CTG, Inc. Q1 '20 Earnings Preview
CTG, Inc. (CTG) reports Q1 ’20 results on Tuesday, April 21. As discussed in our recent note, “Reducing Estimates and Price Target to Reflect Potential Impact of COVID-19,” we expect measures enacted across the globe to limit the spread of coronavirus to weigh on CTG’s IT Staffing business. As such, we believe the company’s Q1 performance will fall short of management’s top and bottom-line targets for the quarter but be within range of our recently lowered estimates, which also represent the consensus. Considering the ongoing uncertainty related to COVID-19, we doubt management will provide an outlook for Q2, and we would not be surprised to see prior guidance for FY ’20 withdrawn. Our price target remains $6.25 based on a FY ’21 EV/EBITDA multiple of 5x.
We project Q1 revenue and non-GAAP EPS of $81.0 million and $(0.05), respectively. Management’s guidance, which was issued prior to COVID-19 being declared a pandemic and the ensuing lockdowns across the globe, includes revenue and non-GAAP EPS of approximately $87.0 million and $0.10, respectively. By segment, we estimate IT Staffing revenue of $44.3 million (-30.7% Y/Y) and IT Solutions revenue of $36.8 million (+10.1% Y/Y). The precipitous decline in staffing reflects the combined impact of management’s culling of lower margin engagements heading into FY ’20 as well as restrictions on work and travel enacted in regions where CTG operates during the last two weeks of March. The solutions business, however, should be relatively unaffected as services may be performed remotely, and with IT Solutions comprising a greater mix of revenue, we expect gross margin to expand 19.8% versus 18.2% in the year-ago period. While we surmise spending may ultimately be curtailed in light of the economic uncertainty, our operating expense projection for Q1 reflects a slight increase from the year-ago period as management had planned to invest for growth and the timing of shelter-in-place orders left little time to adjust at quarter-end.
Looking forward, our Q2 estimates currently incorporate a month of impact from COVID-19. While news reports suggest that parts of Europe and the U.S. may begin to lift restrictions in the coming weeks, we suspect a return to normalcy may take longer. In any event, our primary focus during the upcoming call will be to ascertain whether CTG’s affected engagements ramp back to previously anticipated levels once the economy reopens. Additionally, we will be attuned to the company’s ability to land new assignments in the current environment. We doubt any specific guidance is forthcoming but we remain optimistic that management’s commentary should point to a rebound in the latter half of the year.
Our report with model and disclosures is available here.
Disclosure(s):
K. Liu & Company LLC has received compensation from CTG, Inc. (CTG) in the past 12 months for “Sponsored Research.”
Sponsored Research produced by the firm is paid for by the subject company in the form of an initial retainer and a recurring monthly fee. The analysis and recommendations in our Sponsored Research reports are derived from the same process and methodologies utilized in all of our research reports whether sponsored or not. The subject company does not review any aspect of our Sponsored Research reports prior to publication.