Computer Task Group Inc. has a market cap of $171.6 million; its shares were traded at around $9.5 with a P/E ratio of 23.8 and P/S ratio of 0.6. CTGX is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:Cash used in operating activities was $5.0 million in the 2010 first quarter (2010 period) as compared with cash used in operating activities of $0.4 million in the 2009 first quarter (2009 period). In the 2010 period, net income totaled $1.8 million, while other non-cash adjustments, primarily consisting of depreciation expense, equity-based compensation expense, and deferred taxes totaled a net of $0.5 million. In the 2009 period, net income was $1.3 million, while the corresponding non-cash adjustments netted to $0.3 million. In the 2010 period, accounts receivable balances increased $7.3 million, and decreased $1.6 million in the 2009 period. The increase in the accounts receivable balance in the 2010 period resulted from the 5.3% increase in revenue year-over-year, and an increase in days sales outstanding (DSO) of three days to 61 days at April 2, 2010 as compared with 58 days at April 3, 2009. The increase in DSO is due to a change in the business mix at April 2, 2010 from that of previous periods. The decrease in accounts receivable in the 2009 period was due to a decreasing revenue trend from the previous period. Accounts payable decreased $1.6 million in the 2010 period as compared to a decrease of $0.8 million in the 2009 period due to the timing of certain payments near quarter-end. Income taxes payable increased $1.2 million in both the 2010 and 2009 periods primarily due to the timing of estimated tax payments.
Investing activities used $0.7 million in the 2010 period as compared to $1.1 million in the 2009 period. The cash used in the 2010 period primarily represented the additions to property, equipment and capitalized software of $0.6 million and net contributions to the Computer Task Group, Incorporated Non-qualified Key Employee Deferred Compensation Plan (the Plan) of $0.1 million. Additions to property and equipment in the 2009 period totaled approximately $0.8 million, while net purchases of investments in the Plan totaled $0.2 million. The Company has no significant commitments for the purchase of property or equipment at April 2, 2010.
Financing activities used $0.1 million of cash in the 2010 period, while financing activities used $1.5 million in the 2009 period. At April 2, 2010, the Company had $0.9 million outstanding under its revolving credit line, the term of which extends to April 2011. No amount was outstanding at April 3, 2009. The Company borrows or repays its revolving debt as needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll. During the 2010 period, the average outstanding daily balance under the Companys revolving line of credit was approximately $1.7 million, while the average outstanding balance under this line of credit was less than $0.2 million in the 2009 period.
The Company is required to meet certain financial covenants in order to maintain borrowings under its revolving credit line, pay dividends, and make acquisitions. The covenants are measured quarterly, and at April 2, 2010 include a leverage ratio which must be no more than 3.25 to 1, a calculation of minimum tangible net worth which must be no less than $33.5 million, and total expenditures for property, equipment and capitalized software can not exceed $5.0 million annually. The Company was in compliance with these covenants at April 2, 2010 as its leverage ratio was 0.08, tangible net worth was $37.5 million, and 2010 year-to-date expenditures for property, equipment and capitalized software were $0.6 million. The Company was also in compliance with its required covenants at April 3, 2009. When considering current market conditions and the Company s current operating results, the Company believes it will be able to meet its covenants, as applicable, for the remainder of 2010 and future years.
In February 2008, the Company entered into an amendment of its credit agreement which extended the expiration date of the agreement to April 2011. This credit agreement allows the Company to borrow up to $35.0 million based upon available collateral. At April 2, 2010 and April 3, 2009, there were $0.9 million and $0 amounts outstanding under the credit agreement, respectively. At April 2, 2010 and April 3, 2009, there was $0.4 million and $0.5 million outstanding under letters of credit under the credit agreement, respectively.
The maximum amounts outstanding under the Companys credit agreements during the quarters ended April 2, 2010 and April 3, 2009 were $6.0 million and $2.2 million, respectively. Average bank borrowings outstanding for such quarters were $1.7 million and $0.2 million, respectively. Accordingly, during the quarter ended April 2, 2010, a one percent increase in the weighted-average interest rate would have cost the Company an additional $4,000.
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