Press Release  |  Jan. 5, 2022

CSI Reports Record Revenues And Net Income For Third Quarter

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General

Revenues Increase 12.7% to $82.0 Million
Net Income Per Share Rises 20.4% to $0.59

PADUCAH, Ky. (Jan. 5, 2022) – Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported record revenues and net income for the third quarter and first nine months of fiscal 2022, which ended Nov. 30, 2021.

CSI’s revenues rose 12.7% to a record $82.0 million for the third quarter of fiscal 2022 compared with $72.8 million for the third quarter of fiscal 2021. Third quarter net income rose 20.3% to a record $16.2 million compared with $13.5 million for the third quarter of fiscal 2021. Net income per share rose 20.4% to $0.59 compared with $0.49 for the third quarter of fiscal 2021.

“CSI’s record third quarter results benefited from increased demand across our product and service lines from our Enterprise Banking and Business Solutions groups,” stated David Culbertson, CSI’s president and CEO. “Our revenue momentum picked up in the third quarter as expected due to new accounts coming online, continued demand for digital banking services, increased volume from payments processing and higher demand for our regulatory compliance and managed information technology and cybersecurity services.

“We believe our excellent results for the third quarter and first nine months of fiscal 2022 are due to our teams’ focus on new sales, continued development of new products and services and strong customer service over the past year. We hired new team members throughout the pandemic to support our growth and believe CSI’s future business will benefit from these investments.

“We expect to report continued sales and earnings growth in the fourth quarter. Our new core sales remain strong and are fueling our growth in Enterprise Banking. We also have benefited from higher transaction volumes each quarter this year due to relaxed COVID-19 restrictions and increased consumer demand. We expect CSI to set new records for revenue and net income for fiscal 2022 based on our growth trajectory,” continued Culbertson.

Third Quarter Results

Consolidated revenues increased 12.7% to $82.0 million in the third quarter of fiscal 2022 compared with $72.8 million in the third quarter of fiscal 2021. The growth in revenues benefited from higher sales in both the Enterprise Banking and Business Solutions groups, including growth in digital banking, core processing, regulatory compliance, and managed services revenues. Revenue growth also benefited from increased transaction volumes in payments processing in the third quarter of fiscal 2022 compared with suppressed transaction volumes during the COVID-19 pandemic economic environment in the third quarter fiscal 2021. The results for the third quarter of fiscal 2022 included $1.7 million in early contract termination fees compared with $1.0 million in the third quarter of fiscal 2021. Excluding the effect of early contract termination fees, net revenues increased 11.9% in the third quarter of fiscal 2022 compared with the third quarter of fiscal 2021. 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 their respective contract terms the customers are acquired.

Operating expenses rose 10.9% to $61.1 million for the third quarter of fiscal 2022 compared with $55.1 million for the third quarter of fiscal 2021. The increase in operating expenses was related to higher personnel expenses associated with typical annual salary adjustments and higher cost of goods on higher related payments processing, digital banking, and managed services revenues. Travel expenses also continued to normalize in the third quarter of fiscal 2022 compared with the prior year’s third quarter when pandemic-related concerns significantly reduced business travel.

Operating income increased 18.5% to $20.9 million for the third quarter of fiscal 2022 compared with $17.6 million for the third quarter of fiscal 2021. The increase in operating income was primarily due to increased payments processing and digital banking revenues as well as an increase in early contract termination fees that were partially offset by higher personnel expenses and higher costs of goods sold on higher related revenues.

Operating margins rose to 25.5% in the third quarter of fiscal 2022 compared with 24.2% for the third quarter of fiscal 2021. Excluding the effect of early contract termination fees, operating income rose 15.2%, or $2.5 million, in the third quarter of fiscal 2022 compared with the third quarter of fiscal 2021.

The provision for income tax was $4.8 million for the third quarter of fiscal 2022 compared with $4.2 million in the third quarter of fiscal 2021. The increase was due to a higher taxable income, partially offset by a lower effective income tax rate in the third quarter of fiscal 2022 compared with the third quarter of fiscal 2021.

Net income for the third quarter of fiscal 2022 rose 20.3% to $16.2 million compared with $13.5 million for the third quarter of fiscal 2021. Net income per share increased 20.4% to $0.59 for the third quarter of fiscal 2022 on 27.5 million weighted average shares outstanding compared with $0.49 for the third quarter of fiscal 2021 on 27.6 million weighted average shares outstanding.

“CSI continues to invest its strong cash flow in new hires, new product development and technology infrastructure to support our future growth,” Culbertson commented. “During the first nine months of fiscal 2022, we invested approximately $9.7 million in property, equipment and software following significant investments we made last year to support our continued growth. We also remain focused on achieving our strategic objectives of developing a future-ready workforce, making every customer interaction exceptional, accelerating transformational opportunities, and raising the visibility of CSI as an innovative fintech organization. We believe we have excellent opportunities to diversify and expand our revenue base through these initiatives.

“Our financial position remains very strong. We have no long-term debt, which provides CSI with the flexibility to invest in new technologies and acquisitions as opportunities arise. We generated $55.7 million in net cash from operating activities during the first nine months of the fiscal year and had $60.6 million in cash at the end of the third fiscal quarter. In addition to our $9.7 million investment in new property, equipment and software, we returned more than $31 million to shareholders in the first nine months of fiscal 2022, up 20.1% from $25.9 million in the first nine months of last fiscal year. This included a 14.3% increase in cash dividends paid and a 34.7% increase in CSI shares repurchased and redeemed compared with the prior year. Fiscal 2022 marked our 50th consecutive year of paying an increased cash dividend, highlighting our long-term focus on building shareholder value,” concluded Culbertson.

Nine Months Results

Consolidated revenues for the first nine months of fiscal 2022 rose 9.2% to $235.7 million compared with $215.9 million for the first nine months of fiscal 2021. CSI’s increase in revenues benefited from higher sales in both the Enterprise Banking and Business Solutions groups, including growth in digital banking, core processing, regulatory compliance and managed services revenues. Revenue growth also benefited from increased transaction volumes in payments processing due to the recovery in the first nine months of fiscal 2022 from lower transaction volumes attributable to the COVID-19 pandemic economic environment in the first nine months of fiscal 2021. Fiscal year-to-date revenues also included $3.1 million in early contract termination fees compared with $4.9 million in the first nine months of fiscal 2021. Excluding the effect of the early contract termination fees from both periods, fiscal year-to-date revenues increased approximately 10.3% compared with the first nine months of fiscal year 2021.

Operating expenses increased 10.1% to $177.3 million for the first nine months of fiscal 2022 compared with $161.1 million for the first nine months of fiscal 2021. The increase in operating expenses was related to higher personnel expenses associated with higher staffing, typical annual salary adjustments, higher employee health insurance expenses and special COVID-19 pandemic-related employee incentives. Expenses were also up due to higher profit-sharing plan contributions, higher cost of goods on higher related payments processing, digital banking and managed services revenues and higher professional fees. Travel expenses also began to normalize in the first nine months of fiscal 2022 compared with the prior year’s nine-month period when pandemic-related concerns significantly reduced business travel.

Operating income increased 6.6% to $58.4 million for the first nine months of fiscal 2022 compared with $54.8 million for the first nine months of fiscal 2021. The increase in operating income was primarily due to increased payments processing and digital banking revenues that were partially offset by a decrease in early contract termination fees, higher personnel expenses, and higher costs of goods sold on related revenues.

Operating margin decreased to 24.8% in the first nine months of fiscal 2022 compared with 25.4% in the first nine months of fiscal 2021. Excluding the effect of early contract termination fees, operating income rose 10.9%, or $5.5 million, in the first nine months of fiscal 2022 compared with the first nine months of fiscal 2021.

Net income for the first nine months of fiscal 2022 increased by 7.8% to $45.1 million compared with $41.9 million in the first nine months of fiscal 2021. Net income per share rose 7.9% to $1.64 per share for the first nine months of fiscal 2022 on 27.5 million weighted average shares outstanding compared with $1.52 for the first nine months of fiscal 2021 on 27.6 million weighted average shares outstanding.

About Computer Services, Inc.

Computer Services, Inc. (CSI) delivers core processing, digital banking, managed services, payments processing, print and electronic document distribution, and regulatory compliance solutions to financial institutions and corporate customers, both foreign and domestic. Management believes 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 IDC Financial Insights FinTech 100, Talkin’ Cloud 100 and MSPmentor Top 501 Global Managed Service Providers lists. CSI has also been recognized by Aite Group, a leading industry research firm, as providing the “best user experience” in its AIM Evaluation: The Leading Providers of U.S. Core Banking Systems. In addition, CSI’s record of increasing its dividend each year for 50 years has earned it a designation as one of the financial media’s “Dividend Aristocrats.” CSI’s stock is traded on OTCQX under the symbol CSVI. For more information, visit 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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