Computer Task Group, Incorporated (CTG)

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Computer Task Group, Inc. (CTG)

Q4 2013 Earnings Conference Call

February 25, 2014 8:30 a.m. ET


James Culligan - Director, Investor Relations

James Boldt - Chairman, President and Chief Executive Officer

Brendan Harrington - Senior Vice President and Chief Financial Officer


Brian Kinstlinger - Sidoti

Vince Colicchio - Noble Financial

Rick D'Auteuil - Columbia Management

Bill O'Loughlin - O'Loughlin Financial Group



Ladies and gentlemen, thank you for standing by, and welcome to the CTG Fourth Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) And as a reminder, your conference is being recorded.

I'd now like to turn the conference over to your host, Mr. James Culligan, Director of Investor Relations at CTG. Please go ahead.

James Culligan

Thank you, (Dolores), good morning everyone. We certainly appreciate your time and interest in CTG.

On the call today we have CTG's CEO, Jim Boldt; and Brendan Harrington, Senior Vice President and CFO. Jim and Brendan are going to review the results for the fourth quarter of 2013, and then update you on the company's strategy and outlook. We'll follow with an opportunity for Q&A. If you don't have the news release discussing our financial results, you can access it at the company's website at

Before we begin, I want to mention that statements in the course of this conference call that state the company's or management's intentions, hopes, beliefs, expectations and predictions for the future are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ from those in the forward-looking statements is contained in our earnings release as well as in the company's SEC filings.

You can find these at our website or the SEC's website at Please review our forward-looking statements in conjunction with these precautionary factors.

With that, I'd like to turn it over to Jim to begin the discussion.

James Boldt

Thanks, Jim, and good morning everyone. This is Jim Boldt. I want to thank you for joining us this morning for our fourth quarter conference call. As you saw in our news release, our revenues decreased when compared to last year, as we continue to experience delays in healthcare project starts, as hospitals deal with lower reimbursements from the government, and as we experienced a reduction in spending from a significant staffing customer.

Our focus on expense control partially offset the impact from lower than forecasted sales revenue in the quarter, the net of which caused our earnings per share to come in at the low end of our guidance.

I'm going to talk more about our results and what we see for the 2014 first quarter and full year, but first I'm going to ask Brendan to start off with a review of our 2013 fourth quarter and full year financial results. Brendan?

Brendan Harrington

Thanks, Jim. Good morning, everyone. For the fourth quarter of 2013, CTG's revenue was $102.7 million, a decrease of $5.2 million compared with the fourth quarter of 2012. Fourth quarter 2013 had 65 billing days, one more than the fourth quarter 2012.

Solutions revenue in the fourth quarter of 2013 totaled $40.4 million, a decrease of $4.9 million or 10.7% compared to the fourth quarter of 2012, primarily due to lower revenue from electronic medical record project. As a percentage of total revenue, Solutions revenue was 39% compared to 42% a year ago.

Staffing revenue in the quarter decreased by $0.3 million or half a percent to $62.3 million, reflecting reductions in staffing from a large client offset by higher demand for technical resources from several other clients.

Fourth quarter revenue from IBM, our largest customer, was $22.4 million compared with $27.9 million in fourth quarter 2012. As a percent of total revenue, revenue from IBM decreased to 22.8% in the 2013 fourth quarter, compared with 25.8% of total revenue in the 2012 fourth quarter.

Revenue from our European operations was $20.9 million, a 14% increase from the $18.3 million recorded in last year's fourth quarter. The effect of foreign currency fluctuations during the fourth quarter of 2013 increased consolidated revenue by approximately $900,000.

On a local currency basis, our European revenue increased by 8.7% compared with the 2012 fourth quarter. Excluding the effect of the etrinity acquisition that we closed in February 2013, European revenue increased by 10.4% in U.S. dollars or 5.4% in constant currency.

Direct costs as a percentage of revenue were 78.3% in the fourth quarter, the same as in the fourth quarter of 2012.

SG&A expenses decreased approximately $900,000 from the fourth quarter of 2012 and remained at 15.8% of revenue, primarily as a result of fewer non-billable personnel and lower incentive compensation expenses.

The billable travel expenses, including the fourth quarter 2013 revenue and direct costs were $2.8 million. The billable travel expenses for the fourth quarter of 2012 totaled $3.2 million.

Fourth quarter operating income was $6.1 million, a decrease of approximately $300,000 or 4.8% year-over-year. Operating margin in the fourth quarter was 5.9% of revenue, the same as last year.

The year-over-year decrease in our operating income was due primarily to decreases in our health solutions revenue, offset by the lower SG&A expenses.

Net income in the fourth quarter was $3.7 million, a decrease of $320,000 or 8% compared to the fourth quarter of 2012, excluding a gain from life insurance proceeds recorded in the fourth quarter of 2012.

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