☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~ Yes☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ Yes☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “an emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ Yes☐ NO ☒


	For the Quarter Ended					For the Three Quarters Ended					For the Quarter Ended				For the Three Quarters Ended
	September 29, 2017		September 30, 2016			September 29, 2017		September 30, 2016			September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021
Revenue	$	74,039	$	78,065		$	226,566	$	247,401		$	75,002	$	90,603	$	247,178	$	279,896
Direct costs		61,010		64,193			185,651		203,072
Cost of services												56,773		70,313		188,604		218,460
Gross profit												18,229		20,290		58,574		61,436
Selling, general and administrative expenses		12,619		14,567			38,482		42,060			15,976		17,588		49,949		53,835
Goodwill impairment		—		15,785			—		37,329
Operating income (loss)		410		(16,480	)		2,433		(35,060	)
Operating income												2,253		2,702		8,625		7,601
Interest and other income		18		140			71		165			133		137		323		331
Interest and other expense		129		63			278		247			525		679		1,357		1,279
Income (loss) before income taxes		299		(16,403	)		2,226		(35,142	)
Provision (benefit) for income taxes		259		(220	)		1,001		639
Net income (loss)	$	40	$	(16,183	)	$	1,225	$	(35,781	)
Net income (loss) per share:
Income before income taxes												1,861		2,160		7,591		6,653
Provision for income taxes												759		488		2,209		1,640
Net income											$	1,102	$	1,672	$	5,382	$	5,013
Net income per share:
Basic	$0.00		$	(1.03	)	$	0.08	$	(2.30	)	$	0.08	$	0.12	$	0.37	$	0.36
Diluted	$0.00		$	(1.03	)	$	0.08	$	(2.30	)	$	0.07	$	0.11	$	0.36	$	0.34
Weighted average shares outstanding:
Basic		15,013		15,649			15,150		15,586			14,480		14,011		14,366		13,850
Diluted		15,316		15,649			15,408		15,586			15,157		14,939		15,086		14,951

Cash dividend per common share	$	—	$	0.06		$	—	$	0.18

The accompanying notes are an integral part of these condensed consolidated financial statements.


	September 29,			December 31,			September 30,			December 31,
	2017			2016			2022			2021
Assets
Current Assets:
Cash and cash equivalents	$	11,446		$	9,407		$	26,753		$	35,584
Accounts receivable, net of allowances of $376 and $469 in 2017 and 2016, respectively		66,409			71,355
Accounts receivable, net of allowances of $347 and $581 in 2022 and 2021, respectively								68,415			84,252
Prepaid and other current assets		2,331			2,010			3,412			2,849
Income taxes receivable		853			—			—			80
Total current assets		81,039			82,772			98,580			122,765
Property, equipment and capitalized software, net		6,236			5,863			4,888			5,242
Operating lease right-of-use assets								17,101			22,132
Deferred income taxes		6,052			6,886			5,004			4,946
Cash surrender value of life insurance		32,463			31,024
Acquired intangibles, net								5,618			7,280
Goodwill								38,914			19,676
Cash surrender value of life insurance, net								4,087			4,018
Other assets								2,217			2,228
Investments		407			370			97			47
Total assets	$	126,197		$	126,915		$	176,506		$	188,334
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	6,307		$	6,973		$	11,765		$	21,150
Accrued compensation		21,548			17,365			20,036			22,534
Advance billings on contracts		2,013			935			5,006			4,762
Short-term operating lease liabilities								5,287			6,444
Short-term deferred payroll taxes								3,508			3,508
Other current liabilities		3,948			4,638			7,433			6,585
Income taxes payable								1,060			—
Total current liabilities		33,816			29,911			54,095			64,983
Long-term debt		—			4,725
Deferred compensation benefits		13,385			12,993			10,179			11,437
Long-term operating lease liabilities								11,713			15,612
Deferred income taxes								1,354			1,792
Other long-term liabilities		673			467			3,147			73
Total liabilities		47,874			48,096			80,488			93,897
Shareholders’ Equity:
Common stock, par value $0.01 per share, 150,000,000 shares authorized; 27,017,824 shares issued in 2017 and 2016		270			270
Common stock, par value $0.01 per share, 150,000,000 shares authorized; 27,017,824 shares issued in 2022 and 2021								270			270
Capital in excess of par value		120,276			123,947			109,424			110,330
Retained earnings		85,448			84,223			113,424			108,042
Less: Treasury stock of 11,527,430 and 11,077,779 shares at cost, in 2017 and 2016, respectively		(112,340	)		(112,858	)
Less: Treasury stock of 11,305,373 and 11,667,719 shares at cost, in 2022 and 2021, respectively								(103,804	)		(107,265	)
Accumulated other comprehensive loss		(15,331	)		(16,763	)		(23,296	)		(16,940	)
Total shareholders’ equity		78,323			78,819			96,018			94,437
Total liabilities and shareholders’ equity	$	126,197		$	126,915		$	176,506		$	188,334

The accompanying notes are an integral part of these condensed consolidated financial statements.

1.	~~Financial Statements~~

Financial Statements

The condensed consolidated financial statements included herein reflect, in the opinion of the management of Computer Task Group, Incorporated (“CTG” or “the Company”), all normal recurring adjustments necessary to present fairly the condensed consolidated financial position, results of operations, comprehensive income (loss), ~~and~~ cash flows, and shareholders’ equity for the periods presented. Certain prior period amounts were reclassified to conform to the current year’s presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10‑K filed with the SEC.

The Company's fiscal year-end is December 31. During the year, the quarters generally consist of a 13-week fiscal period where the last day of each of the first three quarters is a Friday. The ~~2017 third quarter began on July 1, 2017 and ended on September 29, 2017. The 2016~~2022 third quarter began on July 2, ~~2016~~2022 and ended on September 30, ~~2016.~~2022. The 2021 third quarter began on July 3, 2021 and ended on October 1, 2021. There were 63 billable days in both the 2022 and 2021 third quarters, ~~of 2017~~ and ~~2016, and 191 and~~ 192 billable days in both the ~~2017~~2022 and ~~2016~~2021 year-to-date ~~periods, respectively.~~periods.

2.	~~Summary of Significant Accounting Policies~~

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

These condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the SEC rules and regulations. There are no unconsolidated entities, or off-balance sheet arrangements other than certain guarantees supporting office leases and the performance under government contracts in the Company's European operations. All inter-company accounts have been eliminated.

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the Company's management to make estimates, judgments and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying ~~notes.~~notes, which could be impacted by existing market conditions and factors, including among others lingering effects of the COVID-19 pandemic, current macroeconomic conditions such as inflation, and the unpredictability and severity of a civil unrest or outbreak of war or hostilities. Such estimates ~~include, but are not limited~~primarily relate to the recognition of revenue, leased assets and liabilities, the purchase accounting for acquisitions and the valuation of goodwill, the valuation allowance for deferred tax assets, actuarial assumptions including discount rates and expected ~~rates of~~ return on assets, as applicable, for the ~~Company's~~Company’s defined benefit plans, the valuation of stock options and restricted stock for recording equity-based compensation expense, the allowance for doubtful accounts receivable, ~~assumptions underlying stock option valuation,~~ investment valuation, legal matters, other contingencies, and estimates of progress toward completion and direct profit or loss on ~~contracts.~~contracts, as applicable. Management believes that the information and disclosures provided herein are adequate to present fairly the condensed consolidated financial position, results of operations, comprehensive income (loss), ~~and~~ cash flows, and shareholders’ equity of the Company. ~~These~~

There were no subsequent events as of the date of this filing from the end of the fiscal third quarter on September 30, 2022 that require recognition or disclosure in these unaudited interim condensed consolidated financial ~~statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10~~‑~~K filed with the SEC.~~statements.

The Company operates in ~~one industry segment, providing~~three segments within its business, North America IT Solutions and Services, Europe IT Solutions and Services, and Non-Strategic Technology Services. The Company provides information and technology-related services to its clients. ~~At the highest level, CTG delivers services that are considered either IT solutions or IT and other staffing.~~ CTG provides these ~~primary~~ services to all of the markets that it serves. The services provided typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT solution. These services ensure that our clients utilize the right information technology to meet their business needs, maximize their IT systems’ value, and operate efficiently and effectively. A typical ~~customer~~client is an organization with large, complex technology, information, and data processing requirements.

~~IT solutions and IT and other staffing revenue as a percentage of total~~7

The segment revenue for the ~~quarters~~quarter and three quarters ended September ~~29, 2017~~30, 2022 and ~~September 30, 2016~~October 1, 2021 was as follows:


For the Quarter Ended:					Year-over-Year
(amounts in thousands)	September 30, 2022		October 1, 2021		Change
North America IT Solutions and Services	27.1 %	$20,340	23.4 %	$21,215	(4.1)%
Europe IT Solutions and Services	44.4 %	33,258	43.3 %	39,199	(15.2)%
Non-Strategic Technology Services	28.5 %	21,404	33.3 %	30,189	(29.1)%
Total	100.0 %	$75,002	100.0 %	$90,603	(17.2)%


For the Three Quarters Ended:					Year-over-Year
(amounts in thousands)	September 30, 2022		October 1, 2021		Change
North America IT Solutions and Services	24.7 %	$61,114	20.2 %	$56,431	8.3 %
Europe IT Solutions and Services	45.7 %	112,896	46.2 %	129,260	(12.7)%
Non-Strategic Technology Services	29.6 %	73,168	33.6 %	94,205	(22.3)%
Total	100.0 %	$247,178	100.0 %	$279,896	(11.7)%

For the Quarter Ended

For the Three Quarters Ended

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

IT solutions

29.6
%

28.3
%

29.8
%

29.4
%
IT and other staffing

70.4
%

71.7
%

70.2
%

70.6
%
Total

100.0
%

100.0
%

100.0
%

100.0
%

The Company ~~promotes~~focuses a significant portion of its services through five vertical market focus areas: ~~Technology Service Providers, Manufacturing, Healthcare~~technology service providers, healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), ~~Financial Services,~~manufacturing, financial services, and ~~Energy.~~energy. The Company focuses on these five vertical

areas as it believes that these areas are either higher growth markets than the general IT services market and the general economy, or are areas that provide greater potential for the Company’s growth due to the size of the vertical market. The remainder of CTG’s revenue is derived from general markets.

~~CTG’s revenue by vertical market as a percentage of total revenue for the quarters and three quarters ended September 29, 2017 and September 30, 2016 was as follows:~~

For the Quarter Ended

For the Three Quarters Ended

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

Technology service providers

33.3
%

36.4
%

33.1
%

35.2
%
Manufacturing

24.2
%

24.6
%

25.3
%

24.1
%
Healthcare

16.6
%

17.1
%

17.0
%

18.5
%
Financial services

9.5
%

7.7
%

8.5
%

7.6
%
Energy

4.9
%

4.9
%

4.9
%

5.4
%
General markets

11.5
%

9.3
%

11.2
%

9.2
%
Total

100.0
%

100.0
%

100.0
%

100.0
%

~~Fair Value~~

Fair value is defined as the exchange price that would be received for an asset or paid for a liability in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants. The Company utilizes a fair value hierarchy for its assets and liabilities, as applicable, based upon three levels of input, which are:

~~Level 1—quoted prices in active markets for identical assets or liabilities (observable)~~

Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable or can be supported by observable market data for essentially the full term of the asset or liability (observable)

~~Level 3—unobservable inputs that are supported by little or no market activity, but are significant to determining the fair value of the asset or liability (unobservable)~~

~~At September 29, 2017 and December 31, 2016, the carrying amounts of the Company’s cash of $11.4 million and $9.4 million, respectively, approximated fair value.~~

The Company is also allowed to elect an irrevocable option to measure, on a contract-by-contract basis, specific financial instruments and certain other items that are currently not being measured at fair value. The Company did not elect to apply the fair value provisions of this accounting standard for any specific contracts during the quarters ended September 29, 2017 or September 30, 2016.

~~Life Insurance Policies~~

At September 29, 2017 and December 31, 2016, the total death benefit for the remaining policies was approximately $42.1 million and $41.1 million, respectively. Currently, upon the death of all of the remaining plan participants, the Company would expect to receive approximately $41.5 million after the payment of obligations, and, under current tax regulations, record a non-taxable gain of approximately $10.9 million.

~~Taxes Collected from Customers~~

In instances where the Company collects taxes from its customers for remittance to governmental authorities, primarily in its European operations, revenue and expenses are not presented on a gross basis in the condensed consolidated financial statements as such taxes are recorded in the Company's accounts on a net basis.

~~Cash and Cash Equivalents, and Cash Overdrafts~~

~~Property, Equipment and Capitalized Software Costs~~

~~Property, equipment and capitalized software at September 29, 2017 and December 31, 2016 are summarized as follows:~~

(amounts in thousands)

September 29, 2017

December 31, 2016

Property, equipment and capitalized software

$
23,257

$
21,918

Accumulated depreciation and amortization

(17,021
)

(16,055
)
Property, equipment and capitalized software, net

$
6,236

$
5,863

The Company recorded $0.1 million and $0.9 million of capitalized software costs during the quarter and three quarters ended September 29, 2017, respectively, and $0.1 million and $0.4 million of capitalized software costs during the quarter and three quarters ended September 30, 2016. The increase in the 2017 periods as compared with 2016 is due to the purchase of software licenses, which the Company implemented in the first half of 2017. As of those dates, the Company had capitalized a total of $2.1 million and $1.0 million, respectively, for software projects developed for commercial use. Amortization periods range from two to five years, and are evaluated periodically for propriety. Amortization expense totaled approximately $0.1 million and $0.2 million in the quarter and three quarters ended September 29, 2017, and approximately $0.1 million in both the quarter and three quarters ended September 30, 2016. Accumulated amortization for these projects totaled $0.5 million and $0.3 million as of September 29, 2017 and September 30, 2016, respectively.

~~The Company is in the process of negotiating the sale of its corporate administrative building. The Company does not expect to record a loss on the sale of the building.~~

~~Guarantees~~

The Company has a number of guarantees in place in its European operations that support office leases and performance under government contracts. At September 29, 2017 and December 31, 2016, these guarantees totaled approximately $1.2 million and $1.1 million, respectively, and generally have expiration dates ranging from October 2017 through December 2024.

~~Recently Issued Accounting Standards~~

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09"). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is only permitted in years beginning after December 31, 2016.

The Company currently records approximately 96.8% of its annual revenue on a time-and-material or progress-billing basis, with the remaining 3.2% recorded under a proportional method of accounting using an inputs methodology for fixed price projects. ��For the 96.8% of the Company’s revenue recorded under the time-and-material or progress billings methods of accounting, the Company does not expect this new standard to change the timing or the amount of revenue that is currently recorded. The Company is currently evaluating the 3.2% of revenue recorded under its fixed price projects to determine if the manner or timing of revenue recognition would change for existing projects. However, the Company does not expect the impact of adopting this new accounting guidance to have a material impact on its consolidated operating results, but does expect the new standard to increase the Company’s accounting policy disclosures upon adoption.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classifications of Deferred Taxes,” which amended accounting guidance related to the presentation of deferred tax liabilities and assets. The amended guidance requires that all deferred tax assets and liabilities be classified as noncurrent on the balance sheet. This guidance was effective for the Company for the quarter ended March 31, 2017. Upon adoption of this guidance in the 2017 first quarter, the Company reclassified approximately $0.9 million as of both March 31, 2017 and December 31, 2016 from current to non-current assets.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),”which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Topic 842 supersedes the previous leases standard, ASC 840, Leases. This guidance is effective for reporting periods beginning after December 15, 2018; however, early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact that ASU 2016-02 will have on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which amended accounting guidance related to seven aspects of the accounting for share-based payments award transactions. This guidance became effective for the quarter ended March 31, 2017, and the Company recorded less than $0.2 million and approximately $0.3 million of additional tax expense for tax shortfalls in the quarter and three quarters ended September 29, 2017, respectively, that previously would have been recorded to capital in excess of par value on the Company’s condensed consolidated balance sheet. Additionally, the Company recorded $0.3 million in both of the periods ended September 29, 2017 and September 30, 2016, respectively, for taxes remitted for shares withheld from equity-based compensation transactions on the condensed consolidated statements of cash flows in the “cash flow from financing activities” section.

3.	~~Goodwill Impairment~~

Previously, in accordance with current accounting guidance for “Intangibles - Goodwill and Other,” the Company performed goodwill impairment testing at least annually (in the Company’s fourth quarter), unless indicators of impairment existed in interim periods. The goodwill that was recorded on the Company's condensed consolidated balance sheet related to CTG’s Healthcare Solutions (CTGHS) reporting unit. The Company used the two-step approach to test goodwill for potential impairment. Step One compared the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value is found to exceed the estimated fair value, Step Two must be performed. Step Two compared the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s goodwill exceeded the implied fair value of its goodwill, an impairment loss was recognized in an amount equal to the excess.

During the 2016 first quarter, the Company determined that goodwill impairment indicators existed which required an interim impairment analysis. The impairment indicator was a significant and sustained decrease in the Company’s overall market capitalization, as the Company’s stock price during the 2016 first quarter fell by as much as 29% from its value at December 31, 2015. As a result of this indicator, the Company conducted an interim analysis of CTGHS to determine if an impairment existed. In performing the assessment, the Company estimated the fair value of CTGHS based on a combination of the income and market approaches. The income approach uses a discounted cash flow (DCF) method that utilizes the

present value of expected future cash flows to estimate fair value of the reporting unit. The future cash flows for CTGHS was projected based on our estimates of future revenue, operating income and other factors such as working capital and capital expenditures, and a discount rate used in the present value calculation. As part of our projections, the Company took into account expected industry and market conditions for the healthcare industry, as well as trends currently affecting CTGHS. The market approach utilizes multiples of revenue and earnings before interest expense, taxes, depreciation and amortization (EBITDA) to estimate the fair value of the reporting unit. The market multiples used for CTGHS were based on competitor and industry data, along with the market multiples for the Company and other factors. The Company also completed a comparison of its overall market capitalization to the market value of CTGHS and the Company’s other non-reporting business units. Based upon the analysis performed, the Company determined that the fair value of CTGHS was less than its carrying value, which required the Company to perform a Step Two goodwill impairment test.

As a result of the 2016 first quarter Step Two analysis, the Company determined the implied fair value of its goodwill balance was below the carrying value. Accordingly, the Company recorded a non-tax deductible goodwill impairment charge of $21.5 million to reduce the value of its goodwill balance to the implied fair value.

~~During the 2016 third quarter,~~ the Company determined that goodwill impairment indicators existed which required another interim impairment analysis. These impairment indicators were the unexpected declining revenue and profits in the CTGHS business unit, the resignation of both the sales leader (who was the Company’s former CEO) and the delivery leader of CTGHS in the 2016 third quarter, effectively leaving the business unit without executive leadership, and a continued decrease in the Company’s overall market capitalization. As a result of these indicators, the Company conducted an interim analysis of CTGHS to determine if an impairment existed. In performing the assessment, the Company again performed the procedures it had previously performed in the 2016 first quarter, as detailed above. The most significant changes in the Step One analysis from the 2016 first quarter to the 2016 third quarter were reductions in the estimates of future revenue and operating income based upon the unexpected negative trends experienced in the third quarter, as well as the resulting reductions in the revenue and EBITDA market multiples that correlated to the decline in the Company’s overall market capitalization. Based upon the analysis performed, the Company determined that the fair value of CTGHS was less than its carrying value, which required the Company to perform a Step Two goodwill impairment test.

As a result of the 2016 third quarter Step Two analysis, the Company determined the implied fair value of its goodwill balance was below the carrying value. Accordingly, the Company recorded a non-tax deductible goodwill impairment charge in the 2016 third quarter of $15.8 million that reduced the value of its goodwill balance to the implied fair value, or $0.0 as of September 30, 2016.

4.	~~Net Income (Loss) Per Share~~

~~Basic and diluted earnings (loss) per share (EPS) for the quarters and three quarters ended September 29, 2017 and September 30, 2016 was as follows:~~

For the Quarter Ended

For the Three Quarters Ended

(amounts in thousands, except per-share data)

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

Weighted-average number of shares outstanding
   during period

15,013

15,649

15,150

15,586

Common stock equivalents from incremental shares
   under equity-based compensation plans

303

—

258

—

Number of shares on which diluted earnings
   per share is based

15,316

15,649

15,408

15,586

Net income (loss)

$
40

$
(16,183
)

$
1,225

$
(35,781
)
Net income (loss) per share

Basic

$
0.00

$
(1.03
)

$
0.08

$
(2.30
)
Diluted

$
0.00

$
(1.03
)

$
0.08

$
(2.30
)

Weighted-average shares represent the average number of issued shares less treasury shares, and shares held in the Stock Trusts for the 2016 periods, and for the basic EPS calculations, unvested restricted stock.

Certain options representing 1.0 million and 1.6 million shares of common stock were outstanding at September 29, 2017 and September 30, 2016, respectively, but were not included in the computation of diluted earnings per share as their effect on the computation would have been anti-dilutive.

5.	~~Investments~~

The Company’s investments consist of mutual funds which are part of the Computer Task Group, Incorporated Non-qualified Key Employee Deferred Compensation Plan. At both September 29, 2017 and December 31, 2016, the Company’s investment balances, which are classified as trading securities, totaled approximately $0.4 million, and are measured at fair value. As there is an active trading market for these funds, fair value was determined using Level 1 inputs (see note 2 for “Fair Value”). Unrealized gains and losses on these securities are recorded in earnings and were nominal in both the 2017 and 2016 second quarter and year-to-date periods.

~~Debt~~

In October 2015, the Company entered into its current unsecured revolving credit agreement which replaced a demand line of credit and allows the Company to borrow up to $40.0 million. The agreement also allows under its provisions for the Company to borrow up to $17.5 million against the cash surrender value of the Company's life insurance policies. The new agreement expires in October 2018, and has interest rates ranging from 0 to 50 basis points over the prime rate, and 150 to 200 basis points over LIBOR. The Company can borrow under the agreement at either the prime rate or a LIBOR rate option, at its discretion. At September 29, 2017 and December 31, 2016, there was $0.0 million and $4.7 million, respectively, outstanding under the revolving credit agreement.

The maximum amounts outstanding under the credit agreement in the 2017 and 2016 third quarters was $4.2 million and $4.6 million, respectively, while borrowings during those quarters averaged $2.3 million and $2.0 million, respectively, and carried weighted average interest rates of 2.9% and 3.5%, respectively.

Under the agreement, the Company is required to meet certain financial covenants in order to maintain borrowings under its revolving credit line, pay dividends (if any are declared), and make acquisitions. The covenants are measured quarterly, and at September 29, 2017, included a leverage ratio (total outstanding debt divided by earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted for non-cash charges (including goodwill impairments) as necessary) which must be no greater than 2.75 to 1, a calculation of minimum tangible net worth (total shareholders' equity less goodwill and intangible assets) which must be no less than $48.6 million, and total annual expenditures for property, equipment and capitalized software must be no more than $5.0 million. The Company was in compliance with these covenants at September 29, 2017 as the leverage ratio was 0.0, the minimum tangible net worth was $76.9 million, and capital expenditures for property, equipment and capitalized software were $1.3 million in the 2017 year-to-date period.

7.	~~Accumulated Other Comprehensive Loss~~

~~The components that make up accumulated other comprehensive loss on the condensed consolidated balance sheets at September 29, 2017 and December 31, 2016 are as follows:~~

(amounts in thousands)

September 29, 2017

December 31, 2016

Foreign currency

$
(6,294
)

$
(8,444
)
Pension loss, net of tax of $792 in 2017, and $835 in 2016

(9,037
)

(8,319
)
Accumulated other comprehensive loss

$
(15,331
)

$
(16,763
)

~~During the 2017 and 2016 third quarters and first three quarters, actuarial losses were amortized to expense as follows:~~

For the Quarter Ended

For the Three Quarters Ended

(amounts in thousands)

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

Amortization of actuarial losses

$
87

$
71

$
246

$
215

Income tax

(14
)

(17
)

(43
)

(48
)
Net of tax

$
73

$
54

$
203

$
167

The amortization of both prior service cost and actuarial losses are included in determining net periodic pension cost. See note 9, "Deferred Compensation and Other Benefits" for additional information.

8.	~~Income Taxes~~

The Company’s effective tax rate (“ETR”) is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The Company’s normal annual ETR typically ranges from 38% to 40% of pre-tax income. The 2017 third quarter and year-to-date ETR was 86.6% and 45.0%, respectively, and 2016 third quarter ETR was a benefit of 1.3% and the 2016 year-to-date ETR was (1.8)%.

The ETR was higher than the normal range in the 2017 third quarter and year-to-date primarily due lower pre-tax income and the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which required the company to record approximately $0.2 million in the 2017 third quarter, and $0.3 million in the 2017 year-to-date period of additional tax expense for shortfalls in the quarter that would previously have been recorded to capital in excess of par value on the Company’s condensed consolidated balance sheet. This additional tax expense was partially offset by tax benefits for the Work Opportunity Tax Credit (WOTC) and Credit for Increasing Research Activities (R&D).

The ETR was lower than the normal range in the 2016 third quarter primarily due to the non-deductible goodwill impairment charge totaling $15.8 million taken in the quarter, which, when considered in the tax provision resulted in reduced taxable loss, and also due to the Work Opportunity Tax Credit (WOTC) and the Research and Development tax credit (R&D). The 2016 year-to-date ETR was lower than the normal range due to the non-deductible goodwill impairment charges totaling $37.3 million taken in the 2016 first and third quarters, which, when considered in the tax provision resulted in net taxable income, and due to the WOTC and the R&D credits.

At September 29, 2017, the undistributed earnings of foreign subsidiaries totaled approximately $23.6 million, which are considered to be indefinitely reinvested, and accordingly, no provision for taxes has been provided thereon. Given the complexities of the foreign tax calculations, it is not practicable to compute the tax liability that would be due upon distribution of those earnings in the form of dividends or liquidation or sale of the foreign subsidiaries.

9.	~~Deferred Compensation and Other Benefits~~

The Company maintains a non-qualified defined benefit Executive Supplemental Benefit Plan (ESBP) that provides certain former key executives with deferred compensation benefits, based on years of service and base compensation, payable during retirement. The plan was amended as of November 30, 1994, to freeze benefits for the participants in the plan at that time.

~~Net periodic pension cost for the quarters and three quarters ended September 29, 2017 and September 30, 2016 for the ESBP was as follows:~~

For the Quarter Ended

For the Three Quarters Ended

(amounts in thousands)

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

Interest cost

$
55

$
60

$
165

$
182

Amortization of actuarial loss

40

43

118

129

Net periodic pension cost

$
95

$
103

$
283

$
311

The ESBP is deemed to be unfunded as the Company has not specifically identified assets to be used to discharge the deferred compensation benefit liabilities. The Company has purchased insurance on the lives of certain plan participants in amounts deemed to be sufficient to reimburse the Company for the costs associated with the plan for those participants (see note 2 for “Life Insurance Policies”). The Company does not anticipate making contributions to the plan other than for benefit payments as required in 2017 and future years. In the 2017 third quarter and year-to-date periods, the Company made benefit payments totaling approximately $0.1 million and $0.5 million, respectively, and expects to make payments in 2017 totaling approximately $0.7 million.

The Company also retained a contributory defined benefit plan for its previous employees located in the Netherlands (NDBP) when the Company disposed of its subsidiary, CTG Nederland, B.V. Benefits paid are a function of a percentage of career average pay. This plan was curtailed for additional contributions in January 2003. Net periodic pension cost was

~~approximately $15,000 and $44,000 in the 2017 third quarter and year-to-date periods, respectively, and $18,000 and $55,000 in the corresponding 2016 periods, respectively.~~

The Company does not anticipate making contributions to the NDBP in 2017. The assets for the NDBP are held by Aegon, a financial services firm located in the Netherlands. The Company maintains a contract with Aegon to insure future benefit payments of the NDBP; however, due to certain terms of the agreement and potential obligations to the Company, the NDBP has not been settled. The benefit payments to be made in 2017 are expected to be paid by Aegon from plan assets. The assets for the plan are included in a general portfolio of government bonds, a portion of which is allocated to the NDBP based upon the estimated pension liability associated with the plan. The fair market value of the plan’s assets equals the contractual value of the NDBP at any point in time. The fair value of the assets is determined using a Level 3 methodology (see note 2 for “Fair Value”). In 2017, the plan investments have a targeted minimum return to the Company of 4.0%, which is consistent with historical returns and the 4.0% return guaranteed to the participants of the plan. The Company, in conjunction with Aegon, intends to maintain the current investment strategy of investing plan assets solely in government bonds throughout 2017.

~~The change in the fair value of plan assets for the NDBP for the three quarters ended September 29, 2017 and September 30, 2016 was as follows:~~

For the Three Quarters Ended

(amounts in thousands)

September 29, 2017

September 30, 2016

Fair value of plan assets at beginning of period

$
6,920

$
7,106

Return on plan assets

217

216

Contributions

—

—

Benefits paid

(119
)

(113
)
Effect of exchange rate changes

852

207

Fair value of plan assets at end of quarter

$
7,870

$
7,416

During 2017, the Company determined that its fully funded pension plan related to Belgium employees, which the Company had historically accounted for as a defined contribution plan, should have been reported as a defined benefit plan. The impact of the error on the historical financial statements was immaterial. The Company recorded an increase to noncurrent assets and an offsetting adjustment primarily to direct costs of approximately $0.3 million, and an increase in income tax expense and deferred tax liabilities of approximately $0.1 million to correct the accounting during the 2017 third quarter.

~~Net periodic pension cost for the quarters and three quarters ended September 29, 2017 for the Belgium pension plan was as follows:~~

For the Quarter Ended

For the Three Quarters Ended

(amounts in thousands)

September 29, 2017

September 29, 2017

Service cost

$
70

$
210

Interest cost

$
39

$
117

Expected return on assets

$
(79
)

$
(238
)
Net periodic pension cost

$
30

$
89

~~The change in the fair value of plan assets for the three quarters ended September 29, 2017 was as follows:~~

For the Three Quarters Ended

(amounts in thousands)

September 29, 2017

Fair value of plan assets at beginning of period

$
8,520

Return on plan assets

225

Contributions

343

Benefits paid

(10
)
Effect of exchange rate changes

1,075

Fair value of plan assets at end of quarter

$
10,153

The Company maintains the Key Employee Non-Qualified Deferred Compensation Plan for certain key executives. Company contributions to this plan, if any, are based on annually defined financial performance objectives. Cash contributions made to this plan in the 2017 first quarter for amounts earned in 2016 totaled $0.1 million, while contributions to the plan in the 2016 first quarter for amounts earned in 2015 totaled $0.2 million. The investments in the plan are included in the total assets of the Company, and are discussed in note 5, “Investments.” Participants in the plan have the ability to purchase stock units from the Company at current market prices using their available investment balances within the plan. In exchange for the cash received, the Company releases shares out of treasury stock equivalent to the number of share units purchased by the participants. These shares of common stock are not entitled to any voting rights, but will receive dividends in the event any are paid. The shares are being held by the Company, and will be released to the participants as prescribed by their payment elections under the plan. There were no stock units purchased in 2017, while 5,000 share units were purchased in the 2016 first quarter and none were purchased in the 2016 second or third quarter.

The Company maintains the Non-Employee Director Deferred Compensation Plan for its non-employee directors. Contributions in the 2017 third quarter and year-to-date periods were $0.1 million and $0.3 million, respectively. At the time the contributions were made, the non-employee directors elected to purchase stock units from the Company at current market prices using their available investment balance within the plan. Consistent with the Key Employee Non-Qualified Deferred Compensation Plan, in return for funds received, the Company released shares out of treasury stock equivalent to the number of share units purchased by the participants. These shares of common stock are not entitled to any voting rights, but will receive dividends in the event any are paid. The shares are being held by the Company, and will be released to the participants as prescribed by their payment elections under the plan.

~~10.~~

~~Equity-based Compensation~~

During the 2017 second quarter and first quarter, the Company granted restricted stock totaling 316,165 shares and 7,500 shares, respectively, which were funded out of treasury stock. No stock option or restricted stock grants were issued during the 2017 third quarter. Restricted stock and stock units totaling 512,650 shares were granted in the 2016 first quarter of which 10,000 shares were issued out of treasury stock and 502,650 shares were issued out of the Computer Task Group, Inc. Stock Compensation Employee Trust. ~~No stock option or restricted stock grants were issued during the 2016 second or third quarter.~~

Of the 316,165 shares granted in the 2017 second quarter, 196,015 shares represented performance grants with a market condition that were granted to senior management on May 15, 2017. The closing price of the Company’s stock on that day was $5.75 per share. Under these grant agreements, the Company’s stock price must increase 50% to $8.63 for a 30-day period within a three-year period from the date of grant for 50% of the grants to vest. The Company’s stock price must increase 100% to $11.50 for a 30-day period within a three-year period from the date of grant for the remaining 50% of the grants to vest.

For these performance grants, the price on the date of grants was $5.75 per share, the expected volatility was 36.2%, the expected dividend yield is zero, and the risk-free rate of return was 1.49%. Given these assumptions, the tranche of the grants that will vest with a 50% increase in the stock price have a value using a binomial model of $1.63 per share, and a derived service period of 1.22 years. For the tranche of the grants that will vest with a 100% increase in the stock price, the value of the shares is $0.95 per share and have a derived service period of 1.79 years. The Company is expensing these grants over the derived service period as noted for each tranche of a grant.

The remaining 2017 grants totaling 120,150 shares vest over a period of four years, with 25% of the grant vesting one year from the date of grant, and another 25% vesting each year thereafter until the grant is fully vested to the employee. The Company recognizes compensation expense for these grants over the expected term of the grant, or four years.

The restricted shares granted are considered outstanding, can be voted, and are eligible to receive dividends in the event any are paid. However, the restricted shares do not include a non-forfeitable right for the holder to receive dividends and none will be paid in the event the awards do not vest. Accordingly, only vested shares of outstanding restricted stock are included in the basic earnings per share calculation. The shares and share units were granted from the 2010 Equity Award Plan and the 1991 Restricted Stock plan.

The Company also granted 24,900 stock options during the 2017 second quarter on May 15, 2017. The options have a fair value of $1.85 per share using a Black-Scholes valuation model. The assumptions used to calculate that fair value include the price on date of grant of $5.75, an expected life of 4.2 years, expected volatility of 36.9%, an expected dividend yield of zero, and a risk free rate of 1.81%. The options vest ratably over four years, and are being expensed over that period. The options were granted from the 2010 Equity Award Plan.

~~11.~~

~~Treasury Stock~~

During the 2016 fourth quarter, the Company’s Board of Directors authorized the repurchase of up to $10.0 million of the Company’s stock over a two year period of time. This repurchase authorization replaced the previously outstanding authorization. The Company purchased 276,000 shares for treasury during the 2017 third quarter, and 916,000 shares for treasury during the 2017 year-to-date period. At September 29, 2017, the Company had approximately $4.0 million left in its current stock repurchase authorization. During the 2017 third quarter and year-to-date periods, the Company issued 31,000 shares and 644,000, respectively, out of treasury stock primarily to fulfill the share requirements from purchases of stock in the Non-Employee Director Deferred Compensation Plan, stock option exercises, and restricted stock grants.

The Company did not purchase any shares for treasury during the 2016 third quarter or year-to-date periods. At September 30, 2016, approximately 0.5 million shares remained authorized for future purchases. During the 2016 third quarter and year-to-date periods the Company issued 45,000 shares and 305,000 shares, respectively, out of treasury stock primarily to fulfill the share requirements from stock option exercises and restricted stock grants.

During the 2016 second quarter, the Company terminated its Stock Employee Compensation Trust (SECT) and Omnibus Stock Trust, and recorded the remaining shares in those trusts, totaling approximately 2.8 million shares, as treasury stock. The trusts had previously been established to fund employee stock plans and benefit programs.

~~12.~~

~~Significant Customers~~

In the 2017 third quarter, International Business Machines Corporation (IBM) was the Company’s largest customer and accounted for $18.6 million or 25.1% of consolidated revenue compared with $24.4 million or 31.3% of consolidated revenue in the comparable 2016 period. In the 2017 year-to-date period, IBM accounted for $57.9 million or 25.5% of consolidated revenue compared with $75.5 million or 30.5% of consolidated revenue in the comparable 2016 period. During the 2017 third quarter, the National Technical Services Agreement with IBM was extended for two years and now expires on December 31, 2019. The Company’s accounts receivable from IBM at September 29, 2017 and December 31, 2016 totaled $21.2 million and $28.0 million, respectively.

In the 2017 third quarter, SDI International (SDI) was the Company’s second largest customer and accounted for $8.4 million or 11.3% of consolidated revenue compared with $8.6 million or 11.0% of consolidated revenue in the comparable 2016 period. In the 2017 year-to-date period, SDI accounted for $27.2 million or 12.0% of consolidated revenue compared with $25.2 million or 10.2% of consolidated revenue in the comparable 2016 period. SDI acts as a vendor manager for Lenovo, and all of the Company's revenue generated through SDI is for employees working at Lenovo. The Company’s accounts receivable from SDI at September 29, 2017 and December 31, 2016 totaled $5.2 million and $5.6 million, respectively.

~~No other customer accounted for 10% or more of the Company's revenue during the 2017 or 2016 third quarter or year-to-date periods.~~

~~Item 2.~~

~~Management’s Discussion and~~ ~~Analysis of Financial Condition and Results of Operations for the Quarter and Three Quarters Ended September 29, 2017~~

~~Forward-Looking Statements~~

This quarterly report on Form 10-Q contains forward-looking statements made by the management of Computer Task Group, Incorporated (CTG, the Company or the Registrant) that are subject to a number of risks and uncertainties. These forward-looking statements are based on information as of the date of this report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “could,” “may,” “might,” “should,” “will” and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment, and statements regarding future levels of or trends in business strategy and expectations, new business opportunities, cost control initiatives, business wins, market demand, revenue, operating expenses, capital expenditures, and financing. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including the following: (i) the availability to CTG of qualified professional staff, (ii) domestic and foreign industry competition for customers and talent, (iii) increased bargaining power of large customers, (iv) the Company's ability to protect confidential client data, (v) the partial or complete loss of the revenue the Company generates from International Business Machines Corporation (IBM) and SDI International (SDI), (vi) the uncertainty of customers' implementations of cost reduction projects, (vii) the effect of healthcare reform and initiatives, (viii) the mix of work between staffing and solutions, (ix) currency exchange risks, (x) risks associated with operating in foreign jurisdictions, (xi) renegotiations, nullification, or breaches of contracts with customers, vendors, subcontractors or other parties, (xii) the impact of current and future laws and government regulation, as well as repeal or modification of such, affecting the information technology (IT) solutions and staffing industry, taxes and the Company's operations in particular, (xiii) industry and economic conditions, including fluctuations in demand for IT services, (xiv) consolidation among the Company's competitors or customers, (xv) the need to supplement or change the Company’s IT services in response to new offerings in the industry or changes in customer requirements for IT products and solutions, (xvi) the risks associated with acquisitions, and (xvii) the risks described in Item 1A of the Company’s most recently filed annual report on Form 10-K, and from time to time in the Company's reports filed with the Securities and Exchange Commission (SEC).

~~Industry Trends~~

The Company operates in one industry segment, providing IT services to its clients. At the highest level, CTG delivers services that are considered either IT solutions or IT and other staffing. The market demand for the Company’s services is heavily dependent on IT spending by major corporations, organizations and government entities in the markets and regions that it serves. The pace of technological change and changes in business requirements and practices of the Company’s clients all have a significant impact on the demand for the services that CTG provides. Competition for new engagements and pricing pressure has been and, management believes, will continue to be strong.

~~IT solutions and IT and other staffing revenue as a percentage of total revenue for the quarters and three quarters ended September 29, 2017 and September 30, 2016 was as follows:~~

The Company promotes a significant portion of its services through five vertical market focus areas: Technology Service Providers, Manufacturing, Healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), Financial Services, and Energy. The Company focuses on these five vertical areas as it believes that these areas either are higher growth markets than the general IT services market and the general economy, or are areas that provide greater potential for the Company’s growth due to the size of the vertical market. The remainder of CTG’s revenue is derived from general markets.

The Company’s revenue by vertical market as a percentage of total revenue for the ~~quarters~~quarter and three quarters ended September ~~29, 2017~~30, 2022 and ~~September 30, 2016~~October 1, 2021 was as follows:


	For the Quarter Ended						For the Three Quarters Ended
	September 30, 2022			October 1, 2021			September 30, 2022			October 1, 2021
Technology service providers		22.4	%		28.0	%		23.5	%		28.4	%
Healthcare		19.1	%		17.7	%		18.0	%		15.9	%
Manufacturing		16.9	%		12.3	%		15.2	%		12.1	%
Financial services		15.1	%		17.4	%		15.6	%		17.8	%
Energy		5.7	%		5.3	%		5.8	%		5.6	%
General markets		20.8	%		19.3	%		21.9	%		20.2	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

The IT services industry is extremely competitive and characterized by continuous changes in customer requirements and improvements in technologies. The Company’s competition varies significantly by geographic region, as well as by the type of service provided. Many of the Company’s competitors are larger than CTG, and have greater financial, technical, sales and marketing resources. In addition, the Company frequently competes with a client’s own internal IT staff. Our industry is impacted by the growing use of lower-cost offshore delivery capabilities (primarily India and other parts of Asia). Regularly, new IT products and services are introduced which may render our existing IT solutions and IT staffing services obsolete. The economic conditions in the markets we serve are continuously changing and may negatively affect our business if we cannot adapt to negative conditions as they occur. There can be no assurance that CTG will be able to continue to compete successfully with existing or future competitors or that future competition will not have a material adverse effect on our results of operations and financial condition.

The Company recognizes revenue when ~~persuasive evidence of an arrangement exists, when the services have been rendered, when the price is determinable, and when collectability~~control of the promised good or service is transferred to clients, in an amount ~~due is reasonably assured.~~that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with ~~periodic~~progress billing schedules (i.e. progress billing), primarily monthly, revenue is recognized as services are rendered to the ~~customer.~~client. Revenue for fixed-price contracts is recognized ~~per the proportional method of accounting~~over time using an input-based approach. Revenue recognition over time best portrays the Company’s performance in transferring control of the goods or services to the client. On most fixed price contracts, revenue recognition is supported through contractual clauses that require the client to pay for work performed to date, including cost plus a reasonable profit margin, for goods or services that have no alternative use to the Company. On certain contracts, revenue recognition is supported through contractual clauses that indicate the client controls the asset, or work in process, as the Company creates or enhances the asset. On a given project, actual salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at the completion of the project. Revenue is recognized based upon the percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs that could distort the percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and our experience on similar projects, and includes management judgments and estimates that affect the amount of revenue recognized on fixed-price contracts in any accounting period. Losses on fixed-price projects are recorded when identified.

The Company’s revenue from contracts accounted for under time-and-material, progress billing and percentage-of-completion methods as a percentage of consolidated revenue for the ~~quarters~~quarter and three quarters ended September ~~29, 2017~~30, 2022 and October 1, 2021 was as follows:


	For the Quarter Ended						For the Three Quarters Ended
	September 30, 2022			October 1, 2021			September 30, 2022			October 1, 2021
Time-and-material		76.3	%		79.2	%		77.2	%		79.3	%
Progress billing		17.9	%		18.2	%		18.0	%		18.3	%
Percentage-of-completion		5.8	%		2.6	%		4.8	%		2.4	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

The Company recorded revenue in the quarter and three quarters ended September 30, ~~2016~~2022 and October 1, 2021 as follows:


For the Quarter Ended:	September 30, 2022		October 1, 2021		Year-over-Year Change
(amounts in thousands)
North America	55.3 %	$41,500	55.5 %	$50,288	(17.5)%
Europe	44.7 %	33,502	44.5 %	40,315	(16.9)%
Total	100.0 %	$75,002	100.0 %	$90,603	(17.2)%


For the Three Quarters Ended:	September 30, 2022		October 1, 2021		Year-over-Year Change
(amounts in thousands)
North America	53.7 %	$132,804	52.6 %	$147,142	(9.7)%
Europe	46.3 %	114,374	47.4 %	132,754	(13.8)%
Total	100.0 %	$247,178	100.0 %	$279,896	(11.7)%

Significant Judgments

With the exception of cost estimates on certain fixed-price projects, there are no other significant judgments used to determine the timing of the satisfaction of performance obligations or determining the transaction price and amounts allocated to performance obligations. The Company allocates the transaction price based on standalone selling prices for contracts with clients that include more than one performance obligation. We determine standalone selling price based on the expected cost of the good or service plus margin approach. Certain clients may qualify for discounts and rebates, which we account for as variable consideration. We estimate variable consideration and reduce revenue recognized based on the amount we expect to provide to clients.

Contract Balances

For time-and-material and progress billing contracts, the timing of the Company’s satisfaction of its performance obligations is consistent with the timing of payment. For these contracts, the Company has the right to payment in the amount that corresponds directly with the value of the Company’s performance to date. The Company uses the right to invoice practical expedient that allows the Company to recognize revenue in the amount for which it has the right to invoice for time-and-material and progress billing contracts. Bill schedules for fixed-price contracts are generally consistent with the Company’s performance in transferring control of the goods or services to the client. There are no significant financing components in our contracts with clients. Advance billings represent contract liabilities for cash payments received in advance of our performance. Unbilled receivables are reported within “accounts receivable” on the consolidated balance sheets. Accounts receivable and contract liability balances fluctuate based on the timing of the client’s billing schedule and the Company’s period-end date. There are no significant costs to obtain or fulfill contracts with clients.

Transaction Price Allocated to Remaining Performance Obligations

As of September 30, 2022, the aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations for fixed-price and all managed-support contracts was approximately $11.1 million and $41.3 million, respectively. Approximately $18.1 million of the transaction price allocated to unsatisfied or partially unsatisfied

performance obligations is expected to be earned in 2022, and approximately $34.3 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2023 and beyond.

Taxes Collected from Clients

The Company records taxes collected from its clients for remittance to governmental authorities, primarily in its international locations, on a net basis in the condensed consolidated financial statements.

Fair value is defined as ~~follows:~~ the exchange price that would be received for an asset or paid for a liability in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants. The Company utilizes a fair value hierarchy for its assets and liabilities, as applicable, based upon three levels of input, which are:

Level 1—quoted prices in active markets for identical assets or liabilities (observable)

For the Quarter Ended

For the Three Quarters Ended

September 29, 2017

September 30, 2016

September 29, 2017

September 30, 2016

Time-and-material

85.3
%

86.1
%

85.5
%

86.8
%
Progress billing

11.4
%

11.0
%

11.3
%

10.5
%
Percentage-of-completion

3.3
%

2.9
%

3.2
%

2.7
%
Total

100.0
%

100.0
%

100.0
%

100.0
%

~~Results~~Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable or can be supported by observable market data for essentially the full term of ~~Operations~~the asset or liability (observable)

Level 3—unobservable inputs that are supported by little or no market activity, but are significant to determining the fair value of the asset or liability (unobservable)

At September 30, 2022 and December 31, 2021, the carrying amounts of the Company’s cash of $26.8 million and $35.6 million, respectively, approximated fair value.

As described in Note 3 of the condensed consolidated financial statements, the Company acquired 100% of the equity of StarDust in the 2020 first quarter and Eleviant in the 2022 third quarter. In regards to the StarDust acquisition, Level 3 inputs were used to estimate the fair values of the assets acquired and liabilities assumed. The ~~table~~valuation techniques used to assign fair values to intangible assets included the relief-from-royalty and excess earnings methods.

The Company recorded a contingent consideration liability related to the earn-out provision of which a portion will be payable in each period subject to the achievement by Eleviant of revenue and gross profit targets for fiscal 2022, 2023 and 2024. There is no payout if the achievements are below ~~sets forth data~~the target threshold. However, in subsequent years, if the preceding year’s targets were not met, an earn-out can be earned for both years if the combined total for gross profit or revenue for the two years exceeds the combined two-year targets. The fair value as ~~contained~~of the September 29, 2022
acquisition date was initially recorded in the 2022 third quarter as $4.0 million.

The Company recorded a contingent consideration liability related to the earn-out provision of which a portion will be payable in each period subject to the achievement by StarDust of consolidated direct profit targets for fiscal 2020 and 2021. There is no payout if the achievements are below the target threshold. The fair value of this contingent consideration liability is determined using level 3 inputs. The fair value assigned to the contingent consideration liability is determined using the real options method, which requires inputs such as consolidated direct profit forecasts, discount rate, and other market variables to assess the probability of StarDust achieving their revenue and EBIT targets. There were no payments made in 2022, and no remaining liability at September 30, 2022. During the 2021 second quarter, the Company paid approximately $0.3 million relating to the earn-out based on the achievement by StarDust of the consolidated direct profit targets for fiscal 2020.

Life Insurance Policies

The Company has purchased life insurance on the lives of a number of former employees who are plan participants in the non-qualified defined benefit Executive Supplemental Benefit Plan. In total, there are policies currently on 16 individuals, whose average age is 79 years old. Those policies have generated cash surrender value and the Company has taken loans against the policies. At September 30, 2022, the insurance policies that have been borrowed against have a gross cash surrender value of $29.3 million, outstanding loans and interest totaling $25.7 million, and a net cash surrender value of $3.6 million. At December 31, 2021, these insurance policies had a gross cash surrender value of $28.3 million, outstanding loans and interest totaling $25.2 million, and a net cash surrender value of $3.1 million. The net cash surrender values are included on the condensed consolidated balance sheets in “Cash surrender value of life insurance, net” under non-current assets.

At September 30, 2022 and December 31, 2021, the total death benefit for the remaining policies was approximately $37.0 million and $36.0 million, respectively. Currently, upon the death of all of the remaining plan participants, the Company would expect to receive approximately $11.0 million after the payment of obligations, and, under current tax regulations, record a non-taxable gain of approximately $7.4 million.

Cash and Cash Equivalents, and Cash Overdrafts

For purposes of the statement of cash flows, cash and cash equivalents are defined as cash on hand, demand deposits, and short-term, highly liquid investments with a maturity of three months or less. The Company does not fund its bank accounts for the checks it has written until the checks are presented to the bank for payment. In the event the Company has no available cash at the bank for which it writes its checks, the "change in cash overdraft, net" line item as presented on the condensed consolidated statement of cash flows, represents the increase or decrease in outstanding checks for a given period. The cash in the Company’s U.S. banks is insured by the Federal Deposit Insurance Corporation up to the insurable limit of $250,000. As of September 30, 2022 and December 31, 2021, the Company has multiple accounts that carry balances in excess of this insurable limit. The Company’s cash in its foreign bank accounts is not insured.

Accounts Receivable Factoring

As part of our working capital management, the Company has a factoring agreement to sell certain trade accounts receivables associated with its largest client on a non-recourse basis to a third-party financial institution. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the condensed consolidated statements of ~~operations with the percentage information calculated as a percentage of consolidated revenue.~~

For the Quarter Ended:

September 29, 2017

September 30, 2016

(amounts in thousands)

Revenue

100.0
%

$
74,039

100.0
%

$
78,065

Direct costs

82.4
%

61,010

82.2
%

64,193

Selling, general and administrative expenses

17.0
%

12,619

18.7
%

14,567

Goodwill impairment

—
%

—

20.2
%

15,785

Operating income (loss)

0.6
%

410

(21.1
)%

(16,480
)
Interest and other income (expense), net

(0.2
)%

(111
)

0.1
%

77

Income (loss) before income taxes

0.4
%

299

(21.0
)%

(16,403
)
Provision (benefit) for income taxes

0.3
%

259

(0.3
)%

(220
)
Net income (loss)

0.1
%

$
40

(20.7
)%

$
(16,183
)

For the Three Quarters Ended:

September 29, 2017

September 30, 2016

(amounts in thousands)

Revenue

100.0
%

$
226,566

100.0
%

$
247,401

Direct costs

81.9
%

185,651

82.1
%

203,072

Selling, general and administrative expenses

17.0
%

38,482

17.0
%

42,060

Goodwill impairment

—
%

—

15.1
%

37,329

Operating income (loss)

1.1
%

2,433

(14.2
)%

(35,060
)
Interest and other expense, net

(0.1
)%

(207
)

—
%

(82
)
Income (loss) before income taxes

1.0
%

2,226

(14.2
)%

(35,142
)
Provision for income taxes

0.4
%

1,001

0.3
%

639

Net income (loss)

0.6
%

$
1,225

(14.5
)%

$
(35,781
)

~~The Company recorded revenue in the 2017 and 2016 periods as follows:~~

For the Quarter Ended:

September 29, 2017

September 30, 2016

Year-over-Year
Change

(amounts in thousands)

North America

73.0
%

$
54,082

78.5
%

$
61,282

(11.7
)%
Europe

27.0
%

19,957

21.5
%

16,783

18.9
%
Total

100.0
%

$
74,039

100.0
%

$
78,065

(5.2
)%

For the Three Quarters Ended:

September 29, 2017

September 30, 2016

Year-over-Year
Change

(amounts in thousands)

North America

74.4
%

$
168,561

78.7
%

$
194,649

(13.4
)%
Europe

25.6
%

58,005

21.3
%

52,752

10.0
%
Total

100.0
%

$
226,566

100.0
%

$
247,401

(8.4
)%

cash flows. There were ~~63 billable days in both the 2017 and 2016 third quarters. Reimbursable expenses billed to customers and included in revenue totaled $0.8~~$7.7 million and ~~$0.9~~$0.9 million trade accounts receivable sold under the factoring agreement during the quarters ended September 30, 2022 and October 1, 2021, respectively. Total trade accounts receivable sold under the factoring agreement were approximately $12.2 million and $26.5 million in the ~~2017 and 2016 third quarters, respectively.~~

~~There were 191 and 192 billable days in the 2017 and 2016~~ year-to-date periods ended September 30, 2022 and October 1, 2021, respectively. ~~Reimbursable expenses billed to customers~~Fees for the factoring arrangement were recorded in cost of services and ~~included in revenue totaled $2.5 million and $3.2~~were less than $0.1 million in both the ~~2017 and 2016 year-to-date periods, respectively.~~

~~The revenue decrease in North America in the 2017 third~~ quarter and year-to-date periods ended September 30, 2022 and October 1, 2021.

Property, Equipment and Capitalized Software Costs

Property, equipment and capitalized software at September 30, 2022 and December 31, 2021 were recorded as ~~compared with the corresponding 2016 periods was due to a significant decrease in demand~~follows:


(amounts in thousands)	September 30, 2022			December 31, 2021
Property, equipment and capitalized software	$	14,235		$	15,628
Accumulated depreciation and amortization		(9,347	)		(10,386	)
Property, equipment and capitalized software, net	$	4,888		$	5,242

The Company capitalizes software projects developed for ~~the Company's IT solutions business, primarily~~commercial use. The change in the Company’s ~~healthcare vertical market, as well as a significant decrease in demand for our IT and other staffing services business, primarily in our technology service providers vertical market.~~

~~On a consolidated basis, IT solutions revenue decreased $0.2 million or 1.0% in~~capitalized software cost balance during the ~~2017 third~~ quarter and ~~$5.2~~three quarters ended September 30, 2022 and October 1, 2021 was as follows:


	For the Quarter Ended						For the Three Quarters Ended
(amounts in thousands)	September 30, 2022			October 1, 2021			September 30, 2022			October 1, 2021
Capitalized software, beginning balance	$	1,484		$	2,416		$	1,607		$	2,397
Foreign currency translation		(83	)		(39	)		(206	)		(20	)
Capitalized software	$	1,401		$	2,377		$	1,401		$	2,377

Capitalized software amortization periods range from three to five years, and are evaluated periodically for propriety. The Company capitalized a total of $0.3 million of costs related to the development of software for sale or ~~7.2% in~~license for the ~~2017~~quarter and year-to-date period ended September 30, 2022.

Amortization expense and accumulated amortization for these projects for the quarter and three quarters ended September 30, 2022 and October 1, 2021 are as ~~compared with the corresponding 2016 periods.~~ follows:


	For the Quarter Ended				For the Three Quarters Ended
(amounts in thousands)	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021
Accumulated amortization, beginning balance	$	1,084	$	1,533	$	978	$	1,280
Amortization expense		27		95		133		348
Accumulated amortization	$	1,111	$	1,628	$	1,111	$	1,628

Guarantees

The Company’s healthcare vertical market grew from 2008-2012 primarily from installing EHR systems in hospitals and health systems, and then began to decline beginning in 2013. As of today, EHR installations are largely complete. In late 2014, the Company ~~began to see significant reductions in billable resources at~~has a number of guarantees in place in its ~~larger healthcare clients,~~European operations that support office leases and performance under government contracts. These guarantees totaled approximately $2.8 million and $3.1 million at September 30, 2022 and December 31, 2021, respectively, and have expiration dates ranging from October 2022 through October 2034.

Goodwill

The goodwill recorded on the Company's condensed consolidated balance sheet at September 30, 2022 relates to the acquisitions of Soft Company in 2018, Tech-IT in 2019, StarDust in 2020, and Eleviant in 2022. In accordance with current accounting guidance for “Intangibles - Goodwill and Other,” the Company performs goodwill impairment testing at least annually (in the Company’s fourth quarter), unless indicators of impairment exist in interim periods. There were no impairment indicators noted in the quarter or three quarters ended September 30, 2022 and October 1, 2021.

The changes in the carrying amount of goodwill for the three quarters ended September 30, 2022 are as follows:


(amounts in thousands)
Balance at December 31, 2021	$	19,676
Acquired goodwill		21,917
Foreign currency translation		(2,679	)
Balance at September 30, 2022	$	38,914

The Company’s goodwill at September 30, 2022 totaled $38.9 million, including $15.8 million in the Europe IT Solutions and Services segment and $23.1 million in the North America IT Solutions and Services segment. The significant addition to goodwill balances in the North America IT Solutions and Services segment is due to the acquisition of Eleviant in the third quarter of 2022. At December 31, 2021, the Company’s goodwill balance totaled $19.7 million, which ~~further decreased IT solutions revenue~~included $18.3 million in the Company’s ~~healthcare vertical market as existing projects ended. This decrease in spending on healthcare~~Europe IT ~~projects continued~~Solutions and Services segment and $1.4 million in the ~~first three quarters of 2017 for the customers that we serve.~~

~~On a consolidated basis,~~North America IT Solutions and other staffing revenue decreased $3.8 million or 6.8% in the 2017 third quarter, and $15.6 million or 8.9% in the 2017 year-to-date period as compared with the corresponding 2016 periods. The Company had previously been informed by its largest staffing client that there would be significant reductions in both requirements and billable rates for certain of the employees provided to this client beginning in the 2016 fourth quarter. These reductions in requirements and bill rates were completed by the end of the 2017 first quarter. Additionally, the Company continued to experience a significant reduction in demand from its largest staffing clients in the 2017 second and third quarter. The Company’s headcount was approximately 3,250 employees at September 29, 2017, which was an 8.5% decrease from approximately 3,550 employeesServices segment.

Acquired Intangible Assets

Acquired intangible assets at September 30, ~~2016, and a 5.8% decrease from approximately 3,450 employees~~2022 consist of the following:


(amounts in thousands)	Estimated Economic Life	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation			Net Carrying Amount
Trademarks	2 years	$	1,532	$	(1,264	)	$	(268	)	$	—
Technology	10 years		591		(134	)		(72	)		385
Customer relationships	7-13 years		10,496		(3,321	)		(1,942	)		5,233
Total		$	12,619	$	(4,719	)	$	(2,282	)	$	5,618

Acquired intangible assets at December 31, ~~2016.~~2021 consist of the following:

~~Revenue in~~


(amounts in thousands)	Estimated Economic Life	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation			Net Carrying Amount
Trademarks	2 years	$	1,532	$	(1,454	)	$	(70	)	$	8
Technology	10 years		591		(110	)		10			491
Customer relationships	7-13 years		10,496		(3,121	)		(594	)		6,781
Total		$	12,619	$	(4,685	)	$	(654	)	$	7,280

Estimated amortization expense for the ~~Company’s European operations in~~remainder of 2022, the ~~2017 third quarter~~five succeeding years, and ~~year-to-date periods~~thereafter is as ~~compared with~~follows:


Year	Annual Amortization
(amounts in thousands)
2022 (remaining)	$	222
2023		885
2024		885
2025		885
2026		885
2027		518
Thereafter		1,338
Total	$	5,618

Recently Issued Accounting Standards

In March 2020, the ~~corresponding 2016 periods significantly increased primarily~~FASB issued ASU 2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for accounting contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference the London Interbank Offering Rate (“LIBOR”) or another reference rate expected to be discontinued due to the reference rate reform. It is effective for all entities between March 12, 2020 and December 31, 2022. The Company does not expect a significant impact from the adoption of this standard as provisions have been made in our Credit Agreement to use an ~~increase~~alternate benchmark interest rate when the use of LIBOR is discontinued.

~~The revenue increase in Europe in the countries in which the Company operates (Belgium, Luxembourg,~~an interim period, hybrid taxes and the ~~United Kingdom) in the 2017 third quarter was impacted in part by the relative strength~~recognition of ~~the U.S. dollar as compared with the currencies of Belgium, Luxembourg,~~deferred tax liabilities for outside basis differences. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company adopted this new standard on January 1, 2021 on a prospective basis and the United Kingdom. In Belgium and Luxembourg, where a significant portion of the Company’s revenue from its European operations is generated, the functional currency is the Euro, while in the United Kingdom the functional currency is the British Pound. In the 2017 third quarter as compared with the 2016 third quarter, the average value of the Euro increased 5.3% while the average value of the British Pound decreased 0.3%. If there had been no change in these exchange rates from the 2016 third quarter to the 2017 third quarter, total European revenue would have been approximately $1.0 million lower, or $19.0 million as compared with the $20.0 million reported. Operating income in the 2017 third quarter wasadoption did not significantly impacted by the changes in the exchange rates year-over-year. In the 2017 year-to-date period as compared with the corresponding 2016 period, the average value of the Euro decreased 0.2% while the average value of the British Pound decreased 8.5%. If there had been no change in these exchange rates from the first three quarters of 2016 to the corresponding 2017 period, total European revenue would have been approximately $0.5 million higher, or $58.5 million as compared with the $58.0 million reported. Operating income in the 2017 year-to-date period was not significantly impacted by the changes in the exchange rates year-over-year.

The Company continues to assess the potential impact, if any, that the United Kingdom’s proposed exit from the European Union will have on the Company’s operations. As the total revenue generated by our British subsidiary is immaterial as compared with the Company’s total consolidated revenue, we do not expect the impact of the proposed exit to have a material impact on the Company’s ~~operations.~~consolidated financial statements.

Acquisitions

Eleviant Technologies, Inc. ("Eleviant")

On September 29, 2022, the Company acquired 100% of the equity of Eleviant for approximately $19.0 million, the purchase consideration included $17.4 million of cash on hand. In addition to the ~~2017 third quarter, International Business Machines Corporation (IBM) was~~cash payment, Eleviant owners and executives were issued 173,802 shares of common stock valued at $1.2 million, and 200,000 stock options from the ~~Company’s largest customer~~2020 Equity Award Plan at the date of acquisition, valued at $0.4 million.

The U.S.-based Eleviant is a provider of digital transformation services and ~~accounted~~solutions, and is headquartered in Dallas, TX, with operations in Chennai and Coimbatore, India. Eleviant’s offerings support the new ways enterprises work, communicate, and scale today and focus on cloud, application modernization, mobile, artificial intelligence (AI), machine learning (ML), and robotic process automization (RPA). Eleviant’s services are supported by a portfolio of solutions, including PeopleOne, a Digital Workplace platform for ~~$18.6 million or 25.1%~~employee engagement, communication, and collaboration; vChat, a chatbot builder platform; and vBots, an RPA builder platform. The acquisition is expected to aid CTG in accelerating the growth of ~~consolidated revenue compared with $24.4 million or 31.3% of consolidated revenue~~digital solutions sales to clients in the ~~comparable 2016 period. In~~Americas and Europe and create new points of entry with proven technology services and solutions.

An earn-out of $5.0 million can be earned, a portion of which will be payable in each period subject to the ~~2017 year-to-date period, IBM accounted~~achievement of revenue and gross profit targets for ~~$57.9 million~~fiscal 2022, 2023 and 2024. Additionally, for each $10,000 of gross profit or ~~25.5%~~revenue achieved above the targets, an additional $2,000 can be earned, with no maximum limit. There is no payout if the achievement is below the target threshold. However, in subsequent years, if the preceding year’s targets were not met, an earn-out can be earned for both years if the combined total for gross profit or revenue for the two years exceeds the combined two-year targets. The fair value as of ~~consolidated revenue compared with $75.5 million or 30.5%~~the September 29, 2022 acquisition date was $4.0 million.

The acquisition fair value of ~~consolidated revenue~~the consideration for the acquisition of Eleviant consisted of the following as of September 29, 2022:


(amounts in thousands)
Cash consideration	$	17,382
Share issuance		1,178
Stock option issuance - 3-month vest		166
Stock option issuance - 12-month vest		225
Fair value of contingent consideration		4,000
Fair value of purchase consideration	$	22,951

The following table summarizes the allocation of the aggregate purchase price consideration to
the fair value of the assets acquired and liabilities assumed as of September 29, 2022:


(amounts in thousands)
Assets Acquired:
Cash	$	814
Accounts receivable		1,551
Prepaids and other current assets		300
Property and equipment		606
Goodwill		21,917
Total assets acquired	$	25,188

Liabilities Assumed:
Accounts payable	$	1,773
Other current liabilities		464
Total liabilities assumed	$	2,237
Net assets acquired	$	22,951

As the Company has determined that the acquisition is not material to its existing operations, certain disclosures, including pro forma financial information, have not been included in this quarterly report on Form 10-Q. As of the date of filing this quarterly report on Form 10-Q, the preliminary purchase accounting has not yet been finalized
due primarily to the timing of information being provided to our valuation specialist and the pending receipt of a preliminary valuation report for certain assets and liabilities, including identified intangible assets. The Company expects to update this information in the ~~comparable 2016 period. During~~fourth quarter of 2022. At September 30, 2022, the ~~2017 third quarter, the National Technical Services Agreement with IBM was extended for two years~~Company allocated value to current assets and ~~now expires~~liabilities based on ~~December 31, 2019. The Company’s accounts receivable from IBM~~book values at September 29, ~~2017~~2022, which approximates fair value. The remaining purchase price is tentatively allocated to goodwill.

StarDust SAS (“StarDust”)

On March 3, 2020, the Company acquired 100% of the equity of StarDust, for approximately $6.1 million (€5.5 million based on a EUR into USD exchange rate of 1.1145). The acquisition was funded using cash on hand and ~~December 31, 2016 totaled $21.2~~borrowings under the Credit and Security Agreement. The France-based StarDust, is a leading provider of testing and quality assurance for digital services with offices in Marseille, France, and Montreal, Canada. StarDust offers a complete range of testing services, including functional, multilingual, operational, environmental, regression, and application benchmarking, covering digital services and website, software, mobile applications, and Internet of Things connected objects. The acquisition expanded the Company’s global testing capabilities.

The results of operations of StarDust have been included in the Company’s consolidated financial results since the date of acquisition. As the Company has determined that the acquisition is not material to its existing operations, certain disclosures, including pro forma financial information, have not been included in this quarterly report on Form 10-Q.

An earn-out of up to $1.1 million (€1.0 million based on a EUR into USD exchange rate of 1.1145) can be earned, a portion of which will be payable in each period subject to the achievement of consolidated direct profit targets for fiscal 2020 and 2021. Additionally, for each €10,000 of consolidated direct profit achieved above the target, an additional €1,000 can be earned, with no maximum limit. There is no payout if the achievement is below the target threshold. The fair value as of the March 3, 2020 acquisition date was determined to be $0.1 million. There were no payments made in 2022, and no remaining liability at September 30, 2022, as the consolidated direct profit targets were not met by StarDust for the fiscal year 2021.

The Company incurred amortization of intangible assets related to this acquisition of less than $0.1 million and ~~$28.0~~$0.1 million ~~respectively.~~

~~comparable 2016 period. In the 2017 year-to-date period, SDI accounted for $27.2 million or 12.0% of consolidated revenue compared with $25.2 million or 10.2% of consolidated revenue~~ in the comparable 2016 period. SDI acts as a vendor manager for Lenovo, and all of the Company's revenue generated through SDI is for employees working at Lenovo. The Company’s accounts receivable from SDI at September 29, 2017 and December 31, 2016 totaled $5.2 million and $5.6 million, respectively.

~~No other customer accounted for 10% or more of the Company's revenue during the 2017 or 2016 third quarters or year-to-date periods.~~

Direct costs, defined as the costs for billable staff including billable out-of-pocket expenses, were 82.4% of revenue in the 2017 third quarter as compared with 82.2% of revenue in the 2016 third quarter, and 81.9% of revenue in the 2017 year-to-date period as compared with 82.1% of revenue in the corresponding 2016 period. The Company’s direct costs as a percentage of revenue increased in the 2017 third quarter as compared with the 2016 corresponding period due to a significant increase in fringe benefit costs primarily medical expense, in the 2017 third quarter. The increase in medical expense, which totaled approximately $1.0 million in direct costs, was due to much higher utilization of the Company’s self-insured medical plan during the quarter. Direct costs decreased slightly in the 2017 year-to-date period as compared with the corresponding 2016 period primarily due to an improvement in employee utilization year-over-year, offset by the additional medical expense in 2017.

Selling, general and administrative (“SG&A”) expenses were 17.0% of revenue in the 2017 third quarter as compared with 18.7% in the corresponding 2016 period, and 17.0% of revenue in both the 2017 and 2016 year-to-date periods. The decrease in SG&A expenses as a percentage of revenue in the 2017 third quarter as compared with the 2016 third quarter is due to severance costs incurred totaling $1.5 million in the 2016 third quarter. In the 2017 year-to-date period, SG&A expenses included severance of approximately $0.4 million incurred in the 2017 second quarter, additional costs associated with our operating units as the Company continues to make investments in sales, recruiting and delivery resources in order to focus on long-term growth, and the loss of operating leverage resulting from lower year-over-year revenue. The 2016 year-to-date period includes the $1.5 million in severance noted above incurred in the 2016 third quarter.

During the 2016 first quarter, the Company determined that a goodwill impairment indicator existed which required an interim impairment analysis. As a result of the analysis, the Company determined the implied fair value of its goodwill balance was below the carrying value. Accordingly, the Company recorded a non-tax-deductible goodwill impairment of $21.5 million to reduce the value of its goodwill balance to the implied fair value. Additionally, during the 2016 third quarter, the Company determined that another goodwill impairment indicator existed which required an interim impairment analysis. As a result of the analysis, the Company determined the implied fair value of its goodwill balance was again below the carrying value. Accordingly, the Company recorded a non-tax deductible goodwill impairment of $15.8 million to reduce the value of its goodwill balance to the implied fair value, which reduced the Company’s goodwill balance to $0.0 at September 30, 2016.

Operating income (loss) was 0.6% of revenue in the 2017 third quarter, as compared with (21.1)% of revenue in the 2016 third quarter, and 1.1% of revenue in the 2017 year-to-date period compared with (14.2)% in the corresponding 2016 period. Operating income in the 2017 third quarter was impacted by a total of $1.2 million of additional medical costs for high utilization of the Company self-insured medical plan. Operating income in the 2017 year-to-date period was impacted by the $1.2 million in medical costs and $0.8 million of severance costs. The significant loss in the 20162022 third quarter and year-to-date period, respectively, and $0.1 million and $0.2 million in the 2021 third quarter and year-to-date period, respectively, which were recorded as a component of selling, general, and administrative expenses in the condensed consolidated statements of income. The purchase price allocation for this acquisition was ~~due~~finalized in the 2020 third quarter.

Net Income Per Share

Basic and diluted earnings per share (EPS) for the quarter and three quarters ended September 30, 2022 and October 1, 2021 were as follows:


	For the Quarter Ended				For the Three Quarters Ended
(amounts in thousands, except per-share data)	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021
Weighted-average number of shares outstanding during period		14,480		14,011		14,366		13,850
Common stock equivalents from incremental shares under equity-based compensation plans		677		928		720		1,101
Number of shares on which diluted earnings per share is based		15,157		14,939		15,086		14,951
Net income	$	1,102	$	1,672	$	5,382	$	5,013
Net income per share
Basic	$	0.08	$	0.12	$	0.37	$	0.36
Diluted	$	0.07	$	0.11	$	0.36	$	0.34

Weighted-average shares represent the average number of issued shares less treasury shares, and for the basic EPS calculations, unvested restricted stock.

Certain options representing 0.6 million shares of common stock were outstanding at both September 30, 2022 and October 1, 2021, but were not included in the computation of diluted earnings per share as their effect on the computation would have been anti-dilutive.

Lease Commitments

The Company records a right-of-use asset and liability for substantially all leases for which it is a lessee, in accordance with Topic 842 “Leases”. The Company is obligated under a number of long-term operating leases for office space and office equipment, and for automobiles leased in Europe.

Most leases contain both lease components (fixed payments for rent) and non-lease components (common-area maintenance and other services). The Company has elected the practical expedient to separate lease and non-lease components for its office leases and has elected to group lease and non-lease components for its vehicle leases. Some leases contain renewal options with escalation clauses commensurate with local market fluctuations, however, generally limiting an annual increase to no more than 5.0% of the existing lease payment. The exercise of lease renewal options is at the Company’s sole discretion. The Company has excluded renewal options in the measurement of right-of-use assets and lease liabilities if they are not reasonably certain of exercise.

Operating leases are included in the right-of-use lease assets, short-term lease liabilities, and long-term lease liabilities on the condensed consolidated balance sheets. The Company measures the operating lease liabilities at lease commencement date based on the present value of remaining lease payments using the rate implicit in the lease when readily determinable, or the Company’s secured incremental borrowing rate. The Company has made an accounting policy election not to recognize a lease liability or right-of-use asset for leases with a lease term of twelve months or less

and do not include an option to purchase the underlying asset. The Company recognizes lease expense on a straight-line basis over the lease term and variable lease expense in the period incurred. Variable lease cost consists primarily of common-area maintenance, insurance, and taxes, which are paid based on actual costs incurred by the lessor.

Lease costs for the quarter and three quarters ended September 30, 2022 and October 1, 2021 were as follows:


	For the Quarter Ended				For the Three Quarters Ended
(amounts in thousands)	September 30, 2022		October 1, 2021		September 30, 2022		October 1, 2021
Operating lease costs	$	1,620	$	1,899	$	5,067	$	5,782
Variable lease costs		79		105		252		315
Short-term lease costs		98		113		310		332

Maturities for the Company’s lease liabilities for all operating leases as of September 30, 2022 are as follows:


	Total
Year	Operating Leases
(amounts in thousands)
2022 (remaining)	$	1,515
2023		4,932
2024		3,599
2025		2,515
2026		1,773
2027 & thereafter		4,313
Total undiscounted operating lease payments		18,647
Less: Interest		(1,647	)
Total present value of operating lease liabilities	$	17,000

The weighted average remaining lease terms and discount rates for all operating leases as of September 30, 2022 and October 1, 2021 were as follows:


	September 30, 2022			October 1, 2021
Weighted average remaining lease term (years)		5.63			6.01
Weighted average remaining discount rate		3.12	%		2.11	%

Supplemental cash flow information related to the ~~goodwill impairment~~Company’s operating leases for the 2022 year-to-date period is as follows:


(amounts in thousands)	September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	5,067
Right-of-use assets obtained in exchange for new operating lease liabilities		2,175

Debt

The Company entered into an asset-based lending revolving credit agreement (“Credit Agreement”) during the 2021 second quarter, which has a five-year term that expires in May 2026, replacing its previous agreement. Under this Credit Agreement, the Company can borrow up to $50.0 million depending on collateral availability. The Credit Agreement is collateralized by the Company’s accounts receivable in the United States, Belgium, and Luxembourg. The London Interbank Offered Rate (“LIBOR”), the interest rate benchmark used as a reference rate on our Credit Agreement, began being phased out at the beginning of calendar year 2022, with the one-month LIBOR scheduled to cease immediately after June 30, 2023. A reference rate based on the Secured Overnight Financing Rate (“SOFR”), and other alternative benchmark rates, are replacing LIBOR. The Company can borrow under the agreement at either rate at its discretion. Interest rates range from 1.5% to 2.0% over SOFR or EURIBOR loans, and 0.5% to 1.0% over base rate (prime rate) loans. The Company’s previous Credit and Security Agreement was terminated during the 2021 second quarter.

At both September 30, 2022 and December 31, 2021, there were no amounts outstanding under the Credit Agreement. The Company borrows or repays its debts as needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll.

There were no borrowings during the 2022 and 2021 third quarters and year-to-date periods, respectively.

Under the Credit Agreement, the Company is required to meet one financial covenant in order to maintain borrowings under its revolving credit line, pay dividends, and make acquisitions. The covenant is measured quarterly, and at September 30, 2022 represented a fixed charge coverage ratio, where for the trailing twelve months the consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted for, amongst other items, equity-based compensation and severance ~~charges noted above.~~ expenses, must be greater than 1.0 times the consolidated interest expense paid in cash and any scheduled principal payments. The fixed charge coverage ratio is only tested if availability, subject to a maximum of the commitment of $50.0 million, on the measurement date is less than the greater of 12.5% of the total loan availability or $5.0 million. Actual borrowings by CTG under the Credit Agreement are subject to a borrowing base, which is a formula based on certain eligible receivables and reserves for each country included in the Credit Agreement (the United States, Belgium, and Luxembourg). Receivable balances from our largest client, IBM, have been removed from the Credit Agreement as collateral, as the Company had entered into a factoring arrangement for those receivables. Total availability as of September 30, 2022 was approximately $34.1 million. The Company’s compliance with its financial covenant was not required to be tested at September 30, 2022 as the availability under the Credit Agreement was in excess of 12.5% of the total loan availability. The Company was in compliance with its applicable covenants under the previous Credit and Security Agreement at October 1, 2021.

Accumulated Other Comprehensive Loss

The components that make up accumulated other comprehensive loss on the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021 are as follows:


(amounts in thousands)	September 30, 2022			December 31, 2021
Foreign currency translation adjustment	$	(15,521	)	$	(7,697	)
Pension loss, net of tax of $698 in 2022 and $819 in 2021		(7,775	)		(9,243	)
Accumulated other comprehensive loss	$	(23,296	)	$	(16,940	)

During the 2022 and 2021 third quarter and year-to-date periods, actuarial losses were amortized to expense as follows:


	For the Quarter Ended						For the Three Quarters Ended
(amounts in thousands)	September 30, 2022			October 1, 2021			September 30, 2022			October 1, 2021
Amortization of actuarial losses	$	119		$	122		$	374		$	370
Income tax		(20	)		(10	)		(62	)		(30	)
Net of tax	$	99		$	112		$	312		$	340

The amortization of both prior service cost and actuarial losses, with the exception of the actuarial gains related to the post retirement benefit plan, are included in determining net periodic pension cost. See note 9, "Deferred Compensation and Other Benefits" for additional information.

Income Taxes

The Company’s effective tax rate (“ETR”) is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The ~~Company’s normal annual ETR typically ranges from 38% to 40% of pre-tax income. The 2017~~2022 third quarter and year-to-date ETR was ~~86.6%~~40.8% and ~~45.0%~~29.1%, respectively, and ~~2016~~the 2021 third quarter ~~ETR was a benefit of 1.3%~~ and ~~the 2016~~ year-to-date ETR was ~~(1.8)~~22.6%. and 24.7%, respectively.

The ETR was higher ~~than the normal range~~ in the ~~2017~~2022 third quarter and year-to-date period as compared with the corresponding 2021 periods primarily due to ~~lower pre-tax income~~audit adjustments upon completion of a prior year tax audit that were recorded in the 2022 third quarter.

The Company has not recorded a U.S. deferred tax liability for the excess book basis over the tax basis of its investments in foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations.

11.

Treasury Stock

The Company’s Board of Directors has previously authorized the repurchase of up to $30.0 million of the Company’s stock. The Company did not purchase shares for treasury during the 2022 or 2021 third quarter or year-to-date periods. As of September 30, 2022 and October 1, 2021, the Company had approximately $7.7 million left in its current stock repurchase authorization.

The Company issued 187,637 and 537,128 shares during the 2022 third quarter and year-to-date period, respectively, of which 173,802 shares were issued as part of the acquisition of Eleviant, while the remaining shares were issued to fulfill the requirements from the grant of restricted shares or units and the exercise of stock options.

The Company issued 15,012 and 255,331 shares during the 2021 third quarter and year-to-date period, respectively, to fulfill the share requirements from the grant of restricted shares or units and the exercise of stock options.

12.

Significant Clients

In the 2022 third quarter, International Business Machines Corporation (IBM) was the Company’s largest client and accounted for $13.7 million or 18.2% of consolidated revenue compared with $18.9 million or 20.9% of consolidated revenue in the comparable 2021 period. In the 2022 year-to-date period, IBM accounted for $46.1 million or 18.7% of consolidated revenue, compared with $58.1 million or 20.8% of consolidated revenue in the comparable 2021 period. The National Technical Services Agreement with IBM expires on October 27, 2023. The Company’s accounts receivable from IBM at September 30, 2022 and December 31, 2021 totaled $11.4 million and $8.9 million, respectively.

No other client accounted for 10% or more of the Company's revenue during the 2022 or 2021 third quarter or year-to-date periods.

13.

Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance.

The Company provides information technology and related services to its clients. These services include digital IT solutions and services, and staffing services. With digital IT solutions and services, the Company generally takes responsibility for the deliverables and some level of project and staff management, and these services may include high-end advisory or business-related consulting. When providing staffing services, including managed staffing, staff augmentation, and volume staffing, personnel are provided to clients based upon their requirements for specific skills, who then, in turn, take their direction from clients’ managers.

In prior years, and in 2021 prior to the fourth quarter, the Company reported its results in one segment. This included operating segments for each of North America and Europe. The services the Company provided, regardless of geography or industry, were similar in nature and produced similar results. Additionally, the CEO, who is the Company’s chief operating decision maker, made decisions on investments and allocated resources at the North America or Europe level. Accordingly, given the consistency in the services provided and the results, the Company aggregated those results into one reporting segment.

During the 2021 fourth quarter, the Company further refined its strategy to focus on providing digital services within its IT Solutions business in both North America and in Europe. As part of this process, the Company also determined that there are certain lower margin staffing accounts within its business that are no longer part of the Company’s long-term business plan. The focus includes investing in business development, solutions, delivery, and marketing for IT Solutions. Additionally, the Company is critically evaluating each significant staffing engagement as it comes up for renewal to determine if the Company would continue to provide those services to its client. These decisions are based on, among other factors, evaluating the work performed, the availability of the resources, the client, the long-term opportunities for the services provided at the client, and the revenue and profit associated with the engagement.

Accordingly, the Company now reports its operations in three segments within its business: North America IT Solutions and Services, Europe IT Solutions and Services, and Non-Strategic Technology Services.

The segments are composed of the following:

IT Solutions and Services in North America and Europe

IT Solutions and Services include business, technology, and operations solutions that aid our clients in digitally transforming their company, and ultimately meet the needs of their clients. The digital services the Company delivers include the Internet of Things, Intelligent Automation, Data and Analytics, Cloud and Automated Testing.

Non-Strategic Technology Services

The Company’s Non-Strategic Technology Services address a range of information and technology resource needs, from filling specific talent gaps to managing high-volume staffing programs. The Company recruits, retains, and manages IT talent for its clients, which are primarily large technology service providers and other companies with multiple locations and a significant need for high-volume professional IT resources. This segment consists of the lowest margin services the Company provides to its clients. This segment consists primarily of staffing services in North America, and a minor amount (less than 5% of revenue in this segment) of such services in Europe.

The Company makes decisions related to resource allocation based upon the contribution income of each of its segments. Contribution profit reflects gross profit less any operating expenses directly related to each respective segment. Those operating expenses primarily include sales, solutions, delivery, and recruiting expenses. General and

administrative expenses are not allocated to the individual segments and primarily include corporate support costs such as finance and accounting, internal IT, human resources, benefits and marketing.

The operating results for the Company’s segments for the quarter and three quarters ended September 30, 2022 and October 1, 2021 were as follows:


Quarter Ended September 30, 2022	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	20,340	$	33,258	$	21,404	$	75,002
Direct costs		12,617		25,388		18,768		56,773
Gross profit		7,723		7,870		2,636		18,229
Operating expenses		3,594		4,406		575		8,575
Contribution profit	$	4,129	$	3,464	$	2,061		9,654
General and administrative expenses								7,401
Operating income							$	2,253


Quarter Ended October 1, 2021	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	21,215	$	39,199	$	30,189	$	90,603
Direct costs		13,942		29,658		26,713		70,313
Gross profit		7,273		9,541		3,476		20,290
Operating expenses		3,464		5,183		1,169		9,816
Contribution profit	$	3,809	$	4,358	$	2,307		10,474
General and administrative expenses								7,772
Operating income							$	2,702


Three Quarters Ended September 30, 2022	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	61,114	$	112,896	$	73,168	$	247,178
Direct costs		39,450		84,964		64,190		188,604
Gross profit		21,664		27,932		8,978		58,574
Operating expenses		10,256		14,490		2,086		26,832
Contribution profit	$	11,408	$	13,442	$	6,892		31,742
General and administrative expenses								23,117
Operating income							$	8,625


Three Quarters Ended October 1, 2021	North America IT		Europe IT		Non-Strategic
(amounts in thousands)	Solutions & Services		Solutions & Services		Technology Services		Total
Revenue	$	56,431	$	129,260	$	94,205	$	279,896
Direct costs		37,072		97,754		83,634		218,460
Gross profit		19,359		31,506		10,571		61,436
Operating expenses		9,787		15,802		3,802		29,391
Contribution profit	$	9,572	$	15,704	$	6,769		32,045
General and administrative expenses								24,444
Operating income							$	7,601

Depreciation allocated to Europe IT Solutions and Services totaled $0.2 million and $0.1 million in the quarters ended September 30, 2022 and October 1, 2021, respectively and $0.5 million in both the 2022 and 2021 year-to-date periods, respectively. Depreciation allocated to North America IT Solutions and Services totaled $0.1 million in each of the quarters ended September 30, 2022 and October 1, 2021, respectively, and $0.3 million and $0.2 million in the 2022 and 2021 year-to-date periods, respectively. Depreciation allocated to Non-Strategic Technology Services totaled less than

$0.1 million in each of the quarters ended September 30, 2022 and October 1, 2021, and less than $0.1 million in both the 2022 and 2021 year-to-date periods, respectively.

The Company has not provided any other expense or asset information for each of its segments as the Company’s CEO, who is the chief operating decision maker, does not use this information in any way to make resource decisions or to manage the segments. The Company does not prepare balance sheet or statement of cash flow information for its segments.

The Company’s goodwill at September 30, 2022 totaled $38.9 million, including $15.8 million in the Europe IT Solutions and Services segment and $23.1 million in the North America IT Solutions and Services segment. The significant addition to goodwill balances in the North America IT Solutions and Services segment is due to the acquisition of Eleviant in the third quarter of 2022. At December 31, 2021, the Company’s goodwill balance totaled $19.7 million, which included $18.3 million in the Company’s Europe IT Solutions and Services segment and $1.4 million in the North America IT Solutions and Services segment.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q contains forward-looking information and statements made by the management of Computer Task Group, Incorporated (“CTG”, the “Company” or the “Registrant”) that are based on the beliefs of management as well as assumptions made by, and information currently available to, the Company, and are subject to a number of risks and uncertainties. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. These forward-looking statements are current only as of the date of this quarterly report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as “anticipates,” ~~ASU 2016-09 required~~“believes,” “expects,” “might,” “plans,” “may,” “will,” “would,” “should,” “could,” “seeks,” “estimates,” ”anticipates,” “project,” “predict,” “potential,” “currently,” “continue,” “intends,” “outlook,” “forecasts,” “targets,” and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment, and statements regarding future levels of or trends in business strategy and expectations, new business opportunities, cost control initiatives, business wins, market demand, revenue, operating expenses, capital expenditures, and financing. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors and risks could cause actual results to differ materially from those in the forward-looking statements, including the following:

In recent years, interest rates remained at historically low levels, primarily due to impacts to the U.S economy caused by COVID-19. More recently, higher consumer demand, lower interest rates, global supply chain disruption, and other factors have contributed to rapidly accelerating economic inflation. To offset the impacts of inflation, the Federal Open Market Committee ("FOMC") has been, and intends to continue, raising interest rates throughout the remainder of 2022 and possibly into 2023. While the actual timing and extent of the future increases in interest rates remains unknown, higher long-term interest rates may have a material adverse impact to us as a higher cost of capital could significantly increase our interest expense on any debt we incur in the future. High inflation and interest rates are negatively impacting our clients spending, which may adversely impact our business, financial condition, cash flows and results of operations.

Due to the nature of our operations, we have exposure to the impact of fluctuations in exchange rates associated with the Company’s European operations. Our foreign operations will continue to expose us to foreign currency exchange rate fluctuations. The impact of future foreign currency exchange rate fluctuations on our results of operations cannot be accurately predicted.

The Company’s services include information and technology-related solutions. CTG provides these services to all of the markets that it serves. The services provided typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT solution. These services ensure that our clients utilize the right information technology to meet their business needs, maximize their IT systems’ value, and operate efficiently and effectively. A typical client is an organization with large, complex technology, information, and data processing requirements.

The Company focuses a significant portion of its services through five vertical market focus areas: technology service providers, healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), manufacturing, financial services, and energy. The Company focuses on these five vertical areas as it believes that these areas are either higher growth markets than the general IT services market and the general economy, or are areas that provide greater potential for the Company’s growth due to the size of the vertical market. The remainder of CTG’s revenue is derived from general markets.

The Company’s revenue by vertical market as a percentage of total revenue for the quarter and three quarters ended September 30, 2022 and October 1, 2021 was as follows:

The IT services industry is extremely competitive and characterized by continuous changes in client requirements and improvements in technologies. Our competition varies significantly by geographic region, as well as by the type of service provided. Many of our competitors are larger than CTG, and have greater financial, technical, sales, and marketing resources. In addition, the Company frequently competes with a client’s use of its own internal IT staff for projects. Our industry continues to be impacted by the use of lower-cost offshore delivery capabilities (primarily India and other parts of Asia). There can be no assurance that we will be able to continue to compete successfully with existing or future competitors or that future competition will not have a material adverse effect on our results of operations and financial condition.

The Company recognizes revenue when control of the promised good or service is transferred to clients in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with progress billing schedules (i.e. progress billing), primarily monthly, revenue is recognized as services are rendered to the client. Revenue for fixed-price contracts is recognized over time using an input-based approach. Revenue recognition over time best portrays the Company’s performance in transferring control of the goods or services to the client. On most fixed price contracts, revenue recognition is supported through contractual clauses that require the client to pay for work performed to date, including cost plus a reasonable profit margin, for goods or services that have no alternative use to the Company. On certain contracts, revenue recognition is supported through contractual clauses that indicate the client controls the asset, or work in process, as the Company creates or enhances the asset. On a given project, actual salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at the completion of the project. Revenue is recognized based upon the percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs that could distort the percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and our experience on similar projects, and includes management judgments and estimates that affect the amount of revenue recognized on fixed-price contracts in any accounting period. Losses on fixed-price projects are recorded when identified.

The Company’s revenue from contracts accounted for under time-and-material, progress billing and percentage-of-completion methods as a percentage of consolidated revenue for the quarter and three quarters ended September 30, 2022 and October 1, 2021 was as follows:

The Company’s strategy throughout its operations is to expand the amount of IT solutions and services it provides to its clients as compared with staffing services, and to focus on delivering digital solutions. IT solutions and services provide significant value to our clients, and drive higher bill rates and margins for the Company. Our existing solutions include business, technology, and operations solutions that aid our clients in digitally transforming their company, and ultimately meet the needs of their clients. The digital services the Company delivers includes the Internet of Things, Intelligent Automation, Data and Analytics, Cloud and Automated Testing.

In prior years, and in 2021 prior to ~~record~~the fourth quarter, the Company reported its results in one segment. This included operating segments for each of North America and Europe. The services the Company provided, regardless of geography or industry, were similar in nature and produced similar results. Additionally, the CEO, who is the Company’s chief operating decision maker, made decisions on investments and allocated resources at the North America or Europe level. Accordingly, given the consistency in the services provided and the results, the Company aggregated those results into one reporting segment.

Additionally, the Company is critically evaluating each significant staffing engagement as it comes up for renewal to determine if the Company would continue to provide those services to its client. These decisions are based on, among other factors, evaluating the work performed, the availability of the resources, the client, the long-term opportunities for the services provided at the client, and the revenue and profit associated with the engagement.

The Company’s operating segments recorded revenue in the quarter and three quarters ended September 30, 2022 and October 1, 2021 was as follows:

The table below sets forth data as contained in the condensed consolidated statements of income with the percentage information calculated as a percentage of consolidated revenue.

The Company’s strategic plan includes investing in IT solutions-based business development, marketing and solutions resources as part of a concerted effort to increase the mix of solutions services within its total revenue. Generally, solutions services have much higher bill rates and produce higher profits than IT staffing services. Additionally, within solutions, the Company is focused on expanding the digital solutions it provides, including cloud related activities, robotic process automation and artificial intelligence, in response to the demand in the end markets where services are

provided. Finally, as a third part of its plan, the Company is focused on disengaging from its lowest margin staffing business, which are included in the Non-Strategic Technology Services segment.

Although the Company acquired Eleviant during the third quarter of 2022, the acquisition was completed on September 29, 2022, and the impact on the Company's operating results in the quarter was insignificant.

On a consolidated basis, North America IT Solutions and Services revenue decreased approximately $0.9 million year-over-year to $20.3 million, or 27.1% of consolidated revenue in the 2022 third quarter, and increased approximately $4.7 million year-over-year to $61.1 million, or 24.7% of consolidated revenue in the 2022 year-to-date period. This compares with $21.2 million or 23.4% in the corresponding 2021 third quarter, and $56.4 million or 20.2% in the corresponding 2021 year-to-date period. The decrease in North America IT Solutions and Services revenue in the 2022 third quarter was due to a significant project that began in the third quarter of 2021 and was completed in the fourth quarter of 2021. This project was not replaced in 2022 which caused revenue in that period to be lower. The increase in the year-to-date period was primarily due to the investments made in business development, solutions and delivery over the past several years and the focus on growing the business unit as part of our overall strategy. Given the significant project in 2021 totaled more than $25 million in revenue in the second half of 2021 and has not been replaced, the Company's revenue in this segment will be significantly lower in the fourth quarter of 2022 as compared with the prior year period.

Europe IT Solutions and Services revenue decreased $5.9 million to $33.3 million and represented 44.4% of consolidated revenue in the 2022 third quarter, and decreased approximately $16.4 million year-over-year to $112.9 million, or 45.7% of consolidated revenue in the 2022 year-to-date period. This compares with $39.2 million or 43.3% of revenue in the corresponding 2021 third quarter, and $129.3 million or 46.2% in the corresponding 2021 year-to-date period. The Europe IT Solutions and Services revenue decrease in the 2022 third quarter and year-to-date period was primarily due to the weakness of the value of the Euro as compared with the U.S. dollar. Additionally, labor constraints have restricted the ability to respond to client demand. Approximately 99.3% of European revenue for the third quarter is in this segment, and 0.7% is in the Non-Strategic Technology Services segment. If there had been no change in the foreign currency exchange rates from the 2021 third quarter to the 2022 third quarter, revenue overall for the Company would have been approximately $5.7 million higher. If there had been no change in the foreign currency exchange rates from the 2021 year-to-date period to the corresponding 2022 period, revenue overall for the Company would have been approximately $13.8 million higher.

Non-Strategic Technology Services revenue decreased $8.8 million to $21.4 million and represented 28.5% of consolidated revenue in the 2022 third quarter, and decreased approximately $21.0 million year-over-year to $73.2 million, or 29.6% of consolidated revenue in the 2022 year-to-date period. This compares with $30.2 million or 33.3% of revenue in the corresponding 2021 third quarter, and $94.2 million or 33.6% in the corresponding 2021 year-to-date period. The Non-Strategic Technology Services revenue decrease in the 2022 third quarter was primarily due to the Company continuing to disengage from a number of low margin, non-core staffing engagements in North America.

The Company recorded revenue by geography in the quarter and three quarters ended September 30, 2022 and October 1, 2021 as follows:

There were 63 billable days in both the 2022 and 2021 third quarters. Reimbursable expenses billed to clients and included in revenue were approximately $0.2 million in both of the ~~2017~~2022 and 2021 third ~~quarter,~~quarters.

There were 192 billable days in both the 2022 and ~~$0.3~~2021 year-to-date periods. Reimbursable expenses billed to clients and included in revenue totaled $0.5 million and $0.9 million in the ~~2017~~2022 and 2021 year-to-date ~~period of additional tax expense for shortfalls in the quarter that would previously have been recorded to capital in excess of par value~~periods, respectively.

The COVID-19 pandemic had limited financial impact on the Company’s ~~condensed consolidated balance sheet. This~~operations in the 2022 third quarter as compared with the 2021 third quarter. The Company did not experience additional ~~tax expense was partially offset by tax benefits~~headcount reductions or project cancellations during the 2022 third quarter, although client demand for Non-Strategic Technology Services continued to be low. At this time, although the COVID-19 pandemic continues to affect all of the countries where the Company has operations, there is no clear visibility into the potential magnitude of a downturn in operations that could negatively affect financial results for the ~~Work Opportunity Tax Credit (WOTC) and Credit~~remainder of 2022.

The Company is experiencing significant competition for ~~Increasing Research Activities (R&D).~~

~~The ETR was lower than the normal range~~qualified resources due to a general shortage of available IT digital solutions talent. We believe this competition will continue in the ~~2016 third quarter~~future, and may have a negative impact on the Company’s revenue and operating profits if we are unable to hire the resources we need to meet demand from our clients on a timely basis.

The Company includes all billable consultants, consisting of both employees and subcontractors, and its support services in its headcount totals. CTG’s headcount at September 30, 2022 was approximately 3,250, down from approximately 3,600 at October 1, 2021, and a decrease from approximately 3,450 at December 31, 2021. The decrease in headcount year-over-year is primarily due to the ~~non-deductible goodwill impairment charge totaling $15.8 million taken~~Company moving away from its lowest margin staffing business in the ~~quarter, which, when considered~~Company’s Non-Strategic Technology Services segment.

The revenue decrease in Europe in the ~~tax provision resulted~~countries in ~~reduced taxable loss,~~which the Company operates (Belgium, France, Luxembourg, and ~~also~~the United Kingdom) was impacted in the 2022 third quarter and year-to-date period by the strength of the U.S. dollar as compared with the value of the Euro, the currency used in Belgium, France, and Luxembourg, and the British pound, the currency used in the United Kingdom. If there had been no change in these exchange rates from the 2021 third quarter to the 2022 third quarter, total European revenue and operating income would have been approximately $5.7 million and $0.3 million higher, respectively. If there had been no change in these exchange rates from the 2021 year-to-date period to the corresponding 2022 period, total European revenue and operating income would have been approximately $13.8 million and $0.9 million higher, respectively. In the event the value of the Euro continues to decline against that of the U.S. dollar, there may be additional decreases in revenue and operating profits throughout the remainder of 2022.

No other client accounted for 10% or more of the Company's revenue during the 2022 or 2021 third quarters or year-to-date periods.

The Company recorded operating results in the quarters ended September 30, 2022 and October 1, 2021 in its operating segments as follows:

The Company’s effective tax ~~credit (R&D).~~rate (“ETR”) is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The ~~2016~~2022 third quarter and year-to-date ETR was ~~lower than~~40.8% and 29.1%, respectively, and the ~~normal range~~2021 third quarter and year-to-date ETR was 22.6% and 24.7%, respectively. The ETR was higher in the 2022 third quarter and year-to-date periods as compared with the corresponding 2021 periods primarily due to ~~the non-deductible goodwill impairment charges totaling $37.3 million taken~~audit adjustments upon completion of a prior year tax audit that were recorded in the ~~2016 first and~~2022 third ~~quarters, which, when considered in the tax provision resulted in net taxable income, and due to the WOTC and the R&D credits.~~quarter.

Net income ~~(loss)~~ was ~~0.1% of revenue or $0.00~~$0.07 and $0.36 per diluted share in the ~~2017~~2022 third quarter and year-to-date period, respectively, as compared with ~~(20.7)% of revenue or $(1.03)~~$0.11 and $0.34 per diluted share in the ~~2016~~2021 third quarter and ~~0.6% or $0.08 per diluted share in the 2017~~ year-to-date period, ~~compared with (14.5)% or $(2.30) in the 2016 year-to-date period.~~respectively. Diluted earnings per share was calculated using ~~15.3~~15.2 million and ~~15.6~~14.9 million weighted-average equivalent shares outstanding ~~for~~in the quarters ended September ~~29, 2017~~30, 2022 and ~~September 30, 2016, respectively, and 15.4 million and 15.6 million weighted-average equivalent shares outstanding for the three quarters ended September 29, 2017 and September 30, 2016.~~October 1, 2021, respectively.

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the Company’s management to make estimates, judgments and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company’s significant accounting policies, along with the underlying assumptions and judgments made by the Company’s management in their application, have a significant impact on the Company’s condensed consolidated financial statements. The Company identifies its critical accounting policies as those that are the most pervasive and important to the portrayal of the Company’s financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. The Company’s critical accounting policies are those related to income taxes, specifically relating to the valuation allowance for deferred income ~~taxes.~~taxes, purchase accounting and the valuation of goodwill.

At September ~~29, 2017,~~30, 2022, the Company had a total of approximately ~~$5.9~~$6.9 million of ~~non-current~~ deferred tax assets ~~net of deferred tax liabilities, recorded on its consolidated balance sheet. The deferred tax assets, net, primarily consist of~~ ~~deferred compensation, loss carryforwards and state taxes~~. The changes in deferred tax assets and liabilities from period to period are determined based upon the changes in differences between the basis of assets and liabilities for financial reporting purposes and the basis of assets and liabilities for tax purposes, as measuredoffset by the expected tax rates when these differences are estimated to reverse. The Company has made certain assumptions regarding the timing of the reversal of these assets and liabilities, and whether taxable income in future periods will be sufficient to recognize all or a part of any gross deferred tax asset of the Company.

At September 29, 2017, the Company had deferred tax assets recorded resulting from net operating losses in previous years totaling approximately $1.1 million. The Company has analyzed each jurisdiction’s tax position, including forecasting potential taxable income in future periods and the expiration of the net operating loss carryforwards as applicable, and determined that it is unclear whether all of these deferred tax assets will be realized at any point in the future. Accordingly, at September 29, 2017, the Company had offset a portion of these assets with a valuation allowance ~~totaling $1.0~~of approximately $1.9 million, resulting in a net deferred tax asset ~~from net operating~~of approximately $5.0 million. Additionally, the Company had approximately $1.4 million of deferred tax liabilities recorded on its condensed consolidated balance sheet. The deferred tax assets and liabilities primarily consist of deferred compensation, loss carryforwards, and state taxes.

In assessing the realizability of ~~$0.1 million.~~deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that all or some portion of the deferred tax assets will be realized, or that a valuation allowance is required. Management considers all available evidence, both positive and negative, in assessing realizability of its deferred tax assets. A key component of this assessment is management’s critical evaluation of current and future impacts of business and economic factors on the Company’s ability to generate future taxable income. Factors that may affect the Company’s ability to generate taxable income include, but are not limited to increased competition, a decline in revenue or margins, a loss of market share, the availability of qualified professional staff, and a decrease in demand for the Company’s services.

The Company’s deferred tax assets and their potential realizability are evaluated each quarter to determine if any changes should be made to the valuation allowance. The analysis the Company prepares requires significant judgment and assumptions regarding future market conditions as well as forecasts for profits, taxable income, and taxable income by jurisdiction. Due to the sensitivity of the analysis, changes to the assumptions in subsequent periods could have a material effect on the valuation allowance. Any further change in the valuation allowance in the future could result in a change in the Company’s ETR. A 1% change in the ETR in the ~~2017~~2022 third quarter and year-to-date period would have increased or decreased net income by approximately ~~$3,000~~$18,600 and ~~$22,300,~~$75,900, respectively.

As of September 30, 2022, goodwill recorded on the Company's consolidated balance sheet totaled $38.9 million, which relates to the acquisitions completed by the Company in 2018, 2019, 2020, and 2022. The acquisition of Soft Company in 2018 is in the France reporting unit, while the 2019 acquisition of Tech-IT is in the Luxembourg reporting unit,

The Company has also made a number of estimates and assumptions relating to the reporting of its assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements pursuant to the rules and regulations of the SEC, the FASB, and other regulatory authorities. Such estimates primarily relate to the valuation of stock options ~~and restricted stock~~ for recording equity-based compensation expense, allowances for doubtful accounts receivable, investment valuation, discount rates associated with pension plans, incurred but not reported healthcare claims, acquisition and related accounting, legal matters, and estimates of progress toward completion and direct profit or loss on contracts, as applicable. As future events and their effect on the Company's operating results cannot be determined with precision, actual results could differ from these estimates. Changes in the economic climates in which the Company operates may affect these estimates and will be reflected in the Company’s financial statements in the event they occur.

Cash provided by operating activities was ~~$11.3~~$12.5 million in the ~~2017~~2022 year-to-date period ~~(2017 period),~~ compared with ~~cash provided by operating activities of $4.2~~$2.2 million in the ~~2016 year-to-date period (2016 period).~~2021 corresponding period. In ~~the 2017 period,~~2022, net income was ~~$1.2~~$5.4 million, while other non-cash adjustments, primarily consisting of depreciation and amortization expense, equity-based compensation, deferred income taxes, and deferred compensation totaled ~~$2.9~~$3.6 million. In ~~the 2016 period, the~~2021, net ~~loss~~income was ~~$(35.8)~~$5.0 million, while the corresponding non-cash adjustments totaled ~~$39.5~~$4.1 million.

The accounts receivable balance decreased ~~$7.3~~$11.6 million in ~~the 2017 period,~~2022 and increased ~~$1.7~~$6.8 million in ~~the 2016 period.~~2021. The decrease in ~~the~~ accounts receivable in 2022 was due to the Company receiving payment on a large outstanding receivable balance from a project completed in the ~~2017 period primarily resulted from~~2021 fourth quarter, and lower revenue. The Company has a ~~decrease~~factoring agreement with its largest customer whereby invoices due in 90 days can be paid in as little as 15 days. During 2022, the Company factored approximately $12.2 million, compared with $26.5 million in 2021. Days sales outstanding (DSO) of three days to 82 days from 85 days at December 31, 2016, and due to a decrease in revenue of 8.4% in the 2017 period as compared with the prior period. The increase in the accounts receivable balance in the 2016 period primarily resulted from DSO increasing 10 days to 86was 83 days at September 30, ~~2016 from 76~~2022 and 82 days at ~~December 31, 2015, offset by a decrease in revenue in 2016 as compared with 2015.~~October 1, 2021.

Prepaid and other current assets increased ~~$0.3~~$0.4 million and ~~$1.0~~$0.8 million in the ~~2017~~2022 and ~~2016~~2021 periods, respectively, due to the timing of payments made early in ~~the first quarter of the~~each respective year that are then expensed throughout the year.

The ~~cash surrender value of life insurance increased $1.4~~accounts payable balance decreased $10.2 million and ~~$1.1~~$6.5 million in the ~~2017~~2022 and ~~2016~~2021 periods, respectively, ~~due to normal valuation increases.~~

~~Accrued compensation increased $3.3 million and $6.1 million in the 2017 and 2016 periods, respectively. Accrued compensation changed in each period~~primarily due to the timing of certain payments near the ~~U.S. bi-weekly payroll that was paid on September 29, 2017 and September 30, 2016~~end of the quarter of each year as compared with ~~December 31, 2016~~the prior year-end. Accrued compensation decreased $0.1 million and ~~2015.~~increased $7.8 million in the 2022 and 2021 periods, respectively. The 2022 decrease is primarily due to an overall decrease in headcount of approximately 350 year-over-year. The 2021 increase is primarily due to a significant increase in the size of our European operations and the timing of the payment of its payroll related costs subsequent to month end. Advance billings on contracts increased ~~$0.9 million and $0.4~~$0.7 million in 2022 and less than $0.1 million in 2021. The change in advance billings in any given period is determined by the ~~2017~~nature and ~~2016 periods, respectively,~~type of existing projects, and the advance payments associated with those projects. Other current liabilities increased $0.2 million in 2022 due to the timing of vendor invoices ~~sent to clients under contracts in progress~~received at ~~September 29, 2017 and December 31, 2016.~~the end of the quarter as compared with the prior year-end.

Investing activities used ~~$1.4~~$17.9 million and ~~$1.6~~$2.0 million of cash in the ~~2017~~2022 and ~~2016~~2021 periods, respectively. Cash paid for the acquisition of Eleviant, net of cash acquired in the 2022 third quarter was $16.6 million. The Company used cash for additions to property, equipment, and capitalized software of ~~$1.3~~$0.8 million and $1.4 million in the ~~2017 period~~2022 and ~~$1.9 million in~~2021 periods, respectively. During late 2021, the ~~2016 period.~~Company purchased a number of laptops to ensure it would have an adequate supply on hand given the global chip shortage which has impacted the lead time for the production of computer and related equipment. The Company has no significant commitments to spend approximately $0.7 million on capital expenditures as of September 29, 2017, primarily for renovations to the Company’s corporate headquarters to accommodate additional employees and the Company’s data center pending the sale of the Company’s administrative office building. The Company expects the amount to be spent proportionately in the last three months of 2017 on additions to property, equipment and capitalized software to be slightly higher than the amount proportionally spent in the first three quarters of 2017. ~~Net payments to the Company's deferred compensation plans were less than $0.1 million in the 2017 period as compared with $0.1 million in the 2016 period.~~

~~The Company is in the process of negotiating the sale of its corporate administrative building. The current list price~~ for the purchase of property ~~is $2.6 million. As the carrying value of building~~and equipment at September ~~29, 2017 was approximately $1.6 million, the Company does not expect to record a loss on the sale of the building.~~30, 2022.

Financing activities used ~~$8.9~~$0.9 million of cash in ~~the 2017 period~~2022 and ~~$3.7~~$1.2 million in 2021. Cash received from the ~~2016 period. Cash repaid under~~exercise of stock options and from an employee stock purchase plan totaled approximately $0.3 million in 2022 and $0.5 million in 2021. There were no borrowing or repayments on the Company’s revolving credit line ~~of credit to fund working capital obligations netted to $(4.7) million~~ in ~~the 2017 period and $(0.7) million in the 2016 period. The Company recorded $0.7 million in the 2017 period and $0.3 million in the 2016 period from the proceeds from stock option exercises.~~either 2022 or 2021. Payments made to taxing authorities that represent the value of shares withheld for taxes in employee equity-based compensation transactions totaled ~~$0.3 million in both the 2017 and 2016 periods. Cash overdrafts relate to the amount of outstanding checks at a point in time, and netted to less than $0.1~~$1.2 million and ~~$(0.2)~~$0.4 million in the ~~2017~~2022 and ~~2016~~2021 periods, respectively. The ~~Company paid dividends totaling $0.0 million and $2.8 million~~significant increase in 2022 was due to the ~~2017 and 2016 periods, respectively.~~vesting of the performance grants issued to the management team in 2019. The Company ~~suspended the payment of its dividend in the 2016 fourth quarter. The Company also used approximately $4.8 million to purchase 916,000~~did not repurchase shares for treasury under its buyback program in either of the ~~2017 period. No shares were purchased for treasury under the buyback program in the 2016 period.~~2022 or 2021 year-to-date periods. As of September ~~29, 2017, $4.0~~30, 2022, $7.7 million was available under the Company's authorization to purchase shares in future periods.

The ~~Company’s unsecured revolving credit agreement allows~~Credit Agreement has a five-year term that expires in May 2026. Under this Credit Agreement, the Company tocan borrow up to ~~$40.0 million.~~$50.0 million depending on collateral availability. The ~~agreement also allows under its provisions for~~Credit Agreement is collateralized by the ~~Company~~Company’s accounts receivable in the United States, Belgium and Luxembourg. Interest rates range from 1.5% to ~~borrow up~~2.0% over SOFR or EURIBOR loans, and 0.5% to ~~$17.5 million against~~1.0% over base rate (prime rate) loans. The London Interbank Offered Rate (“LIBOR”), the ~~cash surrender value~~interest rate benchmark used as a reference rate on our Credit Agreement, began being phased out at the beginning of calendar year 2022, with the ~~Company's life insurance policies. The new agreement expires in October 2018,~~one-month LIBOR scheduled to cease immediately after June 30, 2023. A reference rate based on the Secured Overnight Financing Rate (“SOFR”), and ~~has interest~~other alternative benchmark rates, ~~ranging from 0 to 50 basis points over the prime rate, and 150 to 200 basis points over~~are replacing LIBOR. The Company can borrow under the agreement ~~with~~at either ~~a prime or LIBOR~~ rate ~~of interest~~ at its discretion. The Company’s previous Credit and Security Agreement was terminated during the 2021 second quarter.

At both September ~~29, 2017~~30, 2022 and December 31, ~~2016,~~2021, there ~~was $0.0 and $4.7 million, respectively,~~were no amounts outstanding under the ~~revolving credit agreement.~~

Credit Agreement. The ~~maximum amount outstanding under~~Company borrows or repays its debts as needed based upon its working capital obligations, including the ~~credit agreement in~~timing of the ~~2017 third quarter was $4.2 million, while~~U.S. bi-weekly payroll. There were no borrowings during the ~~quarter averaged $2.3 million~~2022 and ~~carried a weighted average interest rate of 2.9%.~~2021 third quarters or year-to-date periods.

Under the ~~agreement,~~Credit Agreement, the Company is required to meet ~~certain~~one financial ~~covenants~~covenant in order to maintain borrowings under its revolving credit line, pay dividends, ~~(if any are declared),~~ and make acquisitions. The ~~covenants are~~covenant is measured quarterly, and at September ~~29, 2017, included~~30, 2022, represented a ~~leverage~~fixed charge coverage ratio, ~~(total outstanding debt divided by~~where for the trailing twelve months the consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted for, ~~non-cash charges (including goodwill impairments, as necessary) which~~amongst other items, equity-based compensation and severance expenses, must be no greater than ~~2.75~~1.0 times the consolidated interest expense paid in cash and any scheduled principal payments. The fixed charge coverage ratio is only tested if availability, subject to 1, a ~~calculation~~maximum of ~~minimum tangible net worth (total shareholders' equity less goodwill and intangible assets) which must be no~~the commitment of $50.0 million, on the measurement date is less than ~~$48.6 million, and~~the greater of 12.5% of the total ~~annual expenditures for property, equipment and capitalized software, which must be no more than~~loan availability or $5.0 million. Actual borrowings by CTG under the Credit Agreement are subject to a borrowing base, which is a formula based on certain eligible receivables and reserves for each country included in the Credit Agreement (the United States, Belgium, and Luxembourg). Receivable balances from our largest client, IBM, have been removed from the Credit Agreement as collateral, as the Company had entered into a factoring arrangement for those receivables. Total availability as of September 30, 2022 was approximately $34.1 million. The ~~Company~~Company’s compliance with its financial covenant was not required to be tested at September 30, 2022 as availability under the Credit Agreement was in ~~compliance with these covenants at September 29, 2017 as~~excess of 12.5% of the ~~leverage ratio was 0.0, the minimum tangible net worth was $76.9 million, and capital expenditures for property, equipment and capitalized software were $1.3 million in the 2017 period.~~total loan availability.

Of the total cash and cash equivalents reported on the condensed consolidated balance sheet at September ~~29, 2017~~30, 2022 of ~~$11.4~~$26.8 million, approximately ~~$10.8~~$19.4 million was held by the Company’s foreign ~~operations and is~~operations. Earnings are considered to be indefinitely reinvested in those operations. The Company has not repatriated any of its cash and cash equivalents from its foreign operations in the past five years, and does not intend to do so in the foreseeable future as the funds are required to meet the working capital needs of its foreign operations.

The Company believes existing internally available funds, cash potentially generated from future operations, and funds available under the Company's ~~revolving line of credit~~Credit Agreement (subject to collateral limits) totaling ~~$39.7 million, and funds available to be borrowed against the cash surrender value of our life insurance policies of $17.5~~$49.8 million will be sufficient to meet foreseeable working capital and capital expenditure needs, fund stock repurchases, pay a dividend (if any are declared), fund acquisitions, and allow for future internal growth and expansion.

The Company ~~did not have off-balance sheet arrangements or transactions in the 2017 or 2016 year-to-date periods other than~~has guarantees in our European operations that support office leases and the performance under government contracts. These guarantees totaled approximately ~~$1.2~~$2.8 million at September ~~29, 2017.~~30, 2022.

~~The Company did not enter into any significant contractual obligations during the quarter ended September 29, 2017.~~

In ~~May 2014,~~March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial ~~Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, "Revenue~~Reporting,” which provides optional expedients and exceptions for accounting contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference the London Interbank Offering Rate (“LIBOR”) or another reference rate expected to be discontinued due to the reference rate reform. It is effective for all entities between March 12, 2020 and December 31, 2022. The Company does not expect a significant impact from ~~Contracts with Customers (Topic 606)," ("ASU 2014-09"). ASU 2014-09 outlines a new, single comprehensive model for entities~~the adoption of this standard as provisions have been made in our Credit Agreement to use inan alternate benchmark interest rate when the use of LIBOR is discontinued.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” Among other clarifications and simplifications related to income tax accounting, the new standard simplifies the accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognitionincome taxes by eliminating certain exceptions related to ~~depict~~ the ~~transfer of promised goods or services to customers~~approach for intraperiod tax allocation, the methodology for calculating income taxes in an ~~amount that reflects~~interim period, hybrid taxes and the ~~consideration a company expects to receive in exchange~~recognition of deferred tax liabilities for ~~those goods or services. The pronouncement~~outside basis differences. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017, and early~~2020. Early adoption is ~~only permitted in years beginning after December 31, 2016.~~

permitted. The Company currently records approximately 96.8% of its annual revenue on a time-and-material or progress-billing basis, with the remaining 3.2% recorded under a proportional method of accounting using an inputs methodology for fixed price projects. For the 96.8% of the Company’s revenue recorded under the time-and-material or progress billing methods of accounting, the Company does not expectadopted this new standard ~~to change~~on January 1, 2021 on a prospective basis and the timing or the amount of revenue that is currently recorded. The Company is currently evaluating the 3.2% of revenue recorded under its fixed price projects to determine if the manner or timing of revenue recognition would change for existing projects. However, the Company doesadoption did not ~~expect the impact of adopting this new accounting guidance to~~ have a material impact on ~~its consolidated operating results, but does expect~~ the ~~new standard to increase our accounting policy disclosures upon adoption.~~

Item 3. Quantitative and $0.3 million, respectively, of additional tax expense for tax shortfalls in the quarter and three quarters ended September 29, 2017 that previously would have been recorded to capital in excess of par value on the Company’s condensed consolidated balance sheet. Additionally, the Company recorded $0.3 million in both of the periods ended September 29, 2017 and September 30, 2016 for taxes remitted for shares withheld from equity-based compensation transactions on the condensed consolidated statements of cash flows in the “cash flow from financing activities” section.Qualitative Disclosures About Market Risk

The Company’s primary market risk exposure consists of foreign currency exchange risk associated with the Company’s European operations.

~~Revenue~~The revenue decrease in Europe in the ~~Company’s European operations~~countries in which the Company operates (Belgium, France, Luxembourg, and the United Kingdom) was impacted in the ~~2017~~2022 third quarter and year-to-date period by the strength of the U.S. dollar as compared with the ~~corresponding 2016 periods was impacted due to the strength relative to the U.S. dollar of the currencies of Belgium,~~

Luxembourg, and the United Kingdom, the countries in which the Company’s European subsidiaries operate. In Belgium and Luxembourg, where a significant portion of the Company’s revenue from its European operations is generated, the functional currency is the Euro, while in the United Kingdom the functional currency is the British Pound. In the 2017 third quarter as compared with the 2016 third quarter, the average value of the Euro, ~~increased 5.3% while~~ the ~~average value of~~currency used in Belgium, France, and Luxembourg, and the British ~~Pound decreased 0.3%.~~pound, the currency used in the United Kingdom. If there had been no change in these exchange rates from the ~~2016~~2021 third quarter to the ~~2017~~2022 third quarter, total European revenue would have been approximately ~~$1.0~~$5.7 million ~~lower, or $19.0 million as compared with the $20.0 million reported. Operating~~higher, and operating income ~~in the 2017 third quarter was not significantly impacted~~would have been higher by the changes in the exchange rates year-over-year. In the 2017 year-to-date period as compared with the corresponding 2016 period, the average value of the Euro decreased 0.2% while the average value of the British Pound decreased 8.5%.$0.3 million. If there had been no change in ~~these exchange~~the rates from the ~~first three quarters of 2016~~2021 year-to-date period to the corresponding ~~2017~~2022 period, total European revenue would have been approximately ~~$0.5~~$13.8 million higher, ~~or $58.5~~and operating income would have been approximately $0.9 million ~~as compared with~~higher. In the ~~$58.0 million reported. Operating income~~event the value of the Euro continues to decline against that of the U.S. dollar, there may be additional decreases in revenue and operating profits throughout the ~~2017 year-to-date period was not significantly impacted by the changes in the exchange rates year-over-year.~~remainder of 2022.

The Company has historically not used any market ~~risk~~rate sensitive instruments to hedge its foreign currency exchange risk as it conducts its foreign operations in local currencies, which generally limits risk. The Company believes the market risk related to intercompany balances in future periods will not have a material effect on its results of operations.

The Company’s management has evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act, as amended) as of the end of the period covered by this quarterly report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this periodic report.

As described above, on September 29, 2022 we completed the acquisition of Eleviant. SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessment of internal control over financial reporting for a period not to exceed one year from date of acquisition. We are in the process of integrating Eleviant’s operations within our internal control structure. In executing this integration, we are analyzing, evaluating, and where necessary, making changes in controls and procedures related to the Eleviant business. Accordingly, management has excluded controls relating to Eleviant in this quarter’s evaluation of disclosure controls and procedures.

The Company reviews the effectiveness of its internal controls on a continuous basis, and makes changes as necessary. ~~There~~Except for the acquisition of Eleviant described above, there were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report, which ended on September ~~29, 2017,~~30, 2022, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~There were no material changes~~The Company and its subsidiaries are involved from time to time in various legal proceedings arising in the ~~Company's~~ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters, if any, to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. See footnote 12 to the Company’s audited financial statements for the period ended December 31, 2021 included in Part II, Item 8, “Financial Statements and Supplementary Data” of the Form 10-K.

The Company documented our risk factors ~~from those previously disclosed~~ in ~~the Company's~~Part I, Item 1A, "Risk Factors" of our Form 10-K for the period ended December 31, ~~2016.~~2021. Other than the updates identified in Part II, Item 1A, "Risk Factors" of our Form 10-Q for the period ended July 1, 2022, there have been no material changes in our risk factors since the filing of that report.

~~During the 2016 fourth quarter, the~~The Company’s Board of Directors ~~authorized the repurchase~~has approved a total authorization for stock repurchases of up to $10.0 million of stock over the subsequent two-year period. During October 2017 (subsequent to quarter-end), the Company’s Board authorized the addition of $10.0 million to the repurchase program, bringing the total amount that could be repurchased under the program to $20.0$30.0 million. ~~This share repurchase authorization replaced the Company’s previous share repurchase program.~~

The information below ~~does not include~~includes shares ~~withheld by or~~ surrendered to the Company ~~either to satisfy the exercise cost for the cashless exercise of employee stock options, or~~ to satisfy tax withholding obligations associated with employee equity ~~awards~~awards. The information for the fiscal third quarter of 2022 is as ~~the number of shares is minor.~~follows:

~~On October 20, 2017, the Board of Directors adopted the Restated By-laws of the Company, which amended the By-laws to make updates~~

(1) Filed as an Exhibit to the ~~advance notice~~Registrant’s Form 8-K on September 29, 2022, and ~~director qualification provisions in Article I and Article III of the Restated By-laws:~~

(i) to increase the notice period for shareholder proposals to be not earlier than 120 days and not later than 90 days prior to the one-year anniversary of the date of the preceding year’s annual meeting of shareholders, unless the meeting is convened more than 30 days prior to or delayed by more than 60 days after the anniversary of the preceding year’s annual meeting, or if no annual meeting was held in the preceding year, in which case the notice of shareholder proposals must be received by the Company not earlier than 120 days and not later than 90 days prior to the date of the annual meeting or, if the first public announcement of the date of the annual meeting is less than 100 days prior to the date of the annual meeting, then the notice of shareholder proposals must be received by the Company not later than the 10^th ~~day following the day on which public announcement of the meeting is first made;~~

(ii) to provide that notice of a shareholder’s intent to nominate persons for election as directors must be received by the Company not earlier than 120 days and not later than 90 days prior to the one-year anniversary of the date of the preceding year’s annual meeting of shareholders, unless the meeting is convened more than 30 days prior to or delayed by more than 60 days after the anniversary of the preceding year’s annual meeting, or if no annual meeting was held in the preceding year, in which case the notice of a shareholder’s intent to nominate persons for election as directors must be received by the Company not earlier than 120 days and not later than 90 days prior to the date of the annual meeting or, if the first public announcement of the date of the annual meeting is less than 100 days prior to the date of the annual meeting, then the notice of a shareholder’s intent to nominate persons for election as directors must be received by the Company not later than the 10^th ~~day following the day on which public announcement of the meeting is first made; and~~

(iii) to provide that a director nominee must provide a written representation and agreement to the Company that he or she currently intends to serve the full term for which the nominee is standing for election, if elected.

In addition to the amendments described above, the Restated By-laws made various clarifications, technical corrections, and administrative and non-substantive changes. The foregoing description is qualified in its entiretyincorporated herein by reference ~~to the Restated By-laws filed as Exhibit 3.1 hereto.~~(file No. 001-09410)

On October 20, 2017, the Board of Directors set July 26, 2018 as the date of the Company’s 2018 annual meeting of shareholders and set June 12, 2018 as the record date for determining shareholders entitled to vote at the annual meeting.37

In accordance with Rule 14a-5(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company has determined that proposals to be considered for inclusion in the Company's proxy statement for the annual meeting pursuant to Rule 14a-8 of the Exchange Act must be received at the Company’s principal executive offices not later than December 1, 2017. For all shareholder proposals made outside of Rule 14a-8 of the Exchange Act and for all shareholder nominations for director, our Restated By-laws require shareholders to give the Company advance notice of any proposal or director nomination to be submitted at an annual meeting of shareholders. The Restated By-laws prescribe the information to be contained in any such notice. To be timely, a shareholder’s notice with respect to a proposal made outside of Rule 14a-8 or director nomination for the annual meeting must be given, either by personal delivery or by United States mail, postage prepaid, to and received by the Secretary of the Company no earlier than March 28, 2018 and no later than April 27, 2018.SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


New York		16-0912632
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~800 Delaware Avenue, Buffalo,~~ 300 Corporate Parkway, Suite 214N, Amherst, New York		~~14209~~14226
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CTG	The NASDAQ Stock Market, LLC


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐☒

Emerging growth company	☐


APPLICABLE ONLY TO CORPORATE ISSUERS:

		Shares outstanding at
Title of each class		~~October 20, 2017~~November 4, 2022
Common stock, par value $.01 per share		~~15,491,816~~15,712,451


Section		Page
Part I Financial Information
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1524
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2334
Item 4.	Controls and Procedures	2435

Part II Other Information
Item 1.	Legal Proceedings	2536
Item 1A.	Risk Factors	2536
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2536
Item 3.	Defaults Upon Senior Securities	2536
Item 4.	Mine Safety Disclosures	2536
Item 5.	Other Information	2536
Item 6.	Exhibits	2737


																Accumulated
					Capital in											Other			Total
	Common Stock				Excess of			Retained		Treasury Stock						Comprehensive			Shareholders’
	Shares		Amount		Par Value			Earnings		Shares			Amount			Income (Loss)			Equity
Balances as of July 1, 2022		27,018	$	270	$	108,890		$	112,322		11,499		$	(105,579	)	$	(20,596	)	$	95,307
Employee Stock Purchase Plan share issuance		—		—		(9	)		—		(7	)		56			—			47
Restricted stock plan share issuance/forfeiture		—		—		(123	)		—		(13	)		123			—			—
Acquisition share issuance		—		—		(418	)		—		(174	)		1,596			—			1,178
Acquisition stock option issuance		—		—		391			—		—			—			—			391
Equity-based compensation		—		—		693			—		—			—			—			693
Net income		—		—		—			1,102		—			—			—			1,102
Foreign currency adjustment		—		—		—			—		—			—			(3,257	)		(3,257	)
Pension loss adjustment, net of tax		—		—		—			—		—			—			557			557
Balances as of September 30, 2022		27,018	$	270	$	109,424		$	113,424		11,305		$	(103,804	)	$	(23,296	)	$	96,018

(amounts in thousands)	September 29, 2017			December 31, 2016
Property, equipment and capitalized software	$	23,257		$	21,918
Accumulated depreciation and amortization		(17,021	)		(16,055	)
Property, equipment and capitalized software, net	$	6,236		$	5,863


Period	Total Number of Shares Purchased		Average Price Paid Per Share **		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Amount that May Yet be Purchased under the Plan or Program		Total Number of Shares Purchased		Average Price Paid Per Share **		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Amount that May Yet be Purchased under the Plan or Program
July 1 - July 31		71,401	$	5.77		71,401	$	5,044,372
July 2 - July 31										—	$	—		—	$	7,727,724
August 1 - August 31		128,105	$	5.31		128,105	$	4,364,667		—	$	—		—	$	7,727,724
September 1 - September 29		76,355	$	5.42		76,355	$	3,961,679
September 1 - September 30										—	$	—		—	$	7,727,724
Total		275,861				275,861				—				—


Exhibit	Description	Reference

2.1	Stock Purchase Agreement, dated as of September 29, 2022, by and between Computer Task Group, Incorporated and Eleviant Technologies, Inc.	(1)

3.1	Restated Certificate of Incorporation of Computer Task Group, Incorporated (filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed on March 10, 2008)	###

3.2	Restated By-laws of Computer Task Group, Incorporated, amended as of August 11, 2020 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on August 12, 2020)	###

31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	#

31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	#

32.	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	##

101.INS	Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.	#

101.SCH	Inline XBRL Taxonomy Extension Schema Document	#

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase	#

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	#

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase	#

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase	#

104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

~~Exhibit~~	~~Description~~	~~Reference~~

~~3.1~~	~~Restated By-Laws~~	#

~~10.1~~	~~2010 Equity Award Plan as Amended~~	#

~~31. (a)~~	~~Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~	#

~~31. (b)~~	~~Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~	#

~~32.~~	~~Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~	##

~~101.INS~~	~~XBRL Instance Document~~	#

~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~	#

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase~~	#

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~	#

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase~~	#

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase~~	#


COMPUTER TASK GROUP, INCORPORATED

By		/s/ John M. Laubacker
		John M. Laubacker
Title:		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)