CTG Reports 11% Net Income Growth on Lower Revenue in Second Quarter 2022 as Strong Execution of Strategy Drives Strengthened Margin Profile
08/04/2022 - 06:55 AM
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, Jul. 2, Jun. 26, $ % $ % 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 $16.6 million . Operating income increased 13.3% on improved business mix as the Company continued to advance its strategy to provide higher-value digital IT solutions and reduce its exposure to lower-margin business. (unaudited)
IT Solutions and Services
North America
($ in thousands) For the Quarter Ended Change 2021-2022 Change 2020-2021 Jul. 1, Jul. 2, Jun. 26, $ % $ % 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 %
(unaudited)
Europe
($ in thousands) For the Quarter Ended Change 2021-2022 Change 2020-2021 Jul. 1, Jul. 2, Jun. 26, $ % $ % 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 $4.9 million of unfavorable foreign currency exchange rate fluctuations, and macro-economic headwinds in the European Union, particularly around labor constraints. Despite the lower revenue, segment gross margin expanded 140 basis points on strong execution, which helped to offset inflationary pressures.
($ in thousands) For the Quarter Ended Change 2021-2022 Change 2020-2021 Jul. 1, Jul. 2, Jun. 26, $ % $ % 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. (unaudited)
($ in thousands) For the Two Quarters Ended Change 2021-2022 Change 2020-2021 Jul. 1, Jul. 2, Jun. 26, $ % $ % 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
(unaudited)
IT Solutions and Services
North America
($ in thousands) For the Two Quarters Ended Change 2021-2022 Change 2020-2021 Jul. 1, Jul. 2, Jun. 26, $ % $ % 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 % Contribution profit $ 7,278 $ 5,763 $ 5,685 $ 1,515 26.3 % $ 78 1.4 % Contribution margin 17.9 % 16.4 % 19.6 %
(unaudited)
Europe
($ in thousands) For the Two Quarters Ended Change 2021-2022 Change 2020-2021 Jul. 1, Jul. 2, Jun. 26, $ % $ % Revenue $ 79,638 $ 90,061 $ 72,484 $ (10,423 ) -11.6 % $ 17,577 24.2 % Percent of total 46.2 % 47.6 % 41.2 % Gross profit $ 20,061 $ 21,965 $ 18,242 $ (1,904 ) -8.7 % $ 3,723 20.4 % Gross margin 25.2 % 24.4 % 25.2 % Contribution profit $ 9,978 $ 11,346 $ 8,853 $ (1,368 ) -12.1 % $ 2,493 28.2 % Contribution margin 12.5 % 12.6 % 12.2 %
($ in thousands) For the Two Quarters Ended Change 2021-2022 Change 2020-2021 Jul. 1, Jul. 2, Jun. 26, 2020 $ % $ % Revenue $ 51,765 $ 64,016 $ 74,543 $ (12,251 ) -19.1 % $ (10,527 ) -14.1 % Percent of total 30.1 % 33.8 % 42.3 % Gross profit $ 6,343 $ 7,095 $ 7,629 $ (752 ) -10.6 % $ (534 ) -7.0 % Gross margin 12.3 % 11.1 % 10.2 % Contribution profit $ 4,831 $ 4,462 $ 3,721 $ 369 8.3 % $ 741 19.9 % Contribution margin 9.3 % 7.0 % 5.0 %
Cash and cash equivalents were $35.5 million , compared with $35.6 million at year-end 2021. Net cash provided by operations was $2.8 million for the year-to-date period.
At the end of the second 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 84 in the second quarter of 2022 compared with 81 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 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 IT staffing services within the Non-Strategic Technology Services segment 2022 Outlook
John M. Laubacker, Chief Financial Officer, noted, “With nearly half of our revenue coming from European operations, we are not immune to the challenging foreign currency translation impacts resulting from the significantly devalued Euro in the first half of 2022. Additionally, the recent increase in competition for resources in Europe is creating labor constraints in meeting client demand. Finally, the macroeconomic climate in both North America and Europe has slowed our clients’ decision-making process for IT solutions and services. As we mentioned in our first quarter release, we expected quarterly performance at the outset of 2022 to be uneven due to engagement timing. We now expect that to continue for the rest of the year. As a result, we are adjusting our revenue for 2022 to range from $330 million to $350 million which includes a reduction of $20 million to $30 million from the prior year as a result of the intentional disengagement from lowest margin business in our Non-Strategic Technology Services segment.”
“Despite the top-line decrease and challenging macroeconomic headwinds, we expect our operating margins to improve over the prior year given the positive ongoing changes to our business mix. We expect that lower revenue will be offset in part by improving operating margins. We expect 2022 GAAP diluted earnings per share to range from $0.48 t o $0.58 , and non-GAAP diluted earnings per share to range from $0.53 t o $0.63 . Our long-range goal remains unchanged as we drive our adjusted EBITDA margins to 7% to 8% * within the next two years.”
* The corresponding GAAP measure to adjusted EBITDA is net income. The Company is not providing forward looking net income guidance given the significant effort and assumptions involved in measuring net income. The GAAP to non-GAAP tables below include net income to adjusted EBITDA displayed on historical results for the past five quarters and the trailing twelve months ended June 2022.
Conference Call and Webcast
CTG will hold a conference call today, August 4, 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 Thursday, August 11, 2022 by dialing +1 844 512 2921 and entering the access code 13731263. 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. A transcript will also be posted to the website once available.
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,” “project,” “predict,” “potential,” “currently,” “continue,” “intends,” “outlook,” “forecasts,” “target,” 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 lingering effects of the COVID-19 pandemic and any regulatory, social and business responses thereto on the Company’s business, operations, employees, contractors and clients, and the potential impacts of any similar future public health crisis, pandemic, or epidemic, the availability to the Company of qualified professional staff, currency exchange risks, 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, risks associated with operating in foreign jurisdictions, renegotiations, nullification, or breaches of contracts with clients, vendors, subcontractors or other parties, current macroeconomic conditions such as inflation, 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 risks with domestic and foreign operations including uncertainty and business interruptions resulting from political changes and actions in the U.S. and abroad, such as the current conflict between Russia and the Ukraine, and volatility in the global credit and financial markets and economy, 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) (amounts in thousands except per share data)
For the Quarter Ended For the Two Quarters Ended July 1, July 2, June 26, July 1, July 2, June 26, 2022 2021 2020 2022 2021 2020 Revenue $ 82,759 $ 92,164 $ 89,146 $ 172,176 $ 189,293 $ 176,095 Cost of services 63,009 71,785 70,408 131,831 148,147 140,311 Gross profit 19,750 20,379 18,738 40,345 41,146 35,784 Selling, general and admin. expenses 16,577 17,578 16,824 33,973 36,247 31,803 Operating income 3,173 2,801 1,914 6,372 4,899 3,981 Non-taxable life insurance gain - - 389 - - 389 Gain on sale of building - - 824 - - 824 Other expense, net (385 ) (256 ) (5 ) (642 ) (406 ) (196 ) Income before income taxes 2,788 2,545 3,122 5,730 4,493 4,998 Provision for income taxes 748 712 1,363 1,450 1,152 2,095 Net income $ 2,040 $ 1,833 $ 1,759 $ 4,280 $ 3,341 $ 2,903 Net income per share: Basic $ 0.14 $ 0.13 $ 0.13 $ 0.30 $ 0.24 $ 0.21 Diluted $ 0.13 $ 0.12 $ 0.12 $ 0.28 $ 0.22 $ 0.20 Weighted average shares outstanding: Basic 14,419 13,845 13,605 14,309 13,770 13,576 Diluted 15,122 14,972 14,282 15,050 14,958 14,299
COMPUTER TASK GROUP, INCORPORATED (CTG) (amounts in thousands)
July 1, December 31, July 2, 2022 2021 2021 Current Assets: Cash and cash equivalents $ 35,479 $ 35,584 $ 29,209 Accounts receivable, net 76,622 84,252 81,777 Other current assets 3,146 2,929 3,948 Total current assets 115,247 122,765 114,934 Property and equipment, net 4,376 5,242 5,508 Operating lease right-of-use assets 19,005 22,132 23,175 Cash surrender value 4,039 4,018 3,883 Acquired intangibles, net 6,219 7,280 8,165 Goodwill 18,104 19,676 20,548 Other assets 7,031 7,221 2,942 Total Assets $ 174,021 $ 188,334 $ 179,155 Current Liabilities: Accounts payable $ 13,544 $ 21,150 $ 15,333 Accrued compensation 18,071 22,534 23,228 Operating lease liabilities 5,838 6,444 6,460 Other current liabilities 15,992 14,855 15,388 Total current liabilities 53,445 64,983 60,409 Operating lease liabilities 13,030 15,612 16,613 Other liabilities 12,239 13,302 19,336 Shareholders' equity 95,307 94,437 82,797 Total Liabilities and Shareholders' Equity $ 174,021 $ 188,334 $ 179,155
COMPUTER TASK GROUP, INCORPORATED (CTG) (amounts in thousands)
For the Two Quarters Ended July 1, July 2, June 26, 2022 2021 2020 Net income $ 4,280 $ 3,341 $ 2,903 Depreciation and amortization expense 1,400 1,685 1,641 Equity-based compensation expense 1,176 1,272 1,149 Other operating items (4,022 ) (6,349 ) 13,946 Net cash provided by (used in) operating activities 2,834 (51 ) 19,639 Net cash used in investing activities (721 ) (1,618 ) (2,473 ) Net cash provided by (used in) financing activities (707 ) (1,281 ) 6,243 Effect of exchange rates on cash and cash equivalents (1,511 ) (706 ) 129 Net increase (decrease) in cash and cash equivalents (105 ) (3,656 ) 23,538 Cash and cash equivalents at beginning of period 35,584 32,865 10,781 Cash and cash equivalents at end of period $ 35,479 $ 29,209 $ 34,319
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 invest 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 any investment 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 July 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 $ 20,339 $ 37,160 $ 25,260 $ 82,759 $ 82,759 Cost of services 13,260 27,578 22,171 63,009 63,009 Gross profit 7,079 9,582 3,089 19,750 19,750 Gross margin 34.8 % 25.8 % 12.2 % 23.9 % 23.9 % Operating expenses 3,532 4,855 701 9,088 9,088 Contribution profit $ 3,547 $ 4,727 $ 2,388 10,662 10,662 Contribution margin 17.4 % 12.7 % 9.5 % 12.9 % 12.9 % General and admin. expense 7,489 (290 ) 7,199 Operating income $ 3,173 $ 290 $ 3,463 Operating margin 3.8 % 4.2 %
* Non-GAAP costs represent certain acquisition-related expenses
For the Quarter Ended July 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 $ 16,762 $ 44,054 $ 31,348 $ 92,164 $ 92,164 Cost of services 10,688 33,306 27,791 71,785 71,785 Gross profit 6,074 10,748 3,557 20,379 20,379 Gross margin 36.2 % 24.4 % 11.3 % 22.1 % 22.1 % Operating expenses 3,166 5,136 1,318 9,620 9,620 Contribution profit $ 2,908 $ 5,612 $ 2,239 10,759 10,759 Contribution margin 17.3 % 12.7 % 7.1 % 11.7 % 11.7 % General and admin. expense 7,958 (165 ) 7,793 Operating income $ 2,801 $ 165 $ 2,966 Operating margin 3.0 % 3.2 %
* Non-GAAP costs represent certain acquisition-related expenses
COMPUTER TASK GROUP, INCORPORATED (CTG) Segment Information (continued) (amounts in thousands)
For the Quarter Ended June 26, 2020 North America Europe Non-Strategic Non- IT Solutions IT Solutions Technology GAAP Non- GAAP and Services and Services Services Totals GAAP* Totals Revenue $ 16,069 $ 36,917 $ 36,160 $ 89,146 $ 89,146 Cost of services 10,924 27,028 32,456 70,408 70,408 Gross profit 5,145 9,889 3,704 18,738 18,738 Gross margin 32.0 % 26.8 % 10.2 % 21.0 % 21.0 % Operating expenses 2,139 4,853 1,823 8,815 8,815 Contribution profit $ 3,006 $ 5,036 $ 1,881 9,923 9,923 Contribution margin 18.7 % 13.6 % 5.2 % 11.1 % 11.1 % General and admin. expense 8,009 (949 ) 7,060 Operating income $ 1,914 $ 949 $ 2,863 Operating margin 2.1 % 3.2 %
* Non-GAAP costs in 2020 represent certain acquisition-related expenses and costs associated with severance
For the Two Quarters Ended July 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 $ 40,773 $ 79,638 $ 51,765 $ 172,176 $ 172,176 Cost of services 26,832 59,577 45,422 131,831 131,831 Gross profit 13,941 20,061 6,343 40,345 40,345 Gross margin 34.2 % 25.2 % 12.3 % 23.4 % 23.4 % Operating expenses 6,663 10,083 1,512 18,258 18,258 Contribution profit $ 7,278 $ 9,978 $ 4,831 22,087 22,087 Contribution margin 17.9 % 12.5 % 9.3 % 12.8 % 12.8 % General and admin. expense 15,715 (552 ) 15,163 Operating income $ 6,372 $ 552 $ 6,924 Operating margin 3.7 % 4.0 %
* Non-GAAP costs represent certain acquisition-related expenses
COMPUTER TASK GROUP, INCORPORATED (CTG) Segment Information (continued) (amounts in thousands)
For the Two Quarters Ended July 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 $ 35,216 $ 90,061 $ 64,016 $ 189,293 $ 189,293 Cost of services 23,130 68,096 56,921 148,147 148,147 Gross profit 12,086 21,965 7,095 41,146 41,146 Gross margin 34.3 % 24.4 % 11.1 % 21.7 % 21.7 % Operating expenses 6,323 10,619 2,633 19,575 19,575 Contribution profit $ 5,763 $ 11,346 $ 4,462 21,571 21,571 Contribution margin 16.4 % 12.6 % 7.0 % 11.4 % 11.4 % General and admin. expense 16,672 (809 ) 15,863 Operating income $ 4,899 $ 809 $ 5,708 Operating margin 2.6 % 3.0 %
* Non-GAAP costs represent certain acquisition-related expenses and rebranding costs
For the Two Quarters Ended June 26, 2020 North America Europe Non-Strategic Non- IT Solutions IT Solutions Technology GAAP Non- GAAP and Services and Services Services Totals GAAP* Totals Revenue $ 29,068 $ 72,484 $ 74,543 $ 176,095 $ 176,095 Cost of services 19,155 54,242 66,914 140,311 140,311 Gross profit 9,913 18,242 7,629 35,784 35,784 Gross margin 34.1 % 25.2 % 10.2 % 20.3 % 20.3 % Operating expenses 4,228 9,389 3,908 17,525 17,525 Contribution profit $ 5,685 $ 8,853 $ 3,721 18,259 18,259 Contribution margin 19.6 % 12.2 % 5.0 % 10.4 % 10.4 % General and admin. expense 14,278 (1,416 ) 12,862 Operating income $ 3,981 $ 1,416 $ 5,397 Operating margin 2.3 % 3.1 %
* Non-GAAP costs in 2020 represent certain acquisition-related expenses and costs associated with severance
COMPUTER TASK GROUP, INCORPORATED (CTG) Segment and Vertical Market Trends (Unaudited)
Twelve Months For the Quarter Ended Ended Jun. Sept. Dec. Mar. Jun. Jun. 2021 2021 2021 2022 2022 2022 Revenue (in millions) North America IT Solutions and Services $ 16.762 $ 21.215 $ 45.075 $ 20.435 $ 20.339 $ 107.064 Europe IT Solutions and Services 44.054 39.199 40.081 42.478 37.160 158.918 Non-Strategic Technology Services 31.348 30.189 27.233 26.504 25.260 109.186 Total Revenue $ 92.164 $ 90.603 $ 112.389 $ 89.417 $ 82.759 $ 375.168 Foreign Currency Impact $ 3.921 $ 0.453 $ (1.520 ) $ (3.106 ) $ (4.943 ) $ (9.116 ) Revenue By Geography North America 51.0 % 55.5 % 63.4 % 51.7 % 54.4 % 56.7 % Europe 49.0 % 44.5 % 36.6 % 48.3 % 45.6 % 43.3 % Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Revenue by Vertical Market Technology Service Providers 29 % 28 % 20 % 24 % 24 % 24 % Healthcare 15 % 18 % 36 % 17 % 18 % 23 % Financial Services 17 % 18 % 13 % 17 % 15 % 15 % Manufacturing 13 % 12 % 10 % 14 % 15 % 13 % Energy 6 % 5 % 4 % 5 % 7 % 5 % General Markets 20 % 19 % 17 % 23 % 21 % 20 % Total 100 % 100 % 100 % 100 % 100 % 100 % Operating Margins GAAP Operating Margin 3.0 % 3.0 % 4.6 % 3.6 % 3.8 % 3.8 % Non-GAAP Operating Margin 3.2 % 3.3 % 4.8 % 3.9 % 4.2 % 4.1 %
Other Information (in millions except Billable Days and EPS)
Billable Days 64 63 63 65 64 255 Net Income $ 1.833 $ 1.672 $ 8.717 $ 2.240 $ 2.040 $ 14.669 GAAP Diluted EPS* $ 0.12 $ 0.11 $ 0.58 $ 0.15 $ 0.13 $ 0.97 Non-GAAP Diluted EPS* $ 0.13 $ 0.13 $ 0.25 $ 0.16 $ 0.15 $ 0.69 Adjusted EBITDA (non-GAAP) $ 4.1 $ 3.8 $ 6.5 $ 4.3 $ 4.2 $ 18.8
Balance Sheet Information (in millions except DSO)
Cash less Debt, Net $ 29.2 $ 31.0 $ 35.6 $ 38.7 $ 35.5 Working Capital $ 54.5 $ 56.6 $ 57.8 $ 60.3 $ 61.8 DSO 81 82 67 76 84
* GAAP Diluted EPS for the 2021 fourth quarter and Twelve Months Ended June 2022 includes a $0.34 b enefit from the reversal of a valuation allowance against deferred tax assets, while the corresponding amounts in the non-GAAP Diluted EPS balances for the 2021 fourth quarter and Twelve Months Ended June 2022 excludes that benefit
COMPUTER TASK GROUP, INCORPORATED (CTG)
The non-GAAP information below excludes expenses associated with certain acquisition-related expenses and the reversal of a tax valuation allowance. The acquisition-related expenses consist of amortization of intangible assets and changes in the value of earn-out payments upon the 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) 2021 2021 2021 2022 2022 2022 GAAP Operating Income $ 2.801 $ 2.702 $ 5.141 $ 3.199 $ 3.173 $ 14.215 Acquisition-related expenses 0.165 0.280 0.211 0.262 0.290 1.043 Non-GAAP Operating Income $ 2.966 $ 2.982 $ 5.352 $ 3.461 $ 3.463 $ 15.258
Twelve Months For the Quarter Ended Ended Jun. Sept. Dec. Mar. Jun. Jun. 2021 2021 2021 2022 2022 2022 GAAP Operating Margin 3.0 % 3.0 % 4.6 % 3.6 % 3.8 % 3.8 % Acquisition-related expenses 0.2 % 0.3 % 0.2 % 0.3 % 0.4 % 0.3 % Non-GAAP Operating Margin 3.2 % 3.3 % 4.8 % 3.9 % 4.2 % 4.1 %
Twelve Months For the Quarter Ended Ended Jun. Sept. Dec. Mar. Jun. Jun. (in millions) 2021 2021 2021 2022 2022 2022 GAAP Net Income $ 1.833 $ 1.672 $ 8.717 $ 2.240 $ 2.040 $ 14.669 Acquisition-related expenses 0.119 0.216 0.151 0.199 0.212 0.778 Reversal of tax valuation allowance - - (5.094 ) - - (5.094 ) Non-GAAP Net Income $ 1.952 $ 1.888 $ 3.774 $ 2.439 $ 2.252 $ 10.353
COMPUTER TASK GROUP, INCORPORATED (CTG)
Reconciliation of GAAP to non-GAAP Diluted Earnings per Share (EPS)
Twelve Months For the Quarter Ended Ended Jun. Sept. Dec. Mar. Jun. Jun. 2021 2021 2021 2022 2022 2022 GAAP Diluted EPS $ 0.12 $ 0.11 $ 0.58 $ 0.15 $ 0.13 $ 0.97 Acquisition-related expenses 0.01 0.02 0.01 0.01 0.02 0.06 Reversal of tax valuation allowance - - (0.34 ) - - (0.34 ) Non-GAAP Diluted EPS $ 0.13 $ 0.13 $ 0.25 $ 0.16 $ 0.15 $ 0.69
Twelve Months For the Quarter Ended Ended Jun. Sept. Dec. Mar. Jun. Jun. (in millions) 2021 2021 2021 2022 2022 2022 Net Income $ 1.833 $ 1.672 $ 8.717 $ 2.240 $ 2.040 $ 14.669 Taxes 0.712 0.488 (3.633 ) 0.702 0.748 (1.695 ) Interest 0.161 0.112 0.100 0.100 0.100 0.412 Depreciation and amortization 0.831 0.766 0.721 0.716 0.684 2.887 Equity-based compensation expense 0.682 0.702 0.666 0.573 0.603 2.544 Other (0.123 ) 0.007 (0.058 ) - 0.049 (0.002 ) Adjusted EBITDA $ 4.096 $ 3.747 $ 6.513 $ 4.331 $ 4.224 $ 18.815 Adjusted EBITDA Margin 4.4 % 4.1 % 5.8 % 4.8 % 5.1 % 5.0 %
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