Computer Task Group Inc (CTG) Reports Mixed Q3 2023 Results Amid Acquisition Process
CTG's revenue decreased by 4.9% year-over-year to $71.3 million in Q3 2023.
Gross margin improved significantly by 300 basis points from the prior year to 27.3%.
The company reported a net loss of $0.9 million, with a net margin of (1.2)%.
CTG and Cegeka are working towards regulatory approval for the acquisition, expected to close on December 13, 2023.
On November 8, 2023, Computer Task Group Inc (NASDAQ:CTG) released its financial results for the third quarter ended September 29, 2023. The company reported a decrease in revenue to $71.3 million, down 4.9% from the same period last year, primarily due to strategic disengagement from non-strategic technology services business. Despite the revenue decline, CTG achieved a gross margin improvement to 27.3%, marking a 300 basis point increase from the prior year.
Financial Highlights and Challenges
CTG faced a challenging macroeconomic environment, including high inflation and a softening demand for IT services. Despite these headwinds, the company's IT Solutions and Services segments now represent 87% of total revenue, the highest level to date, reflecting CTG's strategic shift towards more solutions and services-based business. The company's GAAP operating margin was negative at (0.8)% in the third quarter, while the non-GAAP operating margin stood at 3.7%. The net loss for the quarter was ($0.9) million, translating to a net margin of (1.2)%.
Segment Performance and Strategic Focus
CTG's IT Solutions and Services segment in North America reported a 24.0% increase in revenue, while Europe's segment saw a 9.7% increase. The Non-Strategic Technology Services segment continued its planned disengagement, consistent with the company's long-term strategy, resulting in a 55.1% revenue decline. CTG's focus remains on becoming a global provider of digital IT solutions, growing organically and through acquisitions, and improving its margin profile by shifting business mix.
Acquisition by Cegeka and Future Outlook
CTG President and CEO, Filip Gyde, expressed confidence in the acquisition by Cegeka, stating,
We are pleased to have entered into this transaction with Cegeka, and we are working diligently with them through the regulatory approval processes to complete the sale."
The acquisition is expected to enable CTG to accelerate the provision of digital transformation services to clients. However, due to the ongoing acquisition process and the uncertain macroeconomic environment, CTG is not providing full-year guidance for 2023.
Balance Sheet and Cash Flow
CTG ended the quarter with $24.1 million in cash and cash equivalents and generated $2.8 million in net cash from operations for the year. The company has no outstanding debt on its revolving line of credit facility or any other long-term debt, maintaining a solid financial position.
While CTG is not hosting an earnings call due to the pending acquisition, the company continues to post news and important information on its website. Investors and stakeholders are encouraged to visit www.ctg.com for updates.
For a detailed reconciliation of GAAP to non-GAAP financial measures, readers can refer to the financial tables included in the earnings release.
Computer Task Group Inc (NASDAQ:CTG) remains committed to its strategy of digital transformation and is poised for the next phase of growth pending the completion of its acquisition by Cegeka.
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Explore the complete 8-K earnings release (here) from Computer Task Group Inc for further details.
This article first appeared on GuruFocus.
