OREANDA-NEWS. CTG (NASDAQ:CTG), an information technology (IT) solutions and services company, today announced its financial results for the second quarter ended July 1, 2016.

Second Quarter and Recent Highlights

  • Revenue was $83.5 million, compared with $94.7 million in the prior year second quarter;
  • Operating margin was 2.3%, compared with 1.2% in the second quarter of 2015, which included $2.3 million in charges;
  • Net income was $1.3 million, or $0.08 per diluted share, compared with $554,000, or $0.03 per diluted share, in the year-ago quarter, which included $0.08 per diluted share in charges;
  • Cash and short-term investments net of debt were $6.3 million at quarter-end;
  • Declared cash dividend of $0.06 per share, paid on July 6, 2016; and
  • Appointed Bud Crumlish CEO on July 21, 2016.

Commenting on the results, Bud Crumlish, CTG’s President and Chief Executive Officer, stated, “Second quarter earnings exceeded our guidance, due primarily to a $0.03 foreign payroll tax credit; quarterly earnings excluding the credit were at the high-end of guidance. However, revenue in the quarter was below our expectations, largely reflecting weakness at significant staffing customers.

“Despite these headwinds, we continued to gain new business traction during the quarter by securing new clients in each of our four vertical markets. In addition to new client accounts, we’ve been successful at expanding business at existing accounts. Collectively, these wins demonstrate the early results from the investments in our sales team and market expansion, as well as targeted efforts to diversify CTG’s customer base and future growth opportunities.

“Also notable during the quarter, we established a staffing subsidiary in Hyderabad, India to provide offshore recruiting and sourcing solutions to customers in the U.S. and U.K. CTG’s India subsidiary expands our capabilities and offerings for both new and existing clients. As part of launching this new fulfillment center and also in support of servicing new business, we further increased recruiter and account manager headcount in both the United States and India.”

Consolidated Results
Revenue in the second quarter ended July 1, 2016 was $83.5 million, compared with $85.9 million in the prior quarter and $94.7 million in the second quarter of 2015. The year-over-year decline primarily reflects a decrease in staffing revenue at significant staffing customers and the continued trail-off of legacy electronic medical records (EMR) account business. Positive currency translation increased revenue in the second quarter by $0.3 million.

Direct costs in the second quarter were $67.6 million, or 80.9% of revenue, compared with $79.1 million, or 83.5% of revenue, in the year-ago second quarter. Direct costs in the current period benefited from approximately $0.7 million in foreign payroll tax credits. Second quarter 2015 direct costs included $2.1 million in charges for a European workforce reduction and the write-off of the Company’s medical management software. SG&A expenses were $14.0 million, compared with $14.5 million in the year-ago quarter.

Operating income in the second quarter was $1.9 million, or 2.3% of revenue, compared with $1.1 million, or 1.2% of revenue, in the second quarter of 2015. Operating income in the current quarter included the foreign payroll tax credits, while the second quarter of 2015 included $2.3 million in charges. Operating margin, excluding the payroll tax credits, continues to reflect a shift toward lower margin staffing business.

CTG’s effective income tax rate in the second quarter was 29.6%, which benefitted from certain U.S. federal tax credits that had not been reinstated as of the end of last year’s second quarter. The effective income tax rate in second quarter of 2015 was 48.4%, which was unusually high due to the absence of the tax credits as well as certain costs in the United Kingdom for which the Company received no tax benefit.

Net income in the second quarter of 2016 was $1.3 million, or $0.08 per diluted share, compared with net income of $554,000, or $0.03 per diluted share, in the second quarter of 2015. Second quarter 2016 earnings included the benefit of $0.03 per diluted share related to foreign payroll tax credits, while last year’s second quarter included $0.08 per diluted share in charges.

Balance Sheet
Cash and short term investments at July 1, 2016 were $10.9 million; long-term debt was $4.6 million. Days sales outstanding were 81 days in the second quarter of 2016 compared with 61 days in the year-ago second quarter, primarily reflecting the previously implemented cessation of an early payment discount with a significant customer and the lengthening in payment terms by multiple larger customers. Tangible book value at July 1, 2016 was $4.98 per share.

Guidance and Outlook
CTG expects total revenue for the third quarter of 2016 to range between $79.0 and $81.0 million. GAAP net loss is expected to be between ($0.02) and ($0.04) per share, including severance charges of approximately $0.06 per diluted share related to the Company’s former CEO. There are 63 billing days in the third quarter of 2016 compared with 64 billing days in the third quarter of 2015.

For the full year 2016, CTG expects revenue to range between $328.0 and $334.0 million. GAAP net loss is expected to range from ($1.21) to ($1.27) per share. Full year non-GAAP net income, which excludes the non-cash goodwill impairment charge of $21.5 million taken in the first quarter and a charge related to the former CEO’s severance, is expected to range from $0.17 and $0.23 per diluted share.

Mr. Crumlish concluded, “As largely anticipated, current macro and industry trends are continuing to be challenges for a number of our clients, resulting in lower revenue expectations for the third quarter and full year. However, we remain fully committed to working closely with all of our clients and providing the consistent unmatched reliability that sets CTG apart. Equally important is our continued execution on business objectives and growth initiatives. We expect to further build on CTG’s existing roster of new clients and our broadening business pipeline, with the goal of exiting 2016 on strong footing and growing momentum.”

About CTG
CTG provides industry-specific IT services and solutions that address the business needs and challenges of clients in high-growth industries in North America and Western Europe. CTG also provides strategic staffing services for major technology companies and large corporations. Backed by 50 years of experience and proprietary methodologies, CTG has a proven track record of reliably delivering high-value, industry-specific staffing services and solutions to its clients. CTG has operations in North America, Western Europe, and India.

 
COMPUTER TASK GROUP, INCORPORATED (CTG)
Condensed Consolidated Statements of Operations
(Unaudited)
(amounts in thousands except per share data)
 
      For the Quarter Ended   For the Two
Quarters Ended
      July 1,   July 3,   July 1,   July 3,
      2016   2015   2016   2015
                           
Revenue   $     83,486     $     94,744     $     169,336     $     192,221  
Direct costs         67,574           79,143           138,879           159,315  
Selling, general and administrative expenses       14,026           14,485           27,493           29,577  
Goodwill impairment charge         -            -            21,544           -   
Operating income (loss)         1,886           1,116           (18,580 )         3,329  
Other expense, net         (97 )         (42 )         (159 )         (52 )
Income (loss) before income taxes         1,789           1,074           (18,739 )         3,277  
Provision for income taxes         530           520           859           1,456  
Net income (loss)   $     1,259     $     554     $     (19,598 )   $     1,821  
                           
Net income (loss) per share:                        
  Basic   $     0.08     $     0.04     $     (1.26 )   $     0.12  
  Diluted   $     0.08     $     0.03     $     (1.26 )   $     0.11  
                           
Weighted average shares outstanding:                        
  Basic         15,584           15,439           15,554           15,423  
  Diluted         15,789           15,919           15,554           15,923  
                           
Cash dividend declared per share     $   0.06       $   0.06       $   0.12       $   0.12  
                           
 
COMPUTER TASK GROUP, INCORPORATED (CTG)
Condensed Consolidated Balance Sheets
(Unaudited)
(amounts in thousands) 
 
      July 1,   December 31,   July 3,
      2016   2015   2015
                     
Current Assets:                  
  Cash and cash equivalents    $    10,866    $    10,801    $    31,441
  Accounts receivable, net       73,969       71,403       63,454
  Other current assets       3,410       2,574       4,671
Total current assets       88,245       84,778       99,566
                     
  Property and equipment, net       5,904       5,488       5,584
  Goodwill       15,717       37,231       37,254
  Other assets       36,402       35,580       18,398
                     
Total Assets    $    146,268    $    163,077    $    160,802
                     
Current Liabilities:                  
  Accounts payable    $    7,444    $    8,236    $    5,880
  Dividend payable       959       925       918
  Accrued compensation       17,929       17,541       22,734
  Other current liabilities       5,793       5,102       4,572
Total current liabilities       32,125       31,804       34,104
                     
  Long-term debt       4,600       1,225       - 
  Other liabilities       12,197       12,331       14,422
  Shareholders' equity       97,346       117,717       112,276
                     
Total Liabilities and Shareholders' Equity    $    146,268    $    163,077    $    160,802
                     
 
COMPUTER TASK GROUP, INCORPORATED (CTG)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
 
          For the Two    
      Quarters Ended
      July 1,   July 3,
      2016   2015
               
Net income (loss)   $     (19,598 )   $     1,821  
  Depreciation and amortization expense         830           1,114  
  Equity-based compensation expense         824           672  
  Goodwill impairment charge         21,544           -   
  Other operating items         (4,121 )         (5,813 )
Net cash used in operating activities         (521 )         (2,206 )
Net cash used in investing activities         (998 )         (661 )
Net cash provided by (used in) financing activities         1,484           (5,704 )
Effect of exchange rates on cash and cash equivalents       100           (850 )
Net increase (decrease) in cash and cash equivalents       65           (9,421 )
Cash and cash equivalents at beginning of period         10,801           40,862  
Cash and cash equivalents at end of period   $     10,866     $     31,441  
               
 
COMPUTER TASK GROUP, INCORPORATED (CTG)
Other Financial Information
(Unaudited)
(amounts in thousands except days data)
 
        For the Quarter Ended
       For the Two Quarters Ended
    
      July 1,        July 3,        July 1,       July 3,    
Revenue by Service     2016           2015           2016           2015      
                                   
IT Solutions   $ 24,626       29 %   $ 32,162       34 %   $ 50,383       30 %   $ 64,354       33 %
IT Staffing     58,860       71 %     62,582       66 %     118,953       70 %     127,867       67 %
  Total   $ 83,486       100 %   $ 94,744       100 %   $ 169,336       100 %   $ 192,221       100 %
                                   
Revenue by Vertical Market                              
                                   
Technology Service Providers   35 %         30 %         35 %         29 %    
Manufacturing     24 %         26 %         24 %         27 %    
Healthcare     18 %         25 %         19 %         25 %    
General Markets     10 %         7 %         9 %         7 %    
Financial Services     8 %         7 %         7 %         7 %    
Diversified Industrials     5 %         5 %         6 %         5 %    
  Total     100 %         100 %         100 %         100 %    
                                   
Revenue by Location                                
                                   
North America   $ 65,302       78 %   $ 78,085       82 %   $ 133,367       79 %   $ 157,779       82 %
Europe     18,184       22 %     16,659       18 %     35,969       21 %     34,442       18 %
  Total   $ 83,486       100 %   $ 94,744       100 %   $ 169,336       100 %   $ 192,221       100 %
                                   
Foreign Currency Impact on Revenue                            
                                   
Europe   $ 286         $ (3,864 )       $ (120 )       $ (7,599 )    
                                   
Billable Travel Included in Revenue and Direct Costs                        
                                   
Billable Travel   $ 998         $ 1,766         $ 2,244         $ 3,544      
                                   
Cash at End of Period   $ 10,866         $ 31,441                      
                                   
Cash provided by (used) in Oper. $ (820 )       $ 2,207         $ (521 )       $ (2,206 )    
                                   
Long-term Debt Balance   $ 4,600         $ 0                      
                                   
Billable Days in Period     64           63           129           129