Press Release / Oct. 8, 2020

CSI REPORTS RECORD REVENUES AND NET INCOME FOR SECOND QUARTER

Revenues Increase 3.0% to $72.5 Million and Net Income Per Share Rises 10.6% to $0.52

PADUCAH, Ky. (October 8, 2020) – Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported record revenues and net income for the second quarter and first six months of fiscal 2021, which ended August 31, 2020.

CSI’s revenues rose 3.0% to $72.5 million for the second quarter of fiscal 2021 compared with $70.3 million for the second quarter of fiscal 2020. Second quarter net income rose 9.2% to $14.3 million compared with $13.1 million for the second quarter of fiscal 2020. Net income per share rose 10.6% to $0.52 compared with $0.47 for the second quarter of fiscal 2020.

“CSI’s sales momentum continued into the second quarter with new wins across a number of states even though travel was limited due to COVID-19,” stated Steven A. Powless, chairman and CEO of CSI. “We signed 14 new banks during the first half of fiscal 2021, representing the highest number of new sales for that timeframe in the company’s history. We expect to complete the conversion of these banks to CSI’s platform in the near future.

“We are very pleased with our second quarter’s performance as our teams continued to work remotely to serve our existing customers, make new sales calls and convert new accounts to CSI’s platform. Our growth benefited from the high percentage of revenues generated from long-term contracts and high customer renewal rates. Demand for our digital banking solutions remained strong as banks expanded these services, although that growth was offset partially by lower transactional volume due to reduced economic activity. CSI’s operating income rose 14.6% in the second quarter of fiscal 2021 primarily due to higher revenues and reduced travel expenses arising from COVID-19 restrictions.

“Our outlook for the second half of fiscal 2021 remains positive based on our sales momentum and our success in supporting our customers on a remote basis. We expect transaction volume to pick up as economic activity returns to normal. Our growth in fourth quarter operating income is expected to be challenged by the comparison of low operating expenses in the fourth quarter of last year arising from the

adoption of ASC 350-40, Internal-Use Software, and ASC 340-40, Contracts with Customers. These adoptions resulted in one-time true-up reductions in certain expenses in the fourth quarter of fiscal 2020 that will not be repeated in the fourth quarter of fiscal 2021. Going forward, we believe the investments we have made in new hires, hardware, software and infrastructure will be important to our continued growth and success,” Powless continued.

Second Quarter Results

Consolidated revenues increased 3.0% to $72.5 million in the second quarter of fiscal 2021 compared with $70.3 million in the second quarter of fiscal 2020. The growth in revenues benefited from higher sales, including growth in digital banking, document delivery and regulatory compliance. The results for the second quarter of fiscal 2021 included approximately $1.1 million in early contract termination fees, compared with $1.1 million in the second quarter of fiscal 2020. Excluding the effect of early contract termination fees, net revenues increased approximately 3.1% in the second quarter of fiscal 2021 compared with the second quarter of fiscal 2020. 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 often, but not always, 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 decreased slightly to $54.0 million for the second quarter of fiscal 2021 compared with $54.2 million for the second quarter of fiscal 2020. The decline in operating expenses was related to lower travel and marketing expenses due to COVID-19 restrictions and lower recognized salary expenses due to the adoption of ASC 340 and ASC 350 in the fourth quarter of fiscal 2020. This decline was offset by higher personnel expenses primarily due to higher staffing for the current year period and the effect of typical annual salary adjustments, higher costs of goods sold primarily due to higher related revenues, and higher software amortization expense due to new capital investments placed into service during the trailing 12-month period. CSI did not reduce staff due to COVID-19, but increased hiring of new personnel beginning in the first fiscal quarter of fiscal 2021 to expand customer support and product development in key areas.

Operating income increased 14.6% to $18.5 million for the second quarter of fiscal 2021 compared with $16.1 million for the second quarter of fiscal 2020. Operating margin rose to 25.5% in the second quarter of fiscal 2021 compared with 22.9% for the second quarter of fiscal 2020. The increase in operating income and margin benefited primarily from increased digital banking and payments processing revenues over the second    quarter of fiscal 2020 and lower operating expenses attributable to the pandemic-related travel restrictions. Excluding the effect of early contract termination fees, operating income rose 15.6%, or $2.4 million, in the second quarter of fiscal 2021 compared with the second quarter of fiscal 2020.

The provision for income tax was $4.4 million for the second quarter of fiscal 2021 compared with $3.5 million in the second quarter of fiscal 2020. The increase was due to a higher taxable income and a higher effective tax rate in the second quarter of fiscal 2021 compared with the second quarter of fiscal 2020.

Net income for the second quarter of fiscal 2021 rose 9.2% to $14.3 million compared with $13.1 million for the second quarter of fiscal 2020. Net income per share increased 10.6% to $0.52 for the second quarter of fiscal 2021 on 27.7 million weighted average shares outstanding compared with $0.47 for the second quarter of fiscal 2020, also on 27.7 million weighted average shares outstanding.

“CSI’s cash flow from operations continued to grow in the second quarter and was used to fund new product development and invest in software and hardware to support our future growth,” Powless commented. “We also increased our returns to shareholders with higher cash dividend payments and stock repurchases compared with last year.

“During the first six months of fiscal 2021, we invested approximately $16.6 million in property, equipment and software to support our continued growth, up 42.5% from $11.7 million in the first six months of fiscal 2020. We increased cash dividend payments by 16.6% to $11.6 million and stock repurchases were up 66.5% to $3.6 million compared with the first six months of last fiscal year. We expect to leverage our strong balance sheet and cash flow to fund acquisitions, expand our infrastructure and continue our program of returning a portion of our net income to shareholders through our cash dividend and stock buyback programs,” Powless concluded.

Six Months Results

Consolidated revenues for the first six months of fiscal 2021 rose 2.7% to $143.1 million compared with $139.4 million for the first six months of fiscal 2020. CSI’s increase in revenues benefited from growth from its Enterprise Banking and Business Solutions Groups compared with the first six months of fiscal 2020, despite the revenue impacts of lower transactional volume due to reduced economic activity. Fiscal year-to-date revenues also included $3.9 million in early contract termination fees compared with $2.8 million in the first six months of fiscal 2020. Excluding the effect of the early contract termination fees from both periods, fiscal year-to-date revenues increased approximately 1.9% compared with the first half of fiscal year 2020.

Operating expenses decreased 1.8% to $105.9 million for the first six months of fiscal 2021 compared with $107.9 million for the first six months of fiscal 2020. The decline in operating expenses was related to lower travel and marketing expenses due to COVID-19 restrictions and lower recognized salary expenses due to the adoption of ASC 340 and ASC 350 in the fourth quarter of fiscal 2020, offset partially by higher staffing for the current year period and the effect of typical annual salary adjustments, higher costs of goods sold, primarily due to higher related revenues, and higher software amortization expense due to new capital investments placed into service during the trailing 12-month period.

Operating income increased 18.2% to $37.2 million for the first six months of fiscal 2021 compared with $31.5 million for the first six months of fiscal 2020. Operating margin increased to 26.0% in the first six months of fiscal 2021 compared with 22.6% in the first six months of fiscal 2020. The increase in operating income and margin benefited primarily from increased digital banking and document delivery revenues, a reduction in operating expenses attributable to pandemic‑related travel restrictions, and an increase in early contract termination fees compared to the first six months of fiscal 2020. Excluding the effect of early contract termination fees, operating income rose 16.1%, or $4.6 million, in the first half of fiscal 2021 compared with the first half of fiscal 2020.

Net income for the first six months of fiscal 2021 increased by 11.0% to $28.4 million compared with $25.6 million in the first six months of fiscal 2020. Net income per share rose 12.0% to $1.03 per share for the first six months of fiscal 2021 compared with $0.92 for the first six months of fiscal 2020.

CSI’s cash flow from operations increased 11.6% to $39.6 million in the first six months of fiscal 2021 compared with $35.5 million in the first half of fiscal 2020. The increase in operating cash flow benefited from higher net income in the first six months of fiscal 2021 compared with fiscal 2020. Cash and cash equivalents increased 12.1% to $77.2 million as of August 31, 2020, from $68.8 million as of August 31, 2019.

About Computer Services, Inc.

Computer Services, Inc. (CSI) delivers innovative financial technology and regulatory compliance solutions to financial institutions and corporate customers across the nation. Through a combination of expert service, cutting-edge technology and a customer-first mentality, CSI excels at driving businesses forward in a rapidly changing industry. CSI’s expertise and commitment to authentic alliances has resulted in the company’s inclusion in such top industry-wide rankings as the FinTech 100American 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. 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; (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, including the COVID-19 pandemic and its effect on our business operations and financial results; (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. 

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