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

August 07, 2009 | About:
Gordon Pape

Computer Task Group Inc. (CTGX) filed Quarterly Report for the period ended 2009-07-03.

Computer Task Group Incorporated provides information technology (IT) staffing IT solutions and application management outsourcing services in North America and Europe. The company\'s staffing services consist of recruiting retaining and managing IT talent for its clients. Its IT solutions include helping clients assess their business needs and identifying the IT solutions for these needs as well as the delivery of services including the selection and implementation of packaged software and the design construction testing and integration of new systems. It serves primarily technology service providers financial services healthcare and life sciences market areas.Computer Task Group was founded in 1966 by Randolph A. Marks and G. David Bae. The company is headquartered in Buffalo New York Computer Task Group Inc. has a market cap of $111.7 million; its shares were traded at around $6.12 with a P/E ratio of 13.3 and P/S ratio of 0.3.

Highlight of Business Operations:

Specifically during October 2008, the Company was informed by a significant customer of a reduction in their need for approximately 250 of CTGs staff, or approximately $21 million of annual revenue. Over the next several months the significant customer reduced its need for the companys personnel by an aggregate of 425 billable staff or approximately $36 million in annualized revenue. The reduction was not a result of CTGs performance, but rather a change in our clients business needs. These reductions coupled with a continued general weakness in demand for our IT staffing services from our other customers resulted in our IT staffing business realizing approximately $18.7 million less revenue in the 2009 second quarter as compared with the 2008 second quarter.

The decrease in revenue in the Companys European operations was primarily due to weakness in their IT staffing business. Additionally, revenue decreased due to 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. Had there been no change in these exchange rates from the second quarter of 2008 to the second quarter of 2009, total European revenue would have been approximately $2.3 million higher, or $17.4 million as compared with the $15.1 million reported.

In the 2009 second quarter, IBM was the Companys largest customer, accounting for $17.1 million or 25.7% of consolidated revenue as compared with $29.3 million or 31.2% of revenue in the comparable 2008 period. The Companys current National Technical Services (NTS Agreement) contract with IBM runs 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 and Systems and Technology Group business units. We expect to continue to derive a significant portion of our revenue from IBM throughout the remainder of 2009 and in future years. However, the continued 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 3, 2009 and June 27, 2008 totaled $9.4 million and $12.3 million, respectively. No other customer accounted for more than 10% of the Companys revenue in either the second quarter of 2008 or 2009.

Operating income was 3.6% of revenue in the 2009 second quarter as compared with 4.2% of revenue in the 2008 second quarter. The decrease in 2009 operating income as a percentage of revenue is due to the significant decrease in revenue year-over-year, offset by disciplined cost control. Operating income from North American operations was $1.9 million and $3.4 million in the 2009 and 2008 second quarters, respectively, while European operations recorded operating income of $0.5 million and $0.6 million, respectively, in such periods.

The decrease in revenue in the Companys European operations in the first two quarters of 2009 as compared with the first two quarters of 2008 was primarily due to weakness in their IT staffing business and the strength of the US dollar as compared to the local currencies. Had there been no change in the exchange rates from the first two quarters of 2008 as compared to the first two quarters of 2009, total European revenue would have been approximately $5.1 million higher, or $37.8 million as compared with the $32.7 million reported.

Operating income was 3.4% in the first two quarters of 2009 as compared to 3.5% in the comparable 2008 period. The slight decrease in 2009 year-over-year operating income as a percentage of revenue is due to the significant decrease in revenue year-over-year, offset by disciplined cost control. Operating income from North American operations was $4.2 million and $5.5 million in the first two quarters of 2009 and 2008, respectively, while European operations recorded operating income of $0.6 million and $0.9 million, respectively, in such periods.

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