CTG Reports 11% Net Income Growth on Lower Revenue in Second Quarter 2022 as Strong Execution of Strategy Drives Strengthened Margin Profile

August 4, 2022
  • 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,
2022
  Jul. 2,
2021
  Jun. 26,
2020
  $  %  $  % 
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.


Second Quarter Segment Performance

(unaudited)

IT Solutions and Services

North America

 ($ in thousands)For the Quarter Ended  Change 2021-2022  Change 2020-2021 
 Jul. 1,
2022
  Jul. 2,
2021
  Jun. 26,
2020
  $  %  $  % 
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%               


Second Quarter Segment Performance (continued)

(unaudited)

Europe

 ($ in thousands)For the Quarter Ended  Change 2021-2022  Change 2020-2021 
 Jul. 1,
2022
  Jul. 2,
2021
  Jun. 26,
2020
  $  %  $  % 
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.


Non-Strategic Technology Services

 ($ in thousands)For the Quarter Ended  Change 2021-2022  Change 2020-2021 
 Jul. 1,
2022
  Jul. 2,
2021
  Jun. 26,
2020
  $  %  $  % 
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.


Consolidated Year-to-Date Results

(unaudited)

 ($ in thousands)For the Two Quarters Ended  Change 2021-2022  Change 2020-2021 
 Jul. 1,
2022
  Jul. 2,
2021
  Jun. 26,
2020
  $  %  $  % 
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


Year-to-date Segment Performance

(unaudited)

IT Solutions and Services

North America

 ($ in thousands)For the Two Quarters Ended  Change 2021-2022  Change 2020-2021 
 Jul. 1,
2022
  Jul. 2,
2021
  Jun. 26,
2020
  $  %  $  % 
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%               


Year-to-Date Segment Performance (continued)

(unaudited)

Europe

 ($ in thousands)For the Two Quarters Ended  Change 2021-2022  Change 2020-2021 
 Jul. 1,
2022
  Jul. 2,
2021
  Jun. 26,
2020
  $  %  $  % 
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%               


Non-Strategic Technology Services

 ($ in thousands)For the Two Quarters Ended  Change 2021-2022  Change 2020-2021 
 Jul. 1,
2022
  Jul. 2,
2021
  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%               


Balance Sheet and Cash Flow

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 to $0.58, and non-GAAP diluted earnings per share to range from $0.53 to $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)
Condensed Consolidated Statements of Income
(Unaudited)
(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)
Condensed Consolidated Balance Sheets
(Unaudited)
(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)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(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)
(Unaudited)
(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)
(Unaudited)
(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)
Supplemental Financial Information

                      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 benefit 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)
(Unaudited)

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 


Reconciliation of GAAP to non-GAAP Operating Margin

                     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%


Reconciliation of GAAP to non-GAAP Net Income

                     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)
(Unaudited)

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 


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, and acquisition-related expenses.

                     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%

- END -

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