Computer Task Group Inc (CTG) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the CTG second-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder today's conference call is being recorded. At this time I would like to turn the conference over to the Director of Investor Relations for CTG, Jim Culligan. Please go ahead, sir.

Thank you, Nick, and good morning, everyone. We certainly appreciate your time and your interest in CTG.

On the call today we have CTG's Chief Executive Officer, Jim Boldt, and Brendan Harrington, Senior Vice President and Chief Financial Officer. Jim and Brendan are going to review the results for the second quarter of 2014 and then update you on the Company's strategy and outlook. We will follow with an opportunity for Q&A.

If you don't have the news release discussing our financial results you can access it at the Company's website at CTG.com.

Before we begin I went to mention that statements in the course of this conference call that state the Company's or management's intentions, hopes, beliefs, expectations and predictions for the future are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected.

These forward-looking statements are based on information as of this date. The Company assumes no essential obligation to update these statements based on information from and after the date of this conference call.

Additional information concerning factors that could cause actual results to differ from those in the forward-looking statements is contained in our earnings release as well as in the Company's SEC filings. You can find these at our website or the SEC's website at SEC.gov. Please review our forward-looking statements in conjunction with these precautionary factors.

With that I would like to turn it over to Jim to begin the discussion.

Thanks Jim and good morning, everyone. This is Jim Boldt. I want to thank you for joining us morning for our second-quarter earnings conference call.

As we indicated in our preannouncement and as noted in our news release, revenue and earnings per share for the quarter were below our initial April guidance. Revenue was a less than 2% shortfall from the midpoint of our guidance and occurred in our staffing business.

Earnings, however, were impacted significantly by higher medical expense from a self-insured medical plan which caused earnings to come in below our guidance. Without this $0.02 per share expense earnings would have been at the midpoint of our guidance.

I'm going to talk more about our results and our expectations for the 2014 third quarter and full year but first I'm going to ask Brendan to start us off with a review of our financial results. Brendan?

Thanks, Jim. Good morning, everyone.

For the second quarter of 2014 CTG's revenue was $100.3 million, a decrease of $6.8 million compared with the second quarter of 2013 mostly due to lower revenue in our staffing business. Second-quarter 2014 had 64 billing days, the same as the second quarter of 2013.

Solutions revenue in the second quarter of 2014 totaled $40.3 million, a decrease of $2 million or 4.8% compared with the second-quarter 2013, primarily due to lower revenue from our electronic medical record projects. As a percentage of total revenue, solutions revenue was 40% the same as a year ago.

Revenue from electronic medical record projects in the second-quarter 2014 was $13.1 million, a decrease of $3.5 million or 21%. Staffing revenue in the quarter decreased $4.8 million, or 7.4% to $60 million, primarily reflecting reductions in staffing requirements from our largest client that began in the second quarter of 2013.

In the vertical markets in which we primarily focus, revenue as a percentage of total Company revenue in the second quarter was as follows: healthcare decreased to 31.2% from 32.3%; technology service providers decreased to 25.8% from 28.7%; financial services increased to 7.6% from 6.3%; energy was flat at 6.1% in both years; while general markets increased to 29.3% from 26.6%. Second-quarter revenue from IBM, our largest customer, was $22.7 million compared with $26.6 million in the second-quarter 2013. As a percent of total revenue, revenue from IBM decreased to 22.6% in the 2014 second quarter compared with 24.9% of total revenue in the 2013 second quarter.

Revenue from our European operations was $19.8 million, a 6.5% increase from the $18.6 million recorded in last year's second quarter. The effect of foreign-currency fluctuations during the second quarter of 2014 increased consolidated revenue by approximately $1 million.

On a local currency basis our European revenue increased by 1% compared with the 2013 second quarter. Direct costs as a percentage of revenue were 78.8% in the second quarter, the same as in the second quarter of 2013. SG&A expenses decreased approximately $520,000 from the second quarter of 2013 primarily as a result of fewer nonbillable personnel and lower incentive compensation expense.

The billable travel expenses included in the second-quarter 2014 revenue and direct costs were $2.6 million. The billable travel expenses for the second-quarter 2013 totaled $3.1 million.

Second-quarter operating income was $5.5 million a decrease of approximately $929,000, or 14.5% year-over-year. Operating margin in the second quarter was 5.5% of revenue, 50 basis points lower than the second-quarter 2013.

There were two items that primarily impacted operating income in the quarter, namely the higher medical expenses as well as the negative leverage from our lower health solutions revenue, which was partially offset by lower SG&A expenses. Net income in the second quarter was $3.2 million, a decrease of $822,000 or 20.3% compared with the second-quarter 2013.

On a per diluted share basis net income was $0.20 for the quarter, a $0.04 decrease compared with the second-quarter 2013. The decrease in earnings per share is due to lower operating income primarily as a result of higher expenses from our self-insured medical plan and a higher income tax rate in the second quarter of 2014.

The collective effect on earnings per share from the higher medical expenses and the tax rate accounted for the $0.04 reduction in earnings per diluted share. The tax rate for the 2014 second quarter was 40.3% compared with 35.6% in the 2013 second quarter.

Last year's second quarter benefited from the recognition of tax credits. These credits were not recognized in the second quarter of 2014 since the legislation to extend the credits for 2014 has not yet been passed.

We expect the tax rate in the third-quarter 2014 to be between 39% and 41%. The projected tax rate for the full-year 2014 is between 38% and 40% as we expect the legislation necessary to extend these tax credits to be passed later in 2014.

The tax rate for the full-year 2013 was 35.6%. Both the 2014 and 2013 second-quarter results included equity compensation expense of approximately $0.02 per diluted share net of tax. Our headcount at the end of the second quarter was 3,800, 100 people more than at the end of the trailing first quarter of 2014 and 100 fewer than at the end of the second-quarter 2013.

The increase from the end of March this year primarily relates to an increase in requirements from several clients in our staffing business which partially offset the reduction from our largest customer. Of the 3,800 employees at the end of the second-quarter 2014, 91% were billable resources. At the end of the quarter we had no debt and $31.7 million of cash on the balance sheet compared with no debt and $34 million of cash at the end of the second-quarter 2013.

Both the second quarter of 2014 and 2013 ended between US biweekly payroll dates. Our days sales outstanding were 67 days at the end of the second-quarter 2014 compared with 64 days at the end of the second-quarter 2013. The increase in DSO was due to timing of cash proceeds received at the end of the comparative quarters.

Our cash provided from operations in the second quarter of 2014 was approximately $2.7 million as compared with cash provided from operations of approximately $4.9 million in the second quarter of 2013 with the difference primarily attributable to lower net income and the changes in working capital. In the quarter we had $878,000 in capital expenditures and recorded depreciation expense of $781,000.

We repurchased 175,000 shares of CTG common stock during the second quarter of 2014 and 59,000 shares in the second quarter of 2013. Our current repurchase authorization is for approximately 750,000 shares. Jim?

Thanks, Brendan. In aggregate, revenue declined by 6% in the 2014 second quarter. Revenue from our solutions business, which represented 40% of our total revenue, decreased by 5%.

The decrease in our solutions business came from our healthcare vertical. Our hospital clients continue to reduce or delay spending in response to a reduction in income and cash flows due to the cuts -- the sequester cuts to Medicare and reductions in other government reimbursements.

On our last conference call we mentioned we had received one RFP for an electronic medical record project for which a decision had not been made as to what IT services firm would be awarded that project. The RFP for the project was withdrawn. We did receive another RFP for an EMR project in the last three months and are awaiting a decision as to what IT services firm will be chosen for that project.

While we currently only have one RFP for an EMR project in hand we are in conversations with several hospitals and anticipate starting up EMR projects later in the year. We started the second-quarter 2014 with 13 active EMR projects. During the quarter there were no projects that started and one project was completed.

Therefore at the end of the second quarter we had 12 active EMR projects. It should be noted, however, that two of the active EMR projects, which are large projects, entered their wind-down phase at the end of the second quarter. The associated reduction in revenue in the third quarter was already reflected in our 2014 guidance that was provided on our first-quarter and most recent earnings release.

As noted in the short term we believe that our EMR business will be constrained. In the longer term, however, there is still significant EMR work to be done.

In the US healthcare market there are many hospitals that do not have EMR applications while others have applications that will not meet the more stringent standards of Meaningful Use Stage 2. The health information exchanges will still have to be built to facilitate the exchange of records and there's also an opportunity in Europe when their adoption of EMR occurs. Given the magnitude of the work that needs to be done we continue to remain optimistic about the long-term growth prospects for our EMR business.

Strategically CTG has other offerings for the healthcare market. We have recently seen an increase in the number of RFPs we are receiving for a healthcare outsourcing engagement.

In the current tight provider spending environment we see an excellent opportunity for us in application outsourcing as it creates significant immediate savings for hospitals without them having to make a large financial investment. We have an outstanding reputation in this area and these engagements are typically for multiple years providing an annuity-like revenue stream.

We are also starting to see increased market demand for healthcare IT and business consulting support. As noted on our last call we initiated a big data project in the second quarter. That project started in April and will run until the end of the year.

For the second quarter our data analytics solutions added $1.7 million to our revenue and approximately $0.06 to our earnings-per-share. We continue to work to win more data analytics projects. These projects are generally for -- have long sales cycles and it is difficult to predict when they will close and the potential impact on our financial results.

Having covered health care I would also like to talk about the other three vertical markets on which we focus. The technology service provider market, which is an all lower margin staffing business, declined in the second quarter of 2014 based upon a reduction in our largest customer's current need for external IT resources.

Our financial services vertical had another excellent quarter with most of the revenue gain coming from our European operations. Our energy business revenue decreased when compared to the second-quarter 2013.

Turning to our staffing business, its revenue declined 7% when compared to the second-quarter 2013. The decline in the staffing business from the significant customer I mentioned was modestly offset by increase in demand from other clients.

As to our outlook, last week we issued preliminary results and adjusted our full-year guidance. We did that because the effect of the increase in expenses from our self-insured medical plan was meaningful. And when you added the additional impact of the pricing pressures from one of our larger staffing customers, we came to the conclusion that the change was material enough to update you once we had analyzed the situation.

As to our expectations for the third-quarter 2014, we are forecasting total revenue to be in the range of $96 million to $98 million. We are forecasting earnings per share in the third quarter of 2014 to be in the range of $0.16 to $0.18 per diluted share.

For the 2014 full year we currently expect a revenue range of $390 million to $400 million or a 6% increase in the midpoint of -- I'm sorry, a 6% decrease at the midpoint of our guidance when compared to 2013. Based upon our revenue forecast and the anticipated mix of business we expect our 2014 net income per diluted share to be in the range of $0.75 to $0.81, or a 15% decrease from 2013 at the midpoint of our guidance.

I would like to talk about the change in our 2014 guidance that we announced on July 15. The change in our earnings estimate is coming from two areas.

The first and by far the most significant change is our fringe benefit cost estimate for the year. In the second quarter of the year we saw a significant increase in medical expense from our self-insured medical plan. The expense increase does not seem to be related to any one particular area of the country or type of medical claim but rather from higher overall usage.

The higher medical expenses from our self-insured medical plan caused a shortfall from the midpoint of our guidance in the second quarter. After reviewing the increase in usage across the board we came to the conclusion that the prudent thing to do was to increase our forecast for projected medical claims for the rest of the year. This expense increase represents the majority of our reduction to our earnings guidance for 2014.

The second impact on our 2014 earnings-per-share guidance was related to our staffing business. For the first time in a long time we experienced isolated but significant pricing pressure from one of the larger customers in our staffing business, which reduced our net income forecast for the year.

The moderate 1% reduction in our revenue guidance for the year was from slightly lower demand for our staffing business than previously projected. Consistent with what we said on the last conference call, for our staffing business and our traditional IT solutions business, we set the guidance in the same way we have in the past by estimating engagements we are currently working on as well as ones we received in the first -- as well as engagements that we anticipate we signed later in the year.

We grouped three of our newer solutions offerings together as our data analytics product suite because of the similarity in technology. The three data analytics offerings are for our big data offering and our two SaaS offerings, which are a clinical decision support system for chronic kidney disease and our fraud, waste and abuse offering.

For these data analytics offerings we have only included two engagements in our guidance for the year where we have signed contracts. These engagements include the big data project we started in the second quarter and revenue received in the first quarter for a completed fraud, waste and abuse project.

Our forecast for 2014 for the data analytics revenue remains at $6 million and the forecast for earnings-per-share contributions from these projects remains at $0.18 per share. We are still trying to close additional data analytics projects this year but cannot precisely forecast this business as these offerings are still in the introductory stage of the product look cycle and we don't have enough sales history to project with reasonable certainty which opportunities will be closed.

We expect that we should be able to close an additional data analytic project by yearend; however, the timing and type of project that closes will determine whether or not we will have any revenue from any additional projects that close this year. We now look at our revenue guidance for the year we currently think that our healthcare revenue will decline by approximately 13% in 2014. This is actually less of a decline than we had noted in the first-quarter conference call.

As you know, the healthcare industry is in a transitional cycle. This is creating near-term opportunities for further growth in our outsourcing and healthcare IT consulting work helping to offset the decline in EMR projects.

For our non-healthcare solutions business we are on track with an increase of approximately 3% in 2014. We are now forecasting a 4% decrease in our staffing business for the year, primarily driven by one customer.

Our advisory services group started up a small project with an accountable care organization, or ACO, in the second quarter. This is the first work that we have done for an ACO. As the ACO market matures we believe it will be a good market for CTG services.

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

Thank you. (Operator Instructions) Brian Kinstlinger, Maxim Group.

Good morning, guys. As it relates to the fraud, waste and abuse application I am wondering if you can provide us an update on the changes you have made to the software and how that is being received by prospective customers? And what I am talking about is the ability to deny fraudulent claims as they come with new rules.

Yes, that's a good question. We have made several changes actually to that application and we are still continuing to make changes.

We had found that particularly smaller players often are very hesitant to go back in the past to their provider network and ask for money back because they need those providers in their network. So one of the changes that we made to the offering was more of a prospective look. We will come in and run the application and tell you what changes you need to make the payments going forward to stop any fraud, waste and abuse that we have detected.

The other area that we are pursuing has to do with processing claims more in line with when they are paid. Several of the payers have told us that they are in a much better position to make an adjustment as they are paying a claim rather than go back in history. So one of the things that we are looking at doing is putting fraud, waste and abuse application basically in line so that as they go through their claims adjudication process we would be able to review the claims and tell them which ones they need to take a look at and perhaps not pay.

And so have customers taken to this? The fraud, waste and abuse signings have probably been a little bit slower than you may have liked, does this change the conversation? Are the smaller hospitals seem to be more receptive to thinking about taking the application?

Yes, the fraud, waste and abuse market actually is primarily the payer market but --

I'm sorry, I meant (multiple speakers)

That's okay. Yes, the answer to that is, they seem much more inclined to either use the advisory or the what we call the in-line or the time adjudication option.

Can you give us a rough sense for the fraud, waste and abuse application? Maybe somehow quantify the pipeline in terms of number of insurance companies you are talking to or maybe the size of the opportunity that you are immediately working to procure?

We really don't give out our pipeline on any of our solutions. We are talking to potential customers for all of the offerings including fraud, waste and abuse.

What I really look at is where we are in the sales cycle and individual opportunities. And based upon where we are in the sales cycle we expect that we should be able to close another data analytic project before the end of the year.

And how many data analytic projects are active right now? How many are fraud, waste and abuse and how many are medical IT management?

The only active project is actually the big data project.

That's the only active one right now?

Correct.

And then the other projects that you had in fraud, waste and abuse and medical IT management, are they not active because they are lumpy and they become active again? Or is there a contribution -- there will be no more contribution from those contracts?

They tend to be lumpy. A payer will engage us to look at their claims for a period of time, a year, two years, or whatever. Once we have done that then the engagement is over and at some point we go back to them and say, okay, why don't you give us the next year.

Got it. And then the last question I've got relates to Europe in EMR.

We've heard about that for a little while now. When do you expect to see RFPs in Europe? Are we six months away, are we 18 months away, what is your sense?

That's very difficult to answer and probably varies depending on the country. We have got a little work going on now. We are doing a consulting project in one of the countries in Europe.

One of the issues that has to be addressed is where are they going to get the money to do the EMR application. Most of the countries in Europe have socialized medicine. The cost of these are fairly large so they are going to have to get some type of a grant in order to do them.

Thank you very much.

(Operator Instructions) Rick D'Auteuil, Columbia Management.

Good morning. So on the outsourcing, or the healthcare outsourcing opportunities that seem to be gaining a little bit of momentum, on a relative basis I know you're not providing an insight into the pipeline, but are they higher than last quarter, which was higher than the quarter before?

Which direction are we going? Is the opportunity -- number of opportunities increasing and what is your win rate there?

Our win rate is actually fairly high. We don't keep track of it over a long period of time but if the client actually goes ahead and does the outsourcing it certainly is above 50%.

We have all of our salespeople right now engaged in discussing outsourcings with clients. So I don't have precise numbers for you but I have to believe that we have more discussions with clients now than we had a year ago or in the past.

Is the thought that this is just a window of opportunity, or is this likely a long-term trend?

I think it's a little bit of both, particularly let's say in a situation where the client has put an EMR system in. We have the ability to take over outsourcing that EMR application so that ongoing support, help desk, etc., at a lower cost and most likely with better service than our clients would.

And it is because often you have periods of the day like in the middle of the night when there aren't that many calls so we can multitask people on being able to answer questions. I don't know for how many years but I don't think this is a six-month window. We expect for a few years that there will be an opportunity for us in outsourcing.

And that competition there, is it the same players that compete with you in the EMR space?

No, not so much. I would say occasionally there will be a couple of them but I would say fewer than the ones we usually compete with in the EMR space.

Okay. Is the dialogue mostly with former clients that did EMR implementations with you?

That would be the first place certainly that the salespeople are going but it's not just limited to that. That's not just limited to -- I don't want to give the impression that it's just limited to EMR -- but I was just kind of giving an example. But some of the clients that we are doing outsourcing for we haven't done business with before.

Okay. On the medical expense issue that appeared this quarter, as a self-insurer the prior quarter was fine, right?

Yes.

And the quarter before that was fine, and all the sudden utilization went up? Why are you assuming that that continues? What has changed that I guess leads you to the conclusion that that is a permanent kind of issue now?

Well the reality is that we forecast our medical expense based upon trend analysis and the trend is up. So we thought that it was prudent to increase the expected costs going forward.

This isn't just lumpy up, it is likely a something that continues, you are saying?

We think that given that it was not any one particular claim, and if it had been a particular claim I don't think that we would have forecasted going forward, but given that it's an increase in usage kind of across-the-board, we think that it very well may continue into the future. So we increased our expense forecast going forward.

Okay. And historically you guys have done a good job of managing your expenses around issues that come up, revenue or other. What is the likely -- can you go and get some price for this with your clients, or you are looking at it as a permanent impairment to margins?

Well, we always try and recoup things like this but getting price increases at the moment given the competitive environment I think is going to be very difficult. So we have done things to reduce our other expenses and we will look to do other things going forward.

Okay. But in your guidance you are not assuming you are offsetting these expenses, you are assuming that they are likely to continue?

Yes.

If you have any successes in new data analytics signings in say the third quarter, can that impact the year still, or is that likely to be than 2015 opportunities? I don't know how quickly these things ramp, so are we writing off the rest of 2014 with the $6 million and $0.18, or is there opportunity to impact that favorably still?

Well, all of the data analytics require some ramp time. It really depends on which one closes, so depending on which one closes it could impact the revenue in 2014.

Others of them if it's not signed or even sign now it would be a 2015 event. So I guess to the question, which is it possible that we will have a win that will favorably impact our guidance for this year, the answer is yes. But we don't know which one will close and therefore we cannot project that.

I think a quarter ago you mentioned that you had success with a large employer that was self-insured and they had no downside to kind of fighting claims of fraud even on a look back basis. That seemed to be an opportunity and yet we have no new assignments. So what are you encountering or what are the sales arm encountering with the potential customers?

Well, that particular opportunity actually while the customer had said that they were planning on going forward, at the end of the day they decided that they weren't going to. We still don't quite understand why not because it would all be upside for them but they just elected not to.

Okay. That's all I have. Thanks.

At this time speakers I will turn the conference back over to you.

Thank you.

I am showing four people in the queue.

Bill Sutherland, Emerging Growth Equities.

Thanks, good morning, guys. Just to clarify on Rick's question, so the two projects you are counting in your data analytic Outlook are the one that is underway, the big data, and then what is the other one?

We had revenue in the first quarter of the year from fraud, waste and abuse work that we had done in the later part of (multiple speakers)

I see. So the ongoing is just this one at this point? Okay.

Correct.

Okay, that clarifies that. I thought since you are talking more about your healthcare advisory group it might be good to get a little more color on that business. Maybe you can just give us a sense of the billable consultants and just kind of what opportunities there are there for you?

I would prefer not to give out how many billable consultants we have doing that for competitive reasons. But one of the areas, which is a good example, is the ACO engagement that we started up in the second quarter.

As the ACOs start up they need people to come in to help them figure out how they are going to operate. These are brand-new businesses really. They are combining basically insurance companies often and provider networks, hospitals, etc., and how they are going to get the data that they need to manage claims and things like that.

That would be a good example of the type of work that we could do. In other cases we will go into a hospital that is thinking about doing an EMR project and give them an assessment, or another opportunity for us is really in optimization long terms. Many people put their EMR applications in to meet the meaningful use standard so that they can get the reimbursements.

However, because they didn't optimize them they are seeing some productivity declines from their DAX. So can we go and optimize would be another area for us.

So are you using, for the most part, folks that you would be billing out on an actual project to do this kind of work?

Yes. Well, sometimes they bill on the actual project. Often -- these are very high level people that do the consulting work so often they will come in, they will do the assessment.

When the project starts they will most likely be assigned for a portion of the time but they are usually not running the project around that project on a daily basis. They are just kind of advising, okay, this is what we saw in the assessment. This is what you need to do going forward.

And I guess to grow this it would be obviously hiring is the primary would you consider M&A?

Probably but right now we have got a really good team. We brought in a strong leader this year. They seem to be gaining momentum.

The other thing, I just want to bring this out because we haven't talked about it, but the initial engagement, obviously that is important to us and it is profitable. Consulting engagements like this, though, tend to be smaller in scope. The real benefit is if you have done the assessment you are in a really good position to get any remediation work or any work that is done after that.

Right. Just a couple of clarifications. On the price pressure did you say that was in staffing with the largest client?

No. One of the larger customers. That one was definitely in staffing.

And any thoughts on -- was that a belt-tightening by that particular client?

Yes, we think it is unique to that particular client.

Okay. How would you characterize, if it is possible, the outlook for the largest staffing client for you guys?

I don't think that we have really changed our forecast for that client for the year. I think in the last call we may have even given out what the forecast was, which is about $88 million to $90 million for the year. It ran in the second quarter just about what we were expecting, maybe a hair but very slightly above where we thought it would be.

And you had indicated run just under $90 million for the year?

Okay. I think that covers it for me. You've been through most of my questions already. Thanks, Jim.

Kevin Liu, B. Riley & Company.

Good morning. Just one follow-up question on the staffing side.

Can you talk a little bit about your headcount plans there given that you are now expecting a 4% decline? Just wondering if all of that is just due to this rate renegotiation relative to your prior guidance?

No. It isn't. While the rate negotiation hurts the bottom line it doesn't have as much of an impact obviously as the top line.

Part of the reason for the decline versus last year is primarily because of the decline in the IBM business, obviously. It was the staffing side of the business that actually added 100 people, roughly, in the second quarter. And we are actually looking at the staffing business to go up sequentially quarter to quarter.

Got it. And with respect to ICD-10 I know with the push out last quarter some of the projects that you may have had in the pipe kind of got pushed out as well. Just wondering what sort of conversations you are having with your customers today and when you would expect to start to see some work around that?

We are not seeing many customers, if any, start up new ICD-10 objects. As I mentioned in our opening comments, most of our hospitals are trying to conserve their cash and keep their expenses down since they know it is a next year event.

I think that when we get to the beginning of 2015, if they believe that it is going to -- the date is going to stick that if it is going to be October 1, 2015, that we will start to see them start up again. Certainly that's what happened this year. When we got to the early part of the year we had a lot of reqs from clients looking for ICD-10-type resources.

Understood. And just one last one. With respect to kind your analytics pipeline, more so thinking about next year, are you comfortable with the size of that pipeline to ensure you can continue to at least maintain if not grow that business on a year-over-year basis in 2015?

As I mentioned, we don't actually give out pipelines on any of our offerings, not just the data analytics but the EMR or any of them. And quite frankly, our sales cycle on most of our offerings -- though this one is even longer -- tends to be rather short that we can say okay we're going to close this engagement in the next 60 days, or maybe 90 or 120 days would be our visibility. So I don't -- I'm not in a position really where I have the ability to comment on 2015 and we don't have guidance out, as you know, on 2015 yet.

Okay. Thank you.

Brian Kinstlinger, Maxim Group.

Great, thanks. Two questions. First, I'm wondering if management has made any changes on the go-to-market or sales approach for fraud, waste and abuse and medical IT management over the last say three to six months?

Yes, we have. I mentioned the two changes in the offerings looking at prospective, etc.

We have also identified, and I don't want to get into the exact type obviously for competitive reasons, but we have kind of identified a profile of smaller payers that we think will have more interest in the fraud, waste and abuse than payers or smaller payers in general. So we definitely have focused and said okay, this is the type of payer that we think will most likely buy the application.

Can you share with us what type of payer that is, or is that the competitive information you don't want to share?

I would really rather not.

Got it. And then the last question I've got related to medical expenses, does being self-insured still make sense and at this point what do you think the savings is under this option?

Well, we will look at -- there's two types of insurance you can get for a self-insured plan. One is called stop-loss, so if any particular claim goes above a certain dollar level the insurance company then kicks in and pays for it versus the Company having to pay for it.

And we have stop-loss insurance. And there were no claims in the second quarter that went over our stop-loss limit.

The other insurance is an aggregate insurance. We've looked at it in the past and the limit that it kicks in and the amount that it costs was significant. It would've cost us a lot of money over the last 10 years, a lot of earnings, if we had actually taken it out but we are taking a look and getting a quote as to how much it would cost for that type of insurance.

Great. Thanks very much, guys.

Thank you. At this time there are no further questions in queue.

Thank you. CTG is firmly established in healthcare, one of the fastest-growing major industries that now represents almost 20% of the US GDP.

On the short-term our hospital clients have to deal with the reimbursement reductions imposed by them by the US federal government. The demographics of the US and Europe still point to an aging population that will need more, not less, healthcare and therefore more, not less, information technology support.

Based upon our offerings and experience in these areas we feel that CTG is well-positioned in healthcare for the long term. I would like to thank you for your continued support and for joining us this morning. Have a great day.

Thank you and with that that does conclude our conference for today. We thank you for your participation and for using AT&T Teleconference. You may now disconnect.