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

October 28, 2010 | About:
10qk

10qk

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Computer Task Group Inc. (CTGX) filed Quarterly Report for the period ended 2010-10-01.

Computer Task Group Inc. has a market cap of $144.9 million; its shares were traded at around $7.96 with a P/E ratio of 18.7 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 2010 third quarter, the Company recorded revenue of $84.5 million, an increase of 26.5% compared with revenue of $66.8 million recorded in the 2009 third quarter. There were 63 billable days in the 2010 third quarter and 64 billable days in the 2009 third quarter. Revenue from the Companys North American operations totaled $70.7 million in the 2010 third quarter, an increase of 35.9% when compared with revenue in the 2009 third quarter of $52.0 million. Revenue from the Companys European operations in the 2010 third quarter totaled $13.8 million, a decrease of 6.6% when compared with revenue in the 2009 third quarter of $14.8 million. The European revenue represented 16.3% and 22.1% of 2010 and 2009 third quarter consolidated revenue, respectively. The Companys revenue includes reimbursable expenses billed to customers, and totaled $2.4 million and $1.5 million in the 2010 and 2009 third quarters, respectively.

In the first three quarters of 2010, the Company recorded revenue of $244.1 million, an increase of 17.4% compared with revenue of $207.9 million recorded in the first three quarters of 2009. There were 192 billable days in the first three quarters of 2010 and 193 billable days in the first three quarters of 2009. Revenue from the Companys North American operations totaled $199.3 million in the first three quarters of 2010, an increase of 24.3% when compared with revenue in the first three quarters of 2009 of $160.4 million. Revenue from the Companys European operations in the first three quarters of 2010 totaled $44.8 million, a decrease of 5.8% when compared with revenue in the first three quarters of 2009 of $47.5 million. The European revenue represented 18.3% and 22.9% of 2010 and 2009 year-to-date consolidated revenue, respectively. Reimbursable expenses billed to customers and included in revenue totaled $6.5 million and $4.7 million in the 2010 and 2009 year-to-date periods, respectively.

The decrease in revenue in the Companys European operations in both the 2010 third quarter and first three 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 third quarter as compared with the 2009 third quarter, the average value of the Euro decreased 10.7% while the average value of the British Pound decreased 5.8%. If there had been no change in these exchange rates from the 2009 third quarter to the 2010 third quarter, total European revenue would have been approximately $1.5 million higher, or $15.3 million as compared with the $13.8 million reported. Revenue for the first three quarters of 2010 would have been approximately $1.6 million higher, or $46.4 million as compared with the $44.8 million reported if there had been no change in the year-over-year exchange rates. Operating income was reduced by approximately $0.1 million in the first three quarters of 2010 due the change in the exchange rates. In the first three quarters of 2010 as compared with the first three quarters of 2009, the average value of the Euro decreased 3.8% while the average value of the British Pound decreased 0.6%.

2009 period. In the first three quarters of 2010, IBM accounted for $75.4 million or 30.9% of consolidated revenue, compared with $53.4 million or 25.7% 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 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 the NTS agreement to be renewed in 2011 and 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 October 1, 2010 and October 2, 2009 totaled $14.1 million and $9.4 million, respectively. No other customer accounted for more than 10% of the Companys revenue in either the third quarter or year-to-date periods in 2010 or 2009.

Operating income was 3.7% of revenue in both the 2010 and 2009 third quarters, and 4.0% in the first three quarters of 2010 as compared with 3.5% in the corresponding 2009 period. Operating income from North American operations was $3.1 million and $2.1 million in the 2010 and 2009 third quarters, respectively, while European operations recorded operating income of less than $0.1 million and $0.4 million, respectively, in the corresponding 2010 and 2009 periods. Operating income from North American operations was $8.9 million and $6.3 million in the 2010 and 2009 first three quarters, respectively, while European operations recorded operating income of $0.8 million and $1.0 million, respectively, in the corresponding 2010 and 2009 periods.

Net income for the 2010 third quarter was 2.4% of revenue or $0.13 per diluted share, compared with net income of 2.4% of revenue or $0.10 per diluted share in the 2009 third quarter. Net income for the first three quarters of 2010 was 2.3% of revenue or $0.36 per diluted share, compared with net income of 2.1% of revenue or $0.28 per diluted share in the comparable 2009 period. Diluted earnings per share were calculated using 15.9 million and 15.8 million weighted-average equivalent shares outstanding for the quarters ended October 1, 2010 and October 2, 2009, respectively. Diluted earnings per share were calculated using 16.0 million and 15.4 million weighted-average equivalent shares outstanding for the three quarters ended October 1, 2010 and October 2, 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 0.4 million shares pursuant to the Companys share repurchase program for treasury during the last quarter of 2009 and the first three quarters of 2010.

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