07/08/2015

CSI REPORTS RECORD FIRST QUARTER REVENUES AND NET INCOME

Revenues Increase for 44th Consecutive Quarter

PADUCAH, Ky. (July 8, 2015) – Computer Services, Inc. (CSI) (OTCQX: CSVI) today reported record revenues and net income for the first quarter and three months ended May 31, 2015. Earnings per share increased by 22.7%.

CSI’s revenues grew 4.7% to $57.1 million for the first quarter of fiscal 2016 compared with $54.6 million for the first quarter of fiscal 2015. Net income rose 20% to $7.6 million for the first quarter of fiscal 2016 compared with $6.3 million in the first quarter of fiscal 2015. Net income per share increased 22.7% to $0.54 for the first quarter of fiscal 2016 compared with $0.44 for the prior year’s first quarter.

“CSI’s record results benefited from solid growth in revenues from new customers and increased volume from existing customers,” stated Chief Executive Officer Steven A. Powless. “This quarter marked our 44^th consecutive quarter of revenue growth. We continue to benefit from customers signing long-term processing contracts that highlight their confidence in CSI's continuing ability to deliver high-quality services both now and well into the future.

“We remain focused on customer retention and satisfaction; sales and market expansion; marketing and brand awareness; and product innovation as key drivers for building revenues, earnings and returns to our shareholders. Our outlook for fiscal 2016 remains positive based on our pipeline for new processing business, high contract renewal rates from customers and increased revenues from existing customers,” Powless continued.

First Quarter Results

Consolidated revenues rose 4.7% to $57.1 million for the first quarter of fiscal 2016 compared with $54.6 million in the first quarter of fiscal 2015. Processing revenues rose 9.4% to $37.4 million compared with $34.2 million for the first quarter of fiscal 2015. The growth in processing revenues was driven primarily by sales to new customers, cross-sales to existing customers and increases in transaction volume from existing customers, offset partially by the effect of lost business. Processing revenues included early contract termination fees of $2.26 million in the first quarter of fiscal 2016 compared with $0.52 million in the first 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 expect that CSI’s processing revenues will be affected by increased merger and acquisition activity that is being driven by the improved economy and better bank earnings,” stated Powless. “We expect our bank customers to be active in this market as both buyers and sellers, resulting in higher early contract termination fees when CSI customers are acquired by non-CSI customer banks, or increased processing fees generated by our customers when they acquire non-CSI customer banks.”

Other revenues decreased by 3.0% to $19.8 million compared with the first quarter of fiscal 2015. Other revenues were down primarily due to lower non-recurring sales and were partially offset by higher sales from Internet and mobile banking services, growth in homeland security products and fraud prevention services, and increased demand for CSI’s document services. Other revenues included early contract termination fees of $171,000 in the first quarter of fiscal 2016 compared with $70,000 in the first quarter of fiscal 2015.

Operating income rose 19.4% to $12.5 million for the first quarter of fiscal 2016 compared with $10.5 million for the first quarter of fiscal 2015. Operating margin was 21.9% in the first quarter of fiscal 2016 compared with 19.2% for the first quarter of fiscal 2015. The increase in operating margin was due to growth in processing revenues and higher early contract termination fees included in the first quarter of fiscal 2016 compared with the first quarter of the prior year.

Net income for the first quarter of fiscal 2016 rose 20% to $7.6 million compared with $6.3 million for the first quarter of fiscal 2015. Net income per diluted share increased 22.7% to $0.54 for the first quarter of fiscal 2016 on 14.1 million weighted average diluted shares outstanding compared with $0.44 for the first quarter of fiscal 2015 on 14.2 million weighted average diluted shares outstanding.

“Our growth in earnings and cash flow contributed to CSI’s strong balance sheet position at the end of the quarter,” Powless said. “At May 31, 2015, CSI had $10.2 million in cash and no debt, and our cash flow from operations increased to $15.0 million in the first quarter of fiscal 2016. We continue to use our strong financial position and solid cash flow to invest in our business while returning a portion of our earnings to shareholders through our cash dividend program and repurchases of CSI stock. During the first quarter, we invested $13.2 million in new equipment and software to support our continued growth, and we returned $3.1 million to shareholders in cash dividends.”

During the first quarter, CSI’s Board of Directors declared a cash dividend of $0.22 per share. The dividend was paid on June 25, 2015, to shareholders of record as of the close of business on June 1, 2015.