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CSI Reports Record Revenues and Net Income for First Quarter

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Revenues Increase 2.3% to $70.6 Million

Net Income Per Share Rises 13.3% to $0.51

Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported growth in revenues and net income for the first quarter of fiscal 2021, which ended May 31, 2020.

CSI’s revenues rose 2.3% to a record $70.6 million for the first quarter of fiscal 2021 compared with $69.0 million for the first quarter of fiscal 2020. First quarter net income rose 12.9% to a record $14.2 million compared with $12.5 million for the first quarter of fiscal 2020. Net income per share rose 13.3% to $0.51 compared with $0.45 for the first quarter of fiscal 2020.

"Our first quarter results benefited from higher revenues from our Enterprise Banking and Business Solutions Groups even though economic activity slowed across the US economy due to COVID-19," stated Steven A. Powless, chairman and CEO of CSI. "During the first quarter, we implemented our business continuity plans and transitioned our teams to working remotely without any delays or disruption in service. We also continued to transition new clients to CSI’s platform and completed our first account conversions on a fully remote basis during the first quarter.

"CSI’s core revenue base remained solid in the first quarter due to the high percentage of recurring revenues from long-term contracts; however transactional revenues were lower than normal due to self-quarantines and businesses that closed during the pandemic. These were offset partially by higher demand for our digital banking solutions as banks pivoted to support their customers online. We also benefited from increased demand for managed network services, document delivery and regulatory and compliance services in our Business Solutions Group.

"We expect our second quarter to also be affected by lower economic activity due to COVID-19, including reduced transactional volume, but we remain positive about our continued growth prospects as the economy returns to normal. We have increased hiring in key areas to meet demand for digital banking and related services and we have ramped up our investments in hardware, software and infrastructure to support future growth," Powless continued.

First Quarter Results

Consolidated revenues increased 2.3% to $70.6 million in the first quarter of fiscal 2021 compared with $69.0 million in the first quarter of fiscal 2020. The growth in revenues benefited from higher sales in both the Enterprise Banking and Business Solutions Groups, including growth in digital banking, regulatory compliance services, managed services and document delivery. The results for the first quarter of fiscal 2021 included approximately $2.9 million in early contract termination fees compared with $1.7 million in the first quarter of fiscal 2020. Excluding the effect of early contract termination fees, net revenues increased approximately 0.8% in the first quarter of fiscal 2021 compared with the first 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 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 were down 3.3% to $51.9 million for the first quarter of fiscal 2021 compared with $53.7 million for the first 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 equity compensation expenses due to the adoption of ASC 718 in the third quarter of fiscal 2020. CSI did not reduce staff during the first quarter due to COVID-19 layoffs, but increased hiring of new personnel during the quarter to expand customer support and product development in key areas.

Operating income increased 22% to $18.7 million for the first quarter of fiscal 2021 compared with $15.3 million for the first quarter of fiscal 2020. Operating margin rose to 26.5% in the first quarter of fiscal 2021 compared with 22.2% for the first quarter of fiscal 2020. The increase in operating income and margin benefited primarily from the reduction in operating expenses and an increase in early contract termination fees received in the first quarter of fiscal 2021 compared with the first quarter of fiscal 2020. Excluding the effect of early contract termination fees, operating income rose 16.7%, or $2.3 million, in the first quarter of fiscal 2021 compared with the first quarter of fiscal 2020.

The provision for income tax was $4.7 million for the first quarter of fiscal 2021 compared with $3.1 million in the first quarter of fiscal 2020. The increase was due to a higher taxable income and a higher effective tax rate in the first quarter of fiscal 2021 compared with the first quarter of fiscal 2020.

Net income for the first quarter of fiscal 2021 rose 12.9% to $14.2 million compared with $12.5 million for the first quarter of fiscal 2020. Net income per share increased 13.3% to $0.51 for the first quarter of fiscal 2021 on 27.7 million weighted average shares outstanding compared with $0.45 for the first quarter of fiscal 2020 on 27.7 million weighted average shares outstanding.

CSI’s cash flow from operations increased 6.3% to $22.4 million in the first quarter of fiscal 2021 compared with $21.1 million in the first quarter of fiscal 2020. Cash and cash equivalents increased 8.1% to $72.6 million as of May 31, 2020, from $67.1 million as of May 31, 2019.

"CSI continues to invest its strong cash flow in new product development, strengthening our infrastructure and building long-term shareholder value with our cash dividend program and stock repurchases," Powless commented. "During the first quarter of fiscal 2021, we invested approximately $12.1 million in property, equipment and software to support our continued growth, up significantly from $4.1 million in the first quarter of fiscal 2020. Cash dividend payments were up 16.5% to $5.8 million and stock repurchases rose 49.5% to $1.3 million compared with the first quarter of last fiscal year. CSI had no long-term debt at the end of the first quarter. 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.

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 partnerships 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.

COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except share and per share data)

Percentage of

Change

Revenues

Three months ended May 31,

2020

2019

Amount

Percentage

2020

2019

Revenues

$

70,639

$

69,022

$

1,617

2.3%

100.0%

100.0%

Operating expenses

51,923

53,679

(1,756)

(3.3%)

73.5%

77.8%

Operating income

18,716

15,342

3,374

22.0%

26.5%

22.2%

Interest income, net

129

323

(194)

(60.0%)

0.2%

0.5%

Income before income taxes

18,845

15,665

3,180

20.3%

26.7%

22.7%

Provision for income taxes

4,692

3,125

1,567

50.2%

6.6%

4.5%

Net income

$

14,153

$

12,541

$

1,612

12.9%

20.0%

18.2%

Earnings per common share

$

0.51

$

0.45

$

0.06

13.3%

Shares used in computing earnings per
common share

27,654,240

27,686,388

(32,148)

(0.1%)

COMPUTER SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data)

5/31/2020

2/29/2020

5/31/2019

(Unaudited)

(Audited)

(Unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

72,558

$

70,109

$

65,616

Funds held on behalf of clients

8,386

8,912

1,518

Accounts receivable

33,985

37,993

32,387

Income tax receivable

-

1,352

-

Deferred contract costs

15,307

14,979

9,909

Prepaid expenses and other current assets

9,543

10,509

8,925

Total current assets

139,781

143,854

118,354

Property and equipment, net of accumulated depreciation

45,793

45,144

41,268

Software and software licenses, net of accumulated amortization

24,434

18,224

20,040

Deferred contract costs

83,750

82,449

56,982

Internally developed software, net

5,559

5,517

-

Goodwill

60,115

60,115

60,115

Intangible assets, net

3,890

4,054

4,548

Right of use assets

7,788

7,606

6,269

Other assets

5,731

4,637

4,122

Total assets

$

376,840

$

371,600

$

311,698

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Accounts payable

$

8,948

$

9,528

$

8,961

Accrued expenses

12,699

9,432

13,096

Deferred contract liabilities

35,884

38,364

29,887

Deferred revenue

10,846

11,196

10,518

Client funding obligation - settlement liabilities

8,386

8,912

-

Current portion of operating lease liabilities

2,368

2,266

1,988

Income tax payable

3,315

-

1,449

Total current liabilities

82,445

79,698

65,899

Long-term liabilities

Deferred income taxes, net

24,394

24,394

17,787

Deferred contract liabilities

10,333

9,826

249

Other liabilities

1,766

1,723

1,786

Postretirement benefits

125

189

383

Operating lease liabilities

5,745

5,655

4,410

Total long-term liabilities

42,363

41,787

24,615

Total liabilities

124,808

121,485

90,514

Shareholders' equity

Preferred stock; shares authorized, 5,000,000; none issued

-

-

-

Common stock, no par; 60,000,000 shares authorized;

27,668,133 shares issued at May 31, 2020

27,654,865 shares issued at February 29, 2020

27,719,073 shares issued at May 31, 2019

32,134

30,295

29,840

Retained earnings

218,358

217,865

188,142

Other comprehensive income, net

1,540

1,955

3,202

Total shareholders' equity

252,032

250,115

221,184

Total liabilities and shareholders' equity

$

376,840

$

371,600

$

311,698

View source version on businesswire.com: https://www.businesswire.com/news/home/20200707005057/en/

Contacts

Brian K. Brown, CFO
800-545-4274, ext. 10689 or
brian.brown@csiweb.com