CTG Reports Q3 '23 Results
CTG reported Q3 ’23 results generally consistent with our estimates. Revenue of $71.3 million (-4.9% Y/Y) was slightly below our $72.8 million projection due to softening demand for IT services. By segment, North America IT Solutions and Services revenue was $25.2 million (+24.0% Y/Y) versus our $26.8 million estimate; Europe IT Solutions and Service revenue was $36.5 million (+9.7% Y/Y) versus our $36.2 million estimate; and Non-Strategic Technology Services revenue was $9.6 million (-55.1% Y/Y) versus our $9.8 million estimate. The lower revenue from the North America IT Solutions and Services segment in turn drove gross margin below our assumption, but we note that CTG’s strategy to disengage from non-strategic revenue again yielded significant expansion in gross margin from the prior year period. Excluding acquisition-related and other non-recurring expenses, total operating expenses were below our projection. Non-GAAP EPS of $0.11 were in line with our estimate. Although adjusted EBITDA of $3.1 million appeared short of our $3.6 million forecast, we note that the reported figure included $2.1 million in non-recurring costs that were excluded from our model and the non-GAAP EPS calculation. On a comparable basis, adjusted EBITDA exceeded our estimate.
Given CTG’s pending sale to Cegeka, management did not host an earnings call and did not provide any forward-looking guidance. With Q3 results generally consistent with our expectations and limited insight into recent business trends, we have not made any revisions to our prior estimates aside from the inclusion of the Q3 actuals. Regarding Cegeka’s acquisition of CTG, the expiration date of Cegeka’s tender offer was recently extended to December 12, 2023, and the acquisition is currently expected to close the following day. We note that the expiration date of the tender offer coincides with the expiration of the Commission de Surveillance du Secteur Financier’s (CSSF) three-month review period, which was initiated as a result of Cegeka’s indirect acquisition control of Computer Task Group Luxembourg PSF S.A. In essence, the only hurdles left to clear before the transaction closes appear to be the expiration of customary review periods for the Committee on Foreign Investment in the United States (CFIUS) and CSSF. As far as the decline in shares validly tendered since the initial expiration date of the offer is concerned, our understanding is that shareholders will generally withdraw their shares upon the extension of the expiration date to maximize their trading flexibility. We continue to believe Cegeka’s acquisition of CTG is a positive outcome for shareholders and expect the acquisition to be approved. Our price target remains $10.50, matching the deal price.
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.”
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.