CSI Reports Increase in Fiscal 2010 Third Quarter Revenues and Net Income Per Share

Jan 08, 2010, 09:00 ET from Computer Services, Inc.

PADUCAH, Ky., Jan. 8 /PRNewswire-FirstCall/ -- Computer Services, Inc. (CSI) (Pink Sheets: CSVI) today reported results for the third quarter and nine months ended November 30, 2009.

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Third quarter revenues rose 3.1% to $38.2 million in fiscal 2010 compared with $37.0 million in the third quarter of fiscal 2009. Net income was flat at $4.9 million, and net income per diluted share increased 1.6% to $0.64 compared with $0.63 in the prior year due to share repurchases. The third quarter's results include the operations of Myriad Systems, Inc. (MSI) acquired effective October 1, 2009.

"This was CSI's 23rd consecutive quarterly increase in revenues and net income per share," stated President and Chief Executive Officer Steven A. Powless. "Our growth in revenues continues to benefit from long-term customer contracts and high customer retention rates. In addition, we have made strategic acquisitions that have expanded our suite of products and services and further contributed to our growth.

"The recent acquisition of MSI highlights our focus on expanding complementary products and services to our customers while building long-term value for CSI shareholders. The acquisition of MSI adds an industry-leading platform for statement and document delivery that provides the opportunity to cross-sell these services throughout our entire affiliate base. In addition, the MSI acquisition expanded our customer base beyond the financial services industry to include the education, government and retailing sectors, which we expect to offer additional cross-sell opportunities for CSI," continued Mr. Powless.

Third Quarter Results

Third quarter consolidated revenues rose 3.1% to $38.2 million compared with $37.0 million for the third quarter ended November 30, 2008. Processing revenues increased 6.5% to $27.6 million and accounted for 72.3% of total revenues compared with $25.9 million, or 70% of total revenues, in the third quarter of last year. Other revenues decreased 4.8% to $10.6 million compared with $11.1 million in fiscal 2009. In addition, the MSI acquisition contributed to the growth in total revenues in the latest quarter.

"CSI's processing business has grown over the past year due to sales to new customers, cross-sales to existing customers and higher transaction based revenue," continued Mr. Powless. "Our other revenue growth slowed earlier this year as our customers postponed discretionary spending on new products and services, including one-time software and hardware purchases, during the weak economy. We expect demand for these services to pick up as the economy improves."

Consolidated operating income increased 0.2% to $8.0 million in the third quarter of fiscal 2010. Third quarter operating margins were 21.0% compared with 21.6% in the third quarter of fiscal 2009. The decrease in margin was primarily due to approximately $700,000 in non-recurring costs associated with the MSI acquisition that were expensed in the third quarter. Excluding the effects of the MSI acquisition, operating expenses decreased 2.9% compared with the third quarter of last fiscal year. A primary driver in reducing operating costs has been the migration of customers to use of data capture technology within an internal branch structure and away from processing these transactions at CSI's fixed data centers. CSI expects to benefit from this trend as data centers are consolidated, resulting in lower personnel and operating costs.

We expect our fourth quarter earnings to be lower than we reported in fiscal 2009 due to significantly lower onetime fees related to early contract terminations from accounts lost primarily through bank mergers. We reported $4.8 million in early contract termination fees in the fourth quarter of fiscal 2009 and expect that total to be about $300,000 in the fourth quarter of fiscal 2010. Although our earnings will be reduced by these one-time fees next quarter, we believe it is a very positive sign that our turnover in accounts is also significantly reduced from last year.

Net income was $4,851,000 for the third quarter of fiscal 2010 and for the third quarter of fiscal 2009. Net income per fully diluted share was $0.64 compared with $0.63 in the same quarter last year. Weighted average fully diluted shares outstanding were down 3.4% to 7.5 million primarily due to shares repurchased through CSI's stock repurchase program.

"CSI's cash position increased to $7.7 million in the third quarter, highlighting the strength of our balance sheet," stated Mr. Powless. "We used our strong financial position to purchase MSI with a combination of cash and debt, while continuing to invest in new hardware and software to support new product and service offerings. In addition, we repurchased 33,747 shares during the third quarter for $1.2 million."

Nine Month Results

Consolidated revenues for the first nine months of fiscal 2010 rose 2.8% to $112.2 million compared with $109.1 million for the same period in fiscal 2009. This increase was attributable to growth in processing revenues, partially offset by a small decrease in other revenues. In addition, the MSI acquisition contributed to the growth in total revenues.

Operating income rose 8.9% to $24.8 million for the first nine months of fiscal 2010 compared with $22.8 million for the same period last year. Operating margin rose to 22.1% in the first nine months of fiscal 2010 compared with 20.9% in the same period of fiscal 2009 due to higher sales and improved product mix combined with prudent expense management.

Net income for the first nine months of fiscal 2010 rose 9.2% to $15.0 million compared with $13.8 million in the first nine months of fiscal 2009. Net income per diluted share rose 15% to $1.99 for the latest nine-month period compared with $1.73 for the same period last year.

About Computer Services, Inc.

Computer Services, Inc. (CSI) delivers core banking, payments processing, Internet, card services, risk assessment, fraud prevention, network management, regulatory compliance and document delivery solutions to financial institutions and corporate entities across the nation. Technology planning, personal account management and worldclass customer service explain why CSI is known as one of the nation's premier providers of technology solutions for the financial services industry. CSI's stock is traded on the 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 the CSI's operations, customers, markets, services, products and prices; and (ii) other factors discussed in CSI's Information and Disclosure Statements and other documents posted from time to time on the OTCQX website, 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. CSI undertakes no obligation to update, and is not responsible for updating, the information contained in this release 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.
                      CONSOLIDATED STATEMENTS OF INCOME
                                 (Unaudited)
                   (in thousands, except per share amounts)
                         Third Quarter Ended        Nine Months Ended
                         November 30, November 30, November 30,   November 30,
                                 2009       2008       2009         2008
                                 ----       ----       ----         ----
    Revenues                  $38,157    $37,015   $112,193     $109,124
    Expenses                   30,135     29,007     87,400       86,355
                               ------     ------     ------       ------
    Income before other
     income (expense)           8,022      8,008     24,793       22,769
    Other income
     (expense), net               (70)       (55)      (150)        (214)
                                  ---        ---       ----         ----
    Income before taxes
     & minority interest        7,952      7,953     24,643       22,555
    Provision for income
     taxes                      3,101      3,102      9,611        8,796
                                -----      -----      -----        -----
    Net income before
     minority interest         $4,851     $4,851    $15,032      $13,759
    Minority interest               -          -          -           12
                                  ---        ---        ---          ---
    Net income                 $4,851     $4,851    $15,032      $13,771
                               ======     ======    =======      =======

    Earnings per share,
     assuming dilution          $0.64      $0.63      $1.99        $1.73
                                =====      =====      =====        =====

    Weighted average
     common shares
     outstanding,
     assuming dilution          7,537      7,802      7,556        7,968


                              CONSOLIDATED BALANCE SHEETS
                                    (in thousands)

                                                 11/30/2009    2/28/2009
                                                  Unaudited     Audited
                                                  ---------     -------
    ASSETS
        Cash and cash equivalents                   $7,702       $1,320
        Other current assets                        23,868       23,206
        Property and equipment, net                 31,760       28,357
        Software and software licenses, net         15,770       14,905
        Goodwill and other intangible assets        48,963       38,002
        Other assets                                 2,773        2,895
                                                     -----        -----
            Total assets                          $130,836     $108,685
                                                  ========     ========

    LIABILITIES & SHAREHOLDERS' EQUITY
        Total current liabilities                  $22,294      $15,365
        Long-term Liabilities
        Deferred revenue                               637            -
        Deferred income taxes                        3,049        3,084
        Other long-term liabilities, net of
         current                                    14,332        6,003
         maturities                                 ------        -----
        Total liabilities                           40,312       24,452
        Shareholders' equity                        90,524       84,233
                                                    ------       ------
           Total liabilities and shareholders'
            equity                                $130,836     $108,685
                                                  ========     ========

SOURCE Computer Services, Inc.