fiscal 2014. CSI’s higher growth rate in per share earnings benefited from the company’s stock repurchase program. Weighted average fully diluted shares outstanding declined 1.9% from fiscal year 2014 due to CSI shares repurchased under the repurchase program.
CSI’s cash flow from operations rose to $38.6 million in fiscal 2015. The company returned $16.4 million to shareholders during fiscal 2015 in cash dividends and stock repurchased or redeemed. Cash and cash equivalents increased to $11.8 million at February 28, 2015.
“CSI’s financial position remained strong in fiscal 2015 and benefited from growth in net income and cash flow from operations,” stated Powless. “Our Board of Directors remains focused on building shareholder value through our cash dividend and stock repurchase programs. During fiscal 2015, we returned $10.8 million to shareholders in cash dividends and $5.6 million in stock repurchases and redemptions. We also invested $11.4 million in new property, equipment, hardware and software during fiscal 2015 to support our continued growth.”
Fourth Quarter Results
Fourth quarter consolidated revenues rose 2.1% to a record $55.3 million compared with $54.1 million in the fourth quarter ended February 28, 2014. Processing revenues increased 5.7% to $35.4 million in the fourth quarter of fiscal 2015 compared with $33.5 million in the fourth quarter of fiscal 2014. Processing revenues included early contract termination fees of $864,000 in the fourth quarter of fiscal 2015 compared with $517,000 in the fourth quarter of fiscal 2014. Other revenues were down 3.7% to $19.9 million in the fourth quarter of fiscal 2015 compared with $20.7 million in the fourth quarter of fiscal 2014. The decrease in other revenues was due primarily to lower sales from non-recurring revenue streams associated with equipment, software and related third-party maintenance contracts during the quarter.
Fourth quarter operating expenses rose 6.4% to $44.5 million compared with $41.8 million in the fourth quarter of fiscal 2014. Effective with the second half of fiscal 2014, commission expense was matched with the contract period rather than expensed at the time the contract was signed, which more closely aligns incurred compensation expenses with the associated revenues over the life of the related customer contracts. As a result of the accounting change, the company recognized a $900,000 increase in net commission expense in the fourth quarter of fiscal 2015. Fourth quarter 2015 operating expenses also included approximately $700,000 in other nonrecurring operating expenses, including: an increase in marketing and advertising expense recognized during the fourth quarter, a write-down of land available for resale and a write-down of intangible assets consisting of certain governmental licenses related to our telecom service offerings.
Operating income in the fourth quarter declined 12.6% to $10.8 million in fiscal 2015 compared with $12.3 million in fiscal 2014. Operating margins decreased to 19.5% in the fourth quarter of fiscal 2015 compared with 22.7% in the fourth quarter of fiscal 2014. The decline in CSI’s operating margin was due primarily to the forgoing nonrecurring adjustments, which generated differences relative to the prior fiscal year’s fourth quarter.
Income before taxes declined 12.6% to $10.8 million in the fourth quarter of fiscal 2015 compared with $12.3 million in the same quarter of fiscal 2014. Provision for income taxes declined to $4.0 million in the fourth quarter of fiscal 2015 compared with $4.9 million in the fourth quarter of fiscal 2014. The effective income tax rate was 37.6% in the fourth quarter of fiscal 2015 compared with 39.5% in the fourth quarter of fiscal 2014.
Net income in the fourth quarter of fiscal 2015 declined to $6.7 million, or $0.48 per fully diluted share, compared with $7.4 million, or $0.52 per fully diluted share, in the fourth quarter of fiscal 2014. The decrease in net income was due to a combination of lower other revenue, higher expenses associated with the effect of the change in accounting for commission expense and other nonrecurring operating expenses that reduced operating income compared with the prior fiscal year’s fourth quarter.
About Computer Services, Inc.
Computer Services, Inc. delivers core processing, managed services, mobile and Internet solutions, 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 to CSI 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 Report, Quarterly Reports, Information and Disclosure Statements and other documents posted from time to time on the OTCQX website (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. Unless required by law, CSI undertakes no obligation to update, and is not responsible for updating, the information contained in this report beyond the publication date, whether as a result of new information or future events, or to conform the statement to actual results or changes in CSI's expectations, or otherwise or for changes made to this document by wire services or Internet services.