PADUCAH, Ky. (October 7, 2019) – Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported growth in revenues and net income for the second quarter and first six months of fiscal 2020, which ended August 31, 2019.
CSI’s second quarter revenues for fiscal 2020 rose 4.9% to $70.3 million compared with $67.1 million for the second quarter of fiscal 2019. Second quarter net income rose 0.5% to $13.1 million compared with $13.0 million for the second quarter of fiscal 2019. Net income per share remained the same at $0.47 for the second quarter of fiscal 2020 as the second quarter of fiscal 2019. The results for the prior year’s second fiscal quarter included approximately $3.9 million in non-operating income from a gain on a sale of an investment, offset partially by $1.2 million in a one-time operating charge related to payments processing business transaction accounts, and $2.6 million primarily from one-time expenses related to the gain on the sale of an investment and the planned retirement of company executives. There was only $57,000 of non-operating income in the second quarter of fiscal 2020 and no unusual expense items. Early contract termination fees totaled $1.1 million in the second quarter of 2020 compared with $4.2 million in the second quarter of fiscal 2019.
“CSI’s second quarter benefited from strong sales, 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 second quarter even though last year’s second quarter included a large gain on the sale of an investment and significantly higher fees from early contract termination fees. We continue to gain traction across our markets, and our outlook for the second half of fiscal 2020 is very positive. Based on our sales during the first half of fiscal 2020, we expect our recurring revenues to build as new business transitions to CSI over the next few quarters.
“We held our annual customer conference recently and had excellent turnout from across our customer base. We previewed several new products and services that we expect will strengthen CSI’s market-leading solutions for new and existing customers. We believe our continued investment in new hardware, software and product development will be important to our future growth. We expect these investments to expand our ability to handle current transactions while providing additional capacity to serve new customers.”
Second Quarter Results
Consolidated revenues increased 4.9% to $70.3 million in the second quarter of fiscal 2020 compared with $67.1 million in the second 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 second quarter of fiscal 2020 included approximately $1.1 million in early contract termination fees compared with $4.2 million in the second quarter of fiscal 2019. Excluding the effect of early contract termination fees, net revenues increased approximately 10.3% in the second quarter of fiscal 2020 compared with the second 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 26.9% to $16.1 million for the second quarter of fiscal 2020 compared with $12.7 million for the second quarter of fiscal 2019. Operating margin rose to 22.9% in the second quarter of fiscal 2020 compared with 18.9% for the second quarter of fiscal 2019. The increase in operating income and margin benefited from higher sales.
CSI generated $3.9 million in non-operating income in the second quarter of last fiscal year. The non-operating income was due to the sale of an investment that generated approximately $5.4 million in total consideration in the second quarter of fiscal 2019. Additional non-operating income of $57,000 related to the same transaction was realized in the second quarter of fiscal 2020.
The provision for income tax was $3.5 million for the second quarter of fiscal 2020 compared with $3.7 million in the second quarter of fiscal 2019. The decrease was due to a lower effective tax rate in the second quarter of fiscal 2020 compared with the second quarter of fiscal 2019.
Net income for the second quarter of fiscal 2020 was up 0.5% to $13.1 million compared with $13.0 million for the second quarter of fiscal 2019. Net income per share remained the same at $0.47 for the second quarter of fiscal 2020 on 27.7 million weighted average shares outstanding compared with $0.47 for the second quarter of fiscal 2019 on 27.9 million weighted average shares outstanding. Net income for the second quarter of fiscal 2019 benefitted from unusually high early contract termination fees and the non-operating income from the sale of an investment, both of which significantly affected the comparison of the current quarter net income to the prior year quarter.
Six Months Results
Consolidated revenues for the first six months of fiscal 2020 rose 5.6% to $139.4 million compared with $132.0 million for the first six months of fiscal 2019. CSI’s increase in revenues benefited from growth across all major product lines compared with the first six months of fiscal 2019. Fiscal year-to-date revenues also included $2.8 million in early contract termination fees compared with $5.6 million in the first six months of fiscal 2019. Excluding the effect of the early contract termination fees from both periods, fiscal year-to-date revenues increased approximately 8.0% compared with the first half of fiscal year 2019.
Operating income increased 22.4% to $31.5 million for the first six months of fiscal 2020 compared with $25.7 million for the first six months of fiscal 2019. Operating margin increased to 22.6% in the first six months of fiscal 2020 compared with 19.5% in the first six months of fiscal 2019.
Non-operating income was only $57,000 for the first six months of fiscal 2020 compared to $3.9 million in the first six months of fiscal 2019.
Net income for the first six months of fiscal 2020 increased by 10.8% to $25.6 million compared with $23.1 million in the first six months of fiscal 2019. Net income per share rose 10.8% to $0.92 per share for the first six months of fiscal 2020 compared with $0.83 for the first six months of fiscal 2019.
CSI’s cash flow from operations increased 20.4% to $35.5 million in the first six month of fiscal 2020 compared with $29.5 million in the first half of fiscal 2019. The increase in operating cash flow was primarily due to higher net income. Cash and cash equivalents increased 21.7% to $68.8 million as of August 31, 2019, from $56.6 million as of February 28, 2019.
“CSI’s financial position remains very strong with solid growth in cash and no long-term debt,” Powless commented. “We continue to use our excellent cash flow to fund new investments in our business and increase our returns to shareholders. We invested approximately $11.7 million in new hardware and software during the first six months of fiscal 2020. We remain focused on using our strong financial position and cash flow to invest in CSI’s technology, infrastructure and people to support our continued growth.
“During the first half of fiscal 2020, we also announced a 16.7% increase in the cash dividend, marking our 48th consecutive year of increasing our cash dividend paid to CSI shareholders. Shareholder returns rose 10.3% in the first six months of fiscal 2020 compared to the prior year. We returned approximately $12.6 million to shareholders in cash dividends and repurchases of common stock during the first six months of fiscal 2020 compared with $11.5 million distributed during the same period last year,” 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.