0001564590-22-019241 | 10-Q | XBRL Viewer

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Document and Entity Information Document - shares	3 Months Ended
Document and Entity Information Document - shares	Apr. 01, 2022	May 05, 2022
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Apr. 01, 2022
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q1
Trading Symbol	CTG
Entity Registrant Name	COMPUTER TASK GROUP, INCORPORATED
Entity Central Index Key	0000023111
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity File Number	1-9410
Entity Tax Identification Number	16-0912632
Entity Address, Address Line One	300 Corporate Parkway
Entity Address, Address Line Two	Suite 214N
Entity Address, City or Town	Amherst
Entity Address, State or Province	NY
Entity Incorporation, State or Country Code	NY
Entity Address, Postal Zip Code	14226
City Area Code	716
Local Phone Number	882-8000
Title of 12(b) Security	Common Stock, par value $0.01 per share
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		15,417,204
Entity Interactive Data Current	Yes
Document Quarterly Report	true
Document Transition Report	false

Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Apr. 01, 2022	Apr. 02, 2021
Income Statement [Abstract]
Revenue	$ 89,417	$ 97,129
Cost of services	68,822	76,362
Gross profit	20,595	20,767
Selling, general and administrative expenses	17,396	18,669
Operating income	3,199	2,098
Interest and other income	91	84
Interest and other expense	348	234
Income before income taxes	2,942	1,948
Provision for income taxes	702	440
Net income	$ 2,240	$ 1,508
Net income per share:
Basic	$ 0.16	$ 0.11
Diluted	$ 0.15	$ 0.10
Weighted average shares outstanding:
Basic	14,199	13,696
Diluted	14,977	14,944

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2022	Apr. 02, 2021
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 2,240	$ 1,508
Foreign currency translation adjustment	(1,329)	(2,245)
Change in pension, net of taxes of $33 and $38 in the 2022 and 2021 first quarters, respectively	(331)	(550)
Other comprehensive loss	(998)	(1,695)
Comprehensive income (loss)	$ 1,242	$ (187)

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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+ Details

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2022	Apr. 02, 2021
Statement Of Income And Comprehensive Income [Abstract]
Taxes attributable to change in pension loss	$ 33	$ 38

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Apr. 01, 2022	Dec. 31, 2021
Current Assets:
Cash and cash equivalents	$ 38,724	$ 35,584
Accounts receivable, net of allowances of $559 and $581 in 2022 and 2021, respectively	74,674	84,252
Prepaid and other current assets	3,065	2,849
Income taxes receivable		80
Total current assets	116,463	122,765
Property, equipment and capitalized software, net	4,777	5,242
Operating lease right-of-use assets	20,762	22,132
Deferred income taxes	4,763	4,946
Acquired intangibles, net	6,837	7,280
Goodwill	19,174	19,676
Cash surrender value of life insurance, net	3,756	4,018
Other assets	2,344	2,228
Investments	64	47
Total assets	178,940	188,334
Current Liabilities:
Accounts payable	12,444	21,150
Accrued compensation	20,444	22,534
Advance billings on contracts	5,710	4,762
Short-term operating lease liabilities	6,199	6,444
Short-term deferred payroll taxes	3,508	3,508
Other current liabilities	7,621	6,585
Income taxes payable	197
Total current liabilities	56,123	64,983
Deferred compensation benefits	11,283	11,437
Long-term operating lease liabilities	14,379	15,612
Deferred income taxes	1,672	1,792
Other long-term liabilities	75	73
Total liabilities	83,532	93,897
Shareholders’ Equity:
Common stock, par value $0.01 per share, 150,000,000 shares authorized; 27,017,824 shares issued in 2022 and 2021	270	270
Capital in excess of par value	109,422	110,330
Retained earnings	110,282	108,042
Less: Treasury stock of 11,599,124 and 11,667,719 shares at cost, in 2022 and 2021, respectively	(106,628)	(107,265)
Accumulated other comprehensive loss	(17,938)	(16,940)
Total shareholders’ equity	95,408	94,437
Total liabilities and shareholders’ equity	$ 178,940	$ 188,334

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Apr. 01, 2022	Dec. 31, 2021
Statement Of Financial Position [Abstract]
Accounts receivable, allowances	$ 559	$ 581
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	27,017,824	27,017,824
Treasury stock, shares	11,599,124	11,667,719

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2022	Apr. 02, 2021
Cash flow from operating activities:
Net income	$ 2,240	$ 1,508
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	716	854
Equity-based compensation expense	573	590
Deferred income taxes	135	(95)
Deferred compensation benefits	103	135
Changes in assets and liabilities that provide (use) cash, excluding the effects of acquisitions:
Accounts receivable	8,530	994
Prepaid and other current assets	(340)	(600)
Other long-term assets	(122)	(173)
Cash surrender value of life insurance	262	172
Accounts payable	(8,467)	(4,139)
Accrued compensation	(1,646)	2,267
Income taxes payable / receivable	271	40
Advance billings on contracts	998	1,140
Other current liabilities	1,153	(430)
Other long-term liabilities	2	(8)
Net cash provided by operating activities	4,408	2,255
Cash flow from investing activities:
Additions to property and equipment	(61)	(891)
Net cash used in investing activities	(61)	(891)
Cash flow from financing activities:
Proceeds from stock option plan exercises	90	223
Taxes remitted for shares withheld from equity-based compensation transactions	(971)	(96)
Proceeds from Employee Stock Purchase Plan	37	36
Net cash provided by (used in) financing activities	(844)	163
Effect of exchange rates on cash and cash equivalents	(363)	(868)
Net increase in cash and cash equivalents	3,140	659
Cash and cash equivalents at beginning of year	35,584	32,865
Cash and cash equivalents at end of quarter	$ 38,724	$ 33,524

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	AOCI Attributable to Parent
Balance at Dec. 31, 2020	$ 79,508	$ 270	$ 109,407	$ 94,312	$ (109,114)	$ (15,367)
Balance, shares at Dec. 31, 2020		27,018,000			11,842,000
Employee Stock Purchase Plan share issuance	36		(7)		$ 43
Employee Stock Purchase Plan share issuance, shares					5,000
Stock Option Plan share issuance, net	223		(387)		$ 610
Stock Option Plan share issuance, net, shares					82,000
Restricted stock plan share issuance/forfeiture	(96)		(1,218)		$ 1,122
Restricted stock plan share issuance/forfeiture, shares					(119,000)
Equity-based compensation	590		590
Net income	1,508			1,508
Foreign currency adjustment	(2,245)					(2,245)
Pension loss adjustment, net of tax	550					550
Balance at Apr. 02, 2021	80,074	$ 270	108,385	95,820	$ (107,339)	(17,062)
Balance, shares at Apr. 02, 2021		27,018,000			11,636,000
Balance at Dec. 31, 2021	$ 94,437	$ 270	110,330	108,042	$ (107,265)	(16,940)
Balance, shares at Dec. 31, 2021	27,017,824	27,018,000			11,668,000
Employee Stock Purchase Plan share issuance	$ 37		(2)		$ 39
Employee Stock Purchase Plan share issuance, shares					4,000
Stock Option Plan share issuance, net	90		(94)		$ 184
Stock Option Plan share issuance, net, shares					20,000
Restricted stock plan share issuance/forfeiture	(971)		(1,385)		$ 414
Restricted stock plan share issuance/forfeiture, shares					(45,000)
Equity-based compensation	573		573
Net income	2,240			2,240
Foreign currency adjustment	(1,329)					(1,329)
Pension loss adjustment, net of tax	331					331
Balance at Apr. 01, 2022	$ 95,408	$ 270	$ 109,422	$ 110,282	$ (106,628)	$ (17,938)
Balance, shares at Apr. 01, 2022	27,017,824	27,018,000			11,599,000

Financial Statements

3 Months Ended

Apr. 01, 2022

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Financial Statements

1.	Financial Statements

The condensed consolidated financial statements included herein reflect, in the opinion of the management of Computer Task Group, Incorporated (“CTG” or “the Company”), all normal recurring adjustments necessary to present fairly the condensed consolidated financial position, results of operations, comprehensive income, cash flows, and shareholders’ equity for the periods presented. Certain prior period amounts were reclassified to conform to the current year’s presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10‑K filed with the SEC.

The Company's fiscal year-end is December 31. During the year, the quarters generally consist of a 13-week fiscal period where the last day of each of the first three quarters is a Friday. The 2022 first quarter began on January 1, 2022 and ended on April 1, 2022. The 2021 first quarter began on January 1, 2021 and ended on April 2, 2021. There were 65 billable days in both the 2022 and 2021 first quarters.

Summary of Significant Accounting Policies

3 Months Ended

Apr. 01, 2022

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2.	Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

These condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the SEC rules and regulations. There are no unconsolidated entities, or off-balance sheet arrangements other than certain guarantees supporting office leases and the performance under government contracts in the Company's European operations. All inter-company accounts have been eliminated.

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the Company's management to make estimates, judgments and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes, which could be impacted by existing market conditions and factors, including the COVID-19 pandemic and the unpredictability and severity of a civil unrest or outbreak of war or hostilities. Such estimates primarily relate to the recognition of revenue, leased assets and liabilities, the purchase accounting for acquisitions and the valuation of goodwill, the valuation allowance for deferred tax assets, actuarial assumptions including discount rates and expected return on assets, as applicable, for the Company’s defined benefit plans, the valuation of stock options and restricted stock for recording equity-based compensation expense, the allowance for doubtful accounts receivable, investment valuation, legal matters, other contingencies, and estimates of progress toward completion and direct profit or loss on contracts, as applicable. Management believes that the information and disclosures provided herein are adequate to present fairly the condensed consolidated financial position, results of operations, comprehensive income, cash flows, and shareholders’ equity of the Company.

There were no subsequent events as of the date of this filing from the end of the fiscal first quarter on April 1, 2022 that require recognition or disclosure in these unaudited interim condensed consolidated financial statements.

The Company operates in three segments within its business, North America IT Solutions and Services, Europe IT Solutions and Services, and Non-Strategic Technology Services. The Company provides information and technology-related services to its clients. CTG provides these services to all of the markets that it serves. The services provided typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT solution. These services ensure that our clients utilize the right information technology to meet their business needs, maximize their IT systems’ value, and operate efficiently and effectively. A typical client is an organization with large, complex technology, information, and data processing requirements.

The segment revenue for the quarters ended April 1, 2022 and April 2, 2021 was as follows:

	For the Quarter Ended										Year-over-Year
(amounts in thousands)	April 1, 2022					April 2, 2021					Change
North America IT Solutions and Services		22.9	%	$	20,435		19.0	%	$	18,454		10.7	%
Europe IT Solutions and Services		47.5	%		42,478		47.4	%		46,007		(7.7	)%
Non-Strategic Technology Services		29.6	%		26,504		33.6	%		32,668		(18.9	)%
Total		100.0	%	$	89,417		100.0	%	$	97,129		(7.9	)%

The Company focuses a significant portion of its services through five vertical market focus areas: technology service providers, healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), financial services, manufacturing, and energy. The Company focuses on these five vertical areas as it believes that these areas are either higher growth markets than the general IT services market and the general economy, or are areas that provide greater potential for the Company’s growth due to the size of the vertical market. The remainder of CTG’s revenue is derived from general markets.

The Company’s revenue by vertical market as a percentage of total revenue for the quarters ended April 1, 2022 and April 2, 2021 was as follows:

	For the Quarter Ended
	April 1, 2022			April 2, 2021
Technology service providers		23.8	%		30.8	%
Healthcare		17.4	%		15.5	%
Financial services		16.5	%		17.0	%
Manufacturing		13.9	%		12.4	%
Energy		5.3	%		5.5	%
General markets		23.1	%		18.8	%
Total		100.0	%		100.0	%

Revenue Recognition

The Company recognizes revenue when control of the promised good or service is transferred to clients, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with progress billing schedules (i.e. progress billing), primarily monthly, revenue is recognized as services are rendered to the client. Revenue for fixed-price contracts is recognized over time using an input-based approach. Revenue recognition over time best portrays the Company’s performance in transferring control of the goods or services to the client. On most fixed price contracts, revenue recognition is supported through contractual clauses that require the client to pay for work performed to date, including cost plus a reasonable profit margin, for goods or services that have no alternative use to the Company. On certain contracts, revenue recognition is supported through contractual clauses that indicate the client controls the asset, or work in process, as the Company creates or enhances the asset. On a given project, actual salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at the completion of the project. Revenue is recognized based upon the percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs that could distort the percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and our experience on similar projects, and includes management judgments and estimates that affect the amount of revenue recognized on fixed-price contracts in any accounting period. Losses on fixed-price projects are recorded when identified.

The Company’s revenue from contracts accounted for under time-and-material, progress billing and percentage-of-completion methods as a percentage of consolidated revenue for the quarters ended April 1, 2022 and April 2, 2021 was as follows:

	For the Quarter Ended
	April 1, 2022			April 2, 2021
Time-and-material		77.2	%		79.1	%
Progress billing		18.9	%		18.4	%
Percentage-of-completion		3.9	%		2.5	%
Total		100.0	%		100.0	%

The Company recorded revenue in the quarters ended April 1, 2022 and April 2, 2021 as follows:

For the Quarter Ended:	April 1, 2022					April 2, 2021					Year-over-Year Change
(amounts in thousands)
North America		51.7	%	$	46,262		51.0	%	$	49,504		(6.5	)%
Europe		48.3	%		43,155		49.0	%		47,625		(9.4	)%
Total		100.0	%	$	89,417		100.0	%	$	97,129		(7.9	)%

Significant Judgments

With the exception of cost estimates on certain fixed-price projects, there are no other significant judgments used to determine the timing of the satisfaction of performance obligations or determining the transaction price and amounts allocated to performance obligations. The Company allocates the transaction price based on standalone selling prices for contracts with clients that include more than one performance obligation. We determine standalone selling price based on the expected cost of the good or service plus margin approach. Certain clients may qualify for discounts and rebates, which we account for as variable consideration. We estimate variable consideration and reduce revenue recognized based on the amount we expect to provide to clients.

Contract Balances

For time-and-material and progress billing contracts, the timing of the Company’s satisfaction of its performance obligations is consistent with the timing of payment. For these contracts, the Company has the right to payment in the amount that corresponds directly with the value of the Company’s performance to date. The Company uses the right to invoice practical expedient that allows the Company to recognize revenue in the amount for which it has the right to invoice for time-and-material and progress billing contracts. Bill schedules for fixed-price contracts are generally consistent with the Company’s performance in transferring control of the goods or services to the client. There are no significant financing components in our contracts with clients. Advance billings represent contract liabilities for cash payments received in advance of our performance. Unbilled receivables are reported within “accounts receivable” on the consolidated balance sheets. Accounts receivable and contract liability balances fluctuate based on the timing of the client’s billing schedule and the Company’s period-end date. There are no significant costs to obtain or fulfill contracts clients.

Transaction Price Allocated to Remaining Performance Obligations

As of April 1, 2022, the aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations for fixed-price and all managed-support contracts was approximately $14.3 million and $55.2 million, respectively. Approximately $48.0 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2022, and approximately $21.5 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2023 and beyond. The Company uses the right to invoice practical expedient. Therefore, no disclosure is required for unsatisfied performance obligations for contracts in which we recognize revenue at the amount to which we have the right to invoice for services performed.

Taxes Collected from Clients

The Company records taxes collected from its clients for remittance to governmental authorities, primarily in its international locations, on a net basis in the condensed consolidated financial statements.

Fair Value

Fair value is defined as the exchange price that would be received for an asset or paid for a liability in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants. The Company utilizes a fair value hierarchy for its assets and liabilities, as applicable, based upon three levels of input, which are:

Level 1—quoted prices in active markets for identical assets or liabilities (observable)

Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable or can be supported by observable market data for essentially the full term of the asset or liability (observable)

Level 3—unobservable inputs that are supported by little or no market activity, but are significant to determining the fair value of the asset or liability (unobservable)

At April 1, 2022 and December 31, 2021, the carrying amounts of the Company’s cash of $38.7 million and $35.6 million, respectively, approximated fair value.

As described in Note 3 of the condensed consolidated financial statements, the Company acquired 100% of the equity of StarDust in the 2020 first quarter. Level 3 inputs were used to estimate the fair values of the assets acquired and liabilities assumed. The valuation techniques used to assign fair values to intangible assets included the relief-from-royalty and excess earnings methods.

The Company has recorded a contingent consideration liability related to the earn-out provision of which a portion will be payable in each period subject to the achievement by StarDust of consolidated direct profit targets for fiscal 2020 and 2021. There is no payout if the achievements are below the target threshold. The fair value of this contingent consideration liability is determined using level 3 inputs. The fair value assigned to the contingent consideration liability is determined using the real options method, which requires inputs such as consolidated direct profit forecasts, discount rate, and other market variables to assess the probability of StarDust achieving their revenue and EBIT targets. As of April 1, 2022, the fair value of the contingent consideration liability was determined to be zero as the consolidated direct profit targets were not met by StarDust for the fiscal year 2021.

Life Insurance Policies

The Company has purchased life insurance on the lives of a number of former employees who are plan participants in the non-qualified defined benefit Executive Supplemental Benefit Plan. In total, there are policies currently on 16 individuals, whose average age is 78 years old. Those policies have generated cash surrender value and the Company has taken loans against the policies. At April 1, 2022, the insurance policies that have been borrowed against have a gross cash surrender value of $28.5 million, outstanding loans and interest totaling $25.6 million, and a net cash surrender value of $2.9 million. At December 31, 2021, these insurance policies had a gross cash surrender value of $28.3 million, outstanding loans and interest totaling $25.2 million, and a net cash surrender value of $3.1 million. The net cash surrender values are included on the condensed consolidated balance sheets in “Cash surrender value of life insurance, net” under non-current assets.

At both April 1, 2022 and December 31, 2021, the total death benefit for the remaining policies was approximately $36.0 million. Currently, upon the death of all of the remaining plan participants, the Company would expect to receive approximately $10.1 million after the payment of obligations, and, under current tax regulations, record a non-taxable gain of approximately $7.1 million.

Cash and Cash Equivalents, and Cash Overdrafts

For purposes of the statement of cash flows, cash and cash equivalents are defined as cash on hand, demand deposits, and short-term, highly liquid investments with a maturity of three months or less. The Company does not fund its bank accounts for the checks it has written until the checks are presented to the bank for payment. In the event the Company has no available cash at the bank for which it writes its checks, the "change in cash overdraft, net" line item as presented on the condensed consolidated statement of cash flows, represents the increase or decrease in outstanding checks for a given period. The cash in the Company’s U.S. banks is insured by the Federal Deposit Insurance Corporation up to the insurable limit of $250,000. As of April 1, 2022 and December 31, 2021, the Company has multiple accounts that carry balances in excess of this insurable limit. The Company’s cash in its foreign bank accounts is not insured.

Accounts Receivable Factoring

As part of our working capital management, the Company entered into a factoring agreement during the 2020 first quarter to sell certain trade accounts receivables associated with its largest client on a non-recourse basis to a third-party financial institution. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the condensed consolidated statements of cash flows. Total trade accounts receivable sold under the factoring agreement was approximately $4.5 million and $15.5 million in the quarters ended April 1, 2022 and April 2, 2021, respectively. Fees for the factoring arrangement were recorded in cost of services and were less than $0.1 million in each of the quarters ended April 1, 2022 and April 2, 2021, respectively.

Property, Equipment and Capitalized Software Costs

Property, equipment and capitalized software at April 1, 2022 and December 31, 2021 were recorded as follows:

(amounts in thousands)	April 1, 2022			December 31, 2021
Property, equipment and capitalized software	$	14,431		$	15,628
Accumulated depreciation and amortization		(9,654	)		(10,386	)
Property, equipment and capitalized software, net	$	4,777		$	5,242

The Company capitalizes software projects developed for commercial use. The change in the Company’s capitalized software cost balance during the quarters ended April 1, 2022 and April 2, 2021 was as follows:

	For the Quarter Ended
(amounts in thousands)	April 1, 2022			April 2, 2021
Capitalized software, beginning balance	$	1,607		$	2,397
Foreign currency translation		(34	)		26
Capitalized software	$	1,573		$	2,423

Capitalized software amortization periods range from three to five years, and are evaluated periodically for propriety.

Amortization expense and accumulated amortization for these projects for the quarters ended April 1, 2022 and April 2, 2021 are as follows:

	For the Quarter Ended
(amounts in thousands)	April 1, 2022		April 2, 2021
Accumulated amortization, beginning balance	$	978	$	1,280
Amortization expense		72		135
Accumulated amortization	$	1,050	$	1,415

Guarantees

The Company has a number of guarantees in place in its European operations that support office leases and performance under government contracts. These guarantees totaled approximately $3.1 million at both April 1, 2022 and December 31, 2021, and have expiration dates ranging from April 2022 through October 2034.

Goodwill

The goodwill recorded on the Company's condensed consolidated balance sheet at April 1, 2022 relates to the acquisitions of Soft Company in 2018, Tech-IT in 2019, and StarDust in 2020. In accordance with current accounting guidance for “Intangibles - Goodwill and Other,” the Company performs goodwill impairment testing at least annually (in the Company’s fourth quarter), unless indicators of impairment exist in interim periods. There were no impairment indicators noted in the quarters ended April 1, 2022 and April 2, 2021.

The changes in the carrying amount of goodwill for the quarter ended April 1, 2022 was as follows:

(amounts in thousands)
Balance at December 31, 2021	$	19,676
Foreign currency translation		(502	)
Balance at April 1, 2022	$	19,174

The Company’s goodwill at April 1, 2022 totaled $19.2 million, including $17.8 million in the Europe IT Solutions and Services segment and $1.4 million in the North America IT Solutions and Services segment. At December 31, 2021, the Company’s goodwill balance totaled $19.7 million, which included $18.3 million in the Company’s Europe IT Solutions and Services segment and $1.4 million in the North America IT Solutions and Services segment.

Acquired Intangible Assets

Acquired intangible assets at April 1, 2022 consist of the following:

(amounts in thousands)	Estimated Economic Life	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation			Net Carrying Amount
Trademarks	2 years	$	1,532	$	(1,426	)	$	(106	)	$	—
Technology	10 years		591		(122	)		(5	)		464
Customer relationships	7-13 years		10,496		(3,276	)		(847	)		6,373
Total		$	12,619	$	(4,824	)	$	(958	)	$	6,837

Acquired intangible assets at December 31, 2021 consist of the following:

(amounts in thousands)	Estimated Economic Life	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation			Net Carrying Amount
Trademarks	2 years	$	1,532	$	(1,454	)	$	(70	)	$	8
Technology	10 years		591		(110	)		10			491
Customer relationships	7-13 years		10,496		(3,121	)		(594	)		6,781
Total		$	12,619	$	(4,685	)	$	(654	)	$	7,280

Estimated amortization expense for the remainder of 2022, the five succeeding years, and thereafter is as follows:

Year	Annual Amortization
(amounts in thousands)
2022 (remaining)	$	749
2023		999
2024		999
2025		999
2026		999
2027		584
Thereafter		1,508
Total	$	6,837

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for accounting contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference the London Interbank Offering Rate (“LIBOR”) or another reference rate expected to be discontinued due to the reference rate reform. It is effective for all entities between March 12, 2020 and December 31, 2022. The Company does not expect a significant impact from the adoption of this standard as provisions have been made in our Credit and Security Agreement to use an alternate benchmark interest rate when the use of LIBOR is discontinued.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” Among other clarifications and simplifications related to income tax accounting, the new standard simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company adopted this new standard on January 1, 2021 on a prospective basis and the adoption did not have a material impact on the Company’s consolidated financial statements.

Acquisitions

3 Months Ended

Apr. 01, 2022

Business Combinations [Abstract]

Acquisitions

3.	Acquisitions

StarDust SAS (“StarDust”)

On March 3, 2020, the Company acquired 100% of the equity of StarDust, for approximately $6.1 million (€5.5 million based on a EUR into USD exchange rate of 1.1145). The acquisition was funded using cash on hand and borrowings under the Credit and Security Agreement. The France-based StarDust, is a leading provider of testing and quality assurance for digital services with offices in Marseille, France, and Montreal, Canada. StarDust offers a complete range of testing services, including functional, multilingual, operational, environmental, regression, and application benchmarking, covering digital services and website, software, mobile applications, and Internet of Things connected objects. The acquisition expanded the Company’s global testing capabilities.

The results of operations of StarDust have been included in the Company’s consolidated financial results since the date of acquisition. As the Company has determined that the acquisition is not material to its existing operations, certain disclosures, including pro forma financial information, have not been included in this quarterly report on Form 10-Q.

An earn-out of up to $1.1 million (€1.0 million based on a EUR into USD exchange rate of 1.1145) can be earned, a portion of which will be payable in each period subject to the achievement of consolidated direct profit targets for fiscal 2020 and 2021. Additionally, for each €10,000 of consolidated direct profit achieved above the target, an additional €1,000 can be earned, with no maximum limit. There is no payout if the achievement is below the target threshold. The fair value as of the March 3, 2020 acquisition date was determined to be $0.1 million. The fair value as of April 1, 2022 was determined to be zero as the consolidated direct profit targets were not met by StarDust for the fiscal year 2021.

The Company incurred amortization of intangible assets related to this acquisition of less than $0.1 million and $0.1 million in the 2022 and 2021 first quarters, respectively, which were recorded as a component of selling, general, and administrative expenses in the condensed consolidated statements of income. The purchase price allocation for this acquisition has been finalized.

Net Income Per Share

3 Months Ended

Apr. 01, 2022

Earnings Per Share [Abstract]

Net Income Per Share

4.	Net Income Per Share

Basic and diluted earnings per share (EPS) for the quarters ended April 1, 2022 and April 2, 2021 were as follows:

	For the Quarter Ended
(amounts in thousands, except per-share data)	April 1, 2022		April 2, 2021
Weighted-average number of shares outstanding during period		14,199		13,696
Common stock equivalents from incremental shares under equity-based compensation plans		778		1,248
Number of shares on which diluted earnings per share is based		14,977		14,944
Net income	$	2,240	$	1,508
Net income per share
Basic	$	0.16	$	0.11
Diluted	$	0.15	$	0.10

Weighted-average shares represent the average number of issued shares less treasury shares, and for the basic EPS calculations, unvested restricted stock.

Certain options representing 0.5 million and 0.6 million shares of common stock were outstanding at April 1, 2022 and April 2, 2021, respectively, but were not included in the computation of diluted earnings per share as their effect on the computation would have been anti-dilutive.

Lease Commitments

3 Months Ended

Apr. 01, 2022

Leases [Abstract]

Lease Commitments

5.	Lease Commitments

The Company records a right-of-use asset and liability for substantially all leases for which it is a lessee, in accordance with Topic 842 “Leases”. The Company is obligated under a number of long-term operating leases for office space and office equipment, and for automobiles leased in Europe.

Most leases contain both lease components (fixed payments for rent) and non-lease components (common-area maintenance and other services). The Company has elected the practical expedient to separate lease and non-lease components for its office leases and has elected to group lease and non-lease components for its vehicle leases. Some leases contain renewal options with escalation clauses commensurate with local market fluctuations, however, generally limiting an annual increase to no more than 5.0% of the existing lease payment. The exercise of lease renewal options is at the Company’s sole discretion. The Company has excluded renewal options in the measurement of right-of-use assets and lease liabilities if they are not reasonably certain of exercise.

Operating leases are included in the right-of-use lease assets, short-term lease liabilities, and long-term lease liabilities on the condensed consolidated balance sheets. The Company measures the operating lease liabilities at lease commencement date based on the present value of remaining lease payments using the rate implicit in the lease when readily determinable, or the Company’s secured incremental borrowing rate. The Company has made an accounting policy election not to recognize a lease liability or right-of-use asset for leases with a lease term of twelve months or less and do not include an option to purchase the underlying asset. The Company recognizes lease expense on a straight-line basis over the lease term and variable lease expense in the period incurred. Variable lease cost consists primarily of common-area maintenance, insurance, and taxes, which are paid based on actual costs incurred by the lessor. Operating lease cost for both the 2022 and 2021 first quarters was $1.8 million. In both the 2022 and 2021 first quarters, the Company incurred variable lease cost of $0.1 million, and also incurred short-term lease costs of $0.1 million.

Maturities for the Company’s lease liabilities for all operating leases as of April 1, 2022 are as follows:

	Total
Year	Operating Leases
(amounts in thousands)
2022 (remaining)	$	4,838
2023		5,001
2024		3,442
2025		2,312
2026		1,711
2027 & thereafter		4,493
Total undiscounted operating lease payments		21,797
Less: Interest		(1,219	)
Total present value of operating lease liabilities	$	20,578

The weighted average remaining lease terms and discount rates for all operating leases as of April 1, 2022 and April 2, 2021 were as follows:

	April 1, 2022			April 2, 2021
Weighted average remaining lease term (years)		5.89			6.40
Weighted average remaining discount rate		2.12	%		2.00	%

Supplemental cash flow information related to the Company’s operating leases for the first quarter of 2022 is as follows:

(amounts in thousands)	April 1, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	1,821
Right-of-use assets obtained in exchange for new operating lease liabilities		513

Debt

3 Months Ended

Apr. 01, 2022

Debt Disclosure [Abstract]

Debt

The Company entered into a new asset-based lending revolving credit agreement (Credit Agreement) during the 2021 second quarter, which has a five-year term that expires in May 2026, replacing its previous agreement. Under this Credit Agreement, the Company can borrow up to $50.0 million depending on collateral availability. The Credit Agreement is collateralized by the Company’s accounts receivable in the United States, Belgium, and Luxembourg. Interest rates range from 1.5% to 2.0% over LIBOR or EURIBOR loans, and 0.5% to 1.0% over base rate (prime rate) loans. The Company can borrow under the agreement at either rate at its discretion. The Company’s previous Credit and Security Agreement was terminated during the 2021 second quarter.

At both April 1, 2022 and December 31, 2021, there were no amounts outstanding under the Credit Agreement. The Company borrows or repays its debts as needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll.

There were no borrowings during the 2022 and 2021 first quarters.

Under the Credit Agreement, the Company is required to meet one financial covenant in order to maintain borrowings under its revolving credit line, pay dividends, and make acquisitions. The covenant is measured quarterly, and at April 1, 2022 represented a fixed charge coverage ratio, where for the trailing twelve months the consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted for, amongst other items, equity-based compensation and severance expenses, must be greater than 1.0 times the consolidated interest expense paid in cash and any scheduled principal payments. The fixed charge coverage ratio is only tested if availability, subject to a maximum of the commitment of $50.0 million, on the measurement date is less than the greater of 12.5% of the total loan availability or $5.0 million. Actual borrowings by CTG under the Credit Agreement are subject to a borrowing base, which is a formula based on certain eligible receivables and reserves for each country included in the Credit Agreement (the United States, Belgium, and Luxembourg). Receivable balances from our largest client, IBM, have been removed from the Credit

Agreement as collateral, as the Company had entered into a factoring arrangement for those receivables. Total availability as of April 1, 2022 was approximately $36.2 million. The Company’s compliance with its financial covenant was not required to be tested at April 1, 2022 as the availability under the Credit Agreement was in excess of 12.5% of the total loan availability. The Company was in compliance with its applicable covenants under the previous Credit and Security Agreement at April 2, 2021.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

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Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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Reference 12: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

Accumulated Other Comprehensive Loss

3 Months Ended

Apr. 01, 2022

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Accumulated Other Comprehensive Loss

7.	Accumulated Other Comprehensive Loss

The components that make up accumulated other comprehensive loss on the condensed consolidated balance sheets at April 1, 2022 and December 31, 2021 are as follows:

(amounts in thousands)	April 1, 2022			December 31, 2021
Foreign currency translation adjustment	$	(9,026	)	$	(7,697	)
Pension loss, net of tax of $786 in 2022 and $819 in 2021		(8,912	)		(9,243	)
Accumulated other comprehensive loss	$	(17,938	)	$	(16,940	)

During the 2022 and 2021 first quarters, actuarial losses were amortized to expense as follows:

	For the Quarter Ended
(amounts in thousands)	April 1, 2022			April 2, 2021
Amortization of actuarial losses	$	130		$	124
Income tax		(21	)		(10	)
Net of tax	$	109		$	114

The amortization of both prior service cost and actuarial losses, with the exception of the actuarial gains related to the post retirement benefit plan, are included in determining net periodic pension cost. See note 9, "Deferred Compensation and Other Benefits" for additional information.

Income Taxes

3 Months Ended

Apr. 01, 2022

Income Tax Disclosure [Abstract]

Income Taxes

8.	Income Taxes

The Company’s effective tax rate (“ETR”) is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The 2022 and 2021 first quarter ETR was 23.9% and 22.6%, respectively.

The Company has not recorded a U.S. deferred tax liability for the excess book basis over the tax basis of its investments in foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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+ Details

Deferred Compensation and Other Benefits

3 Months Ended

Apr. 01, 2022

Compensation And Retirement Disclosure [Abstract]

Deferred Compensation and Other Benefits

9.	Deferred Compensation and Other Benefits

The Company maintains a non-qualified defined benefit Executive Supplemental Benefit Plan (ESBP) that provides certain former key executives with deferred compensation benefits, based on years of service and base compensation, payable during retirement. The plan was amended as of November 30, 1994, to freeze benefits for the participants in the plan at that time.

The Company also retained certain potential obligations related to a contributory defined-benefit plan for its previous employees located in the Netherlands (NDBP) when the Company disposed of its subsidiary, CTG Nederland, B.V. Benefits paid are a function of a percentage of career average pay. This plan was curtailed for additional contributions in January 2003.

The Company also maintains a fully funded pension plan related to CTG Belgium and CTG Health Solutions (Belgium) employees (BDBP). This is a plan with active employees and the Company expects to make future contributions.

The Company maintains an unfunded pension plan related to the current Soft Company employees (FDBP). The Company does not anticipate making contributions to the plan. No benefit payments were made in 2021 and less than $0.1 million are expected to be paid in 2022.

The Company also maintains an unfunded pension plan related to the current StarDust employees (SDBP). The Company does not anticipate making contributions to this plan. No benefit payments were made in 2021 and none are expected to be paid in 2022.

Net periodic pension cost for the quarters ended April 1, 2022 and April 2, 2021 for the plans is as follows:

	For the Quarter Ended
(amounts in thousands)	April 1, 2022			April 2, 2021
Service cost	$	109		$	127
Interest cost		89			51
Expected return on assets		(170	)		(179	)
Amortization of actuarial loss		131			125
Net periodic pension cost	$	159		$	124

The ESBP is deemed to be unfunded as the Company has not specifically identified assets to be used to discharge the deferred compensation benefit liabilities. The Company has purchased insurance on the lives of certain plan participants in amounts deemed to be sufficient to reimburse the Company for the costs associated with the plan for those participants (see Note 2 for “Life Insurance Policies”). The Company does not anticipate contributing to the plan other than for benefit payments as required in 2022 and future years. In both the 2022 and 2021 first quarters, the Company made benefit payments totaling approximately $0.1 million, and expects to make payments in 2022 totaling approximately $0.5 million.

As the NDBP was curtailed for additional contributions in January 2003, no contributions were made in 2021 and none are expected to be made in 2022. The assets for the NDBP are held by Aegon, a financial services firm located in the Netherlands. The Company maintains a contract with Aegon to insure future benefit payments of the NDBP; however, due to certain terms of the agreement and potential obligations to the Company, the NDBP has not been settled. The benefit payments to be made in 2022 are expected to be paid by Aegon from plan assets. The assets for the plan are included in a general portfolio of government bonds, a portion of which is allocated to the NDBP based upon the estimated pension liability associated with the plan. The fair market value of the plan’s assets equals the contractual value of the NDBP at any point in time. The fair value of the assets is determined using a Level 3 methodology (see Note 2 for “Fair Value”). In 2022, the plan investments have a targeted minimum return to the Company of 4.0%, which is consistent with historical returns and the 4.0% return guaranteed to the participants of the plan. The Company, in conjunction with Aegon, intends to maintain the current investment strategy of investing plan assets solely in government bonds throughout 2022.

The BDBP is considered fully funded. The Company made contributions of $0.2 million in both the 2022 and 2021 first quarters. The Company made benefit payments totaling less than $0.1 million in both the 2022 and 2021 first quarters, and expects to make payments in 2022 totaling $0.1 million.

The assets for the BDBP are held by Allianz, a financial services firm located in Belgium. The Company maintains a contract with Allianz to insure future benefit payments of the BDBP. Contributions made by the Company to Allianz are based on employees’ current salaries. The benefit payments to be made in 2022 are expected to be paid by Allianz from plan assets. The assets for the plan are included in the overall portfolio of assets held by Allianz. The fair market value of the plan’s assets equals the contractual value of the BDBP in any given year (which is the mathematical reserve held by Allianz). The fair value of the assets is determined using a Level 3 methodology (see Note 2 “Fair Value”). Allianz does not guarantee a minimum return on the plan investments, whereas Belgian law sets a minimum return to be guaranteed to the participants of the plan.

The Company maintains various other defined contribution retirement plans covering European employees. Company contributions charged to operations were $0.1 million in both the 2022 and 2021 first quarters.

The change in the fair value of plan assets for the plans for the quarters ended April 1, 2022 and April 2, 2021 was as follows:

	For the Quarter Ended
(amounts in thousands)	April 1, 2022			April 2, 2021
Fair value of plan assets at beginning of period	$	19,956		$	20,654
Return on plan assets		170			179
Contributions		295			298
Benefits paid		(258	)		(225	)
Effect of exchange rate changes		(486	)		(840	)
Fair value of plan assets at end of quarter	$	19,677		$	20,066

The Company maintains the Key Employee Non-Qualified Deferred Compensation Plan for certain key executives. Company contributions to this plan, if any, are based on annually defined financial performance objectives. The Company made no cash contributions in either the 2022 or 2021 first quarters for amounts earned in the previous year. Participants in the plan have the ability to purchase stock units from the Company at current market prices using their available investment balances within the plan. In exchange for the cash received, the Company releases shares out of treasury stock equivalent to the number of share units purchased by the participants. These shares of common stock are not entitled to any voting rights, but will receive dividends in the event any are paid. The shares are being held by the Company, and will be released to the participants as prescribed by their payment elections under the plan. There were no stock units purchased during the 2022 or 2021 first quarters.

The Company maintains the Non-Employee Director Deferred Compensation Plan for its non-employee directors. The Company made cash contributions of less than $0.1 million during the 2022 first quarter and made no cash contributions in the 2021 first quarter. The remaining contributions deposited in the director’s accounts in the 2022 and 2021 first quarters consisted of equity grants from the 2020 Equity Award Plan. These shares of common stock are not entitled to any voting rights, but will receive dividends in the event any are paid. The shares are being held by the Company, and will be released to the participants as prescribed by their payment elections under the plan.

- Definition

The entire disclosure for retirement benefits.

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+ Details

Equity-based Compensation

3 Months Ended

Apr. 01, 2022

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Equity-based Compensation

10.	Equity-based Compensation

During the 2022 and 2021 first quarters, the Company granted restricted stock totaling 151,556 and 134,592 shares. All grants in 2022 and 2021 were funded out of treasury stock.

Director Board fees are paid in part with quarterly grants of stock units. Of the total shares granted during the 2022 first quarter, 12,335 shares represented restricted stock units that were granted to Board members. The shares vest over the quarter in which they were granted and the Company is expensing these grants as such. Grants of similar units to the Board members totaled 14,718 restricted stock units in the 2021 first quarter.

Of the shares granted in the 2022 first quarter, 139,221 shares were granted to senior management, of which 92,815 shares included a performance condition. The shares will only vest, in part, to senior management if at least 80% of a three-year cumulative target for diluted earnings per share is met for the three-year period ended December 31, 2024. If at least 80% of the three-year EPS target is not met, the grants will expire. Of the shares granted during 2021 first quarter, 119,874 were granted to senior management, of which 79,917 shares included a performance condition. The shares will only vest in part, to senior management if at least 80% of a three-year cumulative target for diluted earnings per share is met for the three-year period ended December 31, 2023. If at least 80% of the three-year EPS target is not met, the grants will expire.

There were no other shares granted during the 2022 and 2021 first quarters.

The restricted shares granted are considered outstanding, can be voted, and are eligible to receive dividends in the event any are paid. However, these shares do not include a non-forfeitable right for the holder to receive dividends and none will be paid in the event the awards do not vest. Accordingly, only vested shares of outstanding restricted stock are included in the basic earnings per share calculation. The shares and share units granted in 2022 and 2021 were from the 2020 Equity Award Plan.

A total of 134,790 stock options were granted during the 2022 first quarter on March 18, 2022 from the 2020 Equity Award Plan. The options have a fair value of $3.14 per share using the Black-Scholes valuation model. The assumptions used to calculate the fair value include the price on the date of grant of $9.12 per option, an expected life of 3.4 years, expected volatility of 44.6%, an expected dividend yield of zero, and a risk free rate of 2.1%. The options vest ratably over three years, and are being expensed over that period. A total of 105,906 options were granted during the 2021 first quarter on March 24, 2021 from the 2020 Equity Award Plan. The options have a fair value of $3.46 per share using the Black-Scholes valuation model. The assumptions used to calculate the fair value include the price on the date of grant of $9.17 per option, an expected life of 5.1 years, expected volatility of 41.9%, an expected dividend yield of zero, and a risk free rate of 0.8%.

Treasury Stock

3 Months Ended

Apr. 01, 2022

Class Of Stock Disclosures [Abstract]

Treasury Stock

11.	Treasury Stock

The Company’s Board of Directors has previously authorized the repurchase of up to $30.0 million of the Company’s stock. The Company did not purchase shares for treasury during the 2022 or 2021 first quarters. As of April 1, 2022 and April 2, 2021, the Company had approximately $7.7 million left in its current stock repurchase authorization.

The Company issued 171,556 shares during the 2022 first quarter to fulfill the requirements from the grant of restricted shares or units and the exercise of stock options.

The Company issued 244,988 shares during the 2021 first quarter to fulfill the share requirements from purchases of stock in the Non-Employee Director Deferred Compensation Plan, the grant of restricted shares or units, or the exercise of stock options.

Significant Clients

3 Months Ended

Apr. 01, 2022

Risks And Uncertainties [Abstract]

Significant Clients

12.	Significant Clients

In the 2022 first quarter, International Business Machines Corporation (IBM) was the Company’s largest client and accounted for $16.5 million or 18.5% of consolidated revenue compared with $19.6 million or 20.2% of consolidated revenue in the comparable 2021 period. The National Technical Services Agreement with IBM expires on October 27, 2023. The Company’s accounts receivable from IBM at April 1, 2022 and December 31, 2021 totaled $18.6 million and $8.9 million, respectively.

No other client accounted for 10% or more of the Company's revenue during the 2022 or 2021 first quarters.

Segment Information

3 Months Ended

Apr. 01, 2022

Segment Reporting [Abstract]

Segment Information

13.	Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance.

The Company provides information technology and related services to its clients. These services include digital IT solutions and services, and staffing services. With digital IT solutions and services, the Company generally takes responsibility for the deliverables and some level of project and staff management, and these services may include high-end advisory or business-related consulting. When providing staffing services, including managed staffing, staff augmentation, and volume staffing, personnel are provided to clients based upon their requirements for specific skills, who then, in turn, take their direction from clients’ managers.

The Company’s strategy throughout its operations is to expand the amount of IT solutions and services it provides to its clients as compared with staffing services, and to focus on delivering digital solutions. IT solutions and services provide significant value to our clients, and drive higher bill rates and margins for the Company. Our existing solutions include business, technology, and operations solutions that aid our clients in digitally transforming their company, and ultimately meet the needs of their clients. The digital services the Company delivers includes the Internet of Things, Intelligent Automation, Data and Analytics, Cloud and Automated Testing.

In prior years, and in 2021 prior to the fourth quarter, the Company reported its results in one segment. This included operating segments for each of North America and Europe. The services the Company provided, regardless of geography or industry, were similar in nature and produced similar results. Additionally, the CEO, who is the Company’s chief operating decision maker, made decisions on investments and allocated resources at the North America or Europe level. Accordingly, given the consistency in the services provided and the results, the Company aggregated those results into one reporting segment.

During the 2021 fourth quarter, the Company further refined its strategy to focus on providing digital services within its IT Solutions business in both North America and in Europe. As part of this process, the Company also determined that there are certain lower margin staffing accounts within its business that are no longer part of the Company’s long-term business plan. The focus includes investing in business development, solutions, delivery, and marketing for IT Solutions,

and critically evaluating each significant staffing engagement as it comes up for renewal to determine if the Company would continue to provide those services to its client. These decisions are based on, among other factors, critically evaluating the work performed, the availability of the resources, the client, the long-term opportunities for the services provided at the client, and the revenue and profit associated with the engagement.

Accordingly, the Company now reports its operations in three segments within its business: North America IT Solutions and Services, Europe IT Solutions and Services, and Non-Strategic Technology Services.

The segments are composed of the following:

IT Solutions and Services in North America and Europe

IT Solutions and Services include business, technology, and operations solutions that aid our clients in digitally transforming their company, and ultimately meet the needs of their clients. The digital services the Company delivers includes the Internet of Things, Intelligent Automation, Data and Analytics, Cloud and Automated Testing.

Non-Strategic Technology Services

The Company’s Non-Strategic Technology Services address a range of information and technology resource needs, from filling specific talent gaps to managing high-volume staffing programs. The Company recruits, retains, and manages IT talent for its clients, which are primarily large technology service providers and other companies with multiple locations and a significant need for high-volume professional IT resources. This segment consists of the lowest margin services the Company provides to its clients. This segment consists primarily of staffing services in North America, and a minor amount (less than 5% of revenue in this segment) of such services in Europe.

The Company makes decisions related to resource allocation based upon the contribution income of each of its segments. Contribution profit reflects gross profit less any operating expenses directly related to each respective segment. Those operating expenses primarily include sales, solutions, delivery, and recruiting expenses. General and administrative expenses are not allocated to the individual segments and primarily include corporate support costs such as finance and accounting, internal IT, human resources, benefits and marketing.

The operating results for the Company’s segments for the quarters ended April 1, 2022 and April 2, 2021 were as follows:

Quarter Ended April 1, 2022	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	20,435	$	42,478	$	26,504	$	89,417
Direct costs		13,573		31,998		23,251		68,822
Gross profit		6,862		10,480		3,253		20,595
Operating expenses		3,130		5,229		810		9,169
Contribution profit	$	3,732	$	5,251	$	2,443		11,426
General and administrative expenses								8,227
Operating income							$	3,199

Quarter Ended April 2, 2021

North America IT

Europe IT

Non-Strategic

(amounts in thousands)

Solutions & Services