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 44(th) 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
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SOURCE Computer Services, Inc.
