CSI Reports Third Quarter Results

Announces $5 Million Stock Buyback Program

11 Jan, 2016, 08:30 ET from Computer Services, Inc.

PADUCAH, Ky., Jan. 11, 2016 /PRNewswire/ -- Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported its results for the third quarter and nine months ended November 30, 2015.

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CSI's revenues were $54.1 million for the third quarter of fiscal 2016 compared with $55.9 million for the third quarter of fiscal 2015. Net income totaled $6.2 million, or $0.44 per share, for the third quarter of fiscal 2016 compared with $7.2 million, or $0.51 per share, in the third quarter of fiscal 2015. For the first nine months of fiscal 2016, CSI's revenues rose to $167.4 million compared with $166.1 million for the first nine months of fiscal 2015. Net income for the first nine months of fiscal 2016 rose to $21.3 million, or $1.51 per share, compared with $21.1 million, or $1.49 per share, for the first nine months of fiscal 2015.

CSI also announced that in December its Board of Directors approved a $5 million addition to the Company's share repurchase program that had a balance of $2.7 million as of November 30, 2015. The $5 million increase in the share repurchase program brings the total authorized amount to $90 million since the share repurchase program was launched in March 2004. In the current fiscal year, CSI had repurchased approximately $2.9 million of the Company's shares through the end of its third fiscal quarter ended November 30, 2015. The share repurchase program may be carried out through open market purchases, block trades and in negotiated private transactions.

"CSI is on track to report record revenues and net income in the fourth quarter and for fiscal 2016," stated Chief Executive Officer Steven A. Powless. "Our outlook remains strong based on our sales backlog, high contract renewal rate for our core business and newly signed customers that will benefit our revenues and income in the fourth quarter. We believe our Board's recent approval of a $5 million increase in our stock buyback program highlights its confidence in the future of CSI.

"Our third quarter results were affected by the increased level of merger and acquisition activity involving CSI customers over the past 18 months that resulted in the revenue level of CSI customers being acquired by non-CSI customers outpacing the revenue level of new core customers added during this time frame. This resulted in a net decrease in our recurring monthly fees associated with the lost accounts, offset partially by early contract termination fees in certain quarters.  During the third quarter of fiscal 2016, we were adversely impacted by the loss of a few larger core processing customers through acquisition during the fourth quarter of fiscal 2015 and the second quarter of fiscal 2016 which suppressed third quarter revenues by $1.2M on a year-over-year basis. Moreover, compared to the year-ago quarter, third quarter contract termination-related revenue was down $567,000. In addition, plastic card reissuance revenue was down about $861,000 due to fewer fraud events in fiscal 2016 compared with the prior fiscal year.

"Our sales activity remains strong, and we are on track to post our third consecutive year of record new contract sales. This includes two banks each with approximately $700 million in assets that entered into long-term core processing agreements with CSI in early December after the close of the fiscal third quarter.

We expect these new contracts to strengthen our recurring revenue base and contribute to our future growth. We also remain focused on customer retention and satisfaction to protect our base of business and provide a solid foundation for expansion," Powless continued. 

Third Quarter Results

Consolidated revenues declined 3.3% to $54.1 million for the third quarter of fiscal 2016 compared with $55.9 million in the third quarter of fiscal 2015. Processing revenues declined 6.4% to $33.3 million compared with $35.5 million for the third quarter of fiscal 2015. The decrease in processing revenues was due primarily to a decline in recurring revenues associated with acquired banks, lower revenues from card reissuance due to fewer fraud events and a decrease in early contract termination fees. Processing revenues included early contract termination fees of $8,000 in the third quarter of fiscal 2016 compared with $525,000 in the third quarter of fiscal 2015. These fees can be generated when an existing customer is acquired by another financial institution that is not a CSI customer and 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.

"We have seen the level of merger and acquisition transactions slow down since last year, and we have had fewer account changes in recent quarters as a result," stated Powless. "We expect that the increased level of regulatory pressure on banks may result in further consolidations in the industry; this may result in higher early contract termination fees when CSI customers are acquired by non-CSI customers, or increased processing fees generated by our customers when they acquire non-CSI customers."

Other revenues increased by 2.0% to $20.8 million compared $20.4 million in the third quarter of fiscal 2015. Other revenues increased primarily due to a year-over-year increase in software revenue. Other revenues included early contract termination fees of $33,000 in the third quarter of fiscal 2016 compared with $77,000 in the third quarter of fiscal 2015. 

Operating expenses declined to $43.9 million in the third quarter of fiscal 2016 compared with $44.0 million in the third quarter of fiscal 2015 on lower cost of goods sold due to a year-over-year change in revenue mix, as well as effective cost management. Operating income decreased by 14.2% to $10.2 million for the third quarter of fiscal 2016 compared with $11.9 million for the third quarter of fiscal 2015, due primarily to lower revenues. Operating margin was 18.9% in the third quarter of fiscal 2016 compared with 21.3% for the third quarter of fiscal 2015.

Net income for the third quarter of fiscal 2016 decreased 13.8% to $6.2 million compared with $7.2 million for the third quarter of fiscal 2015. Net income per diluted share decreased 13.7% to $0.44 for the third quarter of fiscal 2016 on 14.1 million weighted average diluted shares outstanding compared with $0.51 for the third quarter of fiscal 2015 also on 14.1 million weighted average diluted shares outstanding. 

"CSI's financial condition remained strong at the end of the third quarter," stated Powless. "We continue to benefit from strong cash flow from operations that has allowed us to build our cash position, increase our cash dividend and fund our stock repurchases. At November 30, 2015, our cash position was up 94% to $17.5 million from the third quarter of last year, and we had no long-term debt.

"Our Board of Directors increased the cash dividend in the second quarter by 13.6% to $0.25 per share and that marked our 44th consecutive year of increasing CSI's cash dividend. For the first nine months of fiscal 2016, we returned $12.7 million to shareholders in the form of cash dividends and stock repurchases. In addition, we've used our cash to purchase an additional $18.5 million in new equipment and software, including a major investment in our mainframe computers and disk arrays. We believe these investments will provide CSI with increased capacity and efficiency to handle our growth in the future," concluded Powless.

Nine Months Results

Consolidated revenues for the first nine months of fiscal 2016 rose 8% to $167.4 million compared with $166.1 million for the first nine months of fiscal 2015. Processing revenues rose 1.5% to $106.7 million for the first nine months of fiscal 2016 compared with $105.1 million for the first nine months of fiscal 2015. Processing revenues included early contract termination fees of $4.1 million in the first nine months of fiscal 2016 compared with $2.2 million in the first nine months of fiscal 2015. Other revenues declined 0.4% to $60.7 million in the first nine months of fiscal 2016 compared with $61.0 million in the first nine months of fiscal 2015. Other revenues included non-processing early contract termination fees of $251,000 in the first nine months of fiscal 2016 compared with $143,000 in the first nine months of fiscal 2015.

Operating income rose 0.4% to $35.2 million for the first nine months of fiscal 2016 compared with $35.1 million for the first nine months of fiscal 2015. Operating margin decreased slightly to 21.0% in the first nine months of fiscal 2016 compared with 21.1% in the first nine months of fiscal 2015. 

Net income for the first nine months of fiscal 2016 rose 0.9% to $21.3 million compared with $21.1 million in the first nine months of fiscal 2015. Net income per share increased 1.3% to $1.51 for the first nine months of fiscal 2016 compared with $1.49 for the first nine months of fiscal 2015.

About Computer Services, Inc.

Computer Services, Inc. delivers core processing, managed services, mobile and Internet solutions, 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. 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 to CSI  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 Report, Quarterly Reports, Information and Disclosure Statements and other documents posted from time to time on the OTCQX website (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. Unless required by law, CSI undertakes no obligation to update, and is not responsible for updating, the information contained in this report beyond the publication date, whether as a result of new information or future events, or to conform the statement to actual results or changes in CSI's expectations, or otherwise or for changes made to this document by wire services or Internet services.

COMPUTER SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)














Three Months Ended November 30,


Nine Months Ended November 30,




2015


2014


2015


2014











Processing revenues

$

33,255


$

35,525


$

106,660


$

105,119

Other revenues

20,838


20,423


60,746


61,006


Total revenues

54,093


55,948


167,406


166,125

Operating expenses

43,861


44,016


132,191


131,066


Operating income

10,232


11,932


35,215


35,059

Interest income (expense), net

13


4


33


9


Income before income taxes

10,245


11,936


35,248


35,068

Provision for income taxes

4,047


4,745


13,923


13,940












Net income

$

6,198


$

7,191


$

21,325


$

21,128





















Earnings per share

$

0.44


$

0.51


$

1.51


$

1.49











Shares used in computing earnings per









common and common equivalent share

14,118,406


14,123,737


14,127,874


14,174,986

 

COMPUTER SERVICES, INC. AND SUBSIDIARIES


Condensed Consolidated Balance Sheets



















11/30/2015


02/28/2015


11/30/2014







(Unaudited)


(Audited)


(Unaudited)

ASSETS










Current assets









Cash and cash equivalents


$

17,514


$

11,849


$

9,012



Accounts receivable


25,484


25,723


24,822



Income tax receivable


-


2,993


755



Prepaid expenses and other current assets


12,238


10,776


11,238




Total current assets


55,236


51,341


45,827


Property and equipment, net


35,389


33,079


34,340


Software and software licenses, net


22,991


17,773


18,676


Goodwill



60,115


60,115


60,115


Intangible assets


6,546


7,064


7,309


Other assets


21,634


19,842


18,000












Total assets



$

201,911


$

189,214


$

184,267























LIABILITIES AND SHAREHOLDERS' EQUITY








Current liabilities









Accounts payable and accrued expenses


$

25,821


$

18,710


$

23,222



Deferred revenue


8,345


9,515


7,445



Income tax payable


66


-


-



Deferred income taxes


193


193


-




Total current liabilities


34,425


28,418


30,667


Long-term liabilities









Deferred income taxes


15,354


15,354


14,418



Other long-term liabilities


963


1,025


1,158




Total long-term liabilities


16,317


16,379


15,576















Total liabilities


50,742


44,797


46,243













Shareholders' equity









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


-


-


-



Common stock,  no par;  shares authorized,  60,000,000 in fiscal 2016 and










20,000,000 in fiscal 2015; shares issued and outstanding, 14,075,596










at November 30, 2015, 14,110,849 at February 28, 2015, and










14,121,432 at November 30, 2014


23,182


21,536


21,415



Retained earnings


127,987


122,881


116,609




Total shareholders' equity


151,169


144,417


138,024












Total liabilities and shareholders' equity


$

201,911


$

189,214


$

184,267

 

SOURCE Computer Services, Inc.



RELATED LINKS

http://www.csiweb.com