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 fourth quarter and full year ended December 31, 2022. Results include the first full quarter of Eleviant Technologies (Eleviant), which was acquired by CTG on September 29, 2022.

Filip Gydé, CTG President and CEO commented, “We are very excited about the momentum we have underway, with strong fourth quarter results that reflect an improved mix of digital IT solutions in both North America and Europe. Our fourth quarter gross margin from our IT Solutions and Services segments expanded 590 basis points to 31.8%, our highest level in recent years. Our fourth quarter North America IT Solutions and Services segment achieved gross margins of 43.9%, up from 29.4% a year ago, resulting from the increasing mix of our business toward digital solutions and driving the expansion in our adjusted EBITDA margins.”

Mr. Gydé added, “The acquisition of Eleviant is exceeding our expectations and accelerating our strategy. We look forward to further leveraging our new digital IT capabilities and increased global delivery capacity, flexibility and agility to deliver improving results as we work to achieve our 2023 goals. We began our journey to transform away from providing IT staffing services and into an IT solutions provider in 2018, and later added a digital focus in 2021. We are excited as we journey toward the completion of the first phase of our transformation and the upside on profitability which that represents. To date, we have made significant progress in all segments of our business and are finalizing our goals and objectives for the future. In the near term, we look forward to sharing our expectations for further improving operating results during the second phase of our transformation.”

Consolidated Fourth 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
  Dec. 31, 2022   Dec. 31, 2021   Dec. 31, 2020   $   %   $   %
Revenue $ 77,902     $ 112,389     $ 101,348     $ (34,487 )   -30.7 %   $ 11,041   10.9 %
                           
GAAP Operating Income $ 2,451     $ 5,141     $ 3,325     $ (2,690 )   -52.3 %   $ 1,816   54.6 %
GAAP Operating Margin   3.1 %     4.6 %     3.3 %                
                           
Non-GAAP Operating Income* $ 3,985     $ 5,352     $ 3,581     $ (1,367 )   -25.5 %   $ 1,771   49.5 %
Non-GAAP Operating Margin*   5.1 %     4.8 %     3.5 %                
                           
GAAP Net Income $ 1,227     $ 8,717     $ 1,905     $ (7,490 )   -85.9 %   $ 6,812   357.6 %
GAAP Net Margin   1.6 %     7.8 %     1.9 %                
                           
Non-GAAP Net Income* $ 2,186     $ 3,774     $ 2,044     $ (1,588 )   -42.1 %   $ 1,730   84.6 %
Non-GAAP Net Income Margin*   2.8 %     3.4 %     2.0 %                
                           
Adjusted EBITDA* $ 4,807     $ 6,513     $ 4,935     $ (1,706 )   -26.2 %   $ 1,578   32.0 %
Adjusted EBITDA Margin*   6.2 %     5.8 %     4.9 %                

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

  • The change in revenue reflects last year’s fourth quarter benefiting more than $25 million from a major health system engagement in North America, and $9.3 million related to the intentional disengagement from lower-margin non-strategic technology services business.
  • Selling, general and administrative (SG&A) expenses declined 4.1% to $19.1 million reflecting cost discipline while continuing to invest in business development and related resources. As a percentage of revenue, SG&A increased 680 basis points due to reduced operating leverage given the significant prior-year project.
  • Included in GAAP net income was $0.5 million of severance and $0.4 million of acquisition-related expenses while the prior-year period included a $5.1 million reversal of a valuation allowance against deferred tax assets in the United States and $0.2 million of acquisition expenses. Earnings per diluted share were $0.08 for the fourth quarter of 2022 compared with $0.58 for the fourth quarter of 2021. Excluding the atypical expenses from both periods, non-GAAP earnings per diluted share for the fourth quarter were $0.14 in 2022 compared with $0.25 in 2021.

Fourth Quarter Segment Performance(unaudited)

IT Solutions and Services

North America

 ($ in thousands) For the Quarter Ended   Change 2021-2022   Change 2020-2021
  Dec. 31, 2022   Dec. 31, 2021   Dec. 31, 2020   $   %   $     %
Revenue $ 22,924     $ 45,075     $ 22,440     $ (22,151 )     -49.1 %   $ 22,635       100.9 %
Percent of total   29.4 %     40.1 %     22.2 %                        
                                         
Gross profit $ 10,059     $ 13,262     $ 8,058     $ (3,203 )     -24.2 %   $ 5,204       64.6 %
Gross margin   43.9 %     29.4 %     35.9 %                        
                                         
Contribution profit $ 6,112     $ 9,166     $ 5,160     $ (3,054 )     -33.3 %   $ 4,006       77.6 %
Contribution margin   26.7 %     20.3 %     23.0 %                        
  • The 2021 fourth quarter revenue included more than $25 million for a large training, implementation, and support engagement for a health system in North America that did not repeat in 2022. The 2022 fourth quarter results for our North America segment include Eleviant, the company we acquired at the end of the 2022 third quarter.
  • Segment margins saw substantial expansion, despite lower revenue, given the improved mix of digital solutions and contribution from Eleviant.

Europe

 ($ in thousands) For the Quarter Ended   Change 2021-2022   Change 2020-2021
  Dec. 31, 2022   Dec. 31, 2021   Dec. 31, 2020   $   %   $   %
Revenue $ 37,035     $ 40,081     $ 43,857     $ (3,046 )     -7.6 %   $ (3,776 )     -8.6 %
Percent of total   47.6 %     35.7 %     43.3 %                        
                                         
Gross profit $ 9,009     $ 8,805     $ 9,699     $ 204       2.3 %   $ (894 )     -9.2 %
Gross margin   24.3 %     22.0 %     22.1 %                        
                                         
Contribution profit $ 4,545     $ 3,262     $ 4,470     $ 1,283       39.3 %   $ (1,208 )     -27.0 %
Contribution margin   12.3 %     8.1 %     10.2 %                        
  • Segment margins benefited from improved utilization, strategic pricing and greater mix of digital solutions.

Non-Strategic Technology Services

 ($ in thousands) For the Quarter Ended   Change 2021-2022   Change 2020-2021
  Dec. 31, 2022   Dec. 31, 2021   Dec. 31, 2020   $   %   $   %
Revenue $ 17,943     $ 27,233     $ 35,051     $ (9,290 )     -34.1 %   $ (7,818 )     -22.3 %
Percent of total   23.0 %     24.2 %     34.6 %                        
                                         
Gross profit $ 2,435     $ 2,947     $ 3,870     $ (512 )     -17.4 %   $ (923 )     -23.9 %
Gross margin   13.6 %     10.8 %     11.0 %                        
                                         
Contribution profit $ 1,889     $ 1,845     $ 2,276     $ 44       2.4 %   $ (431 )     -18.9 %
Contribution margin   10.5 %     6.8 %     6.5 %                        
  • Non-Strategic Technology Services segment margins improved as the Company selectively disengages from its lowest margin business.

Consolidated Full Year 2022 Results (Narrative compares with prior-year period unless otherwise noted)

 ($ in thousands) For the Year Ended   Change 2021-2022   Change 2020-2021
  Dec. 31, 2022   Dec. 31, 2021   Dec. 31, 2020   $   %   $   %
Revenue $ 325,080     $ 392,285     $ 366,091     $ (67,205 )   -17.1 %   $ 26,194   7.2 %
                           
GAAP Operating Income $ 11,076     $ 12,742     $ 9,130     $ (1,666 )   -13.1 %   $ 3,612   39.6 %
GAAP Operating Margin   3.4 %     3.2 %     2.5 %                
                           
Non-GAAP Operating Income* $ 13,906     $ 14,042     $ 11,329     $ (136 )   -1.0 %   $ 2,713   23.9 %
Non-GAAP Operating Margin*   4.3 %     3.6 %     3.1 %                
                           
GAAP Net Income $ 6,609     $ 13,730     $ 7,639     $ (7,121 )   -51.9 %   $ 6,091   79.7 %
GAAP Net Margin   2.0 %     3.5 %     2.1 %                
                           
Non-GAAP Net Income* $ 8,489     $ 9,620     $ 6,317     $ (1,131 )   -11.8 %   $ 3,303   52.3 %
Non-GAAP Net Income Margin*   2.6 %     2.5 %     1.7 %                
                           
Adjusted EBITDA* $ 17,186     $ 18,081     $ 15,692     $ (895 )   -4.9 %   $ 2,389   15.2 %
Adjusted EBITDA Margin*   5.3 %     4.6 %     4.3 %                

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

  • The full year results reflect similar impacts in the fourth quarter as the Company continued to shift its revenue mix to more solutions and services-based business. In 2022, the Company intentionally disengaged from $30.3 million from its lower-margin non-strategic technology services business, while the Company intentionally disengaged from $21.9 million in 2021.
  • SG&A expense as a percentage of revenue was 21.2% in 2022 compared with 18.8% in 2021. Included was $2.0 million of acquisition-related expenses and $0.8 million in severance, compared with $1.1 million of acquisition-related expenses and $0.2 million of rebranding expenses in 2021.

Full Year Segment Performance (unaudited)

North America IT Solutions and Services

 ($ in thousands) For the Year Ended   Change 2021-2022   Change 2020-2021
  Dec. 31, 2022   Dec. 31, 2021   Dec. 31, 2020   $   %   $   %
Revenue $ 84,038     $ 101,506     $ 67,948     $ (17,468 )   -17.2 %   $ 33,558   49.4 %
Percent of total   25.9 %     25.9 %     18.6 %                
                           
Gross profit $ 31,723     $ 32,621     $ 23,995     $ (898 )   -2.8 %   $ 8,626   35.9 %
Gross margin   37.7 %     32.1 %     35.3 %                
                           
Contribution profit $ 17,520     $ 18,738     $ 14,627     $ (1,218 )   -6.5 %   $ 4,111   28.1 %
Contribution margin   20.8 %     18.5 %     21.5 %                

Europe IT Solutions and Services

 ($ in thousands) For the Year Ended   Change 2021-2022   Change 2020-2021
  Dec. 31, 2022   Dec. 31, 2021   Dec. 31, 2020   $   %   $   %
Revenue $ 149,931     $ 169,341     $ 154,847     $ (19,410 )   -11.5 %   $ 14,494   9.4 %
Percent of total   46.1 %     43.2 %     42.3 %                
                           
Gross profit $ 36,941     $ 40,311     $ 37,818     $ (3,370 )   -8.4 %   $ 2,493   6.6 %
Gross margin   24.6 %     23.8 %     24.4 %                
                           
Contribution profit $ 17,987     $ 18,966     $ 17,452     $ (979 )   -5.2 %   $ 1,514   8.7 %
Contribution margin   12.0 %     11.2 %     11.3 %                

Non-Strategic Technology Services

 ($ in thousands) For the Year Ended   Change 2021-2022   Change 2020-2021
  Dec. 31, 2022   Dec. 31, 2021   Dec. 31, 2020   $   %   $   %
Revenue $ 91,111     $ 121,438     $ 143,296     $ (30,327 )   -25.0 %   $ (21,858 )   -15.3 %
Percent of total   28.0 %     30.9 %     39.1 %                
                           
Gross profit $ 11,413     $ 13,518     $ 15,145     $ (2,105 )   -15.6 %   $ (1,627 )   -10.7 %
Gross margin   12.5 %     11.1 %     10.6 %                
                           
Contribution profit $ 8,781     $ 8,614     $ 8,153     $ 167     1.9 %   $ 461     5.7 %
Contribution margin   9.6 %     7.1 %     5.7 %                

Balance Sheet and Cash Flow

Cash and cash equivalents were $25.1 million compared with $35.6 million at year-end 2021. The Company used $17.4 million of cash for the acquisition of Eleviant at the end of the third quarter. Net cash provided by operations was $11.9 million for 2022.

At year-end, 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 fourth quarter of 2022 compared with 67 in the prior-year period, which benefited from the large North America project.

Successfully Executing on Strategy

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

  • Become a global provider of digital IT solutions by capitalizing on the compelling trend of digital transformation, leverage the CTG brand built on reliability and results, and deliver solutions primarily to the energy, healthcare, finance, and manufacturing sectors.
  • Expand the team organically by adding highly qualified and experienced associates and employing innovative tools and methodologies, and by making selective acquisitions.
  • Strengthen its margin profile both by the mix of business and by reducing delivery costs including the disengagement from low margin IT staffing service support in its Non-Strategic Technology Services segment.

Fiscal 2023 Outlook

John M. Laubacker, Chief Financial Officer, said, “As demonstrated this past year, we are making strong progress executing our strategy and we expect it to continue in 2023. Our revenue outlook for 2023 includes a reduction of $35 million to $40 million from the prior year as a result of the intentional disengagement from the lowest margin business in our Non-Strategic Technology Services segment, slightly offset by a full year of revenue from Eleviant, which only contributed one quarter of revenue in 2022 as the acquisition was completed at the end of September. Ultimately, notwithstanding macroeconomic challenges and top-line pressure, we continue to expect to expand our margins and reach our adjusted EBITDA margin* goal of approximately 7% by the end of 2023. Looking ahead, we expect our prudent investment in business development resources will yield additional revenue and operating profits in the future.”

Mr. Laubacker added, “We are kicking off an Enterprise Resource Planning (ERP) system implementation which we expect to enhance our core operating systems in order to create additional efficiencies, capabilities and flexibility. The total project cost is estimated at $8 million to $10 million and will be largely spread out over a two-year period, with a completion date targeted around the end of 2024. A significant portion of these costs will be expensed throughout the project. Our GAAP EPS estimates for 2023 take this project into consideration, though we plan to back those costs out as part of our non-GAAP EPS disclosures. The difference in our GAAP and non-GAAP EPS will also be larger in 2023 as compared with prior years as we account for the amortization of the intangible assets created by the acquisition of Eleviant. Finally, the ranges below are larger than we normally provide given the uncertainty of the macroeconomic environment and the rate at which we may disengage from non-strategic business during 2023.”

Our guidance for 2023 is as follows:

Revenue $300 million to $350 million
Revenue - IT Solutions and Services $245 million to $295 million
GAAP diluted EPS $0.34 to $0.46
Non-GAAP diluted EPS $0.56 to $0.68

*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 December 31, 2022.

Conference Call and Webcast

CTG will hold a conference call today, February 23, 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, March 2, 2023, by dialing +1 844 512 2921 and entering the access code 13735068. 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 the integration of 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 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 2023 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, any new or continuing regulatory, social and business responses to the COVID-19 pandemic, or the potential impacts of any similar items 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 conflict between Russia and the Ukraine and developments in China, 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)Condensed Consolidated Statements of Income(Unaudited) (amounts in thousands except per share data)

  For the Quarter Ended
  December 31,   December 31,   December 31,
  2022   2021   2020
           
Revenue $ 77,902     $ 112,389     $ 101,348
Cost of services   56,399       87,375       79,721
Gross profit   21,503       25,014       21,627
Selling, general and admin. expenses   19,052       19,873       18,302
Operating income   2,451       5,141       3,325
Non-taxable life insurance gain   -       -       24
Other income (expense), net   (488 )     (57 )     156
Income before income taxes   1,963       5,084       3,505
Provision (benefit) for income taxes   736       (3,633 )     1,600
Net income $ 1,227     $ 8,717     $ 1,905
           
Net income per share:          
Basic $ 0.08     $ 0.62     $ 0.14
Diluted $ 0.08     $ 0.58     $ 0.13
           
Weighted average shares outstanding:          
Basic   14,658       14,153       13,670
Diluted   15,365       15,101       14,702

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

  For the Year Ended
  December 31,   December 31,   December 31,
  2022   2021   2020
           
Revenue $ 325,080     $ 392,285     $ 366,091  
Cost of services   245,003       305,835       289,133  
Gross profit   80,077       86,450       76,958  
Selling, general and admin. expenses   69,001       73,708       67,828  
Operating income   11,076       12,742       9,130  
Non-taxable life insurance gain   -       -       987  
Gain on sale of building   -       -       824  
Other expense, net   (1,522 )     (1,005 )     (280 )
Income before income taxes   9,554       11,737       10,661  
Provision for income taxes   2,945       (1,993 )     3,022  
Net income $ 6,609     $ 13,730     $ 7,639  
           
Net income per share:          
Basic $ 0.46     $ 0.99     $ 0.56  
Diluted $ 0.44     $ 0.92     $ 0.53  
           
Weighted average shares outstanding:          
Basic   14,440       13,926       13,621  
Diluted   15,156       14,971       14,427  

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

  December 31,     December 31,  
  2022     2021  
Current Assets:          
Cash and cash equivalents $ 25,140     $ 35,584  
Accounts receivable, net   70,979       84,252  
Other current assets   3,769       2,929  
Total current assets   99,888       122,765  
           
Property and equipment, net   5,061       5,242  
Operating lease right-of-use assets   18,506       22,132  
Cash surrender value   4,120       4,018  
Acquired intangibles, net   12,943       7,280  
Goodwill   35,998       19,676  
Other assets   5,103       7,221  
Total Assets $ 181,619     $ 188,334  
           
Current Liabilities:          
Accounts payable $ 14,254     $ 21,150  
Accrued compensation   19,016       22,534  
Operating lease liabilities   5,905       6,444  
Other current liabilities   12,758       14,855  
Total current liabilities   51,933       64,983  
           
Operating lease liabilities   12,466       15,612  
Other liabilities   11,241       13,302  
Shareholders' equity   105,979       94,437  
Total Liabilities and Shareholders' Equity $ 181,619     $ 188,334  

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

  For the Year Ended  
  December 31,     December 31,     December 31,  
  2022     2021     2020  
                 
Net income $ 6,609     $ 13,730     $ 7,639  
Depreciation and amortization expense   2,999       3,172       3,309  
Equity-based compensation expense   2,563       2,640       2,483  
Other operating items   (285 )     (12,131 )     17,307  
Net cash provided by operating activities   11,886       7,411       30,738  
Net cash used in investing activities   (20,266 )     (2,471 )     (4,983 )
Net cash used in financing activities   (1,021 )     (1,074 )     (5,685 )
Effect of exchange rates on cash and cash equivalents   (1,043 )     (1,147 )     2,014  
Net increase (decrease) in cash and cash equivalents   (10,444 )     2,719       22,084  
Cash and cash equivalents at beginning of period   35,584       32,865       10,781  
Cash and cash equivalents at end of period $ 25,140     $ 35,584     $ 32,865  
                 

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 December 31, 2022
  North                    
  America   Europe   Non-Strategic           Non-
  IT Solutions   IT Solutions   Technology   GAAP   Non-   GAAP
  and Services   and Services   Services   Totals   GAAP*   Totals
                       
Revenue $ 22,924     $ 37,035     $ 17,943     $ 77,902         $ 77,902  
Cost of services   12,865       28,026       15,508       56,399           56,399  
Gross profit   10,059       9,009       2,435       21,503           21,503  
Gross margin   43.9 %     24.3 %     13.6 %     27.6 %         27.6 %
Operating expenses   3,947       4,464       546       8,957           8,957  
Contribution profit $ 6,112     $ 4,545     $ 1,889       12,546           12,546  
Contribution margin   26.7 %     12.3 %     10.5 %     16.1 %         16.1 %
General and admin. expense               10,095       (1,534 )     8,561  
Operating income             $ 2,451     $ 1,534     $ 3,985  
Operating margin               3.1 %         5.1 %

* Non-GAAP costs represent certain acquisition-related expenses and costs associated with severance

  For the Quarter Ended December 31, 2021
  North                    
  America   Europe   Non-Strategic           Non-
  IT Solutions   IT Solutions   Technology   GAAP   Non-   GAAP
  and Services   and Services   Services   Totals   GAAP*   Totals
                       
Revenue $ 45,075     $ 40,081     $ 27,233     $ 112,389         $ 112,389  
Cost of services   31,813       31,276       24,286       87,375           87,375  
Gross profit   13,262       8,805       2,947       25,014           25,014  
Gross margin   29.4 %     22.0 %     10.8 %     22.3 %         22.3 %
Operating expenses   4,096       5,543       1,102       10,741           10,741  
Contribution profit $ 9,166     $ 3,262     $ 1,845       14,273           14,273  
Contribution margin   20.3 %     8.1 %     6.8 %     12.7 %         12.7 %
General and admin. expense               9,132       (211 )     8,921  
Operating income             $ 5,141     $ 211     $ 5,352  
Operating margin               4.6 %         4.8 %

* Non-GAAP costs represent certain acquisition-related expenses

COMPUTER TASK GROUP, INCORPORATED (CTG)Segment Information (continued)(Unaudited)(amounts in thousands)

  For the Quarter Ended December 31, 2020
  North                    
  America   Europe   Non-Strategic           Non-
  IT Solutions   IT Solutions   Technology   GAAP   Non-   GAAP
  and Services   and Services   Services   Totals   GAAP*   Totals
                       
Revenue $ 22,440     $ 43,857     $ 35,051     $ 101,348         $ 101,348  
Cost of services   14,382       34,158       31,181       79,721           79,721  
Gross profit   8,058       9,699       3,870       21,627           21,627  
Gross margin   35.9 %     22.1 %     11.0 %     21.3 %         21.3 %
Operating expenses   2,898       5,229       1,594       9,721           9,721  
Contribution profit $ 5,160     $ 4,470     $ 2,276       11,906           11,906  
Contribution margin   23.0 %     10.2 %     6.5 %     11.7 %         11.7 %
General and admin. expense               8,581       (256 )     8,325  
Operating income             $ 3,325     $ 256     $ 3,581  
Operating margin               3.3 %         3.5 %

* Non-GAAP costs represent certain acquisition-related expenses

  For the Year Ended December 31, 2022
  North                    
  America   Europe   Non-Strategic           Non-
  IT Solutions   IT Solutions   Technology   GAAP   Non-   GAAP
  and Services   and Services   Services   Totals   GAAP*   Totals
                       
Revenue $ 84,038     $ 149,931     $ 91,111     $ 325,080         $ 325,080  
Cost of services   52,315       112,990       79,698       245,003           245,003  
Gross profit   31,723       36,941       11,413       80,077           80,077  
Gross margin   37.7 %     24.6 %     12.5 %     24.6 %         24.6 %
Operating expenses   14,203       18,954       2,632       35,789           35,789  
Contribution profit $ 17,520     $ 17,987     $ 8,781       44,288           44,288  
Contribution margin   20.8 %     12.0 %     9.6 %     13.6 %         13.6 %
General and admin. expense               33,212       (2,830 )     30,382  
Operating income             $ 11,076     $ 2,830     $ 13,906  
Operating margin               3.4 %         4.3 %

* Non-GAAP costs represent certain acquisition-related expenses and costs associated with severance

COMPUTER TASK GROUP, INCORPORATED (CTG)Segment Information (continued)(Unaudited)(amounts in thousands)

  For the Year Ended December 31, 2021
  North                    
  America   Europe   Non-Strategic           Non-
  IT Solutions   IT Solutions   Technology   GAAP   Non-   GAAP
  and Services   and Services   Services   Totals   GAAP*   Totals
                       
Revenue $ 101,506     $ 169,341     $ 121,438     $ 392,285         $ 392,285  
Cost of services   68,885       129,030       107,920       305,835           305,835  
Gross profit   32,621       40,311       13,518       86,450           86,450  
Gross margin   32.1 %     23.8 %     11.1 %     22.0 %         22.0 %
Operating expenses   13,883       21,345       4,904       40,132           40,132  
Contribution profit $ 18,738     $ 18,966     $ 8,614       46,318           46,318  
Contribution margin   18.5 %     11.2 %     7.1 %     11.8 %         11.8 %
General and admin. expense               33,576       (1,300 )     32,276  
Operating income             $ 12,742     $ 1,300     $ 14,042  
Operating margin               3.2 %         3.6 %

* Non-GAAP costs represent certain acquisition-related expenses and rebranding costs

  For the Year Ended December 31, 2020
  North                    
  America   Europe   Non-Strategic           Non-
  IT Solutions   IT Solutions   Technology   GAAP   Non-   GAAP
  and Services   and Services   Services   Totals   GAAP*   Totals
                       
Revenue $ 67,948     $ 154,847     $ 143,296     $ 366,091         $ 366,091  
Cost of services   43,953       117,029       128,151       289,133           289,133  
Gross profit   23,995       37,818       15,145       76,958           76,958  
Gross margin   35.3 %     24.4 %     10.6 %     21.0 %         21.0 %
Operating expenses   9,368       20,366       6,992       36,726           36,726  
Contribution profit $ 14,627     $ 17,452     $ 8,153       40,232           40,232  
Contribution margin   21.5 %     11.3 %     5.7 %     11.0 %         11.0 %
General and admin. expense               31,102       (2,199 )     28,903  
Operating income             $ 9,130     $ 2,199     $ 11,329  
Operating margin               2.5 %         3.1 %

* Non-GAAP costs represent certain acquisition-related expenses and costs associated with severance

COMPUTER TASK GROUP, INCORPORATED (CTG)Segment and Vertical Market Trends (Unaudited)Supplemental Financial Information

                        Year   Year
    For the Quarter Ended   Ended   Ended
    Dec.   Mar.   Jun.   Sept.   Dec.   Dec.   Dec.
      2021       2022       2022       2022       2022       2022       2021  
Revenue (in millions)                            
North America IT Solutions and Services   $ 45.075     $ 20.435     $ 20.339     $ 20.340     $ 22.924     $ 84.038     $ 101.506  
Europe IT Solutions and Services     40.081       42.478       37.160       33.258       37.035       149.931       169.341  
Non-Strategic Technology Services     27.233       26.504       25.260       21.404       17.943       91.111       121.438  
Total Revenue   $ 112.389     $ 89.417     $ 82.759     $ 75.002     $ 77.902     $ 325.080     $ 392.285  
                             
Revenue in North America                            
Constant Currency (in millions)**                            
North America   $ 71.064     $ 46.262     $ 45.042     $ 41.501     $ 40.604     $ 173.409     $ 218.360  
Foreign Currency Impact     (0.035 )     (0.042 )     (0.033 )     (0.021 )     -       -       (0.117 )
Total Revenue in Constant Currency   $ 71.029     $ 46.220     $ 45.009     $ 41.480     $ 40.604     $ 173.409     $ 218.243  
                             
Revenue in Europe                            
Constant Currency (in millions)**                            
Europe   $ 41.325     $ 43.155     $ 37.717     $ 33.501     $ 37.298     $ 151.671     $ 173.925  
Foreign Currency Impact     (4.535 )     (4.010 )     (1.640 )     0.403       -       -       (18.872 )
Total Revenue in Constant Currency   $ 36.790     $ 39.145     $ 36.077     $ 33.904     $ 37.298     $ 151.671     $ 155.053  
                             
Revenue By Geography                            
North America     63.2 %     51.7 %     54.4 %     55.3 %     52.1 %     53.3 %     55.7 %
Europe     36.8 %     48.3 %     45.6 %     44.7 %     47.9 %     46.7 %     44.3 %
Total     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
                             
Revenue by Vertical Market                            
Technology Service Providers     20 %     24 %     24 %     22 %     19 %     23 %     27 %
Healthcare     36 %     17 %     18 %     19 %     18 %     18 %     21 %
Financial Services     13 %     17 %     15 %     15 %     17 %     16 %     16 %
Manufacturing     10 %     14 %     15 %     17 %     16 %     15 %     12 %
Energy     4 %     5 %     7 %     6 %     6 %     6 %     5 %
General Markets     17 %     23 %     21 %     21 %     24 %     22 %     19 %
Total     100 %     100 %     100 %     100 %     100 %     100 %     100 %
                             
Operating Margins                            
GAAP Operating Margin     4.6 %     3.6 %     3.8 %     3.0 %     3.1 %     3.4 %     3.2 %
Non-GAAP Operating Margin     4.8 %     3.9 %     4.2 %     4.0 %     5.1 %     4.3 %     3.6 %

Other Information (in millions except Billable Days and EPS)

Billable Days     63     65     64     63     63     255     255
Net Income   $ 8.717   $ 2.240   $ 2.040   $ 1.102   $ 1.227   $ 6.609   $ 13.730
GAAP Diluted EPS*   $ 0.58   $ 0.15   $ 0.13   $ 0.07   $ 0.08   $ 0.44   $ 0.92
Non-GAAP Diluted EPS*   $ 0.25   $ 0.16   $ 0.15   $ 0.11   $ 0.14   $ 0.56   $ 0.64
Adjusted EBITDA (non-GAAP)   $ 6.5   $ 4.3   $ 4.2   $ 3.8   $ 4.8   $ 17.2   $ 18.1

Balance Sheet Information (in millions except DSO)

Cash less Debt, Net   $ 35.6   $ 38.7   $ 35.5   $ 26.8   $ 25.1        
Working Capital   $ 57.8   $ 60.3   $ 61.8   $ 44.5   $ 48.7        
DSO     67     76     84     83     84        

* GAAP Diluted EPS for the 2021 fourth quarter includes a $0.34 benefit from the reversal of a valuation allowance against deferred tax assets, while the corresponding amounts in the non-GAAP Diluted EPS balance for the 2021 fourth quarter excludes that benefit.** 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 gains from non-taxable life insurance and from the sale of a building, and expenses associated with rebranding, severance, certain acquisition-related expenses, and the reversal of a tax valuation allowance. The acquisition-related expenses consist of due diligence costs, 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

                        Year   Year
    For the Quarter Ended   Ended   Ended
    Dec.   Mar.   Jun.   Sept.   Dec.   Dec.   Dec.
(in millions)   2021   2022   2022   2022   2022   2022   2021
GAAP Operating Income   $ 5.141   $ 3.199   $ 3.173   $ 2.253   $ 2.451   $ 11.076   $ 12.742
Acquisition-related expenses     0.211     0.262     0.290     0.744     0.696     1.992     1.051
Rebranding expenses     -     -     -     -     -     -     0.249
Severance     -     -     -     -     0.838     0.838     -
Non-GAAP Operating Income   $ 5.352   $ 3.461   $ 3.463   $ 2.997   $ 3.985   $ 13.906   $ 14.042

Reconciliation of GAAP to non-GAAP Operating Margin

                        Year   Year
    For the Quarter Ended   Ended   Ended
    Dec.   Mar.   Jun.   Sept.   Dec.   Dec.   Dec.
    2021   2022   2022   2022   2022   2022   2021
GAAP Operating Margin   4.6 %   3.6 %   3.8 %   3.0 %   3.1 %   3.4 %   3.2 %
Acquisition-related expenses   0.2 %   0.3 %   0.4 %   1.0 %   0.9 %   0.6 %   0.3 %
Rebranding expenses   -     -     -     -     -     -     0.1 %
Severance   -     -     -     -     1.1 %   0.3 %   -  
Non-GAAP Operating Margin   4.8 %   3.9 %   4.2 %   4.0 %   5.1 %   4.3 %   3.6 %

Reconciliation of GAAP to non-GAAP Net Income

                                     
    For the Quarter Ended   For the Year Ended
    Dec.   Dec.   Mar.   Jun.   Sept.   Dec.   Dec.   Dec.   Dec.
(in millions)   2020   2021   2022   2022   2022   2022   2022   2021   2020
GAAP Net Income   $ 1.905   $ 8.717     $ 2.240   $ 2.040   $ 1.102   $ 1.227   $ 6.609   $ 13.730     $ 7.639  
Acquisition-related expenses     0.139     0.151       0.199     0.212     0.510     0.435     1.356     0.792       0.945  
Reversal of tax valuation allowance     -     (5.094 )     -     -     -     -     -     (5.094 )     -  
Rebranding expenses     -     -       -     -     -     -     -     0.192       -  
Non-taxable life insurance gain     -     -       -     -     -     -     -     -       (0.987 )
Gain on sale of building     -     -       -     -     -     -     -     -       (0.464 )
Change in tax legislation     -     -       -     -     -     -     -     -       (1.141 )
Severance     -     -       -     -     -     0.524     0.524     -       0.325  
Non-GAAP Net Income   $ 2.044   $ 3.774     $ 2.439   $ 2.252   $ 1.612   $ 2.186   $ 8.489   $ 9.620     $ 6.317  

COMPUTER TASK GROUP, INCORPORATED (CTG) (Unaudited)

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

                                  Year     Year  
    For the Quarter Ended     Ended     Ended  
    Dec.     Mar.     Jun.     Sept.     Dec.     Dec.     Dec.  
    2021     2022     2022     2022     2022     2022     2021  
GAAP Diluted EPS   $ 0.58     $ 0.15     $ 0.13     $ 0.07     $ 0.08     $ 0.44     $ 0.92  
Acquisition-related expenses     0.01       0.01       0.02       0.04       0.03       0.09       0.05  
Reversal of tax valuation allowance     (0.34 )     -       -       -       -       -       (0.34 )
Rebranding expenses     -       -       -       -       -       -       0.01  
Severance     -       -       -       -       0.03       0.03       -  
Non-GAAP Diluted EPS   $ 0.25     $ 0.16     $ 0.15     $ 0.11     $ 0.14     $ 0.56     $ 0.64  

Reconciliation of Net Income to Adjusted EBITDA (non-GAAP), which includes earnings before interest (including amortization of deferred debt financing costs), taxes, depreciation and amortization, equity-based compensation, non-taxable life insurance gain, severance, and acquisition-related expenses.

                                 
    For the Quarter Ended   For the Year Ended
    Dec.   Mar.   Jun.   Sept.   Dec.   Dec.   Dec.   Dec.
(in millions)     2021       2022       2022       2022       2022       2022       2021       2020  
Net Income   $ 8.717     $ 2.240     $ 2.040     $ 1.102     $ 1.227     $ 6.609     $ 13.730     $ 7.639  
Taxes     (3.633 )     0.702       0.748       0.759       0.736       2.945       (1.993 )     3.022  
Interest     0.100       0.100       0.100       0.103       0.100       0.403       0.409       0.274  
Depreciation and amortization     0.721       0.716       0.684       0.651       0.948       2.999       3.172       3.309  
Equity-based compensation expense     0.666       0.573       0.603       0.693       0.694       2.563       2.640       2.483  
Non-taxable life insurance gain     -       -       -       -       -       -       -       (0.987 )
Other     (0.058 )     -       0.049       0.516       1.102       1.667       0.123       (0.048 )
Adjusted EBITDA   $ 6.513     $ 4.331     $ 4.224     $ 3.824     $ 4.807     $ 17.186     $ 18.081     $ 15.692  
Adjusted EBITDA Margin     5.8 %     4.8 %     5.1 %     5.1 %     6.2 %     5.3 %     4.6 %     4.3 %

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

Contacts:

John M. Laubacker
Chief Financial Officer
Tel: +1 716 887 7368

Investor Relations:
Deborah K. Pawlowski
Kei Advisors LLC
dpawlowski@keiadvisors.com
Tel: +1 716 843 3908
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