Computer Task Group, Incorporat (NASDAQ:CTG)

Fourth Quarter 2013 Results

• The company reported revenue of $102.7 million, compared to $107.9 million in the same quarter of 2012.
• The company reported EPS of $0.22, compared to $0.29 in the same quarter of 2012.

"Fourth quarter earnings were within our guidance range and the operating margin of 5.9% was at the same level as last year's fourth quarter despite lower revenue," said CTG Chairman and Chief Executive Officer James R. Boldt.  "Disciplined cost control and the favorable effect from higher margin engagements in both our staffing and solutions business helped to offset the unfavorable impact of  lower revenue in our healthcare business on earnings.  All things considered, we had a very good year with earnings 5% higher than 2012 after the exclusion of 2012 non-operational gains, making 2013 our most profitable year in well over a decade."

Mr. Boldt continued, "The decline in revenue in 2013 from our healthcare business was primarily due to a reduction in provider spending on IT investments as large hospitals were affected by a 2% reduction in Medicare reimbursements tied to the federal budget sequestration.  While spending on electronic health records (EHR) work softened later in the year as projects were delayed, revenue from data analytics software products increased in 2013.  At 31% of total revenue, our healthcare business was the largest contributor to revenue in 2013."

Business Outlook

CTG is issuing the following initial guidance for 2014 based on its current business activity, pipeline, and forecast:

Mr. Boldt commented, "We expect first quarter results to lag the rest of the year as spending from healthcare providers remains muted. We do expect spending to pick up modestly later in the year as large hospitals make the financial adjustments to fund the necessary IT investments to implement and optimize EHR systems and to comply with health reform mandates and initiatives. We also look for revenue and earnings to gain momentum as the year progresses as work in our pipeline for application management outsourcing services and data analytics projects ramps up."         

Mr. Boldt added, "Our focus on growing our business in the healthcare market remains the right strategic course for CTG.  Healthcare is the largest component of the U.S. GDP, and its sheer size and the demographics of an aging population will drive spending on technology to lower costs and facilitate better treatments.  There are many diverse opportunities to grow our healthcare business for the long-term.  These include health reform initiatives like accountable care that is changing reimbursement models, the need to implement EHRs and health information exchanges to facilitate the secure sharing of health information among different providers, and regulatory compliance mandates like the October 2014 deadline for conversion to the ICD-10 standard for diagnostic coding. 

"Further out, European health providers are looking to U.S. EHR systems to contain the cost of healthcare and make its delivery more efficient.  With our 2013 purchase of Belgian health IT services firm etrinity and our 600 person strong IT consulting organization in western Europe, CTG is very well positioned for the eventual start of EHR implementations. Data analytics is emerging as the next big growth opportunity in health IT.  Our suite of proven proprietary data analytics products designed to lower costs and improve outcomes prepares us well to capitalize on that opportunity.  CTG is further differentiated in the data analytics space by our recently formed relationship with the Center for Computational Research (CCR) at the State University of New York at Buffalo that gives us access to the CCR's powerful supercomputing resources including one of the largest, fastest supercomputers in the world."       

Mr. Boldt concluded, "CTG is approaching all of these opportunities from a position of strength. We are a respected, well established leader in health IT.  We also bring the advantage of being a financially strong company with the resources and cash flow to continue making investments in our business along with funding an active share repurchase program and a regular quarterly cash dividend.  Reflecting their confidence in CTG's prospects and its financial strength, the Board of Directors recently increased the cash dividend on CTG common stock just a year after initiating it.  Long term, CTG is in an excellent position to continue on our course of growing our business and earnings to create value for CTG shareholders."          

Third Quarter 2013 Results

• The company reported revenue of $100.1 million, compared to $106.4 million in the same quarter of 2012.
• The company reported EPS of $0.23, compared to $0.23 for the same quarter 2012.

"The highlight of third quarter results is an operating margin of 6.0% for the second consecutive quarter, the highest level in almost 15 years," said CTG Chairman and Chief Executive Officer James R. Boldt. "The strength of our margin is coming from disciplined expense control, which enabled us to generate earnings that met guidance despite lower than expected revenue." 

"Our healthcare business declined from last year as a number of hospital clients are holding off on system investments while they determine how to adjust their cost structure to deal with lower reimbursements as a result of the U.S. federal budget sequestration.  While the federal budget sequestration is affecting revenue growth from healthcare providers in the short term, we also know that hospitals must invest in EMR systems to comply with health reform mandates and to lower costs in order to remain competitive and financially viable in a rapidly changing business environment.  More recently we have seen a significant increase in requests for proposals for healthcare application outsourcings, which provide a way for hospitals to reduce their operating costs without making significant financial investments.  Late in the quarter, we secured our first European EMR advisory consulting project, an important first step toward doing more significant full-scale EMR implementations as European healthcare providers begin to adopt U.S. EMR software packages to improve healthcare delivery and lower costs."   

"Further working to our benefit in the future growth of our healthcare IT business is a strong reputation and standing in the marketplace as reflected by CTG Health Solutions recently placing seventh in the Modern Healthcare 2013 annual ranking of the largest healthcare management consulting firms, three spots above the 2012 survey. CTG Health Solutions was also named as a 2013 Modern Healthcare Best Place to Work in Healthcare which enhances our ability to recruit experienced health IT consultants in a highly competitive market for health IT talent."

Business Outlook

Mr. Boldt commented, "Although we are projecting revenue to decrease slightly compared to last year, we still expect earnings and margin growth for the full year, which is a solid performance given that overall spending  in the IT services industry is constrained in 2013.  Importantly, with the focus on our healthcare business and disciplined expense control, CTG continues to become a more profitable company with our operating margin moving into our strategic goal range of six to seven percent in the last two quarters despite some of the revenue challenges we are experiencing this year." 

Mr. Boldt concluded, "CTG's robust offerings in EMR as well as other areas such as post-implementation EMR production support, application management outsourcing, and medical data analytics, all support cost and risk reduction for healthcare organizations. We are also continuing to grow our payer business and see strong potential there in our IT medical management model and our fraud, waste, and abuse software.  With European countries just starting to implement U.S. EMR systems, CTG is very well positioned to capitalize on this major multi-year opportunity based on our significant U.S. EMR implementation experience and a large established European presence that includes etrinity, the health IT services firm we acquired earlier this year.  This breadth of growth opportunity from multiple sources gives us great confidence that we will be able to continue building our healthcare IT business and advance CTG's transformation to an IT services and solutions company with a focus on healthcare IT."