CTG (“Company”), a leading provider of digital IT solutions and services in North America and Western Europe, reported its financial results for the fourth quarter and year ended December 31, 2021. For reporting purposes, the Company is now disclosing three segments, IT Solutions and Services in each of North America and Europe, and Non-Strategic Technology Services, primarily in North America.
Filip Gydé, CTG President and CEO commented, “Our team finished the year strong, delivering better than expected results in the fourth quarter and doubled revenue year-over-year in our North America IT Solutions and Services segment. Our financial and operational improvements in the fourth quarter were driven by the successful completion of a large training, implementation, and support engagement for a health system in North America. As a result of the increased mix of higher-margin solutions and services revenue in the quarter, we achieved significant improvement in our consolidated operating performance which drove bottom line results that exceeded our guidance for the quarter.”
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“While our results will continue to reflect the timing associated with major engagements as we expand our digital solutions and services capabilities, we expect to build a larger foundation of recurring revenue at value-add margins and to disengage from less profitable business.”
Commenting on CTG’s strategy for growth and new reporting structure, Mr. Gydé added, “As part of our strategy to transform CTG into a digital solutions and services company, we are now reporting our results in three segments, which will provide greater visibility into performance across the Company. This new financial reporting structure better reflects the results of our operations, accounting for our increased strategic focus on the higher growth, higher margin solutions and services in North America and Europe. The CTG Board and management team are confident that by executing our transformation strategy, centered on building and delivering digital IT solutions and services, reducing our non-strategic technology services exposure and augmenting our organic efforts with prudent acquisitions, we will be able to deliver long-term value for CTG shareholders.”
Consolidated Fourth Quarter 2021 Review (Narrative compares with prior-year period unless otherwise noted) (unaudited)
| ($ in thousands) | For the Quarter Ended | Change 2020-2021 | Change 2019-2020 | ||||||||||||||||||||||
| Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | $ | % | $ | % | |||||||||||||||||||
| Revenue | $ | 112,389 | $ | 101,348 | $ | 99,320 | $ | 11,041 | 10.9 | % | $ | 2,028 | 2.0 | % | |||||||||||
| GAAP Operating Income | $ | 5,141 | $ | 3,325 | $ | 2,408 | $ | 1,816 | 54.6 | % | $ | 917 | 38.1 | % | |||||||||||
| GAAP Operating Margin | 4.6 | % | 3.3 | % | 2.4 | % | |||||||||||||||||||
| Non-GAAP Operating Income* | $ | 5,352 | $ | 3,581 | $ | 2,975 | $ | 1,771 | 49.5 | % | $ | 606 | 20.4 | % | |||||||||||
| Non-GAAP Operating Margin* | 4.8 | % | 3.5 | % | 3.0 | % | |||||||||||||||||||
| GAAP Net Income | $ | 8,717 | $ | 1,905 | $ | 1,671 | $ | 6,812 | 357.6 | % | $ | 234 | 14.0 | % | |||||||||||
| GAAP Net Margin | 7.8 | % | 1.9 | % | 1.7 | % | |||||||||||||||||||
| Non-GAAP Net Income* | $ | 3,774 | $ | 2,044 | $ | 2,045 | $ | 1,730 | 84.6 | % | $ | (1 | ) | -0.0 | % | ||||||||||
| Non-GAAP Net Income Margin* | 3.4 | % | 2.0 | % | 2.1 | % | |||||||||||||||||||
| Adjusted EBITDA* | $ | 6,513 | $ | 4,935 | $ | 4,209 | $ | 1,578 | 32.0 | % | $ | 726 | 17.2 | % | |||||||||||
| Adjusted EBITDA Margin* | 5.8 | % | 4.9 | % | 4.2 | % | |||||||||||||||||||
*A reconciliation of GAAP to non-GAAP information is included in the financial tables below.
- Fourth quarter revenue reflected increased IT Solutions and Services business in North America, partially offset by the continued disengagement from lower-margin non-strategic business.
- Selling, general and administrative (SG&A) expenses as a percentage of revenue decreased 40 basis points to 17.7%, despite the Company’s continued investment in solutions and business development resources in support of its digital solutions and services strategy.
- Fourth quarter 2021 GAAP net income of $8.7 million, or $0.58 per diluted share, included a $5.1 million, or $0.34 per diluted share, reversal of a valuation allowance against deferred tax assets in the United States. Excluding the tax valuation allowance reversal and acquisition-related expenses, non-GAAP earnings per diluted share were $0.25, up $0.11 or nearly 80%.
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Fourth Quarter Segment Performance (unaudited)
North America IT Solutions and Services
| ($ in thousands) | For the Quarter Ended | Change 2020-2021 | Change 2019-2020 | ||||||||||||||||||||||
| Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | $ | % | $ | % | |||||||||||||||||||
| Revenue | $ | 45,075 | $ | 22,440 | $ | 18,987 | $ | 22,635 | 100.9 | % | $ | 3,453 | 18.2 | % | |||||||||||
| Gross profit | $ | 13,262 | $ | 8,058 | $ | 6,943 | $ | 5,204 | 64.6 | % | $ | 1,115 | 16.1 | % | |||||||||||
| Gross margin | 29.4 | % | 35.9 | % | 36.6 | % | |||||||||||||||||||
| Contribution profit | $ | 9,166 | $ | 5,160 | $ | 4,831 | $ | 4,006 | 77.6 | % | $ | 329 | 6.8 | % | |||||||||||
| Contribution margin | 20.3 | % | 23.0 | % | 25.4 | % | |||||||||||||||||||
Europe IT Solutions and Services
| ($ in thousands) | For the Quarter Ended | Change 2020-2021 | Change 2019-2020 | ||||||||||||||||||||||
| Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | $ | % | $ | % | |||||||||||||||||||
| Revenue | $ | 40,081 | $ | 43,857 | $ | 40,214 | $ | (3,776 | ) | -8.6 | % | $ | 3,643 | 9.1 | % | ||||||||||
| Gross profit | $ | 8,805 | $ | 9,699 | $ | 9,119 | $ | (894 | ) | -9.2 | % | $ | 580 | 6.4 | % | ||||||||||
| Gross margin | 22.0 | % | 22.1 | % | 22.7 | % | |||||||||||||||||||
| Contribution profit | $ | 3,262 | $ | 4,470 | $ | 3,740 | $ | (1,208 | ) | -27.0 | % | $ | 730 | 19.5 | % | ||||||||||
| Contribution margin | 8.1 | % | 10.2 | % | 9.3 | % | |||||||||||||||||||
- North America IT Solutions and Services revenue more than doubled in the fourth quarter of 2021 and largely reflected a large training, implementation, and support engagement for a health system in North America completed in the fourth quarter. The change in the Europe IT Solutions and Services segment reflects $1.6 million of unfavorable foreign currency exchange rate (FX) fluctuations. Excluding the unfavorable FX, that segment declined 5.0% primarily due to lower utilization resulting from higher levels of time taken off related to illness from COVID-19.
Non-Strategic Technology Services
| ($ in thousands) | For the Quarter Ended | Change 2020-2021 | Change 2019-2020 | ||||||||||||||||||||||
| Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | $ | % | $ | % | |||||||||||||||||||
| Revenue | $ | 27,233 | $ | 35,051 | $ | 40,119 | $ | (7,818 | ) | -22.3 | % | $ | (5,068 | ) | -12.6 | % | |||||||||
| Gross profit | $ | 2,947 | $ | 3,870 | $ | 4,179 | $ | (923 | ) | -23.9 | % | $ | (309 | ) | -7.4 | % | |||||||||
| Gross margin | 10.8 | % | 11.0 | % | 10.4 | % | |||||||||||||||||||
| Contribution profit | $ | 1,845 | $ | 2,276 | $ | 1,781 | $ | (431 | ) | -18.9 | % | $ | 495 | 27.8 | % | ||||||||||
| Contribution margin | 6.8 | % | 6.5 | % | 4.4 | % | |||||||||||||||||||
Consolidated Full Year 2021 Results (Narrative compares with prior-year period unless otherwise noted) (unaudited)
| ($ in thousands) | For the Year Ended | Change 2020-2021 | Change 2019-2020 | ||||||||||||||||||||||
| Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | $ | % | $ | % | |||||||||||||||||||
| Revenue | $ | 392,285 | $ | 366,091 | $ | 394,170 | $ | 26,194 | 7.2 | % | $ | (28,079 | ) | -7.1 | % | ||||||||||
| GAAP Operating Income | $ | 12,742 | $ | 9,130 | $ | 6,912 | $ | 3,612 | 39.6 | % | $ | 2,218 | 32.1 | % | |||||||||||
| GAAP Operating Margin | 3.2 | % | 2.5 | % | 1.8 | % | |||||||||||||||||||
| Non-GAAP Operating Income* | $ | 14,042 | $ | 11,329 | $ | 9,180 | $ | 2,713 | 23.9 | % | $ | 2,149 | 23.4 | % | |||||||||||
| Non-GAAP Operating Margin* | 3.6 | % | 3.1 | % | 2.3 | % | |||||||||||||||||||
| GAAP Net Income | $ | 13,730 | $ | 7,639 | $ | 4,125 | $ | 6,091 | 79.7 | % | $ | 3,514 | 85.2 | % | |||||||||||
| GAAP Net Margin | 3.5 | % | 2.1 | % | 1.0 | % | |||||||||||||||||||
| Non-GAAP Net Income* | $ | 9,620 | $ | 6,317 | $ | 5,614 | $ | 3,303 | 52.3 | % | $ | 703 | 12.5 | % | |||||||||||
| Non-GAAP Net Income Margin* | 2.5 | % | 1.7 | % | 1.4 | % | |||||||||||||||||||
| Adjusted EBITDA* | $ | 18,081 | $ | 15,692 | $ | 12,515 | $ | 2,389 | 15.2 | % | $ | 3,177 | 25.4 | % | |||||||||||
| Adjusted EBITDA Margin* | 4.6 | % | 4.3 | % | 3.2 | % | |||||||||||||||||||
| * A reconciliation of GAAP to non-GAAP information is included in the financial tables below | |||||||||||||||||||||||||
- The full year results reflect similar impacts as the fourth quarter as the Company continued to shift its revenue mix to more solutions and services-based business. The impact of FX fluctuations in 2021 was favorable $6.8 million compared with $3.0 million in 2020.
- SG&A expense as a percentage of revenue was 18.8% compared with 18.5% in 2020. Included was $1.1 million of acquisition-related expenses and $0.2 million of rebranding expenses in 2021 compared with $1.6 million of acquisition-related expenses and $0.6 million in severance in 2020.
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Full Year Segment Performance (unaudited)
| North America IT Solutions and Services | |||||||||||||||||||||||||
| ($ in thousands) | For the Year Ended | Change 2020-2021 | Change 2019-2020 | ||||||||||||||||||||||
| Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | $ | % | $ | % | |||||||||||||||||||
| Revenue | $ | 101,506 | $ | 67,948 | $ | 74,123 | $ | 33,558 | 49.4 | % | $ | (6,175 | ) | -8.3 | % | ||||||||||
| Gross profit | $ | 32,621 | $ | 23,995 | $ | 23,666 | $ | 8,626 | 35.9 | % | $ | 329 | 1.4 | % | |||||||||||
| Gross margin | 32.1 | % | 35.3 | % | 31.9 | % | |||||||||||||||||||
| Contribution profit | $ | 18,738 | $ | 14,627 | $ | 14,668 | $ | 4,111 | 28.1 | % | $ | (41 | ) | -0.3 | % | ||||||||||
| Contribution margin | 18.5 | % | 21.5 | % | 19.8 | % | |||||||||||||||||||
| Europe IT Solutions and Services | |||||||||||||||||||||||||
| ($ in thousands) | For the Year Ended | Change 2020-2021 | Change 2019-2020 | ||||||||||||||||||||||
| Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | $ | % | $ | % | |||||||||||||||||||
| Revenue | $ | 169,341 | $ | 154,847 | $ | 148,108 | $ | 14,494 | 9.4 | % | $ | 6,739 | 4.6 | % | |||||||||||
| Gross profit | $ | 40,311 | $ | 37,818 | $ | 33,269 | $ | 2,493 | 6.6 | % | $ | 4,549 | 13.7 | % | |||||||||||
| Gross margin | 23.8 | % | 24.4 | % | 22.5 | % | |||||||||||||||||||
| Contribution profit | $ | 18,966 | $ | 17,452 | $ | 13,444 | $ | 1,514 | 8.7 | % | $ | 4,008 | 29.8 | % | |||||||||||
| Contribution margin | 11.2 | % | 11.3 | % | 9.1 | % | |||||||||||||||||||
| Non-Strategic Technology Services | |||||||||||||||||||||||||
| ($ in thousands) | For the Year Ended | Change 2020-2021 | Change 2019-2020 | ||||||||||||||||||||||
| Dec. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | $ | % | $ | % | |||||||||||||||||||
| Revenue | $ | 121,438 | $ | 143,296 | $ | 171,939 | $ | (21,858 | ) | -15.3 | % | $ | (28,643 | ) | -16.7 | % | |||||||||
| Gross profit | $ | 13,518 | $ | 15,145 | $ | 18,100 | $ | (1,627 | ) | -10.7 | % | $ | (2,955 | ) | -16.3 | % | |||||||||
| Gross margin | 11.1 | % | 10.6 | % | 10.5 | % | |||||||||||||||||||
| Contribution profit | $ | 8,614 | $ | 8,153 | $ | 7,581 | $ | 461 | 5.7 | % | $ | 572 | 7.5 | % | |||||||||||
| Contribution margin | 7.1 | % | 5.7 | % | 4.4 | % | |||||||||||||||||||
Balance Sheet and Cash Flow
Cash and cash equivalents were $35.6 million, up $2.7 million, or 8.3%, since year-end 2020. Full year net cash provided by operations was $7.4 million and was used in part to fund capital expenditures of $1.9 million.
At the end of 2021, the Company had no outstanding balance on its revolving line of credit facility or any other long-term debt. Days sales outstanding were 67 in the fourth quarter of 2021 compared with 74 in the prior-year period.
2022 Outlook
Mr. Gydé concluded, “As we execute our transformation strategy to build a leading digital solutions and services enterprise for North America and Europe, we are committed to reducing our low margin non-strategic business while building our global solutions and services business. We expect headwinds on revenue in 2022 of approximately $25 to $35 million from the disengagement from non-strategic services and the fourth quarter completion of the large engagement. However, we expect 2022 revenue in the range of $375 million to $395 million. Given our shift to higher margins, we expect earnings to continue to expand, with 2022 non-GAAP diluted earnings per share ranging from $0.64 to $0.72. Our goal over the next two years is to grow adjusted EBITDA margins to 7% to 8% of revenue, representing an increase of approximately 50% to 75% from 2021.”
The Company expects its quarterly performance throughout 2022 to be uneven due to engagement timing, and after a slower start to the year, expects results to improve throughout the year.
