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CSI Reports Record Revenues and Net Income for Fiscal Year 2019

PADUCAH, Ky.--(BUSINESS WIRE)--

Net Income Increases for 22nd Consecutive Year

Computer Services, Inc. (CSI) (CSVI) today reported record revenues and net income for the fiscal year ended February 28, 2019. CSI’s record results for fiscal 2019 marked the company’s 19th consecutive year of revenue growth and 22nd consecutive year of growth in net income. In addition, CSI achieved its 47th consecutive year of paying increased cash dividends to shareholders.

CSI’s revenues for fiscal 2019 were a record $266.5 million and rose 6.8% compared with $249.6 million for fiscal 2018. Net income for fiscal 2019 was a record $45.0 million, a 15.8% increase compared with fiscal 2018 net income of $38.8 million. Net income per share increased 16.2% to $3.23 compared with $2.78 in the prior fiscal year.

Fourth quarter revenues rose 6.8% to a record $66.9 million in fiscal 2019 compared with $62.6 million for the fourth quarter of fiscal 2018. Income before income taxes rose 113.9% to $13.6 million compared with $6.3 million in the fourth quarter of fiscal 2018. A $7.2 million tax benefit in the fourth quarter of the previous fiscal year boosted net income to $13.5 million, or $0.97 per share, for the fourth quarter of fiscal 2018, compared with net income of $10.5 million, or $0.76 per share, for the fourth quarter of fiscal 2019. The 2018 tax benefit was related to the enactment of the Tax Cuts and Jobs Act.

“CSI’s record results for fiscal 2019 benefited from record sales of core products, expansion into new geographic markets and higher cross-sales,” stated Steven A. Powless, chairman and CEO of CSI. “We added a record number of new core customers during fiscal 2019 that signed contracts averaging over nine years in duration, and our renewal rates on existing contracts remain very high. We enter fiscal 2020 with a significant backlog of conversions that will contribute to our revenue growth in the coming years.

“We have set ambitious goals to grow CSI across our existing markets; expand into new geographic areas; and invest in new technologies, services and products to grow our market share. We believe CSI is in excellent position to continue our growth in fiscal 2020.”

Fiscal 2019 Results

Consolidated revenues rose 6.8% to $266.5 million for fiscal 2019 compared with $249.6 million for fiscal 2018. The growth in revenues resulted primarily from the addition of new customers, cross sales to existing customers, increases in transaction volumes from existing customers, growth in mobile and Internet banking, and growth in homeland security and fraud prevention services. Early contract termination fees were $10.8 million for fiscal 2019 compared with $7.3 million for fiscal 2018. These 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 rose 5.7% to $213.3 million for fiscal 2019 compared with $201.8 million for fiscal 2018. The 2019 increase in operating expenses included a $1.2 million one-time operating charge related to payments processing business transaction accounts and an increase of $4.1 million in employee-related expenses which included $3.0 million in one-time compensation expenses related to the gain on the sale of an investment and the retirement of company executives.

Operating income rose 11.6% to $53.2 million for fiscal 2019 compared with $47.7 million for fiscal 2018. Operating margin increased to 20.0% for fiscal 2019 compared with 19.1% for fiscal 2018. Excluding the effects of the one-time operating expense items, operating income increased 6.6%, or $3.5 million, in fiscal 2019 compared with the fiscal 2018.

CSI’s fiscal 2019 results also included $4.1 million in non-operating income. The non-operating income was due to the sale of an investment that generated approximately $5.6 million in total initial consideration during the second and third quarters of fiscal 2019. There was no comparable non-operating income generated in fiscal 2018.

The provision for income tax was $13.2 million for fiscal 2019 compared with $9.0 million for fiscal 2018. The increase was due to a higher taxable income in fiscal 2019 compared to fiscal 2018 and a large favorable deferred tax liability valuation adjustment in 2018 related to the effect of the Tax Cuts and Jobs Act.

Net income for fiscal 2019 rose 15.8% to $45.0 million compared with $38.8 million for fiscal 2018. Net income per share increased 16.2% to $3.23 for fiscal 2019 compared with $2.78 for fiscal 2018. On an adjusted basis, net income for fiscal 2019 rose 7.8% to $35.4 million and earnings per share rose 8.2% to $2.54 compared with $32.8 million and $2.35 per share for fiscal 2018. [See Reconciliation of Generally Accepted Accounting Principles (GAAP), below, for net income with adjustments for the non-operating gain on the sale of an investment and related compensation items, and the one-time bonus, profit-sharing plan contributions, and income tax adjustments related to the Tax Cuts and Jobs Act and other tax adjustments that affected the provision for income taxes.] Weighted average shares outstanding declined 0.4% from fiscal 2018 due to CSI share repurchases net of restricted stock grants during the year.

CSI’s cash flow from operations rose 18.7% to $55.2 million in fiscal 2019 compared with $46.5 million in fiscal 2018. Cash and cash equivalents increased to $56.6 million as of February 28, 2019, an increase of 39.1% from $40.7 million at February 28, 2018.

“CSI’s financial position remained very strong at fiscal year-end due to growth in earnings, cash flow and no long-term debt. We returned $25.4 million to shareholders in cash dividends and repurchases of common stock during fiscal 2019, a 30.2% increase compared with fiscal 2018. We made significant investments in upgrading our operations center in Valparaiso, Indiana; relocating to a larger network operations center in Fort Collins, Colorado; and establishing a new operations center in Sacramento, California. We believe our investments in CSI’s employees, new technology and infrastructure will position our company for continued growth in fiscal 2020,” Powless concluded.

Fourth Quarter Results

For the fourth quarter of fiscal 2019, consolidated revenues rose 6.8% to a record $66.9 million compared with $62.6 million for the fourth quarter of fiscal 2018. The growth in revenues resulted primarily from higher sales of core processing, digital banking, regulatory compliance services and managed services. Early contract termination fees were $2.2 million in the fourth quarter of fiscal 2019 compared with $0.4 million in the fourth quarter of fiscal 2018. Excluding the effect of the early contract termination fees in both periods, fourth quarter revenues increased approximately 4.0% compared with the same quarter of the prior fiscal year.

Operating expenses declined 4.8% to $53.6 million for the fourth quarter of fiscal 2019 compared with $56.3 million for the fourth quarter of fiscal 2018. The fourth quarter fiscal 2018 expenses included approximately $6.2 million in one-time tax-related compensation expenses and increased compensation related to other tax deductions and credits. Of this amount, approximately $3.7 million was due to a one-time bonus paid to non-executive employees and a one-time retirement plan contribution made to eligible employees from the $7.2 million fourth quarter 2018 tax benefit related to the effects of the Tax Cuts and Jobs Act. Approximately $2.5 million in increased compensation and profit-sharing plan contributions was related to other deductions and credits that further lowered the company’s effective tax rate. The company also made strategic investments in infrastructure and personnel during the fourth quarter of fiscal 2018 to expand capacity and talent supporting its regulatory compliance solutions.

Operating income increased 110.7% to $13.3 million for the fourth quarter of fiscal 2019 compared with $6.3 million for the fourth quarter of fiscal 2018. Operating margin was 19.9% for the fourth quarter of fiscal 2019 compared with 10.1% for the fourth quarter of fiscal 2018. Excluding the effects of the one-time expenses incurred in the fourth quarter of fiscal 2018 described above, adjusted operating income increased 7.2% in the fourth quarter of fiscal 2019 compared with the fourth quarter of fiscal 2018.

Income before income taxes rose 113.9% to $13.6 million for the fourth quarter of fiscal 2019 compared with $6.3 million in the fourth quarter of fiscal 2018. Provision for income taxes rose to $3.1 million in the fourth quarter of 2019 compared with an income tax benefit of $7.2 million in the fourth quarter of fiscal 2018. Fourth quarter fiscal 2018 taxes were reduced by a one-time $7.2 million tax benefit arising from the revaluation of the company’s net deferred tax liability, and $4.9 million arising from additional tax deductions and credits claimed for the current and past fiscal years, as well as lower taxes due to the one-time bonus and profit-sharing plan contributions.

Net income for the fourth quarter of fiscal 2019 decreased 22.6% to $10.5 million compared with $13.5 million for the fourth quarter of fiscal 2018 due primarily to the 2018 tax benefit related to the enactment of the Tax Cuts and Jobs Act. Net income per share declined 21.6% to $0.76 per share for the fourth quarter of fiscal 2019 compared with $0.97 for the fourth quarter of fiscal 2018. On an adjusted basis, net income for the fourth quarter of fiscal 2019 was up 9.1% to $8.3 million and earnings per share were $0.60 compared with $7.6 million and $0.55 per share for the fourth quarter of fiscal 2018. [See Reconciliation of Generally Accepted Accounting Principles (GAAP), below, for earnings with adjustments for the one-time bonus and profit sharing plan contributions and income tax adjustments related to the Tax Cuts and Jobs Act and other tax adjustments that affected the provision for income taxes.]

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 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.

 
COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income

(Audited)

(in thousands, except share and per share data)

 
 
              Change
Three months ended February 28,       2019     2018     Amount     Percentage
   
Total revenues $ 66,902 $ 62,643 $ 4,259 6.8 %
Operating expenses         53,614       56,338         (2,724 )     (4.8 %)
Operating income 13,288 6,305 6,983 110.7 %
Interest income, net         272       34         238       698.9 %
Income before income taxes 13,560 6,339 7,221 113.9 %
Provision for income taxes         3,082       (7,202 )       10,284       nmf  
Net income       $ 10,478     $ 13,541       $ (3,063 )     (22.6 %)
 
Earnings per share $ 0.76 $ 0.97 $ (0.21 )

(21.6

%)

 

 

Shares used in computing earnings per common and common equivalent share

13,868,075 13,948,853 (80,778 ) (0.6 %)
 
 
Change
Fiscal Year ended February 28,       2019     2018     Amount     Percentage
 
Total revenues $ 266,494 $ 249,558 $ 16,936 6.8 %
Operating expenses         213,256       201,839         11,417       5.7 %
Operating income 53,238 47,719 5,519 11.6 %
Non-Operating Income 4,093 - 4,093 nmf
Interest income, net         796       124         672       541.5 %
Income before income taxes 58,127 47,843 10,284 21.5 %
Provision for income taxes         13,169       9,012         4,157       46.1 %
Net income       $ 44,958     $ 38,831       $ 6,127       15.8 %
 
Earnings per share $ 3.23 $ 2.78 $ 0.45 16.2 %
 

Shares used in computing earnings per common and common equivalent share

13,909,303 13,963,394 (54,091 ) (0.4 %)
 

Reconciliation of Generally Accepted Accounting Principles (GAAP)

This news release contains Non-GAAP financial measures such as adjusted operating expenses, adjusted operating income, adjusted earnings before taxes, adjusted provision for income taxes, adjusted net income, and adjusted earnings per share. These Non-GAAP financial measures are measurements of operational performance that are not prepared and presented in accordance with GAAP. Accordingly, these measures should not be considered as a substitute for data prepared and presented in accordance with GAAP. These Non-GAAP financial measures are used by the management of Computer Services, Inc. when evaluating results of operations. The company’s management believes these measures also provide users of the financial statements with additional and useful comparisons of current results of operations with past and future periods. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures. Please refer to the Non–GAAP Income Statement Reconciliation data below.

 
COMPUTER SERVICES, INC.
Fourth Quarter and Fiscal Year 2019 Reconciliation of GAAP and Adjusted Earnings
(Unaudited)

(in thousands, except share and per share data)

 
 
Three months ended February 28,       GAAP results    

Change from
fiscal 2018

    YOY %     Adjustments    

Adjusted
results

   

Change from
adjusted
fiscal 2018

    YOY %
Total revenues       $ 66,902     $ 4,259     6.8 % - $ 66,902     $ 4,259     6.8 %
Operating expenses¹         53,614       (2,724 )     (4.8 %)   (103 )   53,511       3,357       6.7 %
Operating income 13,288 6,983 110.7 % 103 13,391 902 7.2 %
Non-Operating income² - - nmf - - - nmf
Interest income, net         272       238       698.9 %   -     272       238       698.9 %
Income before income taxes 13,560 7,221 113.9 % 103 13,663 1,140 9.1 %
Provision for income taxes³         3,082       10,284       nmf   2,280     5,363       447       9.1 %

Net income

10,478 (3,063 ) (22.6 %) (2,177 ) 8,300 693 9.1 %
 
Earnings per share $ 0.76 $ (0.21 ) (21.6 %) $ (0.16 ) $ 0.60 $ 0.05 9.7 %
 
Weighted average shares outstanding 13,868,075 (80,778 ) (0.6 %) 13,868,075 (80,778 ) (0.6 %)
                                     
Fiscal Year ended February 28,       GAAP results    

Change from
fiscal 2018

    YOY % Adjustments

Adjusted
results

   

Change from
adjusted
fiscal 2018

    YOY %
Total revenues $ 266,494 $ 16,936 6.8 % - $ 266,494 $ 16,936 6.8 %
Operating expenses¹         213,256       11,417       5.7 %   (4,201 )   209,055       13,400       6.8 %
Operating income 53,238 5,519 11.6 % 4,201 57,439 3,536 6.6 %
Non-Operating income² 4,093 4,093 nmf (4,093 ) - - nmf
Interest income, net         796       672       541.5 %   -     796       672       541.5 %
Income before income taxes 58,127 10,284 21.5 % 108 58,235 4,208 7.8 %
Provision for income taxes³         13,169       4,157       46.1 %   9,688     22,857       1,652       7.8 %
Net income 44,958 6,127 15.8 % (9,580 ) 35,378 2,556 7.8 %
 
Earnings per share $ 3.23 $ 0.45 16.2 % $ (0.69 ) $ 2.54 $ 0.19 8.2 %
 
Weighted average shares outstanding 13,909,303 (54,091 ) (0.4 %) 13,909,303 (54,091 ) (0.4 %)
 

¹ Operating expense adjustments remove a one-time charge related to the reconciliation of certain accounts and one-time compensation items related to the non-operating gain on the sale of an investment and the planned retirement of company executives.

² Non-operating adjustments back out the company's gain on the sale of an investment.

³ Provision for income tax adjustments remove the impacts of the December 2017 enactment of the Tax Cuts and Jobs Act from both periods and reflect the tax effect of the aggregate net adjustments for each period.

 
COMPUTER SERVICES, INC.
Fiscal 2019 & 2018 Reconciliation of GAAP and Adjusted Earnings
(Unaudited)
(In thousands except earnings per share data)
 
       

GAAP Fiscal
2019 Results

   

Fiscal 2019
Adjustments

   

Adjusted
Fiscal 2019
Results

   

GAAP Fiscal
2018 Results

   

Fiscal 2018
Adjustments

   

Adjusted
Fiscal 2018
Results

   

GAAP Change from
Fiscal 2018

   

Adjusted Change
from Fiscal 2018

Total Revenues       $ 266,494     $ -     $ 266,494 $ 249,558     $ -     $ 249,558 $ 16,936     6.8 % $ 16,936     6.8 %
Operating expenses¹         213,256       (4,201 )       209,055   201,839       (6,184 )       195,655   11,417   5.7 %   13,400   6.8 %
Operating Income 53,238 4,201 57,439 47,719 6,184 53,903 5,519 11.6 % 3,536 6.6 %
Non-Operating Income 4,093 (4,093 ) - - - - 4,093 nmf - nmf
Interest income, net         796       -         796   124       -         124   672   541.5 %   672   541.5 %
Earnings Before Taxes 58,127 108 58,235 47,843 6,184 54,027 10,284 21.5 % 4,208 7.8 %
Provision for income taxes²         13,169       9,688         22,857   9,012       12,194         21,206   4,157   46.1 %   1,652   7.8 %
Net Income $ 44,958 (9,580 ) $ 35,378 $ 38,831 $ (6,010 ) $ 32,821 $ 6,126 15.8 % $ 2,556 7.8 %
 
Earnings per share $ 3.23 $ (0.69 ) $ 2.54 $ 2.78 $ (0.43 ) $ 2.35 $ 0.45 16.2 % $ 0.19 8.2 %
 

¹ Operating expense adjustments for fiscal 2018 remove: a one-time bonus to non-executive employees and a one-time special contribution to the employee profit-sharing plan, both related to the enactment of the Tax Cuts and Jobs Act during fiscal 2018; and additional compensation and profit-sharing plan expense related to other attained tax savings realized during the fourth quarter of fiscal 2018. Operating expense adjustments for fiscal 2019 remove: a one-time charge related to the reconciliation of certain accounts; and one-time compensation items related to the non-operating gain on the sale of an investment and the planned retirement of company executives.

² For comparability purposes, income tax adjustments add back: the deferred liability position valuation adjustment booked in fiscal 2018 and the effective tax rate reduction for fiscal 2019, both of which were related to the December 2017 enactment of the Tax Cuts and Jobs Act; the tax savings associated with other deductions and credits that were affected by the enactment of the Tax Cuts and Jobs Act; and the tax effects of the non-operating gain on the sale of an investment and other compensation and the benefit items subtracted above.

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