BUFFALO, N.Y., Oct. 20, 2020 (GLOBE NEWSWIRE) -- CTG (NASDAQ: CTG), a leading provider of information technology (IT) solutions and services in North America and Western Europe, today announced its financial results for the third quarter ended September 25, 2020.

Third Quarter Financial Summary

• Total revenue was $88.6 million, compared with $89.1 million in the previous quarter and $97.2 million in the third quarter of 2019
• Revenue from Solutions increased to $35.1 million, or 39.6% of total revenue, compared with $33.8 million or 38.0% of revenue in the previous quarter, and $33.0 million or 33.9% of revenue last year
• Solutions gross profit margin was 29.8%, an increase from 27.0% in the third quarter of 2019
• GAAP operating income and margin increased $0.3 million and 50 basis points year-over-year, respectively, to $1.8 million and 2.1%, reflecting an increase in the mix of revenue from Solutions
• Non-GAAP operating income and margin, excluding $0.6 million in acquisition-related expenses, increased 30 basis points year-over-year to $2.4 million and 2.7%, respectively
• GAAP net income was $2.8 million, or $0.20 per diluted share, including a tax benefit of $0.08 per diluted share associated with a change in legislation and a $0.04 per share gain from life insurance, as well as acquisition-related expenses. GAAP net income in the third quarter of 2019 was $0.9 million or $0.06 per diluted share
• Non-GAAP net income was $2.6 million, or $0.18 per diluted share, and included the previously mentioned tax benefit. Non-GAAP net income in the third quarter of 2019 was $1.4 million or $0.10 per diluted share
• Adjusted EBITDA was $3.3 million, an increase of 7.2% compared with $3.1 million in the third quarter of 2019. Approximately 60% of adjusted EBITDA was generated from Solutions
• Paid down revolving line of credit facility by 50%, reducing outstanding balance to $6.0 million

Third Quarter and Recent Business Highlights

• Expanded existing contract to provide go-live implementation for a prominent healthcare system in the northeastern U.S. with the addition of value-add support services
• Secured new multi-million dollar contract with a large state hospital system to provide Epic MyChart help desk services for two regional healthcare facilities in the U.S.
• Hired Phaedra Divras, an accomplished executive with experience delivering cloud transformation consulting and managed services, as part of CTG’s expanding Solutions team

CEO Comments on Results

“Our solid third quarter results demonstrate the continued success of our initiatives to improve operating performance and profitability, with operating and net income increasing year-over-year despite lower revenue,” said Filip Gydé, CTG President and CEO. “We are encouraged by this performance and believe our steady improvement reflects our relentless focus on advancing the rapid and ongoing evolution in our Solutions business, the decision to transition away from selective lower margin staffing engagements, and our high utilization of billable resources.”

“While client demand continued to be impacted by the COVID-19 pandemic, our team demonstrated consistent progress on our strategic initiatives involving digital Solutions. We remain committed to increasing our existing capabilities and making investments in new business development to support a healthy pipeline of future opportunities. During the quarter, we successfully secured several sizeable contracts, including new multi-million dollar engagements to provide service desk solutions for two West Coast hospitals. Additionally, in response to the increased activity, we meaningfully advanced our pipeline for our recently launched Testing Solutions offerings in North America.”

Gydé concluded, “While we acknowledge that the overall business environment is likely to remain challenging in the near-term, we expect to continue driving incremental progress and growth in CTG’s digital Solutions business and offerings, resulting in increased profitability and yielding significant long-term value for our shareholders.”

Consolidated Third Quarter Results

Revenue in the third quarter of 2020 was $88.6 million, compared with $89.1 million in the second quarter of 2020, and $97.2 million in the third quarter of 2019. The decrease in third quarter revenue as compared with the second quarter primarily reflected a continued transition away from select lower margin staffing business, combined with the typical seasonality the Company experiences during the third quarter. The decrease in revenue as compared with the third quarter of 2019 was in part due to the impact from the COVID-19 pandemic and the transition away from select lower margin staffing business. Currency translation had a positive impact of $1.8 million on revenue in the third quarter, compared with a negative $0.8 million impact in the second quarter of 2020 and a negative $1.6 million impact in the third quarter of 2019.

Cost of services in the third quarter of 2020 were $69.1 million, or 77.9% of revenue, compared with $70.4 million, or 79.0% of revenue, in the second quarter of 2020, and $78.5 million, or 80.7% of revenue, in the third quarter of 2019. SG&A expense in the third quarter of 2020 was $17.7 million, which included $0.6 million in acquisition-related expenses associated with previously acquired businesses. This compared with SG&A expense in the second quarter of 2020 of $16.8 million, which included $0.6 million in severance and $0.4 million in acquisition-related expenses associated with previously acquired businesses. SG&A expense in the third quarter of 2019 was $17.2 million, which included $0.8 million in acquisition-related expenses.

GAAP operating income in the third quarter of 2020 was $1.8 million, or 2.1% of revenue, and included the previously referenced acquisition-related expenses. Non-GAAP operating income in the third quarter of 2020 was $2.4 million, or 2.7% of revenue. GAAP operating income in the second quarter of 2020 was $1.9 million, or 2.1% of revenue, and included the previously referenced severance and acquisition-related expenses totaling $1.0 million. Non-GAAP operating income in the second quarter of 2020 was $2.9 million, or 3.2% of revenue. GAAP operating income in the third quarter of 2019 was $1.5 million, or 1.6% of revenue, and included the previously referenced acquisition-related expenses. Non-GAAP operating income in the third quarter of 2019 was $2.3 million, or 2.4% of revenue. CTG’s operations outside of the U.S. are conducted in local currencies. Accordingly, fluctuations in currency valuation for the countries in which the Company operates generally have minimal impact on operating results; these fluctuations increased operating income by less than $0.1 million in the third quarter of 2020.

GAAP net income in the third quarter of 2020 was $2.8 million, or $0.20 per diluted share, which included a net $0.2 million of non-operating income, or $0.02 per diluted share, comprised of a gain from non-taxable life insurance offset by acquisition-related expenses. Non-GAAP net income was $2.6 million, or $0.18 per diluted share. Additionally, both GAAP and non-GAAP net income in the third quarter of 2020 included a tax benefit of $0.08 per diluted share associated with a change in legislation during the quarter. Net income in the second quarter of 2020 was $1.8 million, or $0.12 per diluted share, which included a net $0.4 million of non-operating income, or $0.02 per diluted share, comprised of gains from non-taxable life insurance and the sale of a building offset by severance and acquisition-related expenses. Excluding these items, non-GAAP net income in the second quarter of 2020 was $1.4 million, or $0.10 per diluted share. GAAP net income in the third quarter of 2019 was $0.9 million, or $0.06 per diluted share, which included $0.5 million, or $0.04 per diluted share in acquisition-related expenses, and non-GAAP net income was $1.4 million or $0.10 per diluted share.

CTG’s effective income tax rate in the third quarter of 2020 was a negative 31.2% compared with 43.7% in the second quarter of 2020 and 33.5% in the third quarter of 2019. The negative effective tax rate in the third quarter of 2020 reflected the implementation of newly enacted legislation that allows the exclusion of certain high-taxed income resulting from the Global Intangible Low Taxed Income (GILTI) regulations. This change in legislation resulted in a tax benefit of $1.1 million, or $0.08 per diluted share, during the quarter.

Balance Sheet

Cash and short-term investments at September 25, 2020 were $33.4 million. Net cash was $27.4 million, net of long-term debt of $6.0 million. Days sales outstanding were 77 in the third quarter of 2020 compared with 81 days in the third quarter of 2019.

Guidance and Outlook

CTG Executive Vice President and Chief Financial Officer John M. Laubacker commented, “Given the ongoing impact of the COVID-19 pandemic on CTG’s end markets, the Company will continue to not provide guidance for the fourth quarter and full year 2020. We are, however, very encouraged by the success of our Solutions initiatives, which resulted in a significant increase in the Company’s gross profit margins in the third quarter of 2020. We remain committed to our strategy of making appropriate, focused investments in Solutions for the remainder of 2020 that will enhance the long-term value of CTG.”

About CTG

CTG has established a reputation for responsiveness and reliability—traits that our clients say set us apart—since our founding in 1966. Today, we provide comprehensive information, technology, and business solutions that address critical challenges for clients in high-growth industries in North America and Western Europe. Backed by a proven track record of reliable delivery, CTG fosters long-term client relationships and trust, which allows us to develop strategic insights that maximize client investments in solutions and competitive advantage. CTG has operations in North America, South America, Western Europe, and India. The Company regularly posts news and other important information online at www.ctg.com.