Computer Services, Inc. (CSI) (OTCQX: 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 | |||||||||||||||||||
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(Audited) |
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(in thousands, except share and per share data) |
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| 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 |
%) |
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|
|
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|
Shares used in computing earnings per common and common equivalent |
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 |
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 |
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| (Unaudited) | ||||||||||||||||||||||||||||||||
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(in thousands, except share and per share data) |
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| Three months ended February 28, | GAAP results |
Change from |
YOY % | Adjustments |
Adjusted |
Change from |
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 |
YOY % | Adjustments |
Adjusted |
Change from |
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 |
Fiscal 2019 |
Adjusted |
GAAP Fiscal |
Fiscal 2018 |
Adjusted |
GAAP Change from |
Adjusted Change |
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| 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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