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Computer Task Group, Incorporated (CTGX)

Noble Financial Equity Conference

January 17, 2012 12:00 ET

Presentation

Unidentified Company Speaker

(Technical Difficulty)

77% of our revenue now comes from those four fast growing industries. Towards the end of 2004, we are looking at our strategy and we realized that we grow quicker and be much more profitable. We focused in primarily in IT solutions for healthcare. So since the beginning of 2005, almost all of our discretionary investment money has gone into our healthcare vertical. And as I go through the presentation, I’ll explain what we invest in.

The pie chart on the right side of this page shows the offerings at the highest level. The highest level will really only have two offerings, it’s IT staffing and IT solutions. In a staffing engagement, we’ll provide a technical employee usually a program or an analyst. In a solutions engagement, we will take on responsibility for something inside of our clients’ IT environment, almost all of our healthcare businesses, IT solutions, because we’ve been focused on it. The solutions side of our business is growing much faster than our staffing side.

In the third quarter of the year, for instance, our staffing business grew by 11%. The solutions side of the business grew by 36%. Obviously, that’s good for us, because the two sides of the business have very different operating margins. The aggregate operating margin in the staffing side of the business is usually about 3%. It’s 10% in the solutions side of the business. We’ll talk more about that as we go through the presentation as well.

In 2001, we picked healthcare for pretty simple reason, the world’s population was aging as people get older they spend more in healthcare. So, we reasoned that the healthcare industry would have more money to spend on us, IT services. Healthcare was 16% of the GDP in 2009, 17% in 2010, it’s projected to be 20% of the U.S. GDP by 2015. There are lot of forecasts out there that speculated as the Baby Boomers gets older that the U.S. may have to spend as much as 40% of the GDP just on healthcare. Now, we don’t know if the U.S. will ever hit the 40% mark or not. What we do know is healthcare was the fastest growing major industry in the world during the last five years and its projected to be the fastest growing major industry in the world for the next decade and that’s really why we are focused on it. We want to participate in that growth.

Taking a look at some growth drivers, one is certainly in inadequate medical record systems, President Obama went to Congress in the first quarter of 2009 and he asked for money for electronic medical records and he got a lot of it. There is $19 billion in the stimulus package, they are a legislation for electronic medical records, less than $1 billion of that’s been spent. So, there is $18 billion yet to come. In addition to the RL legislation on the same day, Congress passed the HITECH Act. Under the HITECH Act, every physician in the United States gets between $44,000 and $64,000 each. Every hospital gets between $2 million and $11 million each. They can prove a meaningful use of electronic medical records. Those payments are in the form of higher payments under the Medicare and Medicaid system between 2011 and 2014. In aggregate, it’s estimated those payments will amount to $40 billion to $45 billion. So in one day, President Obama got somewhere between $59 billion and $64 billion for electronic medical records. HITECH Act is an unusual piece of legislation and here is both a carrot and a stick.

Starting in 2015, the reimbursement goes away and it’s replaced with a penalty. We don’t have an EMR system in 2015. You begin by losing 1% of your Medicare and Medicaid. It goes up to 5% over a period of time. So, it is just one of the leading suppliers of IT services for electronic medical records, somewhere between the third largest and fifth largest in the United States and most likely in the world. We’ve been in this business since 2003. In 2003, we begin to install software packages made by companies like Epic, Cerner, Siemens, Meditech, and hospitals.

We go to market two ways. We first go based upon our quality. Hospitals have a radiant service, it’s called KLAS Enterprises. KLAS rates every IT services company on every project, every month, and publishes an aggregate rating. And if you got the KLAS ratings for the last three years and look to the clinical ratings, which is the area where EMRs fall almost every month for the last 36 months. CTG was rated number one in quality, couple of months we dipped to number two, only for a month, we usually pop right back to number one.

There is an article that appeared in InformationWeek. In the first line of the article, they asked a question. Who to call for help with health IT? They answered in the second line, Affiliated Computer Services, CTG, and Deloitte, top KLAS’ list of electronic medical record and clinical systems consultants. If you read the whole article what it says is that, well our quality is number one. They didn’t think the other two companies, where that far below us. So, they grouped the three of us together. The next highest rated company was Accenture and they were 10% below the lowest of the three of us. And the article actually says, you pick somebody whose quality is 10% below, you are going to notice that when you do your implementation.

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