GlobeNewswire Inc | Jul 21, 2020 06:55AM EDT

July 21, 2020

Achieved GAAP EPS of $0.12; non-GAAP EPS of $0.10, Performing Well inChallenging COVID-19 Pandemic Environment

Operating Margin Increased 30 Basis Points to 2.1%, or 16%, Year-over-Year

Non-GAAP Operating Margin Increased 83 Basis Points to 3.2%, or 35%, Year-over-Year

Solutions Expanded to 38% of Revenue as Strategic Transformation Continues

BUFFALO, N.Y., July 21, 2020 (GLOBE NEWSWIRE) -- CTG (NASDAQ: CTG), a leading provider of information technology (IT) solutions and services in North America and Western Europe, today announced its financial results for the second quarter ended June 26, 2020.

Second Quarter Financial Summary

-- Total revenue was $89.1 million, compared with $86.9 million in the previous quarter and $100.4 million in the second quarter of 2019 -- Revenue from Solutions increased to 38.0% of total revenue, compared with 35.5% of total revenue last year -- Solutions direct profit was 28.5%, an increase from 25.5% in the second quarter of 2019 -- GAAP operating income and margin increased $0.1 million and 30 basis points year-over-year, respectively, to $1.9 million and 2.1%, reflecting high utilization of billable resources across the business and a continued focus on diligent cost management -- Non-GAAP operating income and margin, excluding $1.0 million in severance and acquisition-related expenses, increased $0.5 million and 83 basis points year-over-year, respectively, to $2.9 million and 3.2% -- GAAP net income was $1.8 million, or $0.12 per diluted share, and included severance and acquisition-related expenses, as well as gains from life insurance proceeds and the sale of real estate; non-GAAP net income was $1.4 million, or $0.10 per diluted share

Second Quarter and Recent Business Highlights

-- Secured competitive multi-million dollar contract to manage go-live implementation of EPIC-based electronic health records (EHR) for a prominent healthcare system in the northeastern U.S. -- Appointed Brett Hunt, a seasoned IT solutions and services executive, to lead and accelerate growth of CTGs North American Solutions team through the development of key partnerships and rapid adoption of CTGs Delivery Center model -- Opened new delivery center in Bogot, Colombia, enhancing existing IT support and service capabilities. This new center expands the Companys global solutions offerings, including IT support, infrastructure, and cloud solutions implementation and management across all served geographies -- Completed sale of the Companys headquarters building in Buffalo, NY, resulting in a recorded gain of approximately $0.8 million

CEO Comments on Results

Building on our solid start to the year, we delivered strong second quarter results with both revenue and non-GAAP operating profit increasing sequentially despite the unprecedented and challenging global business environment, said Filip Gyd, CTG President and CEO. We believe that these results and the favorable performance trends we have achieved over the last eighteen months are proof that our strategy is working and will contribute to significant shareholder value creation.

We successfully transitioned to a work-from-home model at the onset of COVID-19, while simultaneously implementing prudent cost containment efforts to improve efficiency and utilization across our operations. Our team has done an outstanding job sustaining new business development, even as the pace of new requests for proposals and contract wins has slowed due to the heightened uncertainty associated with the current environment. With resilient operations and a healthy pipeline in place, we are well positioned to capitalize on future prospects and build on our track record of growth and success.

During the quarter, we continued to benefit from the ongoing expansion of our Solutions team and business. We recently appointed Brett Hunt to lead and accelerate the growth of this business in North America. To expand our global capabilities, we also opened a new facility in Bogot, Colombia to enhance our delivery of high quality, cost-effective IT services and solutions for clients in the Americas and Europe. With Solutions becoming a larger portion of our portfolio of services, we are focused on investing in the scale, talent and resources that we need to continue to compete and win.

Gyd concluded, While we expect the uncertain economic environment will persist in the months ahead, we are confident in our teams ability to continue transforming our business into a higher-margin, solutions-focused organization and driving long-term value for all CTG shareholders.

Consolidated Second Quarter Results

Revenue in the second quarter of 2020 was $89.1 million, compared with $86.9 million in the first quarter of 2020, and $100.4 million in the second quarter of 2019. The year-over-year decrease in second quarter revenue primarily reflected a continued transition away from select lower margin staffing business, combined with lower demand from clients impacted by the COVID-19 pandemic. Currency translation had a negative impact of $0.8 million on revenue in the second quarter, compared with a negative $1.1 million impact in the first quarter of 2020, and a negative $2.4 million impact in the second quarter of 2019.

Direct costs in the second quarter of 2020 were $70.4 million, or 79.0% of revenue, compared with $69.9 million, or 80.4% of revenue, in the first quarter of 2020, and $82.1 million, or 81.7% of revenue, in the second quarter of 2019. SG&A expense in the second quarter of 2020 was $16.8 million, which included $0.6 million in severance and $0.4 million in acquisition-related expenses associated with previously acquired businesses. This compared with SG&A expense of $15.0 million in the first quarter of 2020, which included $0.4 million in acquisition-related expenses. SG&A expense in the second quarter of 2019 was $16.5 million, which included $0.5 million in acquisition-related expenses.

GAAP operating income in the second quarter of 2020 was $1.9 million, or 2.1% of revenue, and included the previously referenced severance and acquisition-related expenses totaling $1.0 million. Excluding these items, non-GAAP operating income was $2.9 million, or 3.2% of revenue. GAAP operating income in the first quarter of 2020 was $2.1 million, or 2.4% of revenue, and included acquisition-related expenses of $0.4 million. Excluding this item, non-GAAP operating income in the first quarter of 2020 was $2.5 million, or 2.9% of revenue. GAAP operating income in the second quarter of 2019 was $1.9 million, or 1.8% of revenue, and included acquisition-related expenses of $0.5 million. Excluding this item, non-GAAP operating income in the second quarter of 2019 was $2.4 million, or 2.4% of revenue. CTGs operations outside of the U.S. are conducted in local currencies. Accordingly, fluctuations in currency valuation for the countries in which the Company operates generally have minimal impact on operating results; these fluctuations reduced operating income by less than $0.1 million in the second quarter of 2020.

Net income in the second quarter of 2020 was $1.8 million, or $0.12 per diluted share, which included a net $0.4 million of expense, or $0.02 per diluted share, comprised of severance, acquisition-related expenses as well as gains from life insurance proceeds and the sale of real estate. Net income in the first quarter of 2020 was $1.1 million, or $0.08 per diluted share, which included $0.3 million, or $0.02 per diluted share in acquisition-related expenses. Net income in the second quarter of 2019 was $0.9 million, or $0.07 per diluted share, which included $0.4 million, or $0.02 per diluted share in acquisition-related expenses.

CTGs effective income tax rate in the second quarter of 2020 was 43.7% compared with 39.0% in the first quarter of 2020 and 36.6% in the second quarter of 2019. The higher tax rate in the second quarter of 2020 was primarily due to certain non-deductible expenses incurred in the U.S. during the quarter.

Balance Sheet

Cash and short-term investments at June 26, 2020 were $34.3 million. Net cash was $22.3 million, net of long-term debt of $12.0 million. During the second quarter of 2020, CTG completed the sale of its headquarters building in Buffalo, NY, resulting in net cash proceeds of approximately $2.4 million. The Company previously had recorded the net value of the building as other current assets on its condensed consolidated balance sheet at the end of the first quarter of 2020. Days sales outstanding were 81 in the second quarter of 2020 compared with 83 in the second quarter of 2019.

Guidance and Outlook

Given the continued impact of the COVID-19 pandemic on CTGs end markets, the Company is not providing updated guidance for the full year 2020.

CTG Executive Vice President and Chief Financial Officer John M. Laubacker commented, We anticipate seasonality in the fiscal third quarter will be higher than normal as employees take vacations that have been previously delayed, resulting in lower utilization of billable resources. We also expect a reduction in government subsidies in Europe for technical unemployment, the sale of a customers business unit in Alaska to another company, and our continued investments in business development and solutions experts to impact earnings in the second half of the year. Despite these near-term challenges, we are encouraged by the progress of our IT Solutions-centric strategy, which has resulted in the highest operating margin and non-GAAP earnings per share we have reported for a first half period in the past six years. We remain committed to our strategic transformation, and will continue to take steps to enhance the long-term value potential of CTG.

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, non-GAAP financial measures are used by management for forecasting, facilitating ongoing operating decisions, and measuring the Companys overall performance. The Company believes that these non-GAAP measures align closely with its internal measurement processes and are reflective of the Companys core operating results.

Specifically, the non-GAAP information as presented for the second quarter of 2020 and the year-to-date period exclude gains from life insurance proceeds and on the sale of real estate, and costs associated with severance and certain acquisition-related expenses. In 2020, the acquisition-related expenses consist of due diligence costs, and the amortization of intangible assets. In 2019, acquisition-related expenses also include changes in the value of earn-out payments upon the achievement of certain financial targets from the acquisitions of Soft Company and Tech-IT.

The reconciliation of GAAP to non-GAAP information for the second quarter ended June 26, 2020 is as follows:

(in millions, except EPS) Operating Operating Net Diluted Income Margin Income EPSGAAP results $1.9 2.1% $1.8 $0.12Gain from life insurance - -% (0.4) proceeds (0.03)Gain on sale of real estate - -% (0.5) (0.03)Severance 0.6 0.7% 0.3 0.02Acquisition-related expenses 0.4 0.4% 0.2 0.02Non-GAAP results $2.9 3.2% $1.4 $0.10

The reconciliation of GAAP to non-GAAP information for the two quarters ended June 26, 2020 is as follows:

(in millions, except EPS) Operating Operating Net Diluted Income Margin Income EPSGAAP results $4.0 2.3% $2.9 $0.20Gain from life insurance - -% (0.4) proceeds (0.03)Gain on sale of real estate - -% (0.5) (0.03)Severance 0.6 0.3% 0.3 0.02Acquisition-related expenses 0.8 0.5% 0.6 0.04Non-GAAP results $5.4 3.1% $2.9 $0.20

The reconciliation of GAAP to non-GAAP information for the first quarter ended March 27, 2020 is as follows:

(in millions, except EPS) Operating Operating Net Diluted Income Margin Income EPSGAAP results $2.1 2.4% $1.1 $0.08Acquisition-related expenses 0.4 0.5% 0.3 0.02Non-GAAP results $2.5 2.9% $1.4 $0.10

The reconciliation of GAAP to non-GAAP information for the second quarter ended June 28, 2019 is as follows:

(in millions, except EPS) Operating Operating Net Diluted Income Margin Income EPSGAAP results $1.9 1.8% $0.9 $0.07Acquisition-related expenses 0.5 0.6% 0.4 0.02Non-GAAP results $2.4 2.4% $1.3 $0.09

The reconciliation of GAAP to non-GAAP information for the two quarters ended June 28, 2019 is as follows:

(in millions, except EPS) Operating Operating Net Diluted Income Margin Income EPSGAAP results $3.0 1.5% $1.6 $0.11Acquisition-related expenses 0.9 0.5% 0.6 0.05Non-GAAP results $3.9 2.0% $2.2 $0.16

Conference Call and Webcast

CTG will hold a conference call today at 11:00 a.m. Eastern Time to discuss its financial results and business outlook. To access CTGs conference call via telephone, dial 1-844-767-5679 and enter the access code, 7028804. The conference call will also be available via webcast in the Investors section of CTGs website at www.ctg.com.

A replay of the call will be available between 3:00 p.m. Eastern Time on July 21, 2020, and 12:00 a.m. Eastern Time on July 26, 2020, by dialing 1-866-207-1041 and entering the access code, 2057045. The webcast will be archived on CTGs website in the Events & Presentations section for at least 90 days following completion of the conference call.

About CTG

CTG has established a reputation for responsiveness and reliabilitytraits that our clients say set us apartsince our founding in 1966. Today, we provide comprehensive information, technology, and business solutions that address critical challenges for clients in high-growth industries in North America and Western Europe. Backed by a proven track record of reliable delivery, CTG fosters long-term client relationships and trust, which allows us to develop strategic insights that maximize client investments in solutions and competitive advantage. CTG has operations in North America, South America, Western Europe, and India. The Company regularly posts news and other important information online at www.ctg.com.

Safe Harbor Statement

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 2020 and statements related to cost control, new business opportunities, financial performance, market demand, and other attributes of the Company. These statements are based upon the Company's 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, including among others, the effects of the COVID-19 pandemic and the regulatory, social and business responses thereto on the Companys 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 staffing and solutions, 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 staffing industry, taxes and the Company's operations in particular, industry and economic 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 as of the date of this document. 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, 2019, which is incorporated by reference, and other reports that may be filed from time to time with the Securities and Exchange Commission. The Company assumes no obligation to update the forward-looking information contained in this release.

Investors and Media:John M. Laubacker, Chief Financial Officer(716) 887-7368

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

For the Quarter Ended For the Two Quarters Ended June 26, June 28, June 26, June 28, 2020 2019 2020 2019 Revenue $ 89,146 $ 100,408 $ 176,095 $ 197,646 Direct costs 70,408 82,072 140,311 161,594 Selling,general and 16,824 16,483 31,803 33,072 admin. expensesOperating 1,914 1,853 3,981 2,980 incomeNon-taxablelife 389 - 389 - insurancegainGain on sale 824 - 824 - of buildingOther (5 ) (366 ) (196 ) (546 )expense, netIncomebefore 3,122 1,487 4,998 2,434 income taxesProvisionfor income 1,363 544 2,095 859 taxesNet income $ 1,759 $ 943 $ 2,903 $ 1,575 Net income per share:Basic $ 0.13 $ 0.07 $ 0.21 $ 0.12 Diluted $ 0.12 $ 0.07 $ 0.20 $ 0.11 Weighted averageshares outstanding:Basic 13,605 13,436 13,576 13,408 Diluted 14,282 13,918 14,299 13,851



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

June 26, December June 28, 31, 2020 2019 2019Current Assets: Cash and cash equivalents $ 34,319 $ 10,781 $ 11,290Accounts receivable, net 79,133 88,772 91,226Other current assets 2,358 2,295 4,672Total current assets 115,810 101,848 107,188 Property and equipment, net 5,246 6,379 5,441Operating lease right-of-use assets 20,278 21,253 14,476Cash surrender value 2,989 3,133 2,393Acquired intangibles, net 7,741 8,439 5,502Goodwill 19,969 16,681 19,488Other assets 1,265 973 2,213 Total Assets $ 173,298 $ 158,706 $ 156,701 Current Liabilities: Accounts payable $ 15,580 $ 18,612 $ 12,586Accrued compensation 24,754 23,538 23,470Short-term operating lease liabilities 5,289 5,904 5,382Other current liabilities 13,215 8,800 11,812Total current liabilities 58,838 56,854 53,250 Long-term debt 12,000 5,290 16,972Long-term lease operating liabilities 14,929 15,349 9,094Other liabilities 17,335 14,977 11,344Shareholders' equity 70,196 66,236 66,041 Total Liabilities and Shareholders' $ 173,298 $ 158,706 $ 156,701Equity



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

For the Two Quarters Ended June 26, June 28, 2020 2019 Net income $ 2,903 $ 1,575 Depreciation and amortization expense 1,641 1,365 Equity-based compensation expense 1,149 693 Other operating items 13,946 (8,770 )Net cash provided by (used in) operating 19,639 (5,137 )activitiesNet cash used in investing activities (2,473 ) (9,121 )Net cash provided by financing activities 6,243 13,412 Effect of exchange rates on cash and cash 129 (295 )equivalentsNet increase (decrease) in cash and cash 23,538 (1,141 )equivalentsCash and cash equivalents at beginning of period 10,781 12,431 Cash and cash equivalents at end of period $ 34,319 $ 11,290



COMPUTER TASK GROUP, INCORPORATED (CTG)Other Financial Information(amounts in thousands except days data)(Unaudited)

For the Quarter Ended For the Two Quarters Ended June 26, June 28, June 26, June 28, Revenue by Service 2020 2019 2020 2019 IT Solutions $ 33,845 38.0 % $ 35,621 35.5 % $ 62,607 35.6 % $ 69,062 34.9 %IT Staffing 55,301 62.0 % 64,787 64.5 % 113,488 64.4 % 128,584 65.1 % Total $ 89,146 100.0 % $ 100,408 100.0 % $ 176,095 100.0 % $ 197,646 100.0 % Revenue by Vertical Market Technology Service 32 % 32 % 33 % 32 % ProvidersFinancial Services 15 % 13 % 15 % 14 % Manufacturing 14 % 17 % 14 % 17 % Healthcare 14 % 17 % 13 % 16 % Energy 7 % 5 % 7 % 5 % General Markets 18 % 16 % 18 % 16 % Total 100 % 100 % 100 % 100 % Revenue by Location North America $ 49,357 55 % $ 62,653 62 % $ 99,664 57 % $ 122,088 62 %Europe 39,789 45 % 37,755 38 % 76,431 43 % 75,558 38 % Total $ 89,146 100 % $ 100,408 100 % $ 176,095 100 % $ 197,646 100 % Foreign Currency Impact on Revenue Europe $ (834 ) $ (2,394 ) $ (1,910 ) $ (5,512 ) Billable Days in 64 64 126 127 Period DSO 81 83 Long-term Debt $ 12,000 $ 16,972 Balance

CTG news releases are available on the Web at www.ctg.com.