PADUCAH, Ky. (May 4, 2020) – Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported record revenues and net income for the fiscal year ended February 29, 2020. CSI’s record results for fiscal 2020 marked the company’s 20th consecutive year of revenue growth and 23rd consecutive year of growth in net income. CSI also achieved its 48th consecutive year of paying increased cash dividends to shareholders in fiscal 2020.
CSI’s revenues rose 7.9% to a record $284.2 million in fiscal 2020 compared with $263.3 million for fiscal 2019. Net income for fiscal 2020 was a record $52.8 million, a 12.4% increase compared with fiscal 2019 net income of $47.0 million. Net income per share increased 13.0% to $1.91 compared with $1.69 in the prior fiscal year.
Fourth quarter revenues rose 14.1% to a record $72.7 million in fiscal 2020 compared with $63.8 million in the fourth quarter of fiscal 2019. Net income increased 21.2% to a record $15.2 million in the fourth quarter of fiscal 2020 compared with $12.5 million in the fourth quarter of fiscal 2019. Net income per share increased 24.4% to $0.56 compared with $0.45 in the prior fiscal year’s fourth quarter.
“CSI celebrated its 55th year in business during fiscal 2020 and we are pleased to report record sales and net income for the year,” stated Steven A. Powless, chairman and CEO of CSI. “Our record results benefited from higher sales across all major business lines and high renewal rates on contracts from existing customers. We added a record number of new core processing agreements during the year with average terms that exceed nine years. We believe our high percentage of contract renewals and long contract terms highlight our customers’ satisfaction with our service, technology and ability to support their future operations and growth plans.
“After the close of our fiscal year in February, we began to see the effects of COVID-19 on our customers and our operations. CSI quickly transitioned to remote operations, utilizing our advanced networks and infrastructure to protect our employees and support our customers. We are pleased to report that our business continuity plans were implemented without any delay or disruption in our services.
“We do not expect any material negative changes in our outlook for fiscal 2021 since over 90% of our revenue is generated from long-term contracts,” continued Powless. “We have a very strong financial position with significant cash reserves and believe our systems and technology are well suited to the continued support of our customers.
“We expect demand for sales of new products and services to be dampened in fiscal 2021 due to travel and quarantine restrictions; however, we expect demand for our digital banking services to increase as banks and their customers shift to online banking. We have made significant investments in our digital banking services in recent years and believe interest will increase in these products and services. Our business rebounded strongly after the 2008 recession and we believe we are in a stronger position going into fiscal 2021 than we were in the past to provide new and prospective customers with market-leading products and services.”
Fiscal 2020 Results
Consolidated revenues rose 7.9% to $284.2 million for fiscal 2020 compared with $263.3 million for fiscal 2019. The growth in revenues resulted primarily from the addition of new customers, cross sales to existing customers, increases in transaction volumes from existing customers, growth in mobile and Internet banking, growth in homeland security and fraud prevention services and an increase in third-party software, hardware and maintenance revenue. Early contract termination fees were $8.5 million for fiscal 2020 compared with $10.8 million for fiscal 2019. These 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 expenses rose 5.2% to $218.9 million for fiscal 2020 compared with $208.0 million for fiscal 2019. The fiscal 2020 increase in operating expenses included higher cost of goods sold on higher payments processing revenue and third-party software, hardware, and maintenance contract sales, as well as other revenues; higher employee-related expenses due to higher staffing, annual salary adjustments and higher profit-sharing plan contribution expenses due to higher adjusted earnings growth; and higher software amortization, hardware depreciation and software and hardware maintenance expenses.
Operating income rose 18.0% to $65.3 million for fiscal 2020 compared with $55.3 million for fiscal 2019. Operating margin increased to 23.0% for fiscal 2020 compared with 21.0% for fiscal 2019. The increase in operating income and margin benefited from an improved revenue mix combined with effective expense control.
CSI’s fiscal 2020 results included $57,000 in non-operating income compared with $4.1 million in non-operating income in fiscal 2019. The non-operating income for both periods was due to the sale of an investment that generated $5.6 million in total initial consideration during fiscal 2019 and $1.1 million in delayed consideration received during fiscal 2020.
The provision for income tax was $13.8 million for fiscal 2020 compared with $13.2 million for fiscal 2019. The increase was due to higher taxable income in fiscal 2020 compared to fiscal 2019, partially offset by a lower effective tax rate in fiscal 2020 compared to fiscal 2019.
Net income for fiscal 2020 rose 12.4% to $52.9 million compared with $47.0 million for fiscal 2019. Net income per share increased 13.0% to $1.91 for fiscal 2020 compared with $1.69 for fiscal 2019. The growth rate in earnings per share exceeded the growth rate in net income due to 0.5% fewer weighted average shares outstanding for fiscal 2020 as a result of CSI shares repurchased during fiscal 2020 under the Company’s share repurchase program.
The Company’s financial results for fiscal 2019 were restated to account for the capitalization of certain costs related to ASC 350-40, Internal-Use Software, and ASC 340-40, Contracts with Customers, and certain revenue related to ASC 606, Revenue from Contracts with Customers. The cumulative changes had the effect of increasing net income per share by $0.07 in fiscal 2019 to $1.69 per share compared with the previously reported amount of $1.62 per share.
CSI’s cash flow from operations rose 7.3% to $59.4 million in fiscal 2020 compared with $55.3 million in fiscal 2019. Cash and cash equivalents rose $13.6 million to $70.1 million as of February 29, 2020, an increase of 24.0% from $56.6 million at February 28, 2019.
“CSI’s financial position remained very strong at fiscal year-end due to growth in earnings, cash flow and no long-term debt. We generated almost $60 million in operating cash flow during fiscal 2020 while continuing our focused investments in new services and technology to support our future growth. We increased our investments to $20.9 million in fiscal 2020. We also returned $25.5 million to shareholders in cash dividends and repurchases of common stock during fiscal 2020, including a 16.7% increase in our quarterly cash dividend to $0.21 per share,” Powless concluded.
Fourth Quarter Results
For the fourth quarter of fiscal 2020, total revenues rose 14.1% to a record $72.7 million compared with $63.8 million for the fourth quarter of fiscal 2019. The growth in revenues benefited from higher sales of core processing, digital banking, regulatory compliance services and managed services. Early contract termination fees were $4.6 million in the fourth quarter of fiscal 2020 compared with $2.2 million in the fourth quarter of fiscal 2019. Excluding the effect of the early contract termination fees in both periods, fourth quarter revenues increased approximately 10.6% compared with the same quarter of the prior fiscal year.
Operating expenses increased 11.2% to $53.8 million for the fourth quarter of fiscal 2020 compared with $48.4 million for the fourth quarter of fiscal 2019.
Operating income increased 23.1% to $18.9 million for the fourth quarter of fiscal 2020 compared with $15.4 million for the fourth quarter of fiscal 2019. Operating margin rose to 26.0% for the fourth quarter of fiscal 2020 compared with 24.1% for the fourth quarter of fiscal 2019.
Income before income taxes rose 23.1% to $19.2 million for the fourth quarter of fiscal 2020 compared with $15.6 million in the fourth quarter of fiscal 2019. Provision for income taxes was $4.0 million in the fourth quarter of 2020 compared with $3.1 million in the fourth quarter of fiscal 2019.
Net income for the fourth quarter of fiscal 2020 rose 21.2% to $15.2 million compared with $12.5 million for the fourth quarter of fiscal 2019. Net income per share increased 24.4% to $0.56 per share for the fourth quarter of fiscal 2020 compared with $0.45 for the fourth quarter of fiscal 2019.
The Company’s financial results for the fourth quarter of fiscal 2019 were restated to account for the capitalization of certain costs related to ASC 350-40, Internal-Use Software, and ASC 340-40, Contracts with Customers, and certain revenue related to ASC 606, Revenue from Contracts with Customers. The Company determined that the net impact of the adoptions on fiscal 2020 and fiscal 2019 were immaterial to the results of any prior or current quarter and could therefore be recognized entirely within the fourth quarter of each respective year. The cumulative changes had the effect of increasing net income per share by $0.07 in the fourth quarter of fiscal 2019 to $0.45 per share compared with the originally reported $0.38 per share.
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.
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; (iii) risk factors affecting the United States economy generally including without limitation acts of terrorism, military actions including war, and viral epidemics and pandemics that alter human behaviors; (iv) increasing domestic and international regulation imposing burdensome requirements regarding the privacy of consumer data especially consumer financial transaction data of which CSI possesses substantial quantities; and (v) other factors discussed in CSI’s Annual Reports, Quarterly Reports, news releases and other documents posted from time to time on the OTCQX website (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.