Q3 '21 Earnings Preview
CTG, Inc. (CTG) reports Q3 ’21 results on Tuesday, November 9. Our estimates are generally consistent with consensus, and we expect CTG to once again meet or beat Street expectations for profitability. On the top line, we surmise some caution may be warranted given the potential for a repeat of similar dynamics present in Q2 and more pronounced seasonality arising from vacations taken by COVID-weary workers. Recall that management’s strategic push to disengage from low margin staffing engagements weighed on revenue in the prior quarter. Considering the ongoing nature of these efforts, we think our IT Staffing projections remain subject to modest downside risk in the near-term. Regardless, pipeline conversion on the IT Solutions side improved in Q2, which bodes well for another quarter of strong growth in Q3. Of course, these projects also come with higher margins than staffing assignments, leaving us confident in CTG’s ability to deliver another solid showing from a profitability standpoint. Turning to the outlook, we assume management will again provide more qualitative guidance as opposed to issuing specific financial targets. That said, we anticipate any commentary offered to support both consensus and our Q4 forecasts for a strong sequential ramp in revenue and to reaffirm management’s expectations for solid growth in FY ‘21. Our price target remains $13.00 based on a FY ’22 EV/EBITDA multiple of 8x.
Our Q3 projections include revenue of $90.9 million, adjusted EBITDA of $3.5 million and non-GAAP EPS of $0.09, approximately in line with consensus of $91.2 million, $3.6 million and $0.11. Directionally, management suggested that revenue could be up or down modestly from Q2 levels, reflecting more pronounced seasonality from planned vacations somewhat offset by improved conversion of the solutions pipeline to contracted business. By segment, we model another quarter of double-digit growth in IT Solutions revenue to $41.1 million (+10% Y/Y) and a slight decline in IT Staffing revenue to $49.8 million (-3% Y/Y). With the mix of IT Solutions revenue increasing to 45% of sales versus 42% last year, we assume gross margin expands 90 basis points to 22% and remains flat from Q2 levels. Our adjusted EBITDA estimate of $3.5 million incorporates a sequential ramp in operating expenses that may well leave room for outperformance. For Q4, we expect higher utilization and contribution from large projects such as the go-live Epic implementation announced recently to drive strong sequential top and bottom line growth.
Our report with model and disclosures is available here.
Disclosure(s):
K. Liu & Company LLC (“the firm”) receives or intends to seek compensation from the companies covered in its research reports. The firm has received compensation from CTG, Inc. (CTG) in the past 12 months for “Sponsored Research.”
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