CTG (CTG) Tops Q1 EPS by 15c, Revenues Beat

CTG (NASDAQ: CTG) reported Q1 EPS of $0.10, $0.15 better than the analyst estimate of ($0.05). Revenue for the quarter came in at $86.9 million versus the consensus estimate of $81.05 million.

First Quarter Financial Summary

• Total revenue was $86.9 million, in-line with the Company’s previously announced expectations
• Operating income and margin increased by $0.9 million and 122 basis points year-over-year, respectively, to $2.1 million and 2.4%, reflecting a higher contribution from the Solutions business coupled with effective cost containment
• Non-GAAP operating income and margin, excluding $0.4 million of acquisition-related expenses, increased $1.0 million and 138 basis points year-over-year, respectively, to $2.5 million and 2.9%
• GAAP net income was $1.1 million, or $0.08 per diluted share, and included acquisition-related expenses of $0.3 million; non-GAAP net income was $1.4 million, or $0.10 per diluted share and exceeded guidance
• Revenue in Europe was $36.6 million, or 42.1% of total revenue, compared with 38.9% of total revenue in the same quarter last year
• Solutions gross profit was 27.5%, an increase from 25.0% in the first quarter of 2019

First Quarter and Recent Business Highlights

• Completed the acquisition of France and Canada based, StarDust, a leader in testing and quality assurance solutions
• Launched Testing Solutions – new to North America with an initial focus on healthcare
• Secured multi-year contract with new Health Solutions client in excess of $5 million to provide application support
• Promoted long-time CTG veteran, Rénald Wauthier, to lead business operations in Europe
• Responded quickly to the COVID-19 pandemic to ensure the safety of employees while continuing to support the needs of clients
• Enhanced liquidity by accelerating the collection of receivables from largest client and drawing down $12.0 million on line of credit; implemented furloughs for nearly all non-billable employees to reduce expenses
• Received several unsolicited offers to purchase its corporate headquarters building and is currently exploring a sale

CEO Comments on Results“We achieved another quarter of very strong financial results for the first quarter that were in-line with our expectations. Revenue was lower year-over-year reflecting one less billable day in the quarter, our aggressive transition away from less profitable IT Staffing business, and the negative impact of the COVID-19 pandemic on our clients’ business in March,” said Filip Gydé, CTG President and CEO. “Despite these anticipated near-term headwinds to revenue, our ongoing transformational shift toward a solutions-centric organization resulted in a 67% increase in non-GAAP earnings per share over the same period last year. Gross profit from our higher-margin IT Solutions business expanded to 27.5%, a 250 basis point increase from the prior year. This growth, along with prudent cost management across the enterprise, contributed to an increase in operating income of more than 80% year-over-year.

“As a result of the COVID-19 pandemic and significant disruption in the global economy, companies are facing unprecedented challenges. At CTG, our top priority remains the health and safety of our employees, clients and business partners. Beginning in the second half of March, our highly talented team successfully demonstrated the benefits of a modern mobile workforce, enabling us to quickly and safely adapt to the changing business landscape while continuing to fully meet the needs of our clients. The CTG leadership team proactively took actions to further strengthen the Company’s financial position by securing liquidity and streamlining expenses. This included drawing down $12.0 million under our revolving credit facility and accelerating the collection of receivables from our largest IT Staffing client during the quarter. CTG remains well capitalized with a strong balance sheet and sufficient working capital to support our business operations and clients. To further position the Company to combat the potential effects of the pandemic, in early April we implemented selective furloughs along with a temporary salary adjustment for almost all non-billable employees, including senior management. Our business development and solutions organizations were not impacted by the furlough as we continue to pursue high growth opportunities across the organization.

“Although the current environment remains highly dynamic and uncertain, our team has remained focused on maintaining a robust pipeline of new business opportunities, including the consistent sourcing and submission of new proposals. Additionally, in March we successfully completed the strategic acquisition of StarDust, a Testing Solutions company based in France and Canada, which complemented our simultaneous launch of CTG’s new Testing Solutions in North America.

“During the quarter we continued to build on our talented and dedicated CTG team with the promotion of Rénald Wauthier to senior vice president of CTG Europe. As a 25-year veteran of CTG, he has demonstrated tremendous leadership and has made fundamental contributions to the Company’s successful track record of growth and profitability in both Luxembourg and France. Rénald is the ideal leader to assume responsibility for CTG’s strategy and operations across all of Western Europe. We are confident he will continue to leverage CTG Europe’s ongoing momentum and deliver strong results. Rénald’s promotion also serves to complete the full transition of my previous role prior to being appointed CEO in March 2019.”

Gydé concluded, “I’m proud of the organization and the resilient dedication of our team, as we actively support clients by delivering the value-added solutions and services that CTG has been known for since 1966. We remain focused on proactively managing the factors within our control during these difficult times and successfully executing on our strategic plan to further enhance profitability and position CTG as a leading global solutions provider.”

Guidance and Outlook

Given the uncertainty related to the breadth and impact of the COVID-19 pandemic on CTG’s end markets, target geographies and clients, the Company has decided to suspend its prior financial guidance for the full year 2020.

CTG Executive Vice President and Chief Financial Officer John M. Laubacker commented, “While the COVID-19 pandemic had relatively limited impact on our business in the first quarter, the Company expects a more pronounced effect on both our clients’ operations and CTG’s business beginning in the second quarter. However, the magnitude and longevity of the anticipated impact remains extremely difficult to forecast, and therefore we have chosen to suspend our full year financial guidance for 2020. Together, CTG’s Board of Directors and senior management will continue to closely monitor developments as visibility improves and take appropriate actions.”

For earnings history and earnings-related data on CTG (CTG) click here.

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