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Computer Task Group, Incorporated (CTGX)

Wall Street Analyst Forum's 20th Annual Institutional Investor Conference Transcript

March 26, 2009 9:10 am ET


James Boldt – Chairman and CEO


Unidentified Participant

Good morning ladies and gentlemen. In our ongoing attempt to adhere to the published schedule, I like to introduce the next company in this morning's program, we are pleased to have with us Computer Task Group. They have presented for the – a couple of times, and now we've been doing this for 20 years not all of a sudden. In some cases the company has presented with us 2 or 3 times in the past, and the management might not even be aware of it, because we did it maybe in ’87, in 2004 or in 2005 et cetera.

So in any case, Computer Task Group has presented maybe three times over the years with us. They provide IT solutions and services to Global 2000 clients. They focus on their core businesses, and use IT as a competitive advantage to excel in their markets. CTG combines in-depth understanding of their clients’ businesses with a full range of integrated services, and proprietary ISO 9001:2000 certified services methodologies.

There are 3500 IT professionals based on an international network of offices in North America and Europe, and have a proven track record of delivering high-value industry specific solutions.

Without any further introduction, I would like to introduce James Boldt, Chairman and Chief Executive Officer. He is accompanied by Brendan Harrington, Senior Vice President of Finance and Chief Financial Officer.

James Boldt

Good morning. Brendan and I are pleased to be here this morning to talk a little bit about our company. I think everybody has seen our forward-looking statement disclaimer. Little background on CTG, if you're not familiar with the firm, we're a $353 million international IT solutions and services firm. We have 30 offices spread across the US and Western Europe. Last year 22% of our total revenue came from Western Europe.

We have about 3100 employees and market cap is around $60 million. We have 18 million shares outstanding. While the serve a lot of constituents, most of our revenues actually come from the Fortune 1000. We have strong customer satisfaction and a number of years ago we decided to direct most of our investment dollars into our healthcare vertical. I'm going to talk quite a bit about this as I go through the presentation.

In 2001, we realized that the technology industry was a maturing industry. It is now mature. It is going to grow faster than the GDP, but it is not going to grow at a 20% or 30% rate that it did when it was a growth industry, and in a maturing industry, we believed we had to be more focused. We decided to focus on three industries or vertical markets. Those were the technology service providers. The three largest in the world are IBM, HP and Fujitsu. Healthcare, which by far is our fastest-growing vertical market, and the financial services? And then I will talk about some of our offerings in some of those verticals.

The pie chart on the right side shows our offerings at the very highest level. At the highest level, we have only to offerings. It is IT staffing and IT solutions. In an IT staffing engagement, we will provide a technical employee, usually a program [ph] at one of our clients. While they are employees, I will take their technical direction on a daily basis from one of our clients’ project managers.

In a solutions engagement, we take responsibility for something inside of our clients’ IT department. It could be the implementation and integration of a new software package. It could be high-end consulting. It could be lots of different things. But at the end of the day, we are responsible for something.

Historically, our company has been 50% staffing and 50% solutions. After the Y2K work ended in 2000, the industry went through a prolonged period, where it was relatively flat. In 2004, the staffing business started to come back. The solutions business didn’t start to come back until 2007. As a consequence of that, we went through a period where our staffing business was growing, and our solutions business wasn't.

Two years ago, our staffing business where they were 72% of our total mix and solutions 28%. Since then solutions have grown faster than staffing. In the fourth quarter of the year, our mix was 64% staffing and 36% solutions, and having the solutions business grow faster than the staffing business is very good for us, because the two sides of the business have very different operating margins. The aggregate operating margin on the staffing side of the business was 3%, on the solutions side of the business it is 10%.

I'm going to talk more about that as I go through the presentation. Taking a look first at our healthcare business. We segment our healthcare business into three component parts, providers, which for us are large hospitals and hospital chains; payers, those are the 240 health insurance companies in the United States; and life sciences, which for us is primarily large pharmaceutical companies.

In 2001 when we were deciding that we focus our whole company on three verticals, obviously, we wanted to pick verticals that are going to grow faster than the GDP. We looked at healthcare and it was a no-brainer. So as the world's population is aging at a rapid rate. As people get older, they spend more on healthcare. So the healthcare industry is going to have more to spend on IT services.

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