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CSI Reports Record Revenues and Net Income for Second Quarter

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Revenues Increase 6.3% to $77.1 Million

Net Income Per Share Rises 1.9% to $0.53

PADUCAH, Ky., October 07, 2021--(BUSINESS WIRE)--Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported growth in revenues and net income for the second quarter and first six months of fiscal 2022, which ended Aug. 31, 2021.

CSI’s revenues rose 6.3% to a record $77.1 million for the second quarter of fiscal 2022 compared with $72.5 million for the second quarter of fiscal 2021. Second quarter net income rose 1.8% to a record $14.5 million compared with $14.3 million for the second quarter of fiscal 2021. Net income per share rose 1.9% to $0.53 compared with $0.52 for the second quarter of fiscal 2021.

"CSI’s second quarter results benefited from robust sales from our Enterprise Banking and Business Solutions Groups," stated David Culbertson, CSI’s president and CEO. "Our revenue growth was driven by increased demand for digital banking services, increased volume from payments processing due to relaxed COVID-19 restrictions, and higher demand for our regulatory compliance and network services.

"New core account sales remain strong and will contribute to our growth over the next year. We expect second half revenue to pick up as transaction volumes continue to rise and new accounts come online in future months. We remain very positive about CSI’s continued growth based on our sales momentum and stronger demand in a post-pandemic economy.

"We also continue to expect CSI’s earnings momentum to pick up in the second half of fiscal 2022. As expected, our earnings growth rate trailed our revenue growth in the second quarter due to higher liquidated damages in the prior year’s quarter and higher travel and healthcare expense in the current quarter, compared with lower-than-normal amounts during last year’s pandemic-related economic lockdown," continued Culbertson.

Second Quarter Results

Consolidated revenues increased 6.3% to $77.1 million in the second quarter of fiscal 2022 compared with $72.5 million in the second quarter of fiscal 2021. The growth in revenues benefited from higher sales in both the Enterprise Banking and Business Solutions Groups, including growth in digital banking and regulatory compliance services. Revenue growth also benefited from increased transaction volumes in payments processing in the second quarter of fiscal 2022 from the suppression in transaction volumes attributable to the COVID-19 pandemic economic environment in the second quarter of fiscal 2021. The results for the second quarter of fiscal 2022 included $788,000 in early contract termination fees compared with $1.1 million in the second quarter of fiscal 2021. Excluding the effect of early contract termination fees, net revenues increased 6.9% in the second quarter of fiscal 2022 compared with the second quarter of fiscal 2021. The 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.

Operating expenses were up 8.0% to $58.3 million for the second quarter of fiscal 2022 compared with $54.0 million for the second quarter of fiscal 2021. The increase in operating expenses was related to higher personnel expenses associated with higher staffing to meet growing demand and enable future growth, typical annual salary adjustments, higher employee health insurance expenses, and special COVID-19 pandemic-related employee incentives. Expenses were also up due to higher profit-sharing plan contributions related to anticipated earnings growth in the second half of fiscal 2022, higher cost of goods on higher related payments processing and digital banking revenues, higher equipment expense due to new capital investments and higher professional fees related to investments in strategic consulting engagements. Travel expenses also increased to more normal levels in the second quarter of fiscal 2022 compared with the prior year’s second quarter when pandemic-related concerns significantly reduced business travel.

Operating income increased 1.5% to $18.7 million for the second quarter of fiscal 2022 compared with $18.5 million for the second quarter of fiscal 2021. The increase in operating income was due to increased payments processing and digital banking revenues that were partially offset by a decrease in early contract termination fees and higher personnel and travel expenses. Operating margins were 24.3% in the second quarter of fiscal 2022 compared with 25.5% for the second quarter of fiscal 2021. Excluding the effect of early contract termination fees, operating income rose 3.3%, or $0.6 million, in the second quarter of fiscal 2022 compared with the second quarter of fiscal 2021.

The provision for income tax was $4.3 million for the second quarter of fiscal 2022 compared with $4.4 million in the second quarter of fiscal 2021. The decrease was due to a lower effective tax rate in the second quarter of fiscal 2022 compared with the second quarter of fiscal 2021.

Net income for the second quarter of fiscal 2022 rose 1.8% to $14.5 million compared with $14.3 million for the second quarter of fiscal 2021. Net income per share increased 1.9% to $0.53 for the second quarter of fiscal 2022 on 27.5 million weighted average shares outstanding compared with $0.52 for the second quarter of fiscal 2021 on 27.7 million weighted average shares outstanding.

"CSI’s financial position remains strong," Culbertson commented. "Our cash position exceeded $54 million, and we had no long-term debt at the end of the second quarter. We also continue to generate strong operating cash flow to invest in new product development and our infrastructure. We expect to benefit from investments in our strategic initiative program that is focused on developing a future-ready workforce, making every customer interaction exceptional, accelerating transformational opportunities, and raising the visibility of CSI as an innovative fintech organization. We believe we have excellent opportunities to diversify and expand our revenue base through these initiatives to continue building long-term shareholder value.

"During the first half of fiscal 2022, we invested approximately $4.7 million in property and software following significant investments we made over the past year to support our continued growth. In addition, we returned $22.7 million to shareholders in the first half of fiscal 2022, up 42.1% from $16.0 million in the first half of last fiscal year. Cash dividend payments rose 18.4% to $13.8 million compared with the first half of fiscal 2021 and marked our 50th consecutive year of increased dividends paid to CSI shareholders. We also increased our stock repurchases in the first half of fiscal 2022 to $8.9 million, a 106% increase from the prior year’s first half," concluded Culbertson.

Six Months Results

Consolidated revenues for the first six months of fiscal 2022 rose 7.4% to $153.7 million compared with $143.1 million for the first six months of fiscal 2021. CSI’s increase in revenues benefited from higher sales in both the Enterprise Banking and Business Solutions Groups, including growth in digital banking and regulatory compliance services. Revenue growth also benefited from increased transaction volumes in payments processing due to the recovery in the first six months of fiscal 2022 from lower transaction volumes attributable to the COVID-19 pandemic economic environment in the first six months of fiscal 2021. Fiscal year-to-date revenues also included $1.4 million in early contract termination fees compared with $3.9 million in the first six months of fiscal 2021. Excluding the effect of the early contract termination fees from both periods, fiscal year-to-date revenues increased approximately 9.5% compared with the first half of fiscal year 2021.

Operating expenses increased 9.7% to $116.2 million for the first six months of fiscal 2022 compared with $105.9 million for the first six months of fiscal 2021. The increase in operating expenses was related to higher personnel expenses associated with higher staffing to meet growing demand and enable future growth, typical annual salary adjustments, higher employee health insurance expenses and special COVID-19 pandemic-related employee incentives. Expenses were also up due to higher profit-sharing plan contributions related to anticipated earnings growth in the second half of fiscal 2022, higher cost of goods on higher related payments processing and digital banking revenues, higher equipment expense due to new capital investments and higher professional fees related to investments in strategic consulting engagements.

Operating income increased 1.0% to $37.5 million for the first six months of fiscal 2022 compared with $37.2 million for the first six months of fiscal 2021. The increase in operating income was primarily due to increased payments processing and digital banking revenues that were partially offset by a decrease in early contract termination fees and higher personnel expenses. Operating margin decreased to 24.4% in the first six months of fiscal 2022 compared with 26.0% in the first six months of fiscal 2021. Excluding the effect of early contract termination fees, operating income rose 8.8%, or $2.9 million, in the first half of fiscal 2022 compared with the first half of fiscal 2021.

Net income for the first six months of fiscal 2022 increased by 1.8% to $28.9 million compared with $28.4 million in the first six months of fiscal 2021. Net income per share rose 1.9% to $1.05 per share for the first six months of fiscal 2022 compared with $1.03 for the first six months of fiscal 2021.

About Computer Services, Inc.

Computer Services, Inc. (CSI) delivers core processing, digital banking, managed services, payments processing, print and electronic document distribution, and regulatory compliance solutions to financial institutions and corporate customers, both foreign and domestic. Management believes 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 IDC Financial Insights FinTech 100, Talkin’ Cloud 100 and MSPmentor Top 501 Global Managed Service Providers lists. CSI has also been recognized by Aite Group, a leading industry research firm, as providing the "best user experience" in its 2019 AIM Evaluation: The Leading Providers of U.S. Core Banking Systems. In addition, CSI's record of increasing its dividend each year for 50 years has earned it a designation as one of the financial media’s "Dividend Aristocrats." CSI’s stock is traded on OTCQX under the symbol CSVI. For more information, visit 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; (iii) risk factors affecting the United States economy generally including without limitation acts of terrorism, military actions including war, and viral epidemics and pandemics that alter human behaviors, including the COVID-19 pandemic and its effect on our business operations and financial results; (iv) increasing domestic and international regulation imposing burdensome requirements regarding the privacy of consumer data especially consumer financial transaction data of which CSI possesses substantial quantities; and (v) other factors discussed in CSI's Annual Reports, Quarterly Reports, news releases and other documents posted from time to time on the OTCQX website (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.

Condensed Consolidated Statements of Income

(Unaudited)

(in thousands, except share and per share data)

Three Months Ended August 31,

Six Months Ended August 31,

2021

2020

2021

2020

Revenues

$

77,051

$

72,462

$

153,707

$

143,100

Operating expenses

58,312

54,000

116,167

105,923

Operating income

18,739

18,462

37,540

37,178

Non-operating income

84

37

84

37

Interest income, net

38

202

78

332

Income before income taxes

18,861

18,702

37,702

37,547

Provision for income taxes

4,345

4,442

8,772

9,134

Net income

$

14,516

$

14,260

$

28,930

$

28,413

Earnings per common share

$

0.53

$

0.52

$

1.05

$

1.03

Shares used in computing earnings per

common share

27,483,076

27,654,660

27,497,566

27,654,450

COMPUTER SERVICES, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

8/31/2021

2/28/2021

8/31/2020

(Unaudited)

(Audited)

(Unaudited)

ASSETS

Current assets

Cash

$

54,274

$

45,398

$

77,178

Funds held on behalf of clients

9,485

8,566

8,969

Accounts receivable, net

37,462

42,223

35,077

Income tax receivable

-

932

-

Deferred contract costs

20,691

18,718

17,154

Prepaid expenses and other current assets

12,278

10,917

10,868

Total current assets

134,190

126,754

149,247

Property and equipment, net of accumulated depreciation

42,973

43,755

45,132

Software and software licenses, net of accumulated amortization

20,858

22,728

24,543

Deferred contract costs

118,514

106,936

96,518

Internally developed software, net

6,922

6,855

5,601

Goodwill

60,115

60,115

60,115

Intangible assets, net

3,100

3,396

3,725

Right of use assets

5,417

6,734

7,699

Other assets

7,123

7,076

5,432

Total assets

$

399,212

$

384,349

$

398,010

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Accounts payable

$

9,724

$

11,494

$

11,286

Accrued expenses

18,526

8,602

17,196

Deferred contract liabilities

55,826

48,763

44,602

Deferred revenue

11,153

12,830

10,564

Client funding obligation - settlement liabilities

9,485

8,566

8,969

Current portion of operating lease liabilities

2,370

2,563

2,514

Income tax payable

657

-

3,213

Total current liabilities

107,741

92,818

98,344

Long-term liabilities

Deferred income taxes, net

29,313

29,314

24,394

Deferred contract liabilities

12,029

11,448

10,951

Other liabilities

1,752

1,721

1,817

Postretirement benefits

-

-

60

Operating lease liabilities

3,226

4,357

5,506

Total long-term liabilities

46,320

46,839

42,728

Total liabilities

154,061

139,658

141,073

Shareholders' equity

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

Common stock, no par; 60,000,000 shares authorized;

27,467,482 shares issued at August 31, 2021;

27,565,001 shares issued at February 28, 2021;

27,631,286 shares issued at August 31, 2020;

34,789

32,546

32,285

Retained earnings

210,899

211,852

223,528

Accumulated other comprehensive income, net

(538

)

293

1,124

Total shareholders' equity

245,151

244,691

256,938

Total liabilities and shareholders' equity

$

399,212

$

384,349

$

398,010

View source version on businesswire.com: https://www.businesswire.com/news/home/20211007005073/en/

Contacts

Brian K. Brown, CFO
800-545-4274, ext. 10689 or brian.brown@csiweb.com

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