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TMCNet:  CSI Reports Growth in Revenues for Second Quarter

[October 02, 2017]

CSI Reports Growth in Revenues for Second Quarter

Computer Services, Inc. (CSI (News - Alert)) (OTCQX: CSVI) today reported growth in revenues for the second quarter ended August 31, 2017.

CSI's revenues rose 5.7% to $61.2 million for the second quarter of fiscal 2018 compared with $57.9 million for the second quarter of fiscal 2017. The results for the second quarter of 2018 included approximately $839,000 in early contract termination fees compared with $934,000 in the second quarter of fiscal 2017. Excluding the effect of early contract termination fees from both periods, net revenues increased approximately 5.9% compared with the second 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.

Second quarter net income declined 7.0% to $7.6 million compared with $8.2 million for the second quarter of fiscal 2017. Net income per share declined 6.8% to $0.55 compared with $0.59 for the second quarter of fiscal 2017. Excluding the effect of early contract termination fees from both periods, net income declined approximately 6.6% compared with the second quarter of fiscal 2017. The decline in second quarter net income was due primarily to up-front investments in our regulatory compliance area, which caused operating expense growth to outpace revenue growth for the quarter. We made these investments to position ourselves to expand in one of the fastest growing markets in the financial services industry.

"CSI's revenue growth for the first half of fiscal 2018 benefited from new business and cross-sales to existing customers," stated Steven A. Powless, CEO of CSI. "Our excellent customer service and strong product platform also continue to contribute to our high renewal rates on contracts and the high percentage of recurring revenues from long-term customer contracts.

"CSI is on track to report higher revenues and net income for fiscal 2018 compared with fiscal 2017 based on the investments we've made in our business, our projections for new business and increased demand from existing customers."

Second Quarter Results

Consolidated revenues increased 5.7% to $61.2 million in the second quarter of fiscal 2018 compared with $57.9 million in the second 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 $839,000 in early contract termination fees in the second quarter of fiscal 2018 compared with $934,000 in the second quarter of fiscal 2017. Excluding the effect of the early contract termination fees from both periods, second quarter fiscal 2018 revenues increased approximately 5.9% compared with the second quarter of last fiscal year.

"We expect revenue and earnings growth to be lower in the second half of this fiscal year due to headwinds from lower expected early contract termination fees in the third and fourth quarters compared with last fiscal year," continued Powless.

Operating income declined 5.6% to $12.5 million for the second quarter of fiscal 2018 compared with $13.2 million for the second quarter of fiscal 2017. Operating margin was 20.4% in the second quarter of fiscal 2018 compared with 22.9% for the second quarter of fiscal 2017.

Net income for the second quarter of fiscal 2018 declined 7.0% to $7.6 million compared with $8.2 million for the second quarter of fiscal 2017. Net income per share declined 6.8% to $0.55 for the second quarter of fiscal 2018 on 13.98 million weighted average shares outstanding compared with $0.59 for the second quarter of fiscal 2017 on 14.03 million weighted average shares outstanding.

"CSI returned $5.0 million to shareholders in cash dividends and repurchases of common stock during the second quarter. We also increased significantly our investments in hardware and software with $10.9 million invested in the second quarter, up from $3.6 million in the first quarter of this year. We believe our investments in new hardware, software and new product development will contribute to CSI's continued growth," concluded Powless.

Six Months Results

Consolidated revenues for the first six months of fiscal 2018 rose 10.4% to $125.9 million compared with $114.1 million for the first six months of fiscal 2017. CSI's increase in revenues benefited from growth across all major product lines compared with the first six months of fiscal 2017. Fiscal year-to-date revenues also included $6.1 million in early contract termination fees compared with $1.0 million in the first six months of fiscal 2017. Excluding the effect of the early contract termination fees from both periods, fiscal year-to-date revenues increased approximately 5.9% compared with the first half of fiscal year 2017.

Operating income rose to 18.8% to $28.7 million for the first six months of fiscal 2018 compared with $24.2 million for the first six months of fiscal 2017. Operating margin rose to 22.8% in the first six months of fiscal 2018 compared with 21.2% in the first six months of fiscal 2017.

CSI's cash flow from operations declined 16.8% to $26.8 million for the first six months of fiscal 2018 compared with $32.2 million in the first six months of fiscal 2017. Cash and cash equivalents increased 9.4% to $37.6 million as of August 31, 2017, from $34.3 million as of August 31, 2016.

Net income for the first six months of fiscal 2018 increased by 17.4% to $17.5 million compared with $14.9 million in the first six months of fiscal 2017. Net income per share rose 17.8% to $1.26 per share for the first six months of fiscal 2018 compared with $1.07 for the first six months of fiscal 2017. Excluding the effect of early contract termination fees from both periods, net income declined approximately 3.5% compared with the first half 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.

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 August 31, Six Months Ended August 31,
      2017   2016     2017   2016
 
Total revenues $ 61,204 $ 57,929 $ 125,869 $ 114,052
Operating expenses       48,710     44,691       97,175     89,889
Operating income 12,494 13,238 28,694 24,163
Interest income, net       33     20       64     39
Income before income taxes 12,527 13,258 28,758 24,202
Provision for income taxes       4,917     5,071       11,211     9,257
 
Net income     $ 7,610   $ 8,187     $ 17,547   $ 14,945
 
 
Earnings per share $ 0.55 $ 0.59 $ 1.26 $ 1.07
 

Shares used in computing earnings per common share

13,981,024 14,025,285 13,973,192 14,010,253
 
 
COMPUTER SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
               
08/31/2017 02/28/2017 08/31/2016
              (Unaudited)     (Audited)     (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 37,559 $ 34,552 $ 34,327
Accounts receivable 27,112 28,249 23,151
Income tax receivable - 1,121 -
    Prepaid expenses and other current assets       15,430       13,143       11,610
Total current assets 80,101 77,065 69,088
Property and equipment, net of accumulated depreciation 36,625 35,420 35,049
Software and software licenses, net of accumulated amortization 25,284 19,778 21,437
Goodwill 60,115 60,115 60,115
Intangible assets 5,732 6,082 6,433
  Other assets       27,808       26,709       21,561
 
Total assets     $ 235,665     $ 225,169     $ 213,683
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,053 $ 8,094 $ 8,102
Accrued expenses 21,860 14,639 15,969
Deferred revenue 8,629 10,315 7,585
    Income tax payable       19       -       901
Total current liabilities 37,561 33,048 32,557
Long-term liabilities
Deferred income taxes 20,583 20,583 18,964
    Other long-term liabilities       2,282       1,588       1,544
      Total long-term liabilities       22,865       22,171       20,508
 
Total liabilities 60,426 55,219 53,065
 
Shareholders' equity
Preferred stock; shares authorized, 5,000,000; none issued - - -
Common stock, no par; 60,000,000 shares authorized;
13,966,897 shares issued as of August 31, 2017;
13,955,403 shares issued as of February 28, 2017;
14,027,304 shares issued as of August 31, 2016; 25,750 24,409 24,401
    Retained earnings       149,489       145,541       136,217
      Total shareholders' equity       175,239       169,950       160,618
 
Total liabilities and shareholders' equity     $ 235,665     $ 225,169     $ 213,683


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