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Press Release / Jan. 7, 2021

CSI Reports Record Revenues and Net Income for Third Quarter

PADUCAH, Ky. (January 7, 2021) – Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported record revenues and net income for the third quarter and first nine months of fiscal 2021, which ended November 30, 2020.

CSI’s revenues rose 0.9% to $72.8 million for the third quarter of fiscal 2021 compared with $72.1 million for the third quarter of fiscal 2020. Third quarter net income rose 12.0% to $13.5 million compared with $12.0 million for the third quarter of fiscal 2020. Net income per share rose 14.0% to $0.49 compared with $0.43 for the third quarter of fiscal 2020.

“CSI’s growth in the third quarter benefited from continued demand for our products and services and from the high percentage of revenues generated from long-term contracts and high customer renewal rates,” stated Steven A. Powless, chairman and CEO of CSI. “Our team transitioned to remote work early in the pandemic and we have maintained our pace for new sales and bank conversions even though travel was limited due to COVID-19. We expect our new bank contracts signed this year to be transitioned to CSI’s platform in future quarters and contribute to our base of recurring revenues.

“Our outlook for fiscal 2021 remains positive based on our sales momentum and our success in supporting our customers on a remote basis. We expect to report higher revenues and net income for fiscal 2021 based on our revenue from existing contracts, new business, and demand for our digital banking solutions. We expect fourth quarter revenues to be higher than reported last year due to these trends, despite a substantial reduction in early contract termination fees expected to be reported in the fourth quarter of fiscal 2021 compared to $4.6 million in early contract termination fees reported in the fourth quarter of last fiscal year. We also expect that operating income and net income for the fourth quarter of fiscal 2021 will be lower than fiscal 2020 due to lower early contract termination fees and 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. Our core businesses remain sound and we remain optimistic about our continued growth next year,” Powless continued.

Third Quarter Results

Consolidated revenues increased 0.9% to $72.8 million in the third quarter of fiscal 2021 compared with $72.1 million in the third quarter of fiscal 2020. The growth in revenues benefited from higher sales, including growth in digital banking, document delivery, regulatory compliance, and payments processing. Enterprise Banking Group (EBG) revenues rose 4.9% to $45.2 million in the third quarter of fiscal 2021 and accounted for 62.1% of total revenues for the quarter. Business Solutions Group (BSG) revenues were down 5.1% to $27.6 million compared to the third quarter of last fiscal year due to a decrease in sales of third-party hardware & software and migration from item capture transactions to digital banking transactions, both factors primarily the result of current period pandemic-related economic conditions. The results for the third quarter of fiscal 2021 included approximately $975,000 in early contract termination fees, compared with $1.0 million in the third quarter of fiscal 2020. Excluding the effect of early contract termination fees, net revenues increased approximately 0.9% in the third quarter of fiscal 2021 compared with the third 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 declined 3.6% to $55.1 million for the third quarter of fiscal 2021 compared with $57.2 million for the third quarter of fiscal 2020. The decline in operating expenses was related to lower travel and marketing expenses due to COVID-19 restrictions, lower recognized salary expenses due to the adoption of ASC 340 and ASC 350 in the fourth quarter of fiscal 2020, and lower profit-sharing expense. This decline was offset partially by higher personnel expenses resulting from increased staffing for the current year period and the effect of typical annual salary adjustments, and higher software amortization expense primarily 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 half of fiscal 2021 to expand customer support and product development in key areas.

Operating income increased 18.1% to $17.6 million for the third quarter of fiscal 2021 compared with $14.9 million for the third quarter of fiscal 2020. Operating margin rose to 24.2% in the third quarter of fiscal 2021 compared with 20.7% for the third quarter of fiscal 2020. The increase in operating income and margin benefited primarily from increased digital banking and payments processing revenues over the third 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 19.6%, or $2.7 million, in the third quarter of fiscal 2021 compared with the third quarter of fiscal 2020.

The provision for income tax was $4.2 million for the third quarter of fiscal 2021 compared with $3.2 million in the third quarter of fiscal 2020. The increase was due to a higher taxable income and a higher effective tax rate due to timing of the recognition and magnitude of certain deductions and credits taken in the third quarter of fiscal 2021 compared with the third quarter of fiscal 2020.

Net income for the third quarter of fiscal 2021 rose 12.0% to $13.5 million compared with $12.0 million for the third quarter of fiscal 2020. Net income per share increased 14.0% to $0.49 for the third quarter of fiscal 2021 on 27.6 million weighted average shares outstanding compared with $0.43 for the third quarter of fiscal 2020, on 27.7 million weighted average shares outstanding.

“CSI’s balance sheet remained strong with increased cash generated from operations and no long-term debt,” Powless commented. “We continued to use our strong cash flow to fund new product development and invest in software and hardware to support our future growth. 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.

“During the first nine months of fiscal 2021, we invested approximately $21.2 million in property, equipment and software to support our continued growth, up 27.8% from $16.5 million in the first nine months of fiscal 2020. We increased cash dividend payments by 17.3% to $18.5 million and stock repurchases were up 115.7% to $6.6 million compared with the first nine months of last fiscal year.

“After the close of the third quarter, our Board of Directors approved a $1.00 special cash dividend that was paid on December 30, 2020, to shareholders of record as of the close of business on December 22, 2020. The special cash dividend was paid from cash reserves. In addition, the Board authorized a $10.0 million increase in the Company’s share repurchase program. We believe CSI’s stock represents an attractive investment at current prices in light of our earnings growth, solid cash flow from operations and strong capital position,” Powless concluded.

Nine Months Results

Consolidated revenues for the first nine months of fiscal 2021 rose 2.1% to $215.9 million compared with $211.5 million for the first nine months of fiscal 2020. CSI’s increase in revenues benefited from EBG growth compared with the first nine months of fiscal 2020, despite the revenue impacts of lower transactional volume due to reduced economic activity. EBG revenues rose 4.0% to $133.4 million compared with the first nine months of fiscal 2020 and accounted for 61.8% of total revenues through the first nine months of fiscal 2021. BSG revenues were down 1.0% to $82.5 million compared with the first nine months of the prior fiscal year, primarily as a result of the impact of current period pandemic-related economic conditions on certain revenues as described above. Fiscal year-to-date consolidated revenues also included $4.9 million in early contract termination fees compared with $3.8 million in the first nine months of fiscal 2020. Excluding the effect of the early contract termination fees from both periods, fiscal year-to-date consolidated revenues increased approximately 1.6% compared with the first nine months of fiscal year 2020.

Operating expenses decreased 2.5% to $161.1 million for the first nine months of fiscal 2021 compared with $165.1 million for the first nine months of fiscal 2020. The decline in operating expenses was related to lower travel and marketing expenses due to COVID-19 restrictions, lower recognized salary expenses due to the adoption of ASC 340 and ASC 350 in the fourth quarter of fiscal 2020, and lower profit-sharing expense, 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 primarily due to new capital investments placed into service during the trailing 12-month period.

Operating income increased 18.2% to $54.8 million for the first nine months of fiscal 2021 compared with $46.4 million for the first nine months of fiscal 2020. Operating margin increased to 25.4% in the first nine months of fiscal 2021 compared with 21.9% in the first nine months of fiscal 2020. The increase in operating income and margin benefited primarily from increased digital banking, payments processing 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 nine months of fiscal 2020. Excluding the effect of early contract termination fees, operating income rose 17.3%, or $7.3 million, in the first nine months of fiscal 2021 compared with the first nine months of fiscal 2020.

Net income for the first nine months of fiscal 2021 increased by 11.3% to $41.9 million compared with $37.6 million in the first nine months of fiscal 2020. Net income per share rose 11.8% to $1.52 per share for the first nine months of fiscal 2021 compared with $1.36 for the first nine months of fiscal 2020.

CSI’s cash flow from operations increased 6.3% to $51.6 million in the first nine months of fiscal 2021 compared with $48.5 million in the first nine months of fiscal 2020. The increase in operating cash flow benefited from higher net income in the first nine months of fiscal 2021 compared with fiscal 2020. Cash and cash equivalents increased 10.1% to $74.7 million as of November 30, 2020, from $67.9 million as of November 30, 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 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. 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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