STOCK TITAN

CTG IT Solutions and Services Segments Gross Margin Improved 170 Basis Points to 30.7% in Second Quarter 2023, Cegeka to Acquire CTG for $10.50 Per Share

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  • Cegeka to acquire CTG for $10.50 per share in a cash transaction valued at approximately $170 million. See the separate press release issued earlier today that announced this transaction.
  • Software Engineering revenue in the second quarter of more than $30 million with gross margin of 32.7%
  • IT Solutions and Services segments represent 86% of total revenue in the second quarter, CTG’s highest level to date
  • IT Solutions and Services segments gross margin improved 170 basis points year-over-year
  • Revenue of $74.6 million reflected intentional disengagement of $15.1 million from non-strategic technology services business
  • Gross margin improved to 28.1%, or 420 basis points from the prior year
  • GAAP operating margin was 0.4% in second quarter; non-GAAP operating margin was 3.9%
  • Net loss was ($0.1) million, with a margin of (0.2)%; adjusted EBITDA was $3.7 million, with a margin of 4.9%

BUFFALO, N.Y., Aug. 09, 2023 (GLOBE NEWSWIRE) -- CTG (Nasdaq: CTG) (“Company”), a leader in North America and Western Europe helping companies employ digital IT solutions and services to drive their productivity and profitability, today reported its financial results for the second quarter ended June 30, 2023.

Filip Gydé, CTG President and CEO, commented, “The sale of CTG to Cegeka is a testament to the significant efforts we have undertaken to drive our transformation strategy to make CTG a pure-play digital IT solutions provider. At CTG, our mission is to drive better, faster results for our clients with high-value digital transformation solutions. In Cegeka, we have found a partner that will enable us to accelerate this important work and we are confident that this transaction with Cegeka is the best outcome for our clients, employees, and shareholders. We are also pleased to have entered into this transaction with Cegeka, which delivers immediate value to our shareholders.”

“We continue to be encouraged by CTG’s successes this quarter, as we execute our strategy, win new engagements and deliver critical solutions for our clients amid the difficult macroeconomic environment,” Mr. Gydé continued. “We have now driven our digital solutions and services business mix to more than 85% of revenue, our highest level to date, and increased the gross margin in our IT Solutions and Services segments by 170 basis points from the prior year quarter. Our second quarter North America IT Solutions and Services segment, including the results of the Eleviant acquisition in late 2022, grew revenue nearly 28%, and achieved gross margins of 40.4%, up 560 basis points from a year ago. Overall, our gross margin in the quarter grew to 28.1%, the highest in company history.”

Consolidated Second Quarter 2023 Review (Narrative compares with prior-year period unless otherwise noted) (unaudited)

 ($ in thousands)For the Quarter Ended Change 2022-2023 Change 2021-2022
 Jun. 30, 2023 Jul. 1, 2022 Jul. 2, 2021 $ % $ %
Revenue$74,588  $82,759  $92,164  $(8,171) (9.9)% $(9,405) (10.2)%
              
GAAP Gross Profit$20,995  $19,750  $20,379  $1,245  6.3% $(629) (3.1)%
GAAP Gross Margin 28.1%  23.9%  22.1%        
              
GAAP Operating Income$285  $3,173  $2,801  $(2,888) (91.0)% $372  13.3%
GAAP Operating Margin 0.4%  3.8%  3.0%        
              
Non-GAAP Operating Income*$2,923  $3,463  $2,966  $(540) (15.6)% $497  16.8%
Non-GAAP Operating Margin* 3.9%  4.2%  3.2%        
              
GAAP Net Income (Loss)$(130) $2,040  $1,833  $(2,170) (106.4)% $207  11.3%
GAAP Net Margin -0.2%  2.5%  2.0%        
              
Non-GAAP Net Income*$1,923  $2,252  $1,952  $(329) (14.6)% $300  15.4%
Non-GAAP Net Income Margin* 2.6%  2.7%  2.1%        
              
Adjusted EBITDA*$3,692  $4,224  $4,096  $(532) (12.6)% $128  3.1%
Adjusted EBITDA Margin* 4.9%  5.1%  4.4%        

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

  • The decrease in revenue reflects the Company’s continued business mix shift to more solutions and services-based business. As compared with the second quarter of 2022, the Company disengaged from $15.1 million in its lower-margin non-strategic technology services business.
  • The change in business mix and focus on digital solutions has led to significant improvements in gross margin over the past two years, increasing 600 basis points over that time.
  • As a percentage of revenue, selling, general and administrative (SG&A) expenses were 27.8% compared with 20.0% in the prior-year period. The increase was primarily due to increases in acquisition-related expenses from the Eleviant acquisition, costs associated with the new ERP implementation, severance, and non-recurring costs related to certain strategic initiatives.
  • Included in the GAAP net loss was $0.5 million of acquisition-related expenses, $0.4 million of ERP system implementation costs, $0.4 million of severance, and $0.8 million of non-recurring costs related to certain strategic initiatives, while the prior-year period included $0.2 million of acquisition expenses. Loss per diluted share was ($0.01) for the second quarter of 2023 compared with $0.13 for the second quarter of 2022. Excluding these expenses from both periods, non-GAAP earnings per diluted share were $0.13 compared with $0.15.

Second Quarter Segment Performance (unaudited)

IT Solutions and Services

North America

 ($ in thousands)For the Quarter Ended  Change 2022-2023  Change 2021-2022 
 Jun. 30, 2023  Jul. 1, 2022  Jul. 2, 2021  $  %  $  % 
Revenue$25,997  $20,339  $16,762  $5,658   27.8% $3,577   21.3%
Percent of total 34.8%  24.6%  18.2%            
                     
Gross profit$10,512  $7,079  $6,074  $3,433   48.5% $1,005   16.5%
Gross margin 40.4%  34.8%  36.2%            
                     
Contribution profit$5,797  $3,547  $2,908  $2,250   63.4% $639   22.0%
Contribution margin 22.3%  17.4%  17.3%            
                        
  • The significant growth in revenue and gross margins in North America IT Solutions and Services reflects continued strong contributions from the acquisition of Eleviant, organic growth of approximately 10%, and CTG’s enhanced focus on delivering digital transformation services.

Europe

($ in thousands)For the Quarter Ended  Change 2022-2023  Change 2021-2022 
 Jun. 30, 2023  Jul. 1, 2022  Jul. 2, 2021  $  %  $  % 
Revenue$38,393  $37,160  $44,054  $1,233   3.3% $(6,894)  (15.6)%
Percent of total 51.5%  44.9%  47.8%            
                     
Gross profit$9,243  $9,582  $10,748  $(339)  (3.5)% $(1,166)  (10.8)%
Gross margin 24.1%  25.8%  24.4%            
                     
Contribution profit$3,955  $4,727  $5,612  $(772)  (16.3)% $(885)  (15.8)%
Contribution margin 10.3%  12.7%  12.7%            
                        
  • Europe IT Solutions and Services margins continue to reflect the impact of mandated salary increases at the beginning of the year that are being passed to clients throughout the year.

Non-Strategic Technology Services

($ in thousands)For the Quarter Ended  Change 2022-2023  Change 2021-2022 
 Jun. 30, 2023  Jul. 1, 2022  Jul. 2, 2021  $  %  $  % 
Revenue$10,198  $25,260  $31,348  $(15,062)  (59.6)% $(6,088)  (19.4)%
Percent of total 13.7%  30.5%  34.0%            
                     
Gross profit$1,240  $3,089  $3,557  $(1,849)  (59.9)% $(468)  (13.2)%
Gross margin 12.2%  12.2%  11.3%            
                     
Contribution profit$867  $2,388  $2,239  $(1,521)  (63.7)% $149   6.7%
Contribution margin 8.5%  9.5%  7.1%            
                        
  • Continued disengagement from Non-Strategic Technology Services is consistent with the Company’s long-term strategy. Revenue was also negatively impacted by challenging macroeconomic conditions.

Consolidated Year-to-Date Results
(unaudited)

 ($ in thousands)For the Two Quarters Ended Change 2022-2023 Change 2021-2022
 Jun. 30, 2023 Jul. 1, 2022 Jul. 2, 2021 $ % $ %
Revenue$152,790  $172,176  $189,293  $(19,386) (11.3)% $(17,117) (9.0)%
              
GAAP Gross Profit$41,130  $40,345  $41,146  $785  1.9% $(801) (1.9)%
GAAP Gross Margin 26.9%  23.4%  21.7%        
              
GAAP Operating Income$992  $6,372  $4,899  $(5,380) (84.4)% $1,473  30.1%
GAAP Operating Margin 0.6%  3.7%  2.6%        
              
Non-GAAP Operating Income*$5,031  $6,924  $5,708  $(1,893) (27.3)% $1,216  21.3%
Non-GAAP Operating Margin* 3.3%  4.0%  3.0%        
              
GAAP Net Income$185  $4,280  $3,341  $(4,095) (95.7)% $939  28.1%
GAAP Net Margin 0.1%  2.5%  1.8%        
              
Non-GAAP Net Income*$3,163  $4,691  $3,958  $(1,528) (32.6)% $733  18.5%
Non-GAAP Net Income Margin* 2.1%  2.7%  2.1%        
              
Adjusted EBITDA*$6,457  $8,555  $7,821  $(2,098) (24.5)% $734  9.4%
Adjusted EBITDA Margin* 4.2%  5.0%  4.1%        

* 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 2022-2023  Change 2021-2022 
 Jun. 30, 2023  Jul. 1, 2022  Jul. 2, 2021  $  %  $  % 
Revenue$49,193  $40,773  $35,216  $8,420   20.7% $5,557   15.8%
Percent of total 32.2%  23.7%  18.6%            
                     
Gross profit$19,496  $13,941  $12,086  $5,555   39.8% $1,855   15.3%
Gross margin 39.6%  34.2%  34.3%            
                     
Contribution profit$9,984  $7,278  $5,763  $2,706   37.2% $1,515   26.3%
Contribution margin 20.3%  17.9%  16.4%            
                        

Europe

($ in thousands)For the Two Quarters Ended  Change 2022-2023  Change 2021-2022 
 Jun. 30, 2023  Jul. 1, 2022  Jul. 2, 2021  $  %  $  % 
Revenue$78,486  $79,638  $90,061  $(1,152)  (1.4)% $(10,423)  -11.6%
Percent of total 51.4%  46.3%  47.6%            
                     
Gross profit$18,567  $20,061  $21,965  $(1,494)  (7.4)% $(1,904)  -8.7%
Gross margin 23.7%  25.2%  24.4%            
                     
Contribution profit$8,227  $9,978  $11,346  $(1,751)  (17.5)% $(1,368)  -12.1%
Contribution margin 10.5%  12.5%  12.6%            
                        

Year-to-date Segment Performance (continued)

Non-Strategic Technology Services

($ in thousands)For the Two Quarters Ended  Change 2022-2023  Change 2021-2022 
 Jun. 30, 2023  Jul. 1, 2022  Jul. 2, 2021  $  %  $  % 
Revenue$25,111  $51,765  $64,016  $(26,654)  (51.5)% $(12,251)  (19.1)%
Percent of total 16.4%  30.0%  33.8%            
                     
Gross profit$3,067  $6,343  $7,095  $(3,276)  (51.6)% $(752)  (10.6)%
Gross margin 12.2%  12.3%  11.1%            
                     
Contribution profit$2,331  $4,831  $4,462  $(2,500)  -51.7% $369   8.3%
Contribution margin 9.3%  9.3%  7.0%            
                        

Balance Sheet and Cash Flow

Cash and cash equivalents were $19.1 million compared with $25.1 million at year-end 2022. Net cash used in operations was $4.6 million.

At the end of the second quarter of 2023, the Company had no amount outstanding on its revolving line of credit facility or any other long-term debt. Days sales outstanding were 86 in the second quarter of 2023 compared with 84 in the prior-year period.

Successfully Executing Strategy

CTG is a catalyst for digital transformation, helping IT and business leaders accelerate integration of digital technology into all areas of their operations to improve productivity, strengthen business processes, elevate internal controls, and increase value delivery to their customers. CTG’s strategy for growth is its transformation into a higher-performing, digital solutions-based business. The three key elements of its strategy are:

  • Becoming a global provider of digital IT solutions by capitalizing on the compelling digital transformation trend, leveraging the CTG brand built on reliability and results, and delivering solutions primarily to the energy, healthcare, finance, and manufacturing sectors.
  • Growing the team organically by adding highly qualified and experienced associates, employing innovative tools and methodologies, and making selective acquisitions.
  • Strengthening the Company’s margin profile by reducing delivery costs and changing the mix of business by disengaging from low margin IT staffing service support in its Non-Strategic Technology Services segment.

Fiscal 2023 Outlook

“Due to the rapid pace of change and continued uncertainty in the macroenvironment, we are withdrawing our full year 2023 guidance," said John M. Laubacker, Chief Financial Officer. “We continue to execute our long-term strategy, including driving digital transformation with a software engineering focus for our clients, which we are confident will position CTG to enhance shareholder value.”

Conference Call and Webcast

Due to the pending purchase of CTG by Cegeka, CTG will not host its earnings call previously scheduled for today, August 9, 2023, at 11:00 am Eastern time.

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 integrating digital technology into all areas of its clients to improve their operations and increase their value proposition. CTG’s engagement in the digital transformation process drives improved data-driven decision-making, meaningful business performance improvements, new and enhanced customer experiences, and continuous innovation. CTG operates 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 reflect 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 press release contains statements that constitute “forward looking statements,” including statements that express the opinions, expectations, beliefs, plans, objectives, assumptions, or projections regarding future events or future results, including statements regarding the proposed acquisition of CTG by Cegeka (the “Proposed Acquisition”), in contrast with statements that reflect historical facts. In some cases, you can identify such forward-looking statements by terminology such as “anticipate,” “intend,” “believe,” “estimate,” “plan,” “seek,” “project,” or “expect,” “may,” “will,” “would,” “could,” “potential,” “intend,” or “should,” the negative of these terms or similar expressions. Forward-looking statements are based on management’s current beliefs and assumptions and on information currently available to Cegeka and CTG. However, these forward-looking statements are not a guarantee of performance, and you should not place undue reliance on such statements.

Forward-looking statements are subject to many risks, uncertainties and other variable circumstances, including, but not limited to, the ability of the parties to satisfy the closing conditions for the Proposed Acquisition on a timely basis or at all, including the possibility that a governmental agency may prohibit, delay, or refuse to grant approval for the consummation of the Proposed Acquisition; statements about the expected timetable for completing the Proposed Acquisition; uncertainties as to how many of CTG’s shareholders will tender their shares in the offer; the possibility that competing offers will be made; the occurrence of events that may give rise to a right of one or both of Cegeka and CTG to terminate the merger agreement; negative effects of the announcement of the Proposed Acquisition on the market price of CTG’s common stock and/or on it business, financial condition, results of operations, and financial performance (including the ability of CTG to maintain relationships with its customers, suppliers, and others with whom it does business); the effects of the Proposed Acquisition (or the announcement thereof) on CTG’s ability to retain and hire qualified professional staff and talent, including technical, sales and management personnel; competition for clients; the increased bargaining power of CTG’s large clients; the occurrence of cyber incidents and CTG’s ability to protect confidential client data; the partial or complete loss of the revenue CTG generates from its largest client, International Business Machines Corporation (IBM); the uncertainty of CTG’s clients’ implementations of cost reduction projects; the mix of work at CTG between IT Solutions and Services and Non-Strategic Technology Services, and the risk of disengaging from Non-Strategic Technology Services; currency exchange risks; risks associated with CTG’s domestic and foreign operations, including uncertainty and business interruptions resulting from political changes and actions in the U.S. and abroad, such as the conflict between Russian and Ukraine and recent developments in China, and volatility in the global credit and financial markets and economy; renegotiations, nullification, or breaches of contracts with clients, vendors, subcontractors or other parties; the impact of current and future laws and government regulations, as well as repeal or modification of such, affecting the IT solutions and services industry, taxes and CTG’s operations in particular; industry, economic, and political conditions, including fluctuations in demand for IT services; and consolidation among CTG’s competitors or clients. Such risks and uncertainties may cause the statements to be inaccurate and readers are cautioned not to place undue reliance on such statements. Many of these risks are outside of the control of Cegeka and CTG and could cause actual results to differ materially. The forward-looking statements included in this press release are made only as of the date hereof. Cegeka and CTG do not undertake, and specifically decline, any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments, except as required by law.

A further description of risks and uncertainties relating to CTG can be found in CTG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC, and in other documents filed from time to time with the SEC by CTG and available at www.sec.gov and www.ctg.com.


COMPUTER TASK GROUP, INCORPORATED (CTG)
Condensed Consolidated Statements of Income (Loss)
(Unaudited)
(amounts in thousands except per share data)
 
 For the Quarter Ended 
 June 30,  July 1,  July 2, 
 2023  2022  2021 
         
Revenue$74,588  $82,759  $92,164 
Cost of services 53,593   63,009   71,785 
Gross profit 20,995   19,750   20,379 
Selling, general and admin. expenses 20,710   16,577   17,578 
Operating income 285   3,173   2,801 
Other expense, net (364)  (385)  (256)
Income (loss) before income taxes (79)  2,788   2,545 
Provision for income taxes 51   748   712 
Net income (loss)$(130) $2,040  $1,833 
         
Net income (loss) per share:        
Basic$(0.01) $0.14  $0.13 
Diluted$(0.01) $0.13  $0.12 
         
Weighted average shares outstanding:        
Basic 14,832   14,419   13,845 
Diluted 14,832   15,122   14,972 


COMPUTER TASK GROUP, INCORPORATED (CTG)
Condensed Consolidated Statements of Income
(Unaudited)
(amounts in thousands except per share data)
 
 For the Two Quarters Ended 
 June 30,  July 1,  July 2, 
 2023  2022  2021 
         
Revenue$152,790  $172,176  $189,293 
Cost of services 111,660   131,831   148,147 
Gross profit 41,130   40,345   41,146 
Selling, general and admin. expenses 40,138   33,973   36,247 
Operating income 992   6,372   4,899 
Other expense, net (594)  (642)  (406)
Income before income taxes 398   5,730   4,493 
Provision for income taxes 213   1,450   1,152 
Net income$185  $4,280  $3,341 
         
Net income per share:        
Basic$0.01  $0.30  $0.24 
Diluted$0.01  $0.28  $0.22 
         
Weighted average shares outstanding:        
Basic 14,768   14,309   13,770 
Diluted 15,399   15,050   14,958 



COMPUTER TASK GROUP, INCORPORATED (CTG)

Condensed Consolidated Balance Sheets
(Unaudited)
(amounts in thousands)
 
 June 30,  December 31,  July 1, 
 2023  2022  2022 
Current Assets:        
Cash and cash equivalents$19,137  $25,140  $35,479 
Accounts receivable, net 70,457   70,979   76,622 
Other current assets 4,992   3,769   3,146 
Total current assets 94,586   99,888   115,247 
         
Property and equipment, net 5,725   5,061   4,376 
Operating lease right-of-use assets 19,398   18,506   19,005 
Cash surrender value 4,202   4,120   4,039 
Acquired intangibles, net 12,210   12,943   6,219 
Goodwill 36,245   35,998   18,104 
Other assets 6,290   5,103   7,031 
Total Assets$178,656  $181,619  $174,021 
         
Current Liabilities:        
Accounts payable$14,389  $14,254  $13,544 
Accrued compensation 14,859   19,016   18,071 
Operating lease liabilities 5,584   5,905   5,838 
Other current liabilities 11,962   12,758   15,992 
Total current liabilities 46,794   51,933   53,445 
         
Long-term debt -   -   - 
Operating lease liabilities 13,686   12,466   13,030 
Other liabilities 10,423   11,241   12,239 
Shareholders' equity 107,753   105,979   95,307 
Total Liabilities and Shareholders' Equity$178,656  $181,619  $174,021 


COMPUTER TASK GROUP, INCORPORATED (CTG)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
 
 For the Two Quarters Ended 
 June 30,  July 1,  July 2, 
 2023  2022  2021 
         
Net income$185  $4,280  $3,341 
Depreciation and amortization expense 1,755   1,400   1,685 
Equity-based compensation expense 867   1,176   1,272 
Other operating items (7,412)  (4,022)  (6,349)
Net cash provided by (used in) operating activities (4,605)  2,834   (51)
Net cash used in investing activities (1,784)  (721)  (1,618)
Net cash provided by (used in) financing activities 8   (707)  (1,281)
Effect of exchange rates on cash and cash equivalents 378   (1,511)  (706)
Net decrease in cash and cash equivalents (6,003)  (105)  (3,656)
Cash and cash equivalents at beginning of period 25,140   35,584   32,865 
Cash and cash equivalents at end of period$19,137  $35,479  $29,209 
         


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 investing in business development, including solutions, sales, delivery, and recruiting to drive its digital transformation strategy in the North America and Europe IT Solutions and Services segments. The Company is not investing in its Non-Strategic Technology Services segment which includes lower margin staffing services. Contribution profit represents operational profit after consideration of expenses such as sales, solutions, delivery, and recruiting expenses.

 For the Quarter Ended June 30, 2023 
 North       
 America  Europe  Non-Strategic 
 IT Solutions  IT Solutions  Technology 
 and Services  and Services  Services 
         
Revenue$25,997  $38,393  $10,198 
Cost of services 15,485   29,150   8,958 
Gross profit 10,512   9,243   1,240 
Gross margin 40.4%  24.1%  12.2%
Selling, solutions, delivery, and recruiting expenses 4,715   5,288   373 
Contribution profit$5,797  $3,955  $867 
Contribution margin 22.3%  10.3%  8.5%


 For the Quarter Ended July 1, 2022 
 North       
 America  Europe  Non-Strategic 
 IT Solutions  IT Solutions  Technology 
 and Services  and Services  Services 
         
Revenue$20,339  $37,160  $25,260 
Cost of services 13,260   27,578   22,171 
Gross profit 7,079   9,582   3,089 
Gross margin 34.8%  25.8%  12.2%
Selling, solutions, delivery, and recruiting expenses 3,532   4,855   701 
Contribution profit$3,547  $4,727  $2,388 
Contribution margin 17.4%  12.7%  9.5%


 For the Quarter Ended July 2, 2021 
 North       
 America  Europe  Non-Strategic 
 IT Solutions  IT Solutions  Technology 
 and Services  and Services  Services 
         
Revenue$16,762  $44,054  $31,348 
Cost of services 10,688   33,306   27,791 
Gross profit 6,074   10,748   3,557 
Gross margin 36.2%  24.4%  11.3%
Selling, solutions, delivery, and recruiting expenses 3,166   5,136   1,318 
Contribution profit$2,908  $5,612  $2,239 
Contribution margin 17.3%  12.7%  7.1%


COMPUTER TASK GROUP, INCORPORATED (CTG)
Segment Information (continued)
(Unaudited)
(amounts in thousands)
 
 For the Two Quarters Ended June 30, 2023 
 North       
 America  Europe  Non-Strategic 
 IT Solutions  IT Solutions  Technology 
 and Services  and Services  Services 
         
Revenue$49,193  $78,486  $25,111 
Cost of services 29,697   59,919   22,044 
Gross profit 19,496   18,567   3,067 
Gross margin 39.6%  23.7%  12.2%
Selling, solutions, delivery, and recruiting expenses 9,512   10,340   736 
Contribution profit$9,984  $8,227  $2,331 
Contribution margin 20.3%  10.5%  9.3%


 For the Two Quarters Ended July 1, 2022 
 North       
 America  Europe  Non-Strategic 
 IT Solutions  IT Solutions  Technology 
 and Services  and Services  Services 
         
Revenue$40,773  $79,638  $51,765 
Cost of services 26,832   59,577   45,422 
Gross profit 13,941   20,061   6,343 
Gross margin 34.2%  25.2%  12.3%
Selling, solutions, delivery, and recruiting expenses 6,663   10,083   1,512 
Contribution profit$7,278  $9,978  $4,831 
Contribution margin 17.9%  12.5%  9.3%


 For the Two Quarters Ended July 2, 2021 
 North       
 America  Europe  Non-Strategic 
 IT Solutions  IT Solutions  Technology 
 and Services  and Services  Services 
         
Revenue$35,216  $90,061  $64,016 
Cost of services 23,130   68,096   56,921 
Gross profit 12,086   21,965   7,095 
Gross margin 34.3%  24.4%  11.1%
Selling, solutions, delivery, and recruiting expenses 6,323   10,619   2,633 
Contribution profit$5,763  $11,346  $4,462 
Contribution margin 16.4%  12.6%  7.0%


COMPUTER TASK GROUP, INCORPORATED (CTG)
Segment and Vertical Market Trends (Unaudited)
Supplemental Financial Information
            Twelve Months
  For the Quarter Ended Ended
  Jun. Sept. Dec. Mar. Jun. Jun.
   2022   2022   2022   2023   2023   2023 
Revenue (in millions)            
North America IT Solutions and Services $20.339  $20.340  $22.924  $23.196  $25.997  $92.457 
Europe IT Solutions and Services  37.160   33.258   37.035   40.093   38.393   148.779 
Non-Strategic Technology Services  25.260   21.404   17.943   14.913   10.198   64.458 
Total Revenue $82.759  $75.002  $77.902  $78.202  $74.588  $305.694 
             
Revenue in North America            
Constant Currency (in millions)*            
North America $45.042  $41.501  $40.604  $37.859  $35.970  $155.934 
Foreign Currency Impact  (0.028)  (0.016)  0.005   0.003   -   
Total Revenue in Constant Currency (non-GAAP) $45.014  $41.485  $40.609  $37.862  $35.970   
             
Revenue in Europe            
Constant Currency (in millions)*            
Europe $37.717  $33.501  $37.298  $40.343  $38.618  $149.760 
Foreign Currency Impact  0.805   2.701   2.528   0.607   -   
Total Revenue in Constant Currency (non-GAAP) $38.522  $36.202  $39.826  $40.950  $38.618   
             
Revenue By Geography            
North America  54.4%  55.3%  52.1%  48.4%  48.2%  51.0%
Europe  45.6%  44.7%  47.9%  51.6%  51.8%  49.0%
Total  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%
             
Revenue by Vertical Market            
Healthcare  18%  19%  18%  19%  23%  20%
Financial Services  15%  15%  17%  18%  17%  16%
Manufacturing  15%  17%  16%  16%  14%  16%
Technology Service Providers  24%  22%  19%  16%  15%  18%
Energy  7%  6%  6%  6%  6%  6%
General Markets  21%  21%  24%  25%  25%  24%
Total  100%  100%  100%  100%  100%  100%
             
Operating Margins            
GAAP Operating Margin  3.8%  3.0%  3.1%  0.9%  0.4%  1.9%
Non-GAAP Operating Margin  4.2%  4.0%  5.1%  2.7%  3.9%  3.9%


Other Information (in millions except Billable Days and EPS)
Billable Days  64  63  63  64  64   254
Net Income (Loss) $2.040 $1.102 $1.227 $0.315 $(0.130) $2.514
GAAP Diluted EPS $0.13 $0.07 $0.08 $0.02 $(0.01) $0.16
Non-GAAP Diluted EPS $0.15 $0.11 $0.14 $0.08 $0.13  $0.46
Adjusted EBITDA (non-GAAP) $4.2 $3.8 $4.8 $2.8 $3.7  $15.1


Balance Sheet Information (in millions except DSO)  
Cash less Debt, Net $35.5 $26.8 $25.1 $21.9 $19.1  
Working Capital $61.8 $44.5 $48.0 $49.0 $47.8  
DSO  84  83  84  83  86  

* Constant Currency is measured by applying the current fiscal period's average exchange rate to each of the prior periods

COMPUTER TASK GROUP, INCORPORATED (CTG)
(Unaudited)

The non-GAAP information below excludes certain acquisition-related expenses, ERP system implementation costs, costs associated with severance and the evaluation of strategic alternatives. The acquisition-related expenses consist of due diligence costs, amortization of intangible assets, and changes in the value of earn-out payments upon achievement of certain financial targets from the Company’s recent acquisitions.

Reconciliation of GAAP to non-GAAP Operating Income

            Twelve
            Months
  For the Quarter Ended Ended
  Jun. Sept. Dec. Mar. Jun. Jun.
(in millions) 2022 2022 2022 2023 2023 2023
GAAP Operating Income $3.173 $2.253 $2.451 $0.707 $0.285 $5.696
Acquisition-related expenses  0.290  0.744  0.696  0.634  0.623  2.697
ERP system implementation costs  -  -  -  0.481  0.536  1.017
Severance  -  -  0.838  0.286  0.497  1.621
Non-recurring costs related to certain strategic initiatives  -  -  -  -  0.982  0.982
Non-GAAP Operating Income $3.463 $2.997 $3.985 $2.108 $2.923 $12.013


Reconciliation of GAAP to non-GAAP Operating Margin

            Twelve
            Months
  For the Quarter Ended Ended
  Jun. Sept. Dec. Mar. Jun. Jun.
  2022
 2022
 2022
 2023
 2023
 2023
GAAP Operating Margin 3.8% 3.0% 3.1% 0.9% 0.4% 1.9%
Acquisition-related expenses 0.4% 1.0% 0.9% 0.8% 0.8% 0.9%
ERP system implementation costs -  -  -  0.6% 0.7% 0.3%
Severance -  -  1.1% 0.4% 0.7% 0.5%
Non-recurring costs related to certain strategic initiatives -  -  -  -  1.3% 0.3%
Non-GAAP Operating Margin 4.2% 4.0% 5.1% 2.7% 3.9% 3.9%


Reconciliation of GAAP to non-GAAP Net Income (Loss)

            Twelve
            Months
 For the Quarter Ended Ended
  Jun. Sept. Dec. Mar. Jun. Jun.
(in millions) 2022 2022 2022 2023 2023  2023
GAAP Net Income (Loss) $2.040 $1.102 $1.227 $0.315 $(0.130) $2.514
Acquisition-related expenses  0.212  0.510  0.435  0.419  0.485   1.849
ERP system implementation costs  -  -  -  0.317  0.417   0.734
Severance  -  -  0.524  0.189  0.387   1.100
Non-recurring costs related to certain strategic initiatives  -  -  -  -  0.764   0.764
Non-GAAP Net Income $2.252 $1.612 $2.186 $1.240 $1.923  $6.961



COMPUTER TASK GROUP, INCORPORATED (CTG)

(Unaudited)

Reconciliation of GAAP to non-GAAP Diluted Earnings (Loss) per Share (EPS)

            Twelve
            Months
  For the Quarter Ended Ended
  Jun. Sept. Dec. Mar. Jun. Jun.
  2022 2022 2022 2023 2023  2023
GAAP Diluted EPS $0.13 $0.07 $0.08 $0.02 $(0.01) $0.16
Acquisition-related expenses  0.02  0.04  0.03  0.03  0.03   0.13
ERP system implementation costs  -  -  -  0.02  0.03   0.05
Severance  -  -  0.03  0.01  0.03   0.07
Non-recurring costs related to certain strategic initiatives  -  -  -  -  0.05   0.05
Non-GAAP Diluted EPS $0.15 $0.11 $0.14 $0.08 $0.13  $0.46

Reconciliation of Net Income (Loss) to Adjusted EBITDA (non-GAAP) includes earnings before interest (including amortization of deferred debt financing costs), taxes, depreciation and amortization, equity-based compensation, and other, which includes severance, ERP system implementation costs, acquisition-related expenses, and non-recurring costs related to certain strategic initiatives.

            Twelve
            Months
  For the Quarter Ended Ended
  Jun. Sept. Dec. Mar. Jun. Jun.
(in millions)  2022   2022   2022   2023   2023   2023 
Net Income (Loss) $2.040  $1.102  $1.227  $0.315  $(0.130) $2.514 
Taxes  0.748   0.759   0.736   0.162   0.051   1.708 
Interest  0.100   0.103   0.100   0.109   0.121   0.433 
Depreciation and amortization  0.684   0.651   0.948   0.837   0.918   3.354 
Equity-based compensation expense  0.603   0.693   0.694   0.345   0.522   2.254 
Other  0.049   0.516   1.102   0.997   2.210   4.825 
Adjusted EBITDA $4.224  $3.824  $4.807  $2.765  $3.692  $15.088 
Adjusted EBITDA Margin  5.1%  5.1%  6.2%  3.5%  4.9%  4.9%


CTG news releases are available at
www.ctg.com.


Computer Task Group, Incorporated

NASDAQ:CTG

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Information Technology Services
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