Computer Task Group's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Computer Task Group, Inc. (CTGX)

Q2 2012 Earnings Call

July 24, 2012 10:00 a.m. ET

Executives

James M. Culligan – Director – IR

James R. Boldt – Chairman, President, CEO & Head – IR

Brendan M. Harrington – Senior VP, Chief Financial & Risk Officer

Analysts

Bill Sutherland – Northland Securities

Matthew J. McCormack – BGB Securities

Frank Dilorenzo – Singular Research

Rick D’Auteuil – Columbia Management

Vincent A. Colicchio – Noble Financial

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the CTG Second Quarter 2012 Earnings Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I’ll now turn the conference over to Jim Culligan Director of Investor relations at CTG. Please go ahead sir.

James Culligan

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

On the call today, we have CTG’s Chief Executive Officer, Jim Boldt, and Brendan Harrington, Senior Vice President and Chief Financial Officer. Jim and Brendan are going to review the results for the second quarter of 2012 and then update you on the company’s strategy and outlook. We’ll follow with an opportunity for Q&A. If you don’t have the news release discussing our financial results, you can access it at the company’s website at ctg.com.

Before we begin, I want to mention that statements in the course of this conference call that state the company’s or management’s intentions, hopes, beliefs, expectations and predictions for the future are forward-looking statements.

It’s important to note that the company’s actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ from those in the forward-looking statements is contained in our earnings release as well as in the company’s SEC filings. You can find these at our website or at the SEC’s website at sec.gov. Please review our forward-looking statements in conjunction with these precautionary factors.

With that, I’d like to turn it over to Jim to begin the discussion.

James Boldt

Thanks, Jim, and good morning, everyone. This is Jim Boldt. I want to thank you for joining us this morning for our second quarter earnings conference call. As you saw in our news release, we had an excellent second quarter with revenue above our guidance and earnings per share excluding our insurance gain. At the high end of our guidance revenue in the second quarter 2012 increased over 2011 by 9%. The operating margin expanded by a 100 basis points and earnings per share excluding the onetime insurance gain increased 29%. As we expected, our higher margin solutions business continues to grow and increased 23% in the second quarter 2012, while revenue from our lower margin staffing business was approximately the same as it was in the second quarter of 2011.

I’m going to talk more about our results and what we see for the 2012 third quarter and the full year, but first I’m going to ask Brendan to start us off with a review of our financial results. Brendan?

Brendan Harrington

Thanks, Jim. Good morning, everyone. For the second quarter of 2012, CTG’s revenue was $106.7 million, an increase of $8.4 million or 9% compared with the second quarter of 2011. Second quarter 2012 had 64 billing days, the same as in the second quarter 2011.

Solutions revenue in the second quarter of 2012 was $44.3 million, an increase of $8.4 million or 23% compared with the second quarter of 2011. As a percentage of total revenue, Solutions revenue was 42% compared with 37% a year ago. The continued improvement in our business mix was mainly being driven by revenue growth from our more profitable healthcare projects. Staffing revenue in the quarter remained flat at $62.4 million.

Second quarter revenue from IBM, our largest customer, was $29 million compared with $29.6 million in the second quarter 2011. As a percent of total revenue, revenue from IBM decreased to 27.2% in the 2012 second quarter compared with 30.1% of total revenue in the 2011 second quarter.

Revenue from our European operations was $16.8 million, a 3% decrease from the $17.3 million recorded in last year’s second quarter. The effect of foreign currency fluctuations during the second quarter of 2012 decreased consolidated revenue by approximately $1.9 million or 1.8%. At a local currency basis, our European revenue increased by 7.8% compared with the 2011 second quarter.

Direct costs as a percentage of revenue were at 78.5% in the second quarter compared with 78.9% in the second quarter of 2011. SG&A expenses as a percent of revenue decreased to 15.7% from 16.3% in the second quarter of 2011.

The billable travel expenses included in the second quarter 2012 revenue and direct costs are $3,658,000. The billable travel expenses included in the second quarter 2011 revenue and direct costs were $3,079,000.

Second quarter operating income grew to $6.1 million, an increase of $1.5 million or 31% year-over-year reflecting the favorable effect of operating leverage and our higher margin solutions work. Compared with the trailing first quarter of 2011, the second quarter operating income increased $544,000 or 9.7%.

Operating margin in the second quarter increased to 5.8% of revenue, a 100 basis point improvement from last year’s 4.8% and 40 basis points higher than the 5.4% operating margin in first quarter 2012. The year-over-year increase was primarily due to the increase in the Solutions business and our sales mix and the additional operating leverage.

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