Computer Task Group Inc (CTG) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the CTG First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will open up the lines for questions and answers.

[OPERATOR INSTRUCTIONS]

As a reminder, this call today will be recorded. And at this time, I'd like to turn the conference over to your host, James Boldt. Please go ahead.

Good morning, everyone. This is Jim Boldt. I want to thank you for joining us this morning for our first quarter 2006 earnings conference call. Joining me is our Interim CFO, Brendan Harrington. As to the format of the call, this morning, I'm going to begin with a review of our financial results and talk about the trends that we saw in the first quarter, as well as what we anticipate in the second quarter and the remainder of 2006, and then we'll open the call for questions.

Before we begin, I want to mention that statements made in the course of this conference call that state the Company's or our management's intentions, hopes, beliefs, expectations and predictions in the future are forward-looking statements. It's important to note that the Company's actual results could differ materially from those projected. Additional information concerning the factors that could cause the actual results to differ from those in the forward-looking statements is contained in our press releases and from time to time in the Company's Securities and Exchange Commission filings.

For the first quarter of 2006, CTG's revenues were 83.6 million. Net income was 787,000, and cash and net income per diluted share were $0.05. Revenues increased 22% in the quarter, while net income increased by 63%. Under the accounting rules that went into effect on January 1st 2006, the first quarter net income includes a $90,000 after-tax non-cash charge for equity compensation.

Revenues from IBM were 31.6 million in the first quarter of 2006, as compared to 21.8 million in the first quarter of 2005. Quarterly revenues from our European operations were 14.2 million in the 2006 quarter, an increase of 10.6% from the 12.8 million recorded in last year's first quarter. Would there have been change in the exchange rates, the revenue increase would have been 20.4%. Once again, our testing offering did very well in Europe in the first quarter.

On the balance sheet, our day sales outstanding decreased to 57 days from 88 days in the first quarter of 2005, largely as a result of our previously announced change to a cash discount option with a significant customer. Our cash provided by operations was approximately 25.3 million in the quarter. We had 539,000 in capital expenditures, and [reported] depreciation expense was 647,000 in the first quarter.

As previously announced on May 12th 2005, the Board of Directors authorized the repurchase of an additional 1 million shares of company stock. During the quarter, while adhering to the SEC imposed volume limitations, we've repurchased 81,600 shares of CTG common stock. It's a lower level than repurchased in the last three quarters, as we are in a blackout period where we did not repurchase our stock until our yearend audit was completed in mid-March. We expect to continue our repurchase program in the second quarter of 2006.

We're pleased with our first quarter performance, as we achieved a 22% increase in revenues, and despite the new requirement to expense stock options, a 63% increase in profitability. The month of March was stronger than expected both on the staffing and solution side of the business, which caused our revenues to be slightly above our guidance for the quarter and earnings per share to be at the high end of our range. As to our total employment, we added 100 employees to our headcount during the quarter, bringing our total employment to 3,700 employees at quarter's end.

As to the individual business units, our strategic staffing business clearly had a good first quarter. Overall demand for staffing continues to increase, and we're in the process of adding about 10% more to the number of recruiters in our strategic staffing group to deal with the increasing number of requirements. As to our solutions business, though it's not back to what we would consider a normal market, we continue to see an increase in demand for some of the high growth solutions that we've focused on. The areas of greatest demand include testing and information security in our life sciences, financial services and general industry markets.

In our healthcare vertical demand is strong for clinical transformation projects, as well as transitional outsourcing from clients installing new software. With respect to the national healthcare system project in the UK, it's progressing as we expected. As to the second quarter of 2006, we're forecasting revenues in the range of 85 million to 88 million, an increase of 17 to 21% over the second quarter of 2005. We believe that cash earnings in the second quarter of 2006 to be in the range of $0.05 to $0.07 per share and the GAAP earnings will be in the $0.04 to $0.06 per share range in the second quarter.

As you saw on our news release, we've increased our guidance for the entire year. We now expect revenues in 2006 to be in the range of 340 million to 352 million, 15 to 20% above 2005. Before an anticipated non-cash charge for equity compensation, we expect 2006 cash earnings to be in the range of $0.21 to $0.26 per diluted share. After the non-cash charge, we expect 2006 diluted net income per share to be in the range of $0.19 to $0.23. The increase in our guidance reflects the increasing requirements for staffing and the improving demand for some of our targeted solutions.

As we discussed in our 2005 fourth quarter earnings release, we availed ourselves of a cash discount payment option with a significant customer in the first quarter of 2006. As a result, our debt, which had been over 23 million at the end of last year, was under $1 million at the end of the first quarter. We ended the first quarter on a day that was between our bi-weekly payrolls, as those payrolls currently run at approximately $9 million. We anticipate that our debt at the end of each of the quarters in 2006 will range between 0 and $10 million.

One of the topics for conversation on this call during the last years has been our operating margin. On this call a year ago, we said that we expected our operating margins to be at 2.5% in the first quarter 2006. We've had two changes that make our financial statements non-comparable to last year. The first was a cash discount, which effectively moved approximately 400,000 from interest expense to a reduction of revenue.

The second was the accounting change that required us to expense equity compensation. Equity compensation was $120,000 pre-tax charge in the quarter. When you adjust for those two changes, our operating margin in the first quarter of 2006 was 2.5%, exactly what we had forecast a year ago. Let's step back and look at what's happened in our business over the last several years. In the second quarter of 2004, we announced that demand for the staffing side of our business had come back, and that we're going to invest in recruiters to capitalize on the change in the market. Those investments drove our 24% revenue growth in 2005.

On the third quarter conference last year, we indicated that we saw increase in demand for certain of our newer solutions. As a consequence of that demand, starting in the fourth quarter of 2005, we took a portion of the additional income that we generated from the staffing business and invested an additional solution sales in sales/support personnel. As solutions generally have a 3 to 12-month sales cycle, we're beginning to see the favorable results of those investments, now, supporting our goal of increasing CTG's mix of higher margin solutions business. As we've said before, another one of CTG's long-term goals is to grow faster than the IT services industry. With a 24% revenue growth in 2005 and an expected revenue growth of 15 to 20% in 2006, we're well on our way to achieving that goal.

With that, I'd like to open the call for questions, if there are any. Operator, would you please manage our question-and-answer period?

Yes. Ladies and gentlemen, we will now conduct our question-and-answer session.

[OPERATOR INSTRUCTIONS]

And I'm sorry, Mr. Boldt. At this time, we do not have any questions in queue.

Well, with no questions, this morning, you've made my job very easy. I'd like to thank you for your continued support and for joining us this morning. Have a great day.

Ladies and gentlemen, this conference will be made available for replay, starting today, at 12:45, and ending at midnight, on May the 1st. If you wish to hear the replay, please dial 1-800-475-6701. International parties can dial 320-365-3844. And the access code for this call today is 816208. This does conclude our conference for today. Thank you for your participation, and thank you for using AT&T Executive Teleconference. You may now disconnect.