Q4 '21 Earnings Preview
CTG, Inc. (CTG) reports Q4 ’21 results on Tuesday, February 22. Both our estimates and consensus reflect the midpoint of management’s guidance, which was provided for the first time since the onset of the COVID-19 pandemic due to the timing of a large EPIC implementation go-live engagement. Between the large project and gradual improvement in bookings over the course of the year, we expect CTG to finish FY ’21 on a high note and thus remain confident in management’s ability to deliver against its outlook. While upside on the top line is likely to remain constrained by the company’s de-emphasis of the Staffing business, we suspect the mix of revenue coupled with the level of operating expenses assumed in guidance leaves room for another beat on the bottom line. Looking forward, we expect management to provide at least quarterly guidance once again, thereby ensuring near-term expectations are appropriately set following what should be an outsized Q4 performance. More importantly, we believe any other commentary on the outlook should support expectations for further traction in the IT Solutions business and ultimately, attainment of management’s 2023 Vision targets. Our price target remains $13.50 based on a FY ’22 EV/EBITDA multiple of 8x.
Exhibit I: Our Estimates Versus Consensus
Sources: K. Liu & Company LLC; IBES Estimates
Management’s Q4 guidance calls for revenue of $110.0-$115.0 million and non-GAAP EPS of $0.16-$0.18. We project revenue of $112.3 million (+11% Y/Y), comprised of IT Solutions revenue of $64.4 million (+31% Y/Y) and IT and Other Staffing revenue of $47.9 million (-8% Y/Y). Our forecast for the IT Solutions segment reflects the timing of the large EPIC implementation go-live engagement, a sequential rebound in Europe and continued improvement in bookings, whereas the decline depicted in our Staffing projections remains consistent with management’s efforts to disengage from lower margin services. Although the higher mix of IT Solutions revenue typically coincides with stronger gross margin, we note that the training associated with a go-live also carries a higher degree of pass-through revenue. As such, our gross margin assumption of 19.8% sits below the levels realized in the prior and year-ago periods. We also model a sequential ramp in operating expenses given our assumptions for a strong finish to FY ’21 and investments to sustain strong Solutions growth in FY ’22. All told, our margin assumptions incorporate a fair amount of conservatism, and we therefore remain confident in CTG’s ability to meet or beat our adjusted EBITDA and non-GAAP EPS estimates of $5.0 million and $0.17, respectively.
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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