CTG Reports 11% Net Income Growth on Lower Revenue in Second Quarter 2022 as Strong Execution of Strategy Drives Strengthened Margin Profile

Computer Task Group, Incorporated

• North America IT Solutions and Services revenue grew 21.3%, partially offsetting an intentional decline pursuant to our strategy of $6.1 million in Non-Strategic Technology Services, and a $4.9 million revenue decline from foreign currency exchange headwinds

• Gross margin expanded 180 basis points to 23.9%, the highest level in more than 10 years; two-year gross margin improvement was 290 basis points

• Operating margin was 3.8% and non-GAAP operating margin was 4.2%, increases of 80 and 100 basis points, respectively

• Net income increased 11.3%, and adjusted EBITDA increased to 5.1%, an increase of 70 basis points

• Second quarter GAAP diluted EPS of $0.13 increased $0.01, or 8%, despite lower consolidated revenue; non-GAAP diluted EPS increased 15% to $0.15
  

BUFFALO, N.Y., Aug. 04, 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 second quarter ended July 1, 2022.

Filip Gydé, CTG President and CEO commented, “Our second quarter results again demonstrated our strong operational execution and the success of our digital solutions and service strategy, while we also continue to disengage over time from our lower margin, non-strategic technology services business. Our margin profile continued to improve with measurable expansion at the gross and operating levels on a consolidated basis, which translated into profitability improvement despite top-line headwinds.”

“While we are still facing uncertainty due to macroeconomic challenges, we have a high level of confidence in our teams’ ability to continue to execute our strategy over the long-term. With our stronger core business platform and flexible balance sheet, we will look to accelerate our pace of growth and enhance our margin profile through focused acquisitions.”

Consolidated Second 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
	Jul. 1, 2022				Jul. 2, 2021				Jun. 26, 2020				$				%				$				%
Revenue	$	82,759			$	92,164			$	89,146			$	(9,405	)			-10.2	%		$	3,018			3.4	%
GAAP Operating Income	$	3,173			$	2,801			$	1,914			$	372				13.3	%		$	887			46.3	%
GAAP Operating Margin		3.8	%			3.0	%			2.1	%
Non-GAAP Operating Income*	$	3,463			$	2,966			$	2,863			$	497				16.8	%		$	103			3.6	%
Non-GAAP Operating Margin*		4.2	%			3.2	%			3.2	%
GAAP Net Income	$	2,040			$	1,833			$	1,759			$	207				11.3	%		$	74			4.2	%
GAAP Net Margin		2.5	%			2.0	%			2.0	%
Non-GAAP Net Income*	$	2,252			$	1,952			$	1,441			$	300				15.4	%		$	511			35.5	%
Non-GAAP Net Income Margin*		2.7	%			2.1	%			1.6	%
Adjusted EBITDA*	$	4,224			$	4,096			$	4,052			$	128				3.1	%		$	44			1.1	%
Adjusted EBITDA Margin*		5.1	%			4.4	%			4.5	%

        * 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 $6.1 million decline in revenue related to the disengagement from lower-margin non-strategic technology services business, as well as a negative $4.9 million impact to revenue due to changes in foreign currency exchange rates. Additionally, labor constraints have impeded growth in the Europe IT Solutions and Services segment.

• Selling, general and administrative (SG&A) expenses as a percentage of revenue increased 90 basis points due to the loss of operating leverage and continued investments in the business but declined on an absolute basis by 5.7% to $16.6 million.

• Operating income increased 13.3% on improved business mix as the Company continued to advance its strategy to provide higher-value digital IT solutions and reduce its exposure to lower-margin business.
  

Second Quarter Segment Performance
(unaudited)

IT Solutions and Services

North America

($ in thousands)	For the Quarter Ended												Change 2021-2022								Change 2020-2021
	Jul. 1, 2022				Jul. 2, 2021				Jun. 26, 2020				$				%				$				%
Revenue	$	20,339			$	16,762			$	16,069			$	3,577				21.3	%		$	693			4.3	%
Percent of total		24.6	%			18.2	%			18.0	%
Gross profit	$	7,079			$	6,074			$	5,145			$	1,005				16.5	%		$	929			18.1	%
Gross margin		34.8	%			36.2	%			32.0	%
Contribution profit	$	3,547			$	2,908			$	3,006			$	639				22.0	%		$	(98	)		-3.3	%
Contribution margin		17.4	%			17.3	%			18.7	%

Second Quarter Segment Performance (continued)
(unaudited)

Europe

($ in thousands)	For the Quarter Ended												Change 2021-2022								Change 2020-2021
	Jul. 1, 2022				Jul. 2, 2021				Jun. 26, 2020				$				%				$				%
Revenue	$	37,160			$	44,054			$	36,917			$	(6,894	)			-15.6	%		$	7,137			19.3	%
Percent of total		44.9	%			47.8	%			41.4	%
Gross profit	$	9,582			$	10,748			$	9,889			$	(1,166	)			-10.8	%		$	859			8.7	%
Gross margin		25.8	%			24.4	%			26.8	%
Contribution profit	$	4,727			$	5,612			$	5,036			$	(885	)			-15.8	%		$	576			11.4	%
Contribution margin		12.7	%			12.7	%			13.6	%

• North America IT Solutions and Services revenue increased 21.3%, reflecting new business and strengthened business from existing customers.

• The revenue change in the Europe IT Solutions and Services segment primarily reflects $4.9 million of unfavorable foreign currency exchange rate fluctuations, and macro-economic headwinds in the European Union, particularly around labor constraints. Despite the lower revenue, segment gross margin expanded 140 basis points on strong execution, which helped to offset inflationary pressures.

Non-Strategic Technology Services

($ in thousands)	For the Quarter Ended												Change 2021-2022								Change 2020-2021
	Jul. 1, 2022				Jul. 2, 2021				Jun. 26, 2020				$				%				$				%
Revenue	$	25,260			$	31,348			$	36,160			$	(6,088	)			-19.4	%		$	(4,812	)		-13.3	%
Percent of total		30.5	%			34.0	%			40.6	%
Gross profit	$	3,089			$	3,557			$	3,704			$	(468	)			-13.2	%		$	(147	)		-4.0	%
Gross margin		12.2	%			11.3	%			10.2	%
Contribution profit	$	2,388			$	2,239			$	1,881			$	149				6.7	%		$	358			19.0	%
Contribution margin		9.5	%			7.1	%			5.2	%

• The Company continued to disengage from its lowest margin IT staffing services within the Non-Strategic Technology Services segment as part of its strategic plan.
  

Consolidated Year-to-Date Results
(unaudited)

($ in thousands)	For the Two Quarters Ended												Change 2021-2022								Change 2020-2021
	Jul. 1, 2022				Jul. 2, 2021				Jun. 26, 2020				$				%				$				%
Revenue	$	172,176			$	189,293			$	176,095			$	(17,117)				-9.0	%		$	13,198			7.5	%
GAAP Operating Income	$	6,372			$	4,899			$	3,981			$	1,473				30.1	%		$	918			23.1	%
GAAP Operating Margin		3.7	%			2.6	%			2.3	%
Non-GAAP Operating Income*	$	6,924			$	5,708			$	5,397			$	1,216				21.3	%		$	311			5.8	%
Non-GAAP Operating Margin*		4.0	%			3.0	%			3.1	%
GAAP Net Income	$	4,280			$	3,341			$	2,903			$	939				28.1	%		$	438			15.1	%
GAAP Net Margin		2.5	%			1.8	%			1.6	%
Non-GAAP Net Income*	$	4,691			$	3,958			$	2,890			$	733				18.5	%		$	1,068			37.0	%
Non-GAAP Net Income Margin*		2.7	%			2.1	%			1.6	%
Adjusted EBITDA*	$	8,555			$	7,821			$	7,425			$	734				9.4	%		$	396			5.3	%
Adjusted EBITDA Margin*		5.0	%			4.1	%			4.2	%

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

Year-to-date Segment Performance
(unaudited)

IT Solutions and Services

North America

($ in thousands)	For the Two Quarters Ended												Change 2021-2022								Change 2020-2021
	Jul. 1, 2022				Jul. 2, 2021				Jun. 26, 2020				$				%				$				%
Revenue	$	40,773			$	35,216			$	29,068			$	5,557				15.8	%		$	6,148			21.2	%
Percent of total		23.7	%			18.6	%			16.5	%
Gross profit	$	13,941			$	12,086			$	9,913			$	1,855				15.3	%		$	2,173			21.9	%
Gross margin		34.2	%			34.3	%			34.1	%