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CSI Reports Growth in Revenues for Third Quarter

Revenues Increase 0.8% to $61 Million

PADUCAH, Ky.--(BUSINESS WIRE)-- Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported its results for the third quarter ended November 30, 2017.

CSI’s revenues rose 0.8% to $61.0 million for the third quarter of fiscal 2018 compared with $60.5 million for the third quarter of fiscal 2017. The results for the third quarter of 2018 included approximately $809,000 in early contract termination fees compared with $1.3 million in the third quarter of fiscal 2017. Excluding the effect of early contract termination fees from both periods, net revenues increased approximately 1.8% compared with the third quarter of fiscal 2017. 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.

Third quarter net income declined 7.1% to $7.7 million compared with $8.3 million for the third quarter of fiscal 2017. Net income per share declined 6.8% to $0.55 compared with $0.59 for the third quarter of fiscal 2017. Excluding the effect of early contract termination fees from both third quarter periods, net income declined approximately 3.4% compared with the third quarter of fiscal 2017. The decline in third quarter net income was due primarily to operating expense growth outpacing revenue for the quarter, including higher personnel, equipment, travel and professional fees.

“CSI remains on track to report higher revenues and net income for fiscal 2018 compared with fiscal 2017,” stated Steven A. Powless, Chairman and CEO of CSI. “For the first nine months of fiscal 2018, revenues were up 7.1% to $186.9 million and net income was up 8.6% to $25.3 million compared with the same period in the prior fiscal year. We continue to benefit from high renewal rates on contracts and the high percentage of recurring revenues from long-term customer contracts. We also expect the newly enacted reduction in the federal income tax rate to reduce CSI’s tax expense in the fourth quarter.”

Third Quarter Results

Consolidated revenues increased 0.8% to $61.0 million in the third quarter of fiscal 2018 compared with $60.5 million in the third quarter of fiscal 2017. The growth in revenues benefited from higher sales of core processing, digital banking, regulatory compliance services and managed services. Revenues included approximately $809,000 in early contract termination fees in the third quarter of fiscal 2018 compared with $1.3 million in the third quarter of fiscal 2017. Excluding the effect of the early contract termination fees from both periods, third quarter fiscal 2018 revenues increased approximately 1.8% compared with the third quarter of last fiscal year.

“We anticipate revenue growth to be suppressed in the fourth quarter due to expected lower early contract termination fees in the fourth quarter compared with last fiscal year. We also believe the effects of the reduction in the federal income tax rate and other tax offsets that are expected to be booked at fiscal year-end 2018 will more than offset the earnings impact from lower early contraction termination fees,” continued Powless.

Operating income declined 5.6% to $12.7 million for the third quarter of fiscal 2018 compared with $13.5 million for the third quarter of fiscal 2017. Operating margin was 20.9% in the third quarter of fiscal 2018 compared with 22.3% for the third quarter of fiscal 2017.

Net income for the third quarter of fiscal 2018 declined 7.1% to $7.7 million compared with $8.3 million for the third quarter of fiscal 2017. Net income per share declined 6.8% to $0.55 for the third quarter of fiscal 2018 on 13.96 million weighted average shares outstanding compared with $0.59 for the third quarter of fiscal 2017 on 14.02 million weighted average shares outstanding.

“CSI’s financial position remained strong with $43.6 million in cash and no long-term debt at the end of the third fiscal quarter. We returned $14.0 million to shareholders in cash dividends and repurchases of common stock during the first nine months of fiscal 2018. We also invested $17.6 million in hardware and software during the first nine months of fiscal 2018, up 61.0% from $10.9 million for the same period last fiscal year. We believe our investments in new hardware, software and product development will contribute to CSI’s growth in the coming years,” concluded Powless.

Nine Months Results

Consolidated revenues for the first nine months of fiscal 2018 rose 7.1% to $186.9 million compared with $174.6 million for the first nine months of fiscal 2017. CSI’s increase in revenues benefited from growth across all major product lines compared with the first nine months of fiscal 2017. Fiscal year-to-date revenues also included $7.0 million in early contract termination fees compared with $2.3 million in the first nine months of fiscal 2017. Excluding the effect of the early contract termination fees from both periods, fiscal year-to-date revenues increased approximately 4.5% compared with the first nine months of fiscal year 2017.

Operating income rose 10.1% to $41.4 million for the first nine months of fiscal 2018 compared with $37.6 million for the first nine months of fiscal 2017. Operating margin rose to 22.2% in the first nine months of fiscal 2018 compared with 21.6% in the first nine months of fiscal 2017.

CSI’s cash flow from operations declined 8.5% to $40.8 million for the first nine months of fiscal 2018 compared with $44.6 million in the first nine months of fiscal 2017. Cash and cash equivalents increased 13.5% to $43.6 million as of November 30, 2017, from $38.4 million as of November 30, 2016.

Net income for the first nine months of fiscal 2018 increased by 8.6% to $25.3 million compared with $23.3 million in the first nine months of fiscal 2017. Net income per share rose 9.0% to $1.81 per share for the first nine months of fiscal 2018 compared with $1.66 for the first nine months of fiscal 2017. Excluding the effect of early contract termination fees from both periods, net income per share declined approximately 3.0% compared with the first nine months of fiscal 2017.

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, Talkin’ Cloud 100 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 either at www.otcmarkets.com or www.otcqx.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)
Three Months Ended November 30, Nine Months Ended November 30,
2017 2016 2017 2016
Total Revenues $ 61,046 $ 60,539 $ 186,914 $ 174,591
Operating expenses 48,326 47,070 145,501 136,959
Operating income 12,720 13,469 41,413 37,632
Interest income, net 26 26 90 65
Income before income taxes 12,746 13,495 41,503 37,697
Provision for income taxes 5,003 5,162 16,213 14,419
Net income $ 7,743 $ 8,333 $ 25,290 $ 23,278
Earnings per share $ 0.55 $ 0.59 $ 1.81 $ 1.66

Shares used in computing earnings per common and common equivalent share

13,957,966 14,023,840 13,968,154 14,014,749
COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
11/30/2017 2/28/2017 11/30/2016
(Unaudited) (Audited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 43,595 $ 34,552 $ 38,397
Accounts receivable 26,698 28,249 25,594
Income tax receivable - 1,121 -
Prepaid expenses and other current assets 13,390 13,143 12,135
Total current assets 83,683 77,065 76,126
Property and equipment, net of accumulated depreciation 37,263 35,420 35,453
Software and software licenses, net of accumulated amortization 23,859 19,778 20,916
Goodwill 60,115 60,115 60,115
Intangible assets 5,560 6,082 6,258
Other assets 30,519 26,709 23,080
Total assets $ 240,999 $ 225,169 $ 221,948
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 8,022 $ 8,094 $ 8,979
Accrued expenses 22,888 14,639 18,791
Deferred revenue 8,559 10,315 8,128
Income tax payable 484 - 1,321
Total current liabilities 39,954 33,048 37,219
Long-term liabilities
Deferred income taxes 20,583 20,583 18,964
Other long-term liabilities 2,262 1,588 1,558
Total long-term liabilities 22,845 22,171 20,522
Total liabilities 62,799 55,219 57,741
Shareholders' equity
Preferred stock; shares authorized, 5,000,000; none issued - - -

Common stock, no par; 60,000,000 shares authorized; 13,956,435 shares issued as of November 30, 2017; 13,955,403 shares issued as of February 28, 2017; 14,005,724 shares issued as of November 30, 2016.

25,804 24,409 24,436
Retained earnings 152,396 145,541 139,771
Total shareholders' equity 178,200 169,950 164,207
Total liabilities and shareholders' equity $ 240,999 $ 225,169 $ 221,948

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Computer Services, Inc.
David L. Simon, 800-545-4274, ext. 10126
Treasurer & CFO
dsimon@csiweb.com

Source: Computer Services, Inc.