Computer Task (CTG) 9 May 232023 Q1 Earnings call transcript

Good morning, and welcome to the CTG First Quarter Fiscal Year 2023 Financial Results Conference Call. All participants will be listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask question. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Craig Mychajluk, Investor Relations. ahead. go Please

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

Filip Chief released Joining John before the financial are Gyde, and morning President me open. CEO; results Laubacker, this our first Financial our We markets Officer. quarter XXXX our and

our the open After the for at Q&A. Filip morning, and can access website this will You John's we release at ctg.com. formal discussion line

uncertainties as as statements on remind future me factors may earnings that as or Exchange during session. and the in Q&A the you differ to discussions Securities subject events as with to can well to provided forward-looking be let Just other risks as make found our These formal today's that from factors and materially actual is and we stated are other release could what other well These documents and are on apply results the the website documents with Commission. during filed sec.gov. uncertainties some statements as risks call. cause well at These that

call, evaluating today's performance. also During which financial our useful are discuss we believe measures, we'll in non-GAAP

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

reconciliation We release the tables and comparable non-GAAP in of have GAAP provided today's SEC with measures measures in filings.

I'll now turn begin. the Filip to call over Filip? to

morning, appreciate joining you We us good everyone. Craig, and Thank you, today.

transformation work quarter, strategy During make we to a our as solutions the first business. pure-play we drive continued CTG to IT

environment. digital than difficult revenue for despite XX% more solutions of now macroeconomic total and mix accounts Our the the business services

their the million including near work achieved expected in quarter. two IT be in $XXX earned I employees one and project the Our pipeline million and solutions we for $XX our continues services thank to revenue years. over hard to totaling strong, bookings quarter, in be

we We clients our our on and and shareholders. are progress, with accelerating focused our delivering pleased remain and efforts for

in signs quarter. additional some saw the We encouraging

our million than strong these is last quarter. XXXX, testing, digital with revenue in in includes than million area software more designing, engineering enhancing the services, of a and operating year off For $XXX first focus in from and in revenue $XX to start generated example, one products We are which and more services platforms.

Importantly, mix a margin a on basis. our basis growth, has business our years change change two points in in to increased the step led which past gross over XXX consolidated

basis year period. yielded digital potential points acquisition, quarter as We gross of gross and model the to Eleviant. Solutions achieved our Further the ago over performance engineering a two-year well our which focus from attribute a the Services services, of highlighting software in including XX.X% XXX our which our margins business XX% North basis and nearly a in America points segment, from up XXX in was quarter, driving of this contributions margin performance recent the as solutions, on IT

will our Eleviant example engagement exceptionally American digital gone the the an by team services well. past be sales We sophisticated And has this for offshore highlighted integration IT of potential primarily client where of Eleviant Overall, the acquisition. a provided model. the solutions North synergy a the using won quarter excellent

further the Overtime, we we staffing secure for even and costs While non-strategic capabilities forward delivering business, as driving our the to greater for some we what us synergies this leveraging talent categorized delivery and profitability. new business. been client value this sales previously, have improve while under doing of new team clients work look lower Eleviant to helped

teams. our with America strategy. year conviction solutions investments the to in this are We quarter made during sales, North further marketing expand We approaching our and

to in accelerated margin future. are approach growth and in investments positioned the reduced take quarter, long-term continue profitability these for we the we a to While operating our ensure

top-tier a we what on innovation, our our being and cultivating to mix power. place in focused remain we drive effort to ahead, earnings an control solution to work Looking improve relationships can around

during overall and in significant period. Services detail. when the the bookings more upcoming the to growth segments mix performance and during strong the This quarter, Solutions as full in than anticipate projects, new second also level year recent the John we now quarter IT more improved driving discuss the last for compared the Given delivering year's is XX% will

regularly the are to like I board always call management Before focused would value I strategic turn on priorities and shareholder and plan, that capital over and the John. review reiterate our enhancing allocation. to

our non-strategic while to we engineering, services a continue services strategy, focused disengaging IT digital improve To financial and profile. on highlight to transformation from staffing thoughtfully of software solutions deliver higher our mix

As what we by adjusted completing of of phase end margins, XXXX, the you expect consider X% we EBITDA transformation. deliver know, first our the to

is this and just not Importantly, the end a destination. milestone

the by expect end second For achieve we to phase, adjusted EBITDA XX% XXXX. of margins the

to board, management team in transformation, create of multiple and in expect this support our value. the XXXX drive the significant re-rating a this With we embarked shareholder because through our on mission

let results With me to over detail. John that, to our it John? more review turn in

Technology than Non-Strategic million We in was And for the The change represents the million. Services $XX.X lower-margin services-based on $XX.X quarter. Non-Strategic first morning, today's business joining and revenue in the mix a now disengagement Of of us more thank and continued Filip. revenue reflects XX% mix. to call. quarter note, from everyone. you, good Thank shift the year-over-year Services again, you our intentional our Technology Consolidated less segment during revenue our solutions of business of total

contribution In Looking Services engagements from America North we revenue specifically Eleviant Europe, as at up the new was benefiting acquisition. customer segments. declined and Solutions closing the XX.X%, X.X%. our revenue from IT and are

due in a largely change exchange this rates. foreign to was currency However,

Europe we $XXX over XXX years. first quarter total our margin basis Services points over and Solutions and a to million was over Services of two XX.X%, up The in our XX.X%, segments second five year-over-year points continued of second transformation North The gross noted, of points a success nearly IT digital IT up the America quarter, Solutions company. achieved the XXX delivered consolidated gross solutions highlighting in margin years. Filip first bookings last and As last basis ago, basis years quarterly basis XXX the IT and two and XXX quarter highest combined points year's

highlighted & the and saw Eleviant. from performance Services segment, adjustments has margin the in Filip European North given IT contribution solutions due our America which labor substantial we mandated focus strong in digital Solutions faced expansion macroeconomic which the with including a with countries the margin on we in significant operate. timing contraction headwinds, saw gross greater constraints, to salary some associated Europe,

are to our expect and gradual along benefit clients a we of a segment, see as the from year, increase mix throughout European the solutions. Within to costs utilization we digital and in improved margins passed greater

margin the from operating $X.X was $XXX,XXX of when For of severance. income first acquisition-related million expenses, with and X.X% $X.X income ERP GAAP a excluding $XXX,XXX was of system Non-GAAP implementation of quarter, operating $XXX,XXX costs, Solutions or the North The business change last largely revenue. Services & made development in by of support year offset of efforts. increases America million acquisition-related the expenses, X.X% investments segment IT reflects in additional

net quarter, income with compensation cost previously equity-based diluted and $XXX,XXX noted recorded the XX.X% rate The Non-GAAP which XX% EPS, tax $X.XX. transactions. diluted year's in excluding compared share. We per first was last $X.XX from was effective benefited of windfalls or

the rate term, XX%. our in We expect tax approximately to be long

Cash long-term of just sheet other be facility and line We the credit cash the we no of our that $XX.X leveraged with outstanding million and can the pace our future. equivalents in continue debt. accelerate on quarter, million balance had of the end to growth and maintain a to strong flexible at were revolving $X.X

million. Our revenue outlook adjusted range range to for to $XXX was an overall XXXX million $XXX of

maintain $XXX We continue a million for to year. the midpoint of

non-strategic However, The of million reduction outlook anticipated revenue revenue also of the we acceleration $XXX we did million. million services technology given recent the of business $XX by disengagement in the Solutions increasing during Services revenue our now includes adjust quarter. & a to $XX to to mix from the saw range million $XXX IT a our

for Of of XX% of includes note, rate rest from expectation the year-over-year, whole business. of XX% growth organic growth Solutions revenue well a the & midpoint which and an IT the is Eleviant year over revenue our Services

XXXX of the $X.XX, $X.XX per The quarter. GAAP project. $X.XX to estimates non-GAAP range per the at diluted $X.XX range EPS earnings share midpoint expect reduction last of our We to GAAP from share previously system announced and from reflect range from diluted implementation a $X.XX earnings to to ERP

backed are as of costs EPS these out being non-GAAP part However, disclosures. the

the date of around ERP with to As two-year a million at million reminder, XXXX. largely total period completion a spread project is end be $X cost estimated a the will and over $XX

As we indicated in year. quarter, with year the expected the second to of results start the a half we improving had significantly the slower last

to strategy disciplined continued overall We drive structure our to digital value. IT plan, reducing shareholder the are and committed our Solutions Services cost our execution of long-term including and

could our call completes please open Kate, the questions? This you prepared remarks. for

from is Liu Kevin question of & Company. first The Liu Please K. Instructions] go [Operator ahead.

job And the on bookings guys. quarter. good Hi, morning, this nice

First you about ramp ramped? more deal question this basis quarterly it I a expect terms have may been you revenue be you little was just like fully to just what to kind on expect the should bit in the ask signed. color of to Could consistent we vertical a once provide that and in of large relatively time full to contribution

believe the We once started Kevin. as phase years. care last ramping the is is with probably the of over was -- deal It of end And years. and two the -- up health large it's This it's planning it's up, period spread Sure, as relatively vertical. said, we to it's speak. going quarter was at in in stable two over stay ramped the

to Got are delivering you it. those I in large wanted two deal, also opportunities? of referencing one And services? this Eleviant one of context Or kind are separate That's clarify, was those helpful. thing the guys

to Kevin. the has of XX% opportunity, digital made the interesting it's can business, And where model because have high-value, client high-margin standard company we're so SaaS win of in a low-margin selling CTG development encouraging -- client The only goes it's offshore, the a non-strategic platform the They staff. XX% a is in the core actually were business offshore that where doing a opportunity very been It's in one is now much really we CTG. that previously, for to onshore. That Eleviant a sense have delivery digital or why capabilities. team separate we is which Eleviant it's

are into pipeline maybe wage about conversion you increases? and customers guys How pass referenced impacted the talked QX to that regarding good here? the kind have of kind move happened and quarter this Understood. just then, as how you your those And those being going business, of along your That's again of about And last that wage European through with discussions increases QX to quarter, and has just hear. able talk there.

able very are to increases The extreme part for built the our year. the for were the like inflation of at this contracts to have Sure. in in adjust rates -- we adjustments, different bill some due but beginning contract. of high it's year. to last higher inflation contract provisions half from wage abnormally through in the Roughly And

So through most we pass and adjusting that in entire the of it the will take part to are but it we year -- expect costs.

more were is strong, we though our And than other or the states of side, that's Luxembourg. throughput are Europe as easy labor grow. scarce on to European not high level And more and The universities deals. experiencing pipeline, is It's in Belgium resources the to pipeline recruit, difficult you in simply right asking the constraints. Europe, fill the that pipeline and retiring in demands, workforce harder difficult IT been out about course, to the total in have closing our a of the the in why a there joining of where function of than professionals reason client

me. lastly just Appreciate then that. for And

the number the Just on solutions obviously, is have mix a at it but revenue revenue. but the midpoint, higher guidance, actually does of unchanged,

down Or just of? earnings get So aware levels just midpoint understanding be to to -- planning some on should sales the other the front? dynamics better of your is of slightly. we is Are of there I investments why make you higher wanted a guidance other

John, take this do to you question? want

about excited of Thank the really, from think I the dramatic again, the comparison last be actual that an in the we're we overall XX% our the I increase, Sure, of total. the dynamics were. guidance Filip. the mentioned Europe, year guidance North midpoint solutions from call increasing year where of And of increase during would the America and you. this Kevin, to is

are macroeconomic had The the from European rate year. in As seen of guidance, we -- reflective by to rate increases a than we at to did the $X.XX. in to that we those is Europe passing bill $X.XX items. lower see three clients. two which the far little bit our earnings headwinds to the the pace now beginning we're at increases One as wage $X.XX that's And that our midpoint through or stronger

in But investments do that. lastly, saw we to We made an opportunity QX.

along Some that moment, be team, came business the sales great whether in people marketing. the delivery to solutions, add the to at

to in we been solutions business attaining So the That's something those you've the that second believe right about We're to talking long-term add added growth. that drive people. the XX% towards. growth got resources business. We about we've to excited for quarter working hard firmly

slight So we I guidance. of in pieces a that came slight those made you to all investments. decrease change, those the when the think And put the together, midpoint out earnings

questions here taking Thanks Understood. and QX. luck the good for in

Thanks, Kevin.

Thanks, Kevin

Riddick go of [Operator Sidoti. Please Instructions] is The from ahead. next question Marc

good morning. Hey,

Marc. Hey,

targeting characterize I bit you see some you engagements that you're cost wondering of new from But growth And wonder I Is Or about a that new what kind there would are cost was this make as clients of So little you those seeing? driven. bit. to at savings are seems savings and I you sense orders. was that's concentration. wondering they're getting if efforts? little though talk It a any sort sense new the a moment. could Are beginning engagements particular if of if could any,

needing in strategic opportunities do makes you're at deals areas sense that the not projects, still are the time environment even more We their time. for cost shortening to digital the all market and have But in experience, in happening. this savings the customer companies see that's a moment looking the other implement macroeconomic that changing what changing lot model, and like of area, We business all transformation times. is to saying in those at Sure. important are than what clients is current it closed

of together the is. Eleviant of -- And that in I sale is like is, development when It's that for that with platform point what instance, point apps exactly a company. manufacturing a SaaS said, of sales

can't to So more related at implementation. the even We say not We cost see that's strategy the in I this and both to market related moment. savings there's one or -- other. of

difference I a And cycle with in Okay. was recently you're much if sales length Or to wondering seeing more then these of it the similar historical is the orders? of pattern?

everything five wins, global clients do Well, and detailed encouraged and second recessionary slower we highest part to decisions the pressures. the the do in our definitely with with we're somewhat more we have has high have by actually discussions the number inflation, But years. are past of that of bookings

of we're So to a second the compared quarter We deals. previous than winning anticipate year. delivering more in lot the growth new XX%

and we healthy But discussions. a So slower yes, very more detailed see pipeline.

pipeline. And Okay. then to switching different a

a looks maybe what perspective. last valuation way if any currently talk in like year, from in and wondering bit, pipeline maybe you current as seeing While, a the was was I little September your there of Eleviant are you're to the thoughts appetite acquisition what

based Well, to an companies, They said would must CTG. or I almost be I we we're say, need to, criteria. continuously profitable value growth, need base, synergistic. there really a our, evaluating for established seeds have very access customer Like skillsets short on the to in potential rigorous investment added be acquisitions, we before, Marc,

our have very pipeline, we framework. a do will filtered, remain in good allocation capital prudent disciplined We and

is personnel adding where during be the near you least about term? continue? I And that -- in of investment, want there, then for was sense do to you the at to were get you Or kind got room talking to the you And wondering if Great. there that quarter. the

saw been long-term saw a bring at can at looking our we finding opportunities, approach said, people, transform we where digital always we great some approach, the to Well, has business looking John our business, like -- place.

added marketing have We resources. significant sales solutions,

gravity sales, think we're solutions, the returns. up keep at center bringing about. talking that and speed to heavy speed, this people. moving going to at growth new the is to forces now But up people, this get those that for always time, into We're bringing we're pipeline sure weight implementing the them marketing the moment, integrating I -- those is making to now we accelerate

though I in Great. technology. And revenue of then fit verticals last shift be bit of industry It as a I me. a was from mean, lot the mix, vertical seems mix. seemed there shift little one a to you marketplace, the bit certainly a that for little but away the have a bit a of there in little guess,

you maybe encouraged some talk bit things I that -- and you're And more could was about seeing that term? you the some -- might in a others perhaps in maybe than the that Thanks. if areas overall wondering mix? be might of you business near what about Or be

shift where The Marc, has sector everything because centralized. with that non-strategic from to away technology that's from away business lot the of a our do, the was shift

So that's an easy answer.

we that's but Government in industry. Looking under have healthcare is so contract financial at pleased the we verticals, the why states see we're And signed of generally. is the lot not a pressure in large Healthcare other great. and encouraged the growth the segment. in in Europe that with positive

So pressure. business our healthcare isn't under

Thank you much. very

You're welcome, Marc.

Marc. Thanks,

concludes management like This conference would closing turn back I over to to session. question-and-answer remarks. for the our

all in now you participating the XXXX time. to of results. may today. as reach us please Kate, after disconnect forward at for We you day. again always, out to great a We our second any feel to you Thank free look have hope our teleconference talking And call. quarter with you