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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from to

Commission File No. 1-9410

 

COMPUTER TASK GROUP, INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

New York

16-0912632

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

300 Corporate Parkway, Suite 214N, Amherst, New York

14226

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (716) 882-8000

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

CTG

 

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “an emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes NO

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

 

 

Shares outstanding at

Title of each class

November 2, 2023

Common stock, par value $.01 per share

16,094,564

 


SEC Form 10-Q Index

 

Section

Page

Part I Financial Information

Item 1.

Financial Statements

1

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

Part II Other Information

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

 

 

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(amounts in thousands, except per share data)

(Unaudited)

 

For the Quarter Ended

 

 

For the Three Quarters Ended

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Revenue

$

71,291

 

 

$

75,002

 

 

$

224,081

 

 

$

247,178

 

Cost of services

 

51,824

 

 

 

56,773

 

 

 

163,484

 

 

 

188,604

 

Gross profit

 

19,467

 

 

 

18,229

 

 

 

60,597

 

 

 

58,574

 

Selling, general and administrative expenses

 

20,071

 

 

 

15,976

 

 

 

60,209

 

 

 

49,949

 

Operating income (loss)

 

(604

)

 

 

2,253

 

 

 

388

 

 

 

8,625

 

Interest and other income

 

50

 

 

 

133

 

 

 

250

 

 

 

323

 

Interest and other expense

 

545

 

 

 

525

 

 

 

1,339

 

 

 

1,357

 

Income (loss) before income taxes

 

(1,099

)

 

 

1,861

 

 

 

(701

)

 

 

7,591

 

Provision (benefit) for income taxes

 

(228

)

 

 

759

 

 

 

(15

)

 

 

2,209

 

Net income (loss)

$

(871

)

 

$

1,102

 

 

$

(686

)

 

$

5,382

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.06

)

 

$

0.08

 

 

$

(0.05

)

 

$

0.37

 

Diluted

$

(0.06

)

 

$

0.07

 

 

$

(0.05

)

 

$

0.36

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

14,903

 

 

 

14,480

 

 

 

14,813

 

 

 

14,366

 

Diluted

 

14,903

 

 

 

15,157

 

 

 

14,813

 

 

 

15,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(amounts in thousands)

(Unaudited)

 

For the Quarter Ended

 

 

For the Three Quarters Ended

 

 

September 29, 2023

 

 

September 30, 2022

 

 

September 29, 2023

 

 

September 30, 2022

 

Net income (loss)

$

(871

)

 

$

1,102

 

 

$

(686

)

 

$

5,382

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(1,777

)

 

 

(3,257

)

 

 

(723

)

 

 

(7,824

)

Change in pension, net of taxes of $36 and $43 in the 2023 and 2022 third quarters, respectively, and $76 and $121 in the first three quarters of 2023 and 2022, respectively

 

175

 

 

 

557

 

 

 

279

 

 

 

1,468

 

Other comprehensive loss

 

(1,602

)

 

 

(2,700

)

 

 

(444

)

 

 

(6,356

)

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

$

(2,473

)

 

$

(1,598

)

 

$

(1,130

)

 

$

(974

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share balances)

(Unaudited)

 

September 29,

 

 

December 31,

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

$

24,069

 

 

$

25,140

 

Accounts receivable, net of allowances of $421 and $397 in 2023 and 2022,
   respectively

 

64,433

 

 

 

70,979

 

Prepaid and other current assets

 

4,930

 

 

 

3,769

 

Income taxes receivable

 

142

 

 

 

 

Total current assets

 

93,574

 

 

 

99,888

 

Property, equipment and capitalized software, net

 

6,045

 

 

 

5,061

 

Operating lease right-of-use assets

 

19,478

 

 

 

18,506

 

Deferred income taxes

 

4,386

 

 

 

2,886

 

Acquired intangibles, net

 

11,639

 

 

 

12,943

 

Goodwill

 

35,487

 

 

 

35,998

 

Cash surrender value of life insurance, net

 

4,822

 

 

 

4,120

 

Other assets

 

2,308

 

 

 

2,101

 

Investments

 

174

 

 

 

116

 

Total assets

$

177,913

 

 

$

181,619

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

$

9,661

 

 

$

14,254

 

Accrued compensation

 

18,521

 

 

 

19,016

 

Advance billings on contracts

 

4,492

 

 

 

5,480

 

Short-term operating lease liabilities

 

6,186

 

 

 

5,905

 

Other current liabilities

 

9,674

 

 

 

7,066

 

Income taxes payable

 

 

 

 

212

 

Total current liabilities

 

48,534

 

 

 

51,933

 

Long-term debt

 

 

 

 

 

Deferred compensation benefits

 

6,720

 

 

 

6,424

 

Long-term operating lease liabilities

 

13,412

 

 

 

12,466

 

Deferred income taxes

 

1,226

 

 

 

1,482

 

Other long-term liabilities

 

2,442

 

 

 

3,335

 

Total liabilities

 

72,334

 

 

 

75,640

 

Shareholders’ Equity:

 

 

 

 

 

Common stock, par value $0.01 per share, 150,000,000 shares authorized;
   
27,017,824 shares issued in 2023 and 2022

 

270

 

 

 

270

 

Capital in excess of par value

 

107,269

 

 

 

109,868

 

Retained earnings

 

113,965

 

 

 

114,651

 

Less: Treasury stock of 10,940,680 and 11,274,171 shares at cost, in
   2023 and 2022, respectively

 

(100,175

)

 

 

(103,504

)

Accumulated other comprehensive loss

 

(15,750

)

 

 

(15,306

)

Total shareholders’ equity

 

105,579

 

 

 

105,979

 

Total liabilities and shareholders’ equity

$

177,913

 

 

$

181,619

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)

 

For the Three Quarters Ended

 

 

September 29, 2023

 

 

September 30, 2022

 

Cash flow from operating activities:

 

 

 

 

 

Net income (loss)

$

(686

)

 

$

5,382

 

Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:

 

 

 

 

 

Depreciation and amortization expense

 

2,750

 

 

 

2,051

 

Equity-based compensation expense

 

1,077

 

 

 

1,869

 

Deferred income taxes

 

(1,730

)

 

 

(138

)

Deferred compensation benefits

 

555

 

 

 

(152

)

Loss on the sale of property and equipment

 

4

 

 

 

 

Changes in assets and liabilities that provide (use) cash, excluding the effects of acquisitions:

 

 

 

 

 

Accounts receivable

 

6,247

 

 

 

11,614

 

Prepaid and other current assets

 

(923

)

 

 

(395

)

Other long-term assets

 

(213

)

 

 

(41

)

Cash surrender value of life insurance

 

(55

)

 

 

525

 

Accounts payable

 

(5,089

)

 

 

(10,159

)

Accrued compensation

 

(394

)

 

 

(63

)

Income taxes payable / receivable

 

(378

)

 

 

1,189

 

Advance billings on contracts

 

(1,026

)

 

 

670

 

Other current liabilities

 

3,536

 

 

 

151

 

Other long-term liabilities

 

(893

)

 

 

6

 

Net cash provided by operating activities

 

2,782

 

 

 

12,509

 

Cash flow from investing activities:

 

 

 

 

 

Cash paid for acquisitions, net of cash acquired

 

82

 

 

 

(16,568

)

Additions to property and equipment

 

(1,288

)

 

 

(479

)

Additions to capitalized software

 

(1,207

)

 

 

(285

)

Proceeds from sale of property & equipment

 

4

 

 

 

9

 

Premiums paid for life insurance

 

(647

)

 

 

(594

)

Net cash used in investing activities

 

(3,056

)

 

 

(17,917

)

Cash flow from financing activities:

 

 

 

 

 

Proceeds from long-term debt

 

20,653

 

 

 

 

Payments on long-term debt

 

(20,653

)

 

 

 

Payment of contingent consideration

 

(913

)

 

 

 

Proceeds from stock option plan exercises

 

174

 

 

 

215

 

Taxes remitted for shares withheld from equity-based compensation
   transactions

 

(629

)

 

 

(1,230

)

Proceeds from Employee Stock Purchase Plan

 

108

 

 

 

131

 

Change in cash overdraft, net

 

474

 

 

 

 

Net cash used in financing activities

 

(786

)

 

 

(884

)

Effect of exchange rates on cash and cash equivalents

 

(11

)

 

 

(2,539

)

Net decrease in cash and cash equivalents

 

(1,071

)

 

 

(8,831

)

Cash and cash equivalents at beginning of year

 

25,140

 

 

 

35,584

 

Cash and cash equivalents at end of quarter

$

24,069

 

 

$

26,753

 

 

 

 

 

 

 

Supplemental disclosure of non-cash transactions

 

 

 

 

 

Acquisition share issuance

$

 

 

$

1,178

 

Acquisition stock option issuance

$

 

 

$

391

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Excess of

 

 

Retained

 

 

Treasury Stock

 

 

Comprehensive

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Par Value

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Income (Loss)

 

 

Equity

 

Balances as of June 30, 2023

 

 

27,018

 

 

$

270

 

 

$

107,250

 

 

$

114,836

 

 

 

10,973

 

 

$

(100,455

)

 

$

(14,148

)

 

$

107,753

 

Stock Option Plan share issuance, net

 

 

 

 

 

 

 

 

(127

)

 

 

 

 

 

(26

)

 

 

217

 

 

 

 

 

 

90

 

Restricted stock plan share
   issuance/forfeiture

 

 

 

 

 

 

 

 

(64

)

 

 

 

 

 

(6

)

 

 

63

 

 

 

 

 

 

(1

)

Equity-based compensation

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

210

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(871

)

 

 

 

 

 

 

 

 

 

 

 

(871

)

Foreign currency adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,777

)

 

 

(1,777

)

Pension loss adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

175

 

 

 

175

 

Balances as of September 29, 2023

 

 

27,018

 

 

$

270

 

 

$

107,269

 

 

$

113,965

 

 

 

10,941

 

 

$

(100,175

)

 

$

(15,750

)

 

$

105,579

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Excess of

 

 

Retained

 

 

Treasury Stock

 

 

Comprehensive

 

 

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Par Value

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Income (Loss)

 

 

Equity

 

Balances as of July 1, 2022

 

 

27,018

 

 

$

270

 

 

$

108,890

 

 

$

112,322

 

 

 

11,499

 

 

$

(105,579

)

 

$

(20,596

)

 

$

95,307

 

Employee Stock Purchase Plan share
   issuance

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(7

)

 

 

56

 

 

 

 

 

 

47

 

Restricted Stock Plan share
   issuance/forfeiture

 

 

 

 

 

 

 

 

(123

)

 

 

 

 

 

(13

)

 

 

123

 

 

 

 

 

 

 

Acquisition share issuance

 

 

 

 

 

 

 

 

(418

)

 

 

 

 

 

(174

)

 

 

1,596

 

 

 

 

 

 

1,178

 

Acquisition stock option issuance

 

 

 

 

 

 

 

 

391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

391

 

Equity-based compensation

 

 

 

 

 

 

 

 

693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

693

 

Net income

 

 

 

 

 

 

 

 

 

 

 

1,102

 

 

 

 

 

 

 

 

 

 

 

 

1,102

 

Foreign currency adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,257

)

 

 

(3,257

)

Pension loss adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

557

 

 

 

557

 

Balances as of September 30, 2022

 

 

27,018

 

 

$

270

 

 

$

109,424

 

 

$

113,424

 

 

 

11,305

 

 

$

(103,804

)

 

$

(23,296

)

 

$

96,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


COMPUTER TASK GROUP, INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total