Computer Task Group, Incorporated (CTG)

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Start Time: 08:30

End Time: 09:06

Computer Task Group Inc. (CTG)

Q1 2014 Earnings Conference Call

April 22, 2014, 08:30 AM ET

Executives

James Boldt - Chairman, President and CEO

Brendan Harrington - SVP and CFO

James Culligan - Director, IR

Analysts

Brian Kinstlinger - Sidoti & Company

Kevin Liu - B. Riley & Company

Vincent Colicchio - Noble Financial Capital Markets

William Sutherland - Emerging Growth Equity

Presentation

Operator

Ladies and gentlemen, thank you very much for standing by, and welcome to the CTG First Quarter 2014 Earnings Call. For the conference, all the participants are in a listen-only mode. There will be an opportunity for your questions. Instructions will be given at that time. (Operator Instructions). And as a reminder, today's call conference is being recorded.

I'll now turn the conference over to Mr. James Culligan, Director of Investor Relations at CTG. Please go ahead, sir.

James Culligan

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

On the call today we have CTG's Chief Executive Officer, Jim Boldt; and Brendan Harrington, Senior Vice President and Chief Financial Officer. Jim and Brendan are going to review the results of the first quarter of 2014, and then update you on the company's strategies 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 ctg.com.

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 sec.gov. 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 first quarter earnings conference call. As you saw in our news release, revenue for the quarter was slightly below the low end of our guidance and EPS was at the midpoint of our guidance. The shortfall from the midpoint of our revenue guidance occurred in our Staffing business. Revenue from our fraud, waste and abuse project or a small payer (indiscernible) performed in late 2013 (indiscernible) to reach the midpoint of our EPS guidance.

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

Brendan Harrington

Thanks, Jim. Good morning, everyone. For the first quarter of 2014, CTG's revenue was 97.9 million, a decrease of 10.6 million compared with the first quarter of 2013. First quarter 2014 had 62 billing days, one less than the first quarter of 2013.

Solutions revenue in the first quarter of 2014 totaled 38.6 million, a decrease of 4.1 million or 9.5% compared with the first quarter of 2013, primarily due to lower revenue from electronic medical record project. As a percentage of total revenue, Solutions revenue was 39%, the same as a year ago.

Staffing revenue in the quarter decreased 6.5 million or 9.9% to 59.3 million, reflecting reductions in staffing requirement from a large client that began in the second quarter of 2013. These reductions were slightly offset in the quarter by higher demand for technical resources from several other clients.

In the vertical markets on which we primarily focus, revenue as a percentage of total company revenue in the first quarter was as follows. Healthcare decreased to 30.2% from 31.8%, technology service providers decreased to 24.9% from 30.1%, financial services increased to 8.1% from 6.6%, energy was relatively flat at 6.2% compared with 6% while general markets increased to 30.6% from 25.5%.

First quarter revenue from IBM, our largest customer, was 21.5 million compared with 28.9 million in first quarter 2013. As a percent of total revenue, revenue from IBM decreased to 22% in the 2014 first quarter compared with 26.7% of total revenue in the 2013 first quarter.

Revenue from our European operations was 20.8 million, a 7% increase from the 19.4 million recorded in last year's first quarter. The effect of foreign currency fluctuations during the first quarter of 2014 increased consolidated revenue by approximately 0.8 million.

On a local currency basis, our European revenue increased by 3.1% compared with the 2013 first quarter. Direct costs as a percentage of revenue were 78.6% in the first quarter compared with 79.2% in the first quarter of 2013.

SG&A expenses decreased approximately 960,000 from the first quarter of 2013, primarily as a result of fewer non-billable personnel and lower incentive compensation expenses.

The billable travel expenses included in the first quarter 2014 revenue and direct costs were 2.5 million. The billable travel expenses for the first quarter of 2013 totaled 3.1 million.

First quarter operating income was 5.5 million, a decrease of approximately 700,000 or 11.4% year-over-year. Operating margin in the first quarter was 5.6% of revenue, 10 basis points lower than the first quarter 2013. The year-over-year decrease in operating income was due primarily to decreases in our health solutions revenue, offset by lower SG&A expenses.

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