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CTG Earnings per Share Increased 50% in First Quarter 2022 Despite Planned Lower Revenue as Digital Transformation Drives Improved Earnings Power

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Computer Task Group, Incorporated
Computer Task Group, Incorporated
  • North America IT Solutions and Services grew 10.7%, helping to offset $6.2 million revenue decline from intentional reduction in Non-Strategic Technology Services and $3.1 million impact from foreign currency exchange headwinds

  • Gross margin expanded 160 basis points in the first quarter to 23.0%, driven by successful execution of strategy to improve business mix; two-year gross margin improvement of 340 basis points

  • GAAP operating income for the quarter increased 52.5%; operating margin was 3.6%, an increase of 142 basis points

  • First quarter GAAP diluted EPS of $0.15 increased $0.05, or 50%

  • Pipeline of opportunities in digital solutions continued to expand; awarded largest multi-year solutions development contract in North America

BUFFALO, N.Y., May 10, 2022 (GLOBE NEWSWIRE) -- CTG (Nasdaq: CTG) (“Company”), a leader in helping companies employ digital IT solutions and services to drive productivity and profitability in North America and Western Europe, today reported its financial results for the first quarter ended April 1, 2022.

Filip Gydé, CTG President and CEO commented, “Our first quarter results were a strong testament to the success of our strategy to improve the earnings power of CTG through our continued focus on delivering high value digital IT solutions to solve our customers’ operating challenges. Our earnings growth was a direct reflection of improving our business mix. We are helping businesses in healthcare, energy, financial services, government, and other industries to find more efficient ways to operate by digitizing their processes and assets. We believe the power of digital solutions will improve business performance, support data-driven decision making, provide continuous innovation, and enhance customer experience.”

Mr. Gydé added, “I am extremely encouraged with the progress we are making as we continue to build a foundation to support our strategy and strengthen the CTG team that is critical to our success. We are building on our strong momentum, as evidenced by the recent awarding of our largest digital solutions development contract in the Company’s history in North America. Despite the macroeconomic headwinds, we are successfully executing our strategy and our team is energized and excited to develop the next generation of solutions for our customers.”

Consolidated First Quarter 2022 Review (Narrative compares with prior-year period unless otherwise noted) (unaudited)

($ in thousands)

For the Quarter Ended

Change 2021-2022

Change 2020-2021

Apr. 1,
2022

Apr. 2,
2021

Mar. 27,
2020

$

%

$

%

Revenue

$

89,417

$

97,129

$

86,949

$

(7,712

)

-7.9

%

$

10,180

11.7

%

GAAP Operating Income

$

3,199

$

2,098

$

2,067

$

1,101

52.5

%

$

31

1.5

%

GAAP Operating Margin

3.6

%

2.2

%

2.4

%

Non-GAAP Operating Income*

$

3,461

$

2,742

$

2,534

$

719

26.2

%

$

208

8.2

%

Non-GAAP Operating Margin*

3.9

%

2.8

%

2.9

%

GAAP Net Income

$

2,240

$

1,508

$

1,144

$

732

48.5

%

$

364

31.8

%

GAAP Net Margin

2.5

%

1.6

%

1.3

%

Non-GAAP Net Income*

$

2,439

$

2,006

$

1,429

$

433

21.6

%

$

577

40.4

%

Non-GAAP Net Income Margin*

2.7

%

2.1

%

1.6

%

Adjusted EBITDA*

$

4,331

$

3,725

$

3,373

$

606

16.3

%

$

352

10.4

%

Adjusted EBITDA Margin*

4.8

%

3.8

%

3.9

%

*A reconciliation of GAAP to non-GAAP information is included in the financial tables below.

  • Strong growth in North America IT Solutions and Services partially offset the $6.2 million decline in revenue related to the disengagement from lower-margin non-strategic business as well as a negative $3.1 million impact to revenue due to changes in foreign currency exchange rates.

  • Selling, general and administrative (SG&A) expenses as a percentage of revenue modestly increased 23 basis points, but declined on an absolute basis by 6.8% to $17.4 million on lower revenue.

  • Operating income increased 52.5% on improved business mix as the Company continues to advance its strategy to provide higher-value digital IT solutions and reduce its exposure to lower margin business.

  • Net income growth of 48.5% further reflects the success of the strategic shift in business.

First Quarter Segment Performance (unaudited)

IT Solutions and Services

North America

($ in thousands)

For the Quarter Ended

Change 2021-2022

Change 2020-2021

Apr. 1,
2022

Apr. 2,
2021

Mar. 27,
2020

$

%

$

%

Revenue

$

20,435

$

18,454

$

12,999

$

1,981

10.7

%

$

5,455

42.0

%

Gross profit

$

6,862

$

6,012

$

4,767

$

850

14.1

%

$

1,245

26.1

%

Gross margin

33.6

%

32.6

%

36.7

%

Contribution profit

$

3,732

$

2,855

$

2,678

$

877

30.7

%

$

177

6.6

%

Contribution margin

18.3

%

15.5

%

20.6

%


Europe

($ in thousands)

For the Quarter Ended

Change 2021-2022

Change 2020-2021

Apr. 1,
2022

Apr. 2,
2021

Mar. 27,
2020

$

%

$

%

Revenue

$

42,478

$

46,007

$

35,567

$

(3,529

)

-7.7

%

$

10,440

29.4

%

Gross profit

$

10,480

$

11,217

$

8,353

$

(737

)

-6.6

%

$

2,864

34.3

%

Gross margin

24.7

%

24.4

%

23.5

%

Contribution profit

$

5,251

$

5,734

$

3,817

$

(483

)

-8.4

%

$

1,917

50.2

%

Contribution margin

12.4

%

12.5

%

10.7

%

  • North America IT Solutions and Services revenue increased 10.7%, as the segment gained new customers and opportunities in digital IT solutions.

  • The change in the Europe IT Solutions and Services segment primarily reflects $3.1 million of unfavorable foreign currency exchange rate (FX) fluctuations, a reduction of approximately 20 resources at one client as they internalized a project, and macro-economic headwinds in the European Union. Revenue in the Europe IT Solutions and Services segment increased at a compound annual growth rate of 5.8% over the past two years.

Non-Strategic Technology Services

($ in thousands)

For the Quarter Ended

Change 2021-2022

Change 2020-2021

Apr. 1,
2022

Apr. 2,
2021

Mar. 27,
2020

$

%

$

%

Revenue

$

26,504

$

32,668

$

38,383

$

(6,164

)

-18.9

%

$

(5,715

)

-14.9

%

Gross profit

$

3,253

$

3,538

$

3,926

$

(285

)

-8.1

%

$

(388

)

-9.9

%

Gross margin

12.3

%

10.8

%

10.2

%

Contribution profit

$

2,443

$

2,223

$

1,840

$

220

9.9

%

$

383

20.8

%

Contribution margin

9.2

%

6.8

%

4.8

%

  • The Company continues its strategy to reduce the level of providing lower value, Non-Strategic Technology Services.

Balance Sheet and Cash Flow

Cash and cash equivalents were $38.7 million, up $3.1 million, or 8.8%, since year-end 2021. Net cash provided by operations was $4.4 million.

At the end of the first quarter of 2022, the Company had no outstanding balance on its revolving line of credit facility or any other long-term debt. Days sales outstanding were 76 in the first quarter of 2022 compared with 71 in the prior-year period.

Strategy

CTG is a catalyst for digital transformation, helping IT and business leaders accelerate their project momentum and achieve their desired outcomes. This strategy includes:

  • Providing breakthrough digital transformation solutions to our clients

  • Investing in expanding our digital transformation solutions and services, both organically through adding industry leading digital and technology talent, and through acquisitions that focus on highly synergistic solutions or personnel

  • Utilizing innovative tools and methodologies

  • Expanding our global delivery network, and

  • Disengaging from our lowest margin Non-Strategic Technology Services business

2022 Outlook

John M. Laubacker, Chief Financial Officer, noted, “We had a strong start to the year, and we expect our improvements in business mix to higher margin IT Solutions will continue to drive earnings growth throughout the year, resulting in 2022 non-GAAP diluted earnings per share of $0.64 to $0.72. This earnings per share guidance is unchanged from the prior quarter. Macroeconomic conditions in the European Union have significantly decreased the value of the Euro, and we do not see this reversing in the short term. As a result, we are reducing our revenue guidance by $15 million solely due to foreign currency exchange. We now expect our revenue for 2022 to range from $360 million to $380 million, which includes a reduction of $25 million to $35 million from the disengagement from Non-Strategic Technology Services.”

“Over the longer term, our objective is to grow IT Solutions and Services revenue in the mid- to high- single digits organically and deliver contribution margins for these segments in the mid-teens. We expect this will enable us to achieve our goal over the next two years of adjusted EBITDA margins increasing to 7% to 8% of revenue, given the operating leverage inherent in the business as we accelerate our pace of growth and enhance our margin profile, including through focused acquisitions.”

The Company expects its quarterly performance throughout 2022 to be uneven due to engagement timing, and after a slower start to the year, that revenue will strengthen in the second half of the year.

Conference Call and Webcast

CTG will hold a conference call today at 11:00 a.m. Eastern Time to discuss the Company’s financial results and business outlook. To access the live call, dial +1 877 704 4453. The conference call will also be available via webcast in the Investors section of CTG’s website at www.ctg.com.

A telephonic replay will be available from 2:00 p.m. ET on the day of the call through Tuesday, May 17, 2022 by dialing +1 844 512 2921 and entering the access code 13728826. The webcast will also be archived on CTG’s website in the Events & Presentations section for at least 90 days following completion of the live conference call.

About CTG

CTG is a leading provider of digital transformation solutions and services that accelerate clients’ project momentum and achievement of their desired IT and business outcomes. We have earned a reputation as a faster and more reliable, results-driven partner focused on improved data-driven decision making, meaningful business performance improvements, new and enhanced customer experiences, and continuous innovation. CTG has operations in North America, South America, Western Europe, and India. The Company regularly posts news and other important information at www.ctg.com.

Reconciliation of GAAP to Non-GAAP Information

The Company has referenced non-GAAP information in this news release. The Company believes that the use of non-GAAP financial information provides useful information to investors and management to gain an overall understanding of its current financial performance and prospects. In addition, management uses non-GAAP financial measures for forecasting, facilitating ongoing operating decisions, and measuring the Company’s overall performance. The Company believes that these non-GAAP measures align closely with its internal measurement processes and are reflective of the Company’s core operating results.

A reconciliation of GAAP to non-GAAP information is included in the financial tables below. The non-GAAP financial information is presented using a consistent methodology from quarter-to-quarter and year-to-year. These measures should be considered in addition to results prepared in accordance with GAAP. Also, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP financial measures have limitations in that they do not reflect all amounts associated with the Company's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP financial measures. As such, the non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP, and reconciliations between GAAP and non-GAAP financial measures included in this earnings release should be carefully evaluated.

Forward-Looking Statements

This document contains certain forward-looking statements concerning the Company's current expectations as to future growth, financial outlook, business strategy and performance expectations for 2022 and beyond and statements related to cost control, new business opportunities, financial performance, market demand, and other attributes of the Company, which are protected as forward-looking statements under the Private Securities Litigation Reform Act of 1995. Generally, the words “anticipates”, “believes”, “expects”, “plans”, “may”, “will”, “might,” “would”, “should”, “could,” “seeks”, “estimates”, “anticipates,” “project”, “predict”, “potential”, “currently”, “continue”, “intends”, “outlook”, and other similar words identify forward-looking statements. These statements are based upon the Company's current expectations and assumptions, a review of industry reports, current business conditions in the areas where the Company does business, feedback from existing and potential new clients, a review of current and proposed legislation and governmental regulations that may affect the Company and/or its clients, and other future events or circumstances. Actual results could differ materially from the outlook guidance, expectations, and other forward-looking statements as a result of a number of factors and risks, including among others, the effects of the COVID-19 pandemic and the regulatory, social and business responses thereto on the Company’s business, operations, employees, contractors and clients, the availability to the Company of qualified professional staff, domestic and foreign industry competition for clients and talent, increased bargaining power of large clients, the Company's ability to protect confidential client data, the partial or complete loss of the revenue the Company generates from International Business Machines Corporation (IBM), the ability to integrate businesses when acquired and retain their clients while achieving cost reduction targets, the uncertainty of clients' implementations of cost reduction projects, the effect of healthcare reform and initiatives, the mix of work between solutions and services and non-strategic technology services, currency exchange risks, risks associated with operating in foreign jurisdictions, renegotiations, nullification, or breaches of contracts with clients, vendors, subcontractors or other parties, the change in valuation of capitalized software balances, the impact of current and future laws and government regulation, as well as repeal or modification of such, affecting the information technology (IT) solutions and services and staffing industry, taxes and the Company's operations in particular, industry, economic and political conditions, including fluctuations in demand for IT services, consolidation among the Company's competitors or clients, the need to supplement or change our IT services in response to new offerings in the industry or changes in client requirements for IT products and solutions, actions of activist shareholders, and other factors that involve risk and uncertainty including those listed in the Company's reports filed with the Securities and Exchange Commission. Such forward-looking statements should be read in conjunction with the Company's disclosures set forth in the Company's Form 10-K for the year ended December 31, 2021, including the uncertainties described in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and other reports, including but not limited to subsequent quarterly reports on Form 10-Q, that may be filed from time to time with the Securities and Exchange Commission and may be obtained through the Securities and Exchange Commission's Electronic Data Gathering and Analysis Retrieval System ("EDGAR") at www.sec.gov.The Company assumes no obligation to update the forward-looking information contained in this release.


COMPUTER TASK GROUP, INCORPORATED (CTG)
Condensed Consolidated Statements of Income
(Unaudited)
(amounts in thousands except per share data)

For the Quarter Ended

April 1,

April 2,

March 27,

2022

2021

2020

Revenue

$

89,417

$

97,129

$

86,949

Cost of services

68,822

76,362

69,903

Gross profit

20,595

20,767

17,046

Selling, general and admin. expenses

17,396

18,669

14,979

Operating income

3,199

2,098

2,067

Other expense, net

(257

)

(150

)

(191

)

Income before income taxes

2,942

1,948

1,876

Provision for income taxes

702

440

732

Net income

$

2,240

$

1,508

$

1,144

Net income per share:

Basic

$

0.16

$

0.11

$

0.08

Diluted

$

0.15

$

0.10

$

0.08

Weighted average shares outstanding:

Basic

14,199

13,696

13,547

Diluted

14,977

14,944

14,316


COMPUTER TASK GROUP, INCORPORATED (CTG)
Condensed Consolidated Balance Sheets
(Unaudited)
(amounts in thousands)

April 1,

December 31,

April 2,

2022

2021

2021

Current Assets:

Cash and cash equivalents

$

38,724

$

35,584

$

33,524

Accounts receivable, net

74,674

84,252

74,468

Other current assets

3,065

2,929

3,914

Total current assets

116,463

122,765

111,906

Property and equipment, net

4,777

5,242

5,799

Operating lease right-of-use assets

20,762

22,132

23,884

Cash surrender value

3,756

4,018

3,415

Acquired intangibles, net

6,837

7,280

8,391

Goodwill

19,174

19,676

20,415

Other assets

7,171

7,221

1,693

Total Assets

$

178,940

$

188,334

$

175,503

Current Liabilities:

Accounts payable

$

12,444

$

21,150

$

14,307

Accrued compensation

20,444

22,534

23,488

Operating lease liabilities

6,199

6,444

6,433

Other current liabilities

17,036

14,855

14,401

Total current liabilities

56,123

64,983

58,629

Operating lease liabilities

14,379

15,612

17,328

Other liabilities

13,030

13,302

19,472

Shareholders' equity

95,408

94,437

80,074

Total Liabilities and Shareholders' Equity

$

178,940

$

188,334

$

175,503


COMPUTER TASK GROUP, INCORPORATED (CTG)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)

For the Quarter Ended

April 1,

April 2,

March 27,

2022

2021

2020

Net income

$

2,240

$

1,508

$

1,144

Depreciation and amortization expense

716

854

816

Equity-based compensation expense

573

590

512

Other operating items

879

(697

)

16,707

Net cash provided by operating activities

4,408

2,255

19,179

Net cash used in investing activities

(61

)

(891

)

(4,653

)

Net cash provided by (used in) financing activities

(844

)

163

6,287

Effect of exchange rates on cash and cash equivalents

(363

)

(868

)

(113

)

Net increase in cash and cash equivalents

3,140

659

20,700

Cash and cash equivalents at beginning of period

35,584

32,865

10,781

Cash and cash equivalents at end of period

$

38,724

$

33,524

$

31,481


COMPUTER TASK GROUP, INCORPORATED (CTG)
Segment Information
(Unaudited)
(amounts in thousands)

For reporting purposes, the Company discloses three segments, including IT Solutions and Services in each of North America and Europe, and Non-Strategic Technology Services, primarily in North America. The Company continues to make investments in business development, including solutions, sales, delivery, and recruiting to drive its digital transformation strategy in both the North America and Europe IT Solutions and Services segments. The Company is not making investments in its Non-Strategic Technology Services segment that includes lower margin staffing services. Contribution profit represents operational profit after consideration of expenses such as sales, solutions, delivery, recruiting and administrative expenses.

For the Quarter Ended April 1, 2022

North

America

Europe

Non-Strategic

Non-

IT Solutions

IT Solutions

Technology

GAAP

Non-

GAAP

and Services

and Services

Services

Totals

GAAP*

Totals

Revenue

$

20,435

$

42,478

$

26,504

$

89,417

$

89,417

Cost of services

13,573

31,998

23,251

68,822

68,822

Gross profit

6,862

10,480

3,253

20,595

20,595

Gross margin

33.6

%

24.7

%

12.3

%

23.0

%

23.0

%

Operating expenses

3,130

5,229

810

9,169

9,169

Contribution profit

$

3,732

$

5,251

$

2,443

11,426

11,426

Contribution margin

18.3

%

12.4

%

9.2

%

12.8

%

12.8

%

General and admin. expense

8,227

(262

)

7,965

Operating income

$

3,199

$

262

$

3,461

Operating margin

3.6

%

3.9

%


For the Quarter Ended April 2, 2021

North

America

Europe

Non-Strategic

Non-

IT Solutions

IT Solutions

Technology

GAAP

Non-

GAAP

and Services

and Services

Services

Totals

GAAP*

Totals

Revenue

$

18,454

$

46,007

$

32,668

$

97,129

$

97,129

Cost of services

12,442

34,790

29,130

76,362

76,362

Gross profit

6,012

11,217

3,538

20,767

20,767

Gross margin

32.6

%

24.4

%

10.8

%

21.4

%

21.4

%

Operating expenses

3,157

5,483

1,315

9,955

9,955

Contribution profit

$

2,855

$

5,734

$

2,223

10,812

10,812

Contribution margin

15.5

%

12.5

%

6.8

%

11.1

%

11.1

%

General and admin. expense

8,714

(644

)

8,070

Operating income

$

2,098

$

644

$

2,742

Operating margin

2.2

%

2.8

%

* Non-GAAP costs represent certain acquisition-related expenses, and in 2021 also include rebranding costs

COMPUTER TASK GROUP, INCORPORATED (CTG)
Segment Information (continued)
(Unaudited)
(amounts in thousands)

For the Quarter Ended March 27, 2020

North

America

Europe

Non-Strategic

Non-

IT Solutions

IT Solutions

Technology

GAAP

Non-

GAAP

and Services

and Services

Services

Totals

GAAP*

Totals

Revenue

$

12,999

$

35,567

$

38,383

$

86,949

$

86,949

Cost of services

8,232

27,214

34,457

69,903

69,903

Gross profit

4,767

8,353

3,926

17,046

17,046

Gross margin

36.7

%

23.5

%

10.2

%

19.6

%

19.6

%

Operating expenses

2,089

4,536

2,086

8,711

8,711

Contribution profit

$

2,678

$

3,817

$

1,840

8,335

8,335

Contribution margin

20.6

%

10.7

%

4.8

%

9.6

%

9.6

%

General and admin. expense

6,268

(467

)

5,801

Operating income

$

2,067

$

467

$

2,534

Operating margin

2.4

%

2.9

%

* Non-GAAP costs represent certain acquisition-related expenses


COMPUTER TASK GROUP, INCORPORATED (CTG)
Segment Information (continued)
(Unaudited)
(amounts in thousands)

North America IT Solutions and Services

For the Year Ended December 31, 2021

First

Second

Third

Fourth

Quarter

Quarter

Quarter

Quarter

Totals

Revenue

$

18,454

$

16,762

$

21,215

$

45,075

$

101,506

Cost of services

12,442

10,688

13,942

31,813

68,885

Gross profit

6,012

6,074

7,273

13,262

32,621

Gross margin

32.6

%

36.2

%

34.3

%

29.4

%

32.1

%

Operating expenses

3,157

3,166

3,464

4,096

13,883

Contribution profit

$

2,855

$

2,908

$

3,809

$

9,166

$

18,738

Contribution margin

15.5

%

17.3

%

18.0

%

20.3

%

18.5

%


For the Year Ended December 31, 2020

First

Second

Third

Fourth

Quarter

Quarter

Quarter

Quarter

Totals

Revenue

$

12,999

$

16,069

$

16,440

$

22,440

$

67,948

Cost of services

8,232

10,924

10,415

14,382

43,953

Gross profit

4,767

5,145

6,025

8,058

23,995

Gross margin

36.7

%

32.0

%

36.6

%

35.9

%

35.3

%

Operating expenses

2,089

2,139

2,242

2,898

9,368

Contribution profit

$

2,678

$

3,006

$

3,783

$

5,160

$

14,627

Contribution margin

20.6

%

18.7

%

23.0

%

23.0

%

21.5

%


For the Year Ended December 31, 2019

First

Second

Third

Fourth

Quarter

Quarter

Quarter

Quarter

Totals

Revenue

$

16,715

$

19,259

$

19,162

$

18,987

$