Computer Task (CTG) 7 Aug 222022 Q2 Earnings call transcript

Greetings and welcome to the Computer Task Group, Inc.

Second Quarter Fiscal Year 2022 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Deborah Pawlowski from Investor Relations. ahead. go Please

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

discussion the and John our if have Financial and you Joining open and Q&A. website, results this second ctg.com, on call access John’s will the Gydé, financial After this Filip the it. me market before our quarter CEO morning, XXXX and not We that Laubacker, you for Officer. Chief can formal do morning our we Filip released our are President line release at

Let could with to documents other aware, and statements These as These call. me during results in and the as as actual well on risks Commission. during Exchange materially some mention earnings factors the provided first to the risks may stated is from are statements subject session. other Q&A apply cause that uncertainties as as release factors to filed you as are forward-looking well that with the we what future Securities likely formal today’s events as discussion are and make uncertainties other and differ well that

these find Also today’s non-GAAP our we website documents or during useful some we at financial our will sec.gov. discuss believe which performance. on call, measures, are can evaluating You in

accordance You GAAP. information this a in in additional results should prepared with consider substitute not isolation or for as

in the the to I a Filip provided release filings. call tables in have reconciliation well We today’s Filip? to measures as with of begin. over measures turn the GAAP as non-GAAP now will SEC in comparable

on progress current today. I everyone. We a and morning, then our you would few for environment Deb, coming focus and us spend the and the quarters. joining you, good Thank highlight like to our minutes appreciate

Our second like quarter. quarter first was much the performance

disengagement the our and was of of foreign the is euro in operating a continued Despite overall consolidated during on measurable significant continued lower our these strategy business execution business gross quarter. as drove well Services impacts, as headwinds margin performance reflected Non-Strategic with the the profile strong well-defined there at exchange our business levels improve nearly value our as expansion Our and top half continued margin Technology against our basis. the as of line European depreciation to

Our of margin gross to margin more year-over-year our XX XX.X% highest improved years. in revenue, than

is drove operating Our our with growth. items X% XX% strategy share, leader XX% over EPS prior and to in to basis per $X.XX delivery performance represented $X.XX These improved non-GAAP our digital growth income testament the the or on year. services. which improved a from become to a solutions a GAAP to impressive This profitability of in

continue unleash. to we More our to have plan, importantly, execute further as I we earnings believe power

each and a are and for margin due higher-margin is lower third Europe rapid reminder, fairly our from segment we Non-Strategic financials a our within IT Solutions disclosed As North three and services. Services, contribution. to Services IT continue represent pace to America at which segments. we its report disengage business our of the Technology And

of XX% growth our as win quarter to teams we in our clients. line existing new from continue saw second business strong America the For North XXXX, and top of segment new

offset won segment, comparable strong we Although pressures with year contribution contracts Europe as helped as our segment inflationary ago we margins multiyear ramp period. stages, In labor encouraged in to year. the in very be remained and this large continue the early earlier we execution up to the this

consistently as also we Technology Services we seen have segment a business margins the our Finally, of lowest margin from disengaging strengthening first. been Non-Strategic have

global talent continue Within to at and solutions while North our by importance investments geography highly our business those America labor impeded adding forefront in digital we teams. As certain centers’ and our environment offerings constraints, a IT reminder, has areas, Solutions very we our investments, our to remains expanding of to development, in The are been Europe. overall particularly only the on skilled in have successful focus Europe. of including all making competitive. levels part delivery plan growth in the And brings been to the labor expand strategic talented adding capacity. This offshore in segments we labor headwind

While through our forward looking offshore levels, in India targeted we delivery head both acquisitions. our and and at modest are expanding capabilities are count our increasing to Colombia centers

a potential solutions add mentioned and culture, companies our and to evaluating for As are acquisitions. synergistic communications, that in reiterate terms that we and we well-defined digital to will existing results portfolio process have can primarily our located are our are looking To accelerate of had we past in criteria, of with have America. we for highly North our accretive are established companies solutions CTG in to which strategy both solutions be

and look pressures underlying recognize As we forward, that there we uncertainties global are economic that impact development. may

continued X% of over in the results it are and we In progress Overall, the are the of opportunities can expand line with From our control. will I digital encouraged realize our segment, given American We that, those turn in to in increasing half work meet in With perspective, foreign has has X% adjusted support plan with hard ago, a expect with me North over year of let John review objectives. that ability working detail. team’s John? continues large goal am significantly our from the top we second we Ukraine long-term to to are in our solutions, of have difficult a on business Europe, comparisons in grown headwinds which we which of past the unrest be aspects business, our confidence challenges the year. more in organic to revenue. segment stronger to though pipeline XXXX project-related encouraged on year of continued constraints the to to core labor but our our margins EBITDA and to currency, advance. and

call. second from quarter business, Services services. down on of million, the was million in from $X.X million, Consolidated deliberate $XX.X XX% lower-margin staffing again disengagement you everyone. our or was you, Filip primarily morning Thank Thank and approximately resulting our joining Technology $X.X IT revenue Non-Strategic good for which us today’s

other foreign reduced on currency impact was in which million continued exchange the headwind, quarter. by revenue The negative a revenue $X.X

was Solutions Europe solutions the from $X.X quarter and increased to XX.X% and American million, North revenue opportunities million, and from Revenue which our existing IT core largely Second Services development IT due Services business IT clients. down exchange impact. foreign new $XX.X solid in million, digital currency Solutions to segment $XX.X reflected with

the declined have for would revenue X%. currency, foreign approximately segment Excluding

that any during the client than quarter. by contract not We a have seen was other internalized significant of loss first business the

is we However, to in able been due there have labor business constraints that not purely to region. the capture

intense, recruiting and for teams As the are resources. to compete mentioned, talent harder war working Filip is our for

We meet resources are working client global centers diligently leverage to to provide the our delivery requirements. needed to

was XXX margin revenue gross and points strategy, our X-year and year’s mix measurably our quarter gross points last solutions. period. the this more the line margin basis over in toward years. Filip in basis IT improved As with during margin we was up mentioned, expected than XX.X%, Consolidated XX optimize second as as and highest higher profile quarter Again, profitability our to XXX our continue than

the – the American the with gross and XX.X%, this Solutions was revenue. XXXX. this margin segment mix Overall, process decreased higher In existing XXX to year. during lower XXX margin as the to Europe, than the and gross margin basis margin points gross the basis despite points quarter projects XXX IT change margin of basis reflecting prior points Services, compared For in the North in expanded a XX.X%,

billable. up or share. to SG&A was the an $X.XX increase XX% $X.XX from acquisition-related million Non-Strategic lowest XXX $X.X with This CTG’s SG&A quarter revenue, of our period of continue from year. net EBITDA was points the expense X.X% year. of recorded operating of or period per million margin basis Technology lower revenue. of which or share was the with $X.XX or profile, the ago the prior $X.X billable In Finally, largely XX which points We of $XXX,XXX quarter improvement GAAP a the XX% was X,XXX, in X.X% margin was at expenses, operating in or prior disengage adjusted diluted XX to which X.X%, income, the X% the million basis increased $X per margins $X while year margin with with $X.XX compared which steady the projects operating diluted XX.X% total improved leverage represented prior million operating $X.X loss XX% segment, we $XX.X an our ago end year improved for an from year there up which approximately versus quarter. revenue, head was XXXX. excludes count share per basis margin in the was year the second million with income year-over-year. That’s to decreased earnings keeping income Services prior XX million to quarter. EPS increased during points basis the compared of Non-GAAP in compares compared of Non-GAAP XX%. of points in of in the expense in the quarter due period. from increase

Cash our to we no nor borrowings our operations by provided quarter year $XX.X for agreement than were cash was debt balance million XXXX. was equivalents this at turning $XXX,XXX cash outstanding credit And revolving have period. any and the year. million, Now there and sheet less on cash end $X.X flows, end year-to-date made

key say acquisitions As of times, solutions a our IT a heard driving part you are digital have number strategy. us of

meet a strategy allocation While capital acquisition exercise good we’re our they continue diligent looking as will fit a when to criteria, for to assessing we arise. opportunities

leverage flexible accelerate provide of future. the growth to pace and sheet the balance in strong need will Our our we

on the noted foreign today’s impacts, currency devalued we of have translation challenging significantly not As a we the times given are to number euro. immune call,

of Additionally, seeing our operations. availability in as resources, to the mentioned, primarily headwinds we are European related

somewhat our the America for North and services. process clients’ Finally, both in decision-making environment IT Europe has slowed macroeconomic

our $XX the This reduction Services million reducing $XXX of lower services range revised range are includes segment. from we Technology guidance Non-Strategic and annual from million the result, to approximate our million. a staffing $XXX revenue As expect disengagement $XX margin XXXX to to now from the for million revenue

despite improve to year given the Importantly, the prior macroeconomic to over operating top solutions. expect towards and ongoing headwinds, the decrease mix margins our we our business positive line changes

we per by $X.XX. significant diluted part to in will in result our improvement We improving business, the progress in earnings facing and GAAP share ranging margins from offset operating the future. the energized by expect $X.XX headwinds and be revenue our forward to Despite look will continuing ranging share per $X.XX the $X.XX to XXXX lower and diluted from are margins earnings that in non-GAAP

our prepared to to unchanged plan our revenue years. EBITDA remains adjusted our of Ryan, we X drive completes you remarks. as within X% vision long-range next period? Our to margins question-and-answer could That the handle please X%

[Operator line Instructions] from & Liu first go Company. from K. is Liu Our you. Thank question the of ahead. Kevin Please

guys. morning good Hi,

projects ask, labor manifested itself question in just how I some just in that the there of you this of talk other Europe that in First quarter? more is you staff, of were constraints or and Was there, terms to of able bit from like labor weren’t consider? kind can already delay sort the so the this to little won you we impacts about had should a a that would more impacts of

our culture great and need to when there, it We the pleasure. is our the we at retention a comes we environment. additional and places growth it to down of staff people. the new look part that But strong to because work, We the – into hard competition you get HR If looks see our the additional And when extremely strong very are company. to in fierce. tend is have the projects, Yes, fact retention. staffing, the of it

in projects So are really we are it’s they to decide But they we decide, obviously, that to when with than they oncoming that that before, delay. immediately. take but and cannot trying the and we when clients and decide now conversation it’s not more projects start time clients that want execute, signed obviously to

on It’s execution we not our such. on see the it’s that portfolio additional projects So, the of as coming.

Understood.

a far, guys revenue good so job margins managing headwinds. have even And done some of effectively, with you the pretty

expecting can on how of you also, costs get now particularly do you about in are you about of your And guys strategy there? your of just more ability wage kind to As you significant and there, For what some to talk instance, inflation look Europe labor this your – think to clients? challenges period? through some pass the those

I in is as still Europe strategy margin solutions Well, message think numbers see Yes. away everywhere. that’s the only and that the we can progress of Europe, and also really moving but working, moving you are low-margin it in the business for And our not doing in executing diligently. profile making of to our important we’re

the There retention. profile, with the labor and inflation, But the we inflation there’s our wage with So wage is can our becoming course. part continuing also People even that margin CTG. also in to of even on part with pass is the work obviously shortage, automating that clients, of delivery, to improve. delivery more efficient of

their need Of have and is compensation, in CTG, experience course, fair and to career competitive individualized there lot that for career, on. plans their but people employee more stay you our development possibilities, will a so at

clients – that wage is to and with So, inflation and increase we margins. think manage both still I our with internally, able but are affecting us,

of guidance, for speak much Europe? was from challenges on could revenue one John, color FX adjustment appreciate the versus like I in maybe then the to how just you the that to there. other And

it where below Thanks, Kevin. not It basically difficult see annual in – an measure. a about disengagement really the to of fall something out has been But $XX and hang at today. is $XX we the right would talked fall euro we reduction where or estimate to for of foreign million basis ago a X:X then year-over-year may lot talked from to about on be as X non-strategic has from year-over-year. of resources currency. to to now, and different sure X:X of We’ve remarks, And it just I’m is approximately, prepared the may million over it people, looked been and anybody continued $XX the The expected fall, that months lot to par. million – predictions you it the that’s

So in that we’ve guidance, estimated about foreign $XX currency. within new million Kevin,

it Very helpful. for That’s me. Thanks.

Kevin. Thanks,

Kevin. Thanks,

you. Thank

the line Please is Marc Our next from from Riddick go Sidoti. question of ahead.

Hi, morning. good

Marc. morning, Good

if you macro we And could you’ve seen and what that changes going of low-margin get has your over follow-up, more a you’re evolved could if might touch currency then of about wondering sort what sort of thinking was about – when given wondering of in changes bit seeing any. to a of few I bit you I of was you. the So recently, time anniversarying weeks the – as on if process? and frame think maybe and how the a the about point little there, we was and that exiting and if have what activity that how client timing business I last – the touch the forward the sort that’s issues out the of how do initial that start plays the little

inflation, any not Ukraine, global high we it. slower seeing the decision-making the services, somewhat but that it’s the economic the also pausing a see we are and priorities, difficult not-so-strategic putting including their projects processes IT the strategic because spending are environment down rethinking business discussions the the Okay. at more look activity, directly obviously we client Ukraine, driving Changes of very further conflict level decisions, detailed for have the slowing clients that really client and and environment when in are bit in we It’s and projects and created given little road. the determining a with around do pressures or Europe. inflation in is other conflict including what and clients And in

about in It’s this we think there. ‘XX not with exiting the and years. saw very our last So couple be the to moment we exiting kind quarter, years next but different million it approximately yes, in $XX that is I for to the continuing rhythm approximately low-margin first are in – a been of last is the continue happen that to what million the what X is filing estimate business, to noticing. of have $XX Talking we $XX to at and we in million plans years, of couple that from

pace. to exiting profile. our And we’re positive like anything think a margin that? is an add there having on increased you John, is on obviously effect at I So very that would

over Marc, we the million over is that couple last so pace for time. Filip, $XX I X years million see think or on pace last said. that – or a years average $XX that – we decreasing well was that No. really the of

We that said, at Filip ratable expect as couple this that, it expect of that and least to to much be years. be pretty the next year rhythm over

of And so of a within will couple part business years. here be it a fairly diminished the

those specific. adjustments a I appreciate on – if to more maybe could as maybe – you Okay, to process? and Thank seeing in just I bit great. vertical-wise, circumstances. lagging customers, decisions wondering And talk far maybe little advanced But And are about have I as little a verticals very was talk the be and that and you’re about, some it in of you don’t you if you could might you. differences to there industry in really activity? wondering commentary acting actually I behavior just as mean, bit the then making them client of far industry and particular are I of general folks as those seeing change be types given that the rate that as what opposed as are particular a little was – the

different lot understanding, transformation looking I of think is difference industries. all at the difference happening that don’t that are we the verticals digital between the and projects a see the also over

working the the seeing everybody the everybody same in digital same on is inflation So and markets. and is transformation, tension

the mean must that one – to that size themselves, conflicts which tension say before. current I less making good Europe some the is would weapons obviously distance at that’s and see doing have sector I this I the But Europe, anymore. because tools is doesn’t speed it have government impacted the Government And And a if and still is of the they know is much frankly, we more with because, And say we would don’t think at government. proximity that in I moment. – of in that’s a were little business obviously healthy. decisions well, effect.

kind the of And travel what whether change curious of far customers, I bit from your thing those adjustments? they loosen either of be or continuing in little expenses, to up I sort there – too last was gradually to of imagine a hearing from it’s bit in way that begun whether you’ve maybe those or you’re macroeconomic the engaging sort of impact much kind would seasonality? economic lift for But to Okay. if the as you’re as as make me, are see activity, I seen wondering are of had because a beginning to an discretionary as folks was much how then early well. that’s that of

very seeing We travel have though slow. last still more been it’s quarter, also

person. that to do way of final to control starts clients positive. him the and or projects, consciously But need conscious come physically are to for a looking expense. making back, an invite conversation and there what to make us, of, vendor Zoom when. and the There by think and deciding We do than would really yes, being a more on is And is see need combination which, supplier engage potential on meeting to I obviously, expenses. way what to obviously, the allow no we more also, we do And in Teams a or very in we the different orals, or and better front at the there decisions clients in when presentations, – it of an is yes, is clients that it’s for real come important in. or impact a more on

to cancellations, was a isn’t at and nice Also, the coming difficulties That not back a traveling experience is practical by of perspective, level it’s So that with moment this before. certainty. everywhere. from a it the plane very all delays

yes. So it’s –

Thank I much. you very more that. Unfortunately, agree can of

Thanks, Marc. Alright.

Marc. Thanks,

Thank you.

is question George of Our the go line from MKH. Please Melas ahead. next from

John. Filip morning, and you. Good Thank

George. Hi,

Good morning, George.

Good morning.

very steady looking special last at growth up XX%, at the the over year, ‘XX fourth of seen we there. quarter If exclude versus up very year that look last project, Just had we America, and half good have XX%. ‘XX we first and that it was if this year North was of

get execution – So seems being very executing whether understand that you Help us – drove and what that there. growth you really, it has how see like sustainable? have what good been been growth to

just We executing well, have acting disciplined been on focusing by, our with this and execution. strategy

Solutions, couple we look to you sales that is organization. is very one Everybody last Vice one and North of new much Delivery the in now If a what’s In America organization. organization. last totally There hired delivery the we the the There aligned. of solutions of and happened in have President is is had years, lot We’ve Hunt. reshaped years X talent. Brett

we new help Just announced very for solutions the added We talented Clark number Sales. last the a build of to as of Scott solution VP quarter, architects client. each

I a then talent hard it’s really and execution. and top combination think, aligning disciplined in George, everybody working and of getting very

a and very build we was think America what our I segment issues nice That the the the what we the be we The approach think understand we’re in those from perfect and said we a at clients their it’s And said, people I growth beginning and together are strongly architects, reporting. to can within when within could looked job. our with approach that that of the seeing are track is going organization, couple I years. with growth. to first that solution continue fundamental of the of scale, for core the that, what a also we and North believe the because how next mission to very doing looking solutions organization sales, really customized around are way in

Great.

me. of X by versus growth, roughly helpful these new The primarily new driven able how been a existing been it mix last you clients? or sort years of of clients growth clients? that much the color just has working adding mix get of there, existing think sort very little to with is or your was X in Maybe clients I have for meaningful

way normally and the then you presenting And difficult Well, bit a presence client. so with a of that’s it project. a it within because a around new your starts first build of expand client you build

So bigger and you entrance want always you client, the growth client at with make new evaluate when than to performing you’re faster good an in are the potential they how an first when existing that is where project.

most clients. year extremely naturally, in or X new But year, and it in growth existing not the of COVID, of we go to the screen. out. So of I’m have, even the virtually last new the first the X.X out a XXXX, created but is you saying only with very was year, years, physically, promising build added difficult clients. number when Well, X.X years clients relations to go could to see new because

the we different we areas. XXXX in has largest and more was over clients where a the quarter’s it’s strong on. years. it’s combination, big that to several help us But we growing and and projects both helped No, our is announced, There North moving base new America how we’re and not multimillion year in of Europe. clients actually, is customer a look then because are helping project, So at where seeing example, in last a one definitely us projects, that’s It’s digital continuing customers. largest a

a than was know to you it and picture big somewhat I you some some years I profile help ago to some X give it is know great. – it’s Europe question, go? get to more us us try complex you other can give a And me that? hope Europe? handle How can on but it’s organization, maybe but then where different Okay,

Yes.

and countries. very And You’re as still, situation Europe – country have different But the the different have mechanism. style, is States in at Each really to priorities. tempting know is right, has states. independent look They George. Europe its own its because very complex own own a it’s culture, is It’s we I its a well. States, it from

a it’s years Europe, give you is can from ago, to an be So our impossible margin And that But within asked I improving. almost at what think answer exactly see to of now CTG looking we couple doing. overall. Europe

the structurally, is So getting business better.

to digital. moving We’re

implement to starting We’re offshore.

automating We’re delivery. our

are margins better. getting the So

at good retention. We’re

other hear still is inflation what salary I to So from places. compared under control

I’ve lost but I’m Sorry, my sorry. answer,

That’s than foreign the growth we business we severe a – in on on to So perspective, staff we to obviously the the North question the a but growth also labor difficult. growth That’s looking in the back the see exchange, America. within see what problem that Europe, constraints America. we still that percentage see for countries. projects And are North lot we over while are we about America, why all than people, offshore. together staffing perspective, with at shortage the projects see that’s Europe, of growth higher more a that in our North kind more In see because Europe able it we see new for same of is in

and for lot execution. luck appreciate it. Good answer. you. this a good Thank Great. I Thanks

Thanks, George.

there questions, to Instructions] CEO over remarks. further Filip, Thank your President, and Since hand closing I for you. no conference will [Operator are the

in you our Thank participating for Ryan. Thanks, teleconference today.

demonstration another the solutions execution The second progress was of quarter of strategy. our digital and continued

the half of second we will gross our year, in headwinds in success significantly results. margins and to continue operating our be excited we know we about experience the improving Although

the For those participating look time, have may all disconnect at and results. of us always, after interested, you Midwest We third day. be feel our of any Otherwise, Chicago Ryan, free you now again August call. hope you in you to Conference a forward as great we will we to on out Thursday, with reach to the IDEAS quarter XXXX talking please XX. in

participation. you Thank now concluded. for you. your The conference of Group, Computer Inc. Thank has Task

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