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Computer Task Group Inc. Reports Operating Results (10-Q)

August 05, 2010 | About:
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10qk

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Computer Task Group Inc. (CTGX) filed Quarterly Report for the period ended 2010-07-02.

Computer Task Group Inc. has a market cap of $141.1 million; its shares were traded at around $7.78 with a P/E ratio of 18.1 and P/S ratio of 0.5. Computer Task Group Inc. had an annual average earning growth of 31.6% over the past 5 years.CTGX is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

In the first two quarters of 2010, the Company recorded revenue of $159.6 million, an increase of 13.1% compared with revenue of $141.1 million recorded in the first two quarters of 2009. There were 129 billable days in the first two quarters of both 2010 and 2009. Revenue from the Companys North American operations totaled $128.6 million in the first two quarters of 2010, an increase of 18.7% when compared with revenue in the first two quarters of 2009 of $108.4 million. Revenue from the Companys European operations in the first two quarters of 2010 totaled $31.0 million, a decrease of 5.4% when compared with revenue in the first two quarters of 2009 of $32.7 million. The European revenue represented 19.4% and 23.2% of 2010 and 2009 year-to-date consolidated revenue, respectively. Reimbursable expenses billed to customers and included in revenue totaled $4.1 million and $3.2 million in the 2010 and 2009 year-to-date periods, respectively.

The decrease in revenue in the Companys European operations in both the 2010 second quarter and first two quarters as compared with the corresponding 2009 periods was primarily due to weakness in all segments of this business due to the challenging European economy. This revenue decrease was also impacted by the weakness of the currencies of Belgium, the United Kingdom, Luxembourg, and Germany, the countries in which the Companys European subsidiaries operate. In Belgium, Luxembourg and Germany, the functional currency is the Euro, while in the United Kingdom the functional currency is the British Pound. In the 2010 second quarter as compared with the 2009 second quarter, the average value of the Euro decreased 6.7% while the average value of the British Pound decreased 4.1%. Had there been no change in these exchange rates from the 2009 second quarter to the 2010 second quarter, total European revenue would have been approximately $1.0 million higher, or $15.4 million as compared with the $14.4 million reported. Operating income was reduced by approximately $0.1 million in the 2010 second quarter as compared with the 2009 second quarter due to the change in exchange rates year-over-year. Financial results for the Companys European operations in the first two quarters of 2010 were not significantly impacted by the year-over-year change in exchange rates from the corresponding 2009 period. In the first two quarters of 2010 as compared with the first two quarters of 2009, the average value of the Euro decreased 0.5% while the average value of the British Pound increased 2.0%.

In the 2010 second quarter, IBM was the Companys largest customer, accounting for $25.6 million or 31.5% of consolidated revenue as compared with $17.1 million or 25.7% of revenue in the comparable 2009 period. In the first two quarters of 2010, IBM accounted for $48.2 million or 30.2% of consolidated revenue, compared with $36.2 million or 25.6% of consolidated revenue in the comparable 2009 period. The Companys current National Technical Services (NTS Agreement) contract with IBM continues until July 1, 2011. As part of the NTS Agreement, the Company also provides its services as a predominant supplier to IBMs Integrated Technology Services unit and as sole provider to the Systems and Technology Group business unit. We expect to continue to derive a significant portion of our revenue from IBM throughout the remainder of 2010 and in future years. However, a significant decline or the loss of the revenue from IBM would have a significant negative effect on our operating results. The Companys accounts receivable from IBM at July 2, 2010 and July 3, 2009 totaled $13.5 million and $9.4 million, respectively. No other customer accounted for more than 10% of the Companys revenue in either the second quarter or year-to-date periods in 2010 or 2009.

Operating income was 4.3% of revenue in the 2010 second quarter as compared with 3.6% of revenue in the 2009 second quarter, and 4.1% in the first two quarters of 2010 as compared with 3.4% in the corresponding 2009 period. Operating income from North American operations was $3.3 million and $1.9 million in the 2010 and 2009 second quarters, respectively, while European operations recorded operating income of $0.2 million and $0.5 million, respectively, in the corresponding 2010 and 2009 periods. Operating income from North American operations was $5.8 million and $4.2 million in the 2010 and 2009 first two quarters, respectively, while European operations recorded operating income of $0.8 million and $0.6 million, respectively, in the corresponding 2010 and 2009 periods.

Net income for the 2010 second quarter was 2.3% of revenue or $0.12 per diluted share, compared with net income of 2.1% of revenue or $0.09 per diluted share in the 2009 second quarter. Net income for the first two quarters of 2010 was 2.3% of revenue or $0.23 per diluted share, compared with net income of 1.9% of revenue or $0.18 per diluted share in the comparable 2009 period. Diluted earnings per share were calculated using 16.1 million and 15.4 million weighted-average equivalent shares outstanding for the quarters ended July 2, 2010 and July 3, 2009, respectively. Diluted earnings per share were calculated using 16.1 million and 15.2 million weighted-average equivalent shares outstanding for the year-to-date periods ended July 2, 2010 and July 3, 2009, respectively. The number of equivalent shares outstanding increased year-over-year due to an increase in the Companys stock price which increased the dilutive effect of outstanding stock options, but was somewhat offset by the purchase of approximately 0.6 million shares for treasury during the last two quarters of 2009 and the first two quarters of 2010.

Cash provided by operating activities was $1.6 million in the first two quarters of 2010 (2010 period) as compared with cash provided by operating activities of $6.5 million in the first two quarters of 2009 (2009 period). In the 2010 period, net income totaled $3.7 million, while other non-cash adjustments, primarily consisting of depreciation expense, equity-based compensation expense, and deferred compensation totaled a net of $1.3 million. In the 2009 period, net income was $2.7 million, while the corresponding non-cash adjustments netted to $0.9 million. Accounts receivable balances increased $7

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