Net Income Increases for 21st Consecutive Year
PADUCAH, Ky. (April 4, 2018) – Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported record revenues and net income for the fiscal year ended February 28, 2018. CSI’s record results for fiscal 2018 marked the company’s 18th consecutive year of revenue growth and 21st consecutive year of growth in net income.
CSI’s revenues for fiscal 2018 were a record $249.6 million and rose 6.2% compared with $234.9 million for fiscal 2017. Net income for fiscal 2018 was a record $38.8 million, a 25.6% increase compared with fiscal 2017 net income of $30.9 million. Net income per share increased 25.8% to $2.78 compared with $2.21 in the prior fiscal year.
Fourth quarter revenues rose 3.9% to a record $62.6 million in fiscal 2018 compared with $60.3 million for the fourth quarter of fiscal 2017. Net income increased 77.2% to $13.5 million, or $0.97 per share, for the fourth quarter of fiscal 2018 compared with $7.6 million, or $0.55 per share, for the fourth quarter of fiscal 2017.
“CSI’s record results for fiscal 2018 benefited from our high renewal rates on contracts and the high percentage of recurring revenues from long-term customer contracts,” stated Steven A. Powless, chairman and CEO of CSI. “Our fourth quarter and full fiscal year 2018 results also benefited from lower income tax expense arising from the passage of the Tax Cuts and Jobs Act in addition to other tax deductions and credits. Going forward, we expect the lower federal tax rate resulting from the Tax Cuts and Jobs Act to have a positive effect on CSI’s earnings and cash flow.”
Fiscal 2018 Results
Consolidated revenues rose 6.2% to $249.6 million for fiscal 2018 compared with $234.9 million for fiscal 2017. 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 $7.3 million for fiscal 2018 compared with $3.7 million for fiscal 2017. 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 9.1% to $201.8 million for fiscal 2018 compared with $184.9 million for fiscal 2017. In addition to reflecting strategic investments the company has recently made in personnel and infrastructure expansions within its regulatory compliance group, operating expenses rose significantly in the fourth quarter due to approximately $6.2 million in one-time bonus payments to non-executive employees and profit-sharing plan contributions for all eligible employees at fiscal year end. CSI’s Board of Directors authorized the employee bonuses to recognize the contributions from CSI’s team in generating the company’s history of record results. The payments were made from tax savings arising from the passage of the Tax Cuts and Jobs Act as well as other tax deductions and credits.
As a result of the unusual tax-related bonus payments included in operating expenses, operating income declined 4.5% to $47.7 million for fiscal 2018 compared with $50.0 million for fiscal 2017. Operating margin decreased to 19.1% for fiscal 2018 compared with 21.3% for fiscal 2017.
The provision for income tax was $9.0 million for fiscal 2018 compared with $19.2 million for fiscal 2017. The decline in income tax was partially due to a lower effective tax rate arising from multiple years of certain deductions and credits, and the effect of the Tax Cuts and Jobs Act which generated a one-time $7.2 million tax benefit arising from a one-time revaluation of the company’s net deferred tax liability.
Net income for fiscal 2018 rose 25.6% to $38.8 million compared with $30.9 million for fiscal 2017. Net income per share increased 25.8% to $2.78 for fiscal 2018 compared with $2.21 for fiscal 2017. On an adjusted basis, net income for fiscal 2018 rose 6.1% to $32.8 million and earnings per share rose 6.3% to $2.35 compared with $30.9 million and $2.21 per share for fiscal 2017. [See Reconciliation of Generally Accepted Accounting Principles (GAAP), below, for earnings with adjustments for the unusual 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.] Weighted average shares outstanding declined 0.3% from fiscal 2017 due to CSI share repurchases net of restricted stock grants during the year.
CSI’s cash flow from operations was $46.5 million in fiscal 2018. Cash and cash equivalents increased to $40.7 million as of February 28, 2018, an increase from $34.6 million at February 28, 2017.
“CSI’s financial position remained very strong with $40.7 million in cash and no long-term debt at fiscal year end. We returned $19.5 million to shareholders in cash dividends and repurchases of common stock during fiscal 2018. We also invested $20.6 million in hardware and software in fiscal 2018, a 50.4% increase compared with fiscal 2017. We expect to increase our investments in hardware, software and facilities in fiscal 2019, and believe our investments will contribute to CSI’s future growth,” Powless concluded.
Fourth Quarter Results
For the fourth quarter of fiscal 2018, consolidated revenues rose 3.9% to a record $62.6 million compared with $60.3 million for the fourth quarter of fiscal 2017. The growth in revenues resulted primarily from higher sales of core processing, digital banking, regulatory compliance services and managed services, offset by a $1.1 million reduction in early contract termination fees to $379,000 for the fourth quarter of fiscal 2018 from $1.4 million for the fourth quarter of fiscal 2017. Excluding the effect of the early contract termination fees on both periods, fourth quarter revenues increased approximately 5.7% compared with the same quarter of the prior fiscal year.
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