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CTG Reports 2017 Fourth Quarter and Full Year Resuts

CTG, a leading provider of information technology solutions and services in North America and Western Europe, today announced its financial results for the fourth quarter and full year ended December 31, 2017.

Fourth Quarter Financial Summary

· Revenue was $74.6 million, above the midpoint of guidance

· Revenue excluding three largest staffing clients increased 11.3% year-over-year

· Revenue in Europe increased 18.9% year-over-year, excluding favorable currency translation

· GAAP net loss was ($419,000) or ($0.03) per share

· Recognized $1.7 million, or $0.11 per diluted share, non-cash charge related to new U.S. tax law; expected to benefit from lower tax rate in 2018 and beyond 

· Recognized $0.02 per diluted share non-taxable gain from life insurance proceeds

· Non-GAAP earnings were $0.06 per diluted share, at midpoint of guidance, excluding the non-cash tax charge and the life insurance gain


CEO Comments on Financial Results and Progress on Strategic Growth Initiatives: “CTG finished the year with a solid performance, as fourth quarter revenue, operating margin and non-GAAP earnings per share all met or exceeded the midpoint of our guidance provided in October,” commented Bud Crumlish, CTG President and CEO. “While 2017 was challenging, the significant actions we undertook to realign our business and build the right foundation for successful achievement of our three-year plan leave us confident in our ability to achieve the goals we set for year-end 2019.  These actions included several high-profile hires in newly created sales leadership roles which are transforming our approach to marketing and development and which are already paying off in new client wins.  At the same time, we are focused on improving profitability through disciplined cost management, diversifying our contract mix, pursuing higher margin opportunities, and increasing our market share penetration in areas where we already have a strong foothold.  Looking ahead to 2018, we are excited about our ability to leverage the investments we made to drive profitable growth.”

“The Board and management of CTG remain committed to creating sustainable value for shareholders through improved operational performance, accretive strategic acquisitions, and aggressive share repurchases. We have repurchased 9% of our outstanding shares over the past sixteen months, and recently announced plans to launch a tender offer to repurchase up to an additional 10%.  We have also put in place innovative equity-based compensation plans which ensure that the interests of the board and senior management are closely aligned with those of the Company’s shareholders.”

Three-Year Strategic Plan Update

CTG has made significant progress on its three-year strategic plan to foster growth, profitability and increase shareholder value as the guidance for 2018 includes revenue ranging from $340 to $360 million, GAAP diluted earnings per share (EPS) ranging from $0.25 to $0.37, and non-GAAP diluted EPS ranging from $0.30 to $0.42. The plan, announced in early 2017, established financial performance targets to be reached by year-end 2019, including:

· Annual revenue of $400 million

· Operating margin ranging from 3.0% to 3.5%

· Diluted EPS between $0.45 and $0.55

The plan outlines a series of objectives designed to drive fundamental improvement in specific areas of the business, including business development, healthcare, Europe, staffing, solutions offerings and cost structure. Specific achievements against those objectives include:

Advancing Operational Excellence and Strengthening Financial Approach

· Added several key executives to bolster CTG’s business development team and enhance its effectiveness across the organization as part of the Company’s intense focus on expanding solutions offerings. The hires included Jeff Gerkin as executive vice president of sales for North America, in December; Rob Barras as vice president of sales for CTG’s North America healthcare business, in October; and Susan Tidswell as a vice president of sales to lead the North American strategic staffing business, in February 2018.

· Expanding the selling and delivery of existing solutions across all lines of business. The ONE CTG program establishes a company-wide framework that encourages pervasive collaboration across the organization, including: the cross-selling of staffing and solutions offerings to both new and existing clients; Application Advantage is a hybrid offering combining several existing services into a single comprehensive solution designed to maximize the value, efficiency, and cost-effectiveness of application services. Since introducing Application Advantage last May, we have secured over 10 engagements for application management-related services across multiple end markets.

· Maintaining disciplined cost management and limiting or reducing fixed costs over the last year, including the optimization of certain underutilized resources in selective areas, the consolidation of CTG’s chief financial officer and treasurer positions into a single role, and the consolidation of all Buffalo-based employees into a single building. 


Diversifying and Driving Revenue Growth

Entering into new client engagements, demonstrating the Company’s ability to convert its robust pipeline of opportunities. These included:

· an electronic health record implementation with a major North American hospital system with multi-state operations;
· a two-year project with a well-recognized patient portal for a large university medical center;
· a multi-year engagement supporting documentation and regulatory compliance with a refinery which is part of one of the world’s largest energy companies, and
· a contract with a large public university system which is a new end market for the Company.

Expanding relationships with current clients to maximize organic opportunities, including selection by the Company’s largest client as a preferred provider for incremental business from a new division, and adding incremental business with a large client in a new geography.

Renewing the contract with the Company’s largest client for two additional years, now with an expiration date of December 31, 2019.

Announcing last week the acquisition of Soft Company, a French company with digital service offerings, immediately positioning CTG to leverage its proven platform and success in Europe by accelerating entry into France – an attractive and growing adjacent market and a new market for CTG.


Continuing to Review and Improve Corporate Governance

· Refreshing two-thirds of the Board of Directors, adding four of the six current directors since November 2015, including a director with significant IT services experience. These directors have provided crucial oversight and business insight, and have been instrumental to the Company’s progress toward executing its three-year strategic plan.

· Implementing innovative equity-based compensation program for both 2018 and 2017 grants to the senior leadership team to directly align management interests with shareholders. To earn the full award, the Company’s share price must increase by 100% in the three-year period from the date of grant. To earn any shares, the Company’s stock price must increase by 50% during the three-year period from the date of grant, in which case half the award will vest.  

· Modifying non-employee director compensation in the fourth quarter of 2017, effective on January 1, 2018 to eliminate cash compensation and provide compensation exclusively in CTG shares to further align interests with shareholders.


Diligent, Shareholder Value Enhancing Capital Management Execution

· Repurchasing $7.3 million of shares since the start of the current authorization in November 2016 (9% of outstanding shares) returning significant capital to CTG shareholders – with 1,169,000 shares repurchased for $6.1 million in 2017, of which 252,000 shares were repurchased for $1.3 million during the fourth quarter.

· Announcing last week the intent to launch in the near future a cash tender offer for up to 10% of the Company’s outstanding shares. Upon the successful closing of the tender offer, CTG will have repurchased approximately 19% of outstanding shares over the last 17 months.

· Diligently deploying capital for M&A activity with the acquisition of Soft Company.

Mr. Crumlish commented, “We made a number of meaningful investments during the year that will continue to drive growth and operational improvement and we expect to see greater financial progress in 2018, as reflected by our guidance, measured against our three-year financial performance targets.”


Press release by CTG