Exhibit 99
CTG
HOST: JAMES BOLDT
JULY 20, 2004/10:00 A.M. CDT
PAGE 1
CTG
JULY 20, 2004
10:00 A.M. CDT
Moderator Ladies and gentlemen, thank you for standing by. Welcome
to the CTG Second Quarter Conference Call. At this time,
all participants are in a listen-only mode. Later, we will
conduct a question and answer session; instructions will
be given at that time. As a reminder, this conference is
being recorded.
I would now like to turn the conference over to our host,
James Boldt, Chairman and CEO. Please go ahead.
J. Boldt Good morning, everyone. This is Jim Boldt. I want to thank
you for joining us this morning for our Second Quarter
2004 Earnings Conference Call. Joining me is our CFO, Greg
Dearlove.
As to the format of the call this morning, Greg is going
to begin with the review of our financial results. After
his review, I'll talk about the trends
HOST: JAMES BOLDT
JULY 20, 2004/10:00 A.M. CDT
PAGE 2
we saw on the second quarter, as well as what we
anticipate for the third quarter of 2004. Then we'll open
the call for questions.
Greg, if you'd start us off, please.
G. Dearlove Thank you, Jim, and good morning.
Before we begin, I want to mention that statements made in
the course of this conference call that state the
Company's or management's intentions, hopes, beliefs,
expectations, and predictions in the future are
forward-looking statements. It's important to note that
the Company's actual results could differ materially from
those projected. Additional information concerning factors
that could cause actual results to differ from those in
the forward-looking statements is contained in our press
releases and from time-to-time, in the Company's SEC
filings.
For the second quarter of 2004, CTG's revenues from
continuing operations were $59 million. Net income from
continuing operations was $700,000. Net income per diluted
share was $0.04. Our second quarter revenues from
continuing operations were below our expectations.
However, our net income from continuing operations and
diluted earnings
HOST: JAMES BOLDT
JULY 20, 2004/10:00 A.M. CDT
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per share were at the midpoint of our guidance.
The direct profit percentage was 26.8% in the second
quarter, down about seven-tenths of a percentage point
from the second quarter of last year, and our operating
profits declined from 2.9% last year to 1.4% in the second
quarter this year. Excluding the impact of our accounting
change in 2002, this is the 12th consecutive quarter that
the Company has reported profitability from continuing
operations.
SG&A decreased by over $297,000 in the second quarter
versus the same quarter last year, and approximated 25.5%
of revenues versus 24.6% in last year's second quarter.
Because of the impact of positive operating profitability
in Europe, along with recently enacted tax law changes in
Europe, we have adjusted our expected effective tax rate
for the year to approximately 25 percentage points.
Revenues from IBM were $13 million in the second quarter
of 2004, as compared to $13.5 million in the second
quarter of 2003. Quarterly revenues from our European
operations were $10.3 million in 2004, as compared to $10
million in last year's second quarter.
On the balance sheet, our day sales outstanding and
receivables decreased
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JULY 20, 2004/10:00 A.M. CDT
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to 68 days from 71 days in the first quarter of 2004, but
we're two days higher than the second quarter of 2003.
Total debt for the Company was $6.6 million at
quarter-end, down from $9 million as of the end of the
first quarter of 2004, and $7.6 million at the end of the
second quarter of 2003.
Our cash flows reflect an increase on operating cash flows
from the quarter during the quarter of approximately $1.4
million. We made $478,000 in capital acquisitions and
recorded depreciation expense of $678,000. Also, total
employment in the second quarter was at 2,500, which
approximately 85% are billable employees.
Jim, that concludes my summary of the Company's financial
results for the second quarter of 2004.
J. Boldt Thanks, Greg. Obviously, we're disappointed with our
revenues in the second quarter of the year. The largest
signal or reason for the decline in sales in the second
quarter versus the first quarter of 2004 was the two fewer
billing days that we had during the second quarter when
compared to the first quarter of the year. At the end of
the first quarter, we forecast that new sales would more
than offset the laws of the two billing days in the second
quarter. Most of the shortfall in the quarter versus our
original
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JULY 20, 2004/10:00 A.M. CDT
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forecast came in the healthcare and strategic staffing
businesses. While our healthcare group did start the
implementation of two new engagements as expected, those
projects ramped up much later in the quarter than we had
forecast, causing a good portion of the shortfall.
While demand and strategic staffing area increased during
the quarter, and I'll talk a little bit more about that in
a minute, we experienced an isolated incident of a
customer insisting on a reduction in our billing rates. As
you know, particularly in the staffing portion of the
business, if we incur billing rate adjustment, we're
forced to make a comparable adjustment to wages. While in
the past few years, this has not impacted our turnover,
given the opportunities for technical staff are
increasing, we experienced a higher than normal turnover
in technical staff in the second quarter due to wage
reductions. We believe that the increased turnover is
subsiding and expect that it will go back to a more normal
turnover rate in the third quarter of the year.
Our staffing demand increased significantly during the
quarter, given that hiring in aggregate increased in the
U.S. in the second quarter of the year. This shouldn't
come as a surprise. Based upon current demand, we need to
add about one-third more to our recruiters in our
strategic staffing
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group, and expect to do so by the end of the third quarter
of 2004. When this is accomplished, we will double the
number of recruiters in that group, since we began to see
an increase in staffing demand in the third quarter of
2002.
Our healthcare group had another good quarter, and now
having secured these two large development and integration
projects, we're convinced that we'll have a double-digit
increase in our healthcare business in 2004. Our Life
Sciences vertical continues to perform extremely well.
Revenues from our Financial Services vertical declined in
the quarter, due to the multi-year projects that ended
earlier this year. We are introducing new offerings in our
financial services vertical, which should benefit the
group as the year progresses.
As you know, we sold our Netherlands operating company
earlier this year. Now that the Dutch operations have been
eliminated, our European region is growing and profitable
again. We see a lot of opportunity in the European market
in the next 12 months.
As we mentioned on the last call, we did invest in several
areas in the second quarter of the year. We ran classes in
certain healthcare software
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JULY 20, 2004/10:00 A.M. CDT
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packages in the second quarter. That investment has paid
off for us, as we placed all of those billable staff on
assignments at the beginning of the third quarter. We also
invested in our information security practice in the
second quarter. That investment also is paying off for us
in the third quarter, as we're seeing strong demand,
particularly from our Sarbanes-Oxley offering.
As to the third quarter of 2004, we're forecasting
revenues in the range of $56 million to $58 million. As
you know, we had 64 billing days in the second quarter of
the year, and we'll have 63 billing days in the third
quarter of the year. In addition, the billable staff takes
off more vacation in the third quarter than in the second.
We generally lose about 3% of revenue, quarter-to-quarter,
given the additional vacation.
This year, we also had the impact of the termination of a
multi-year AMO by a customer who is in liquidation, and is
bringing the work back in-house, as they shut down their
operations. We anticipate that the new healthcare and
staffing business will offset the loss of AMO. Given the
revenue forecast, we believe earnings will be in the $0.01
to $0.03 per share range in the third quarter of the year.
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JULY 20, 2004/10:00 A.M. CDT
PAGE 8
In general, as we said in the news release, we continue to
be optimistic about the market conditions in our business.
Staffing demand increased by more than a third in the
second quarter when compared to the first quarter of the
year. We believe that staffing is returning to a more
normal level. We're adding recruiters and it may take a
month or two to get them acclimated to our company and the
new clients. We expect to see very favorable results in
our staffing business as the year progresses.
Over the last three years, we've repositioned the company
in the faster growing verticals such healthcare and
offerings with higher demand such as information security.
We're seeing the benefit from that repositioning in the
new healthcare projects that are starting. With our
particularly well-received Sarbanes-Oxley offering, we
remain comfortable that our business has turned the corner
and will continue on the road to recovery.
With that, I'd like to open the call for questions, if
there are any. Linda, would you please manage our question
and answer period?
Moderator Our first question comes from the line of Bill Sutherland
with Boenning & Scattergood.
HOST: JAMES BOLDT
JULY 20, 2004/10:00 A.M. CDT
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B. Sutherland Did you guys give IBM?
J. Boldt Yes. I think Greg gave it out, but he can repeat it again.
In the quarter, IBM was just under $13 million, which is
about 22% of our total revenues.
B. Sutherland The strategic staffing piece of business, I'm
going to assume that's probably not your largest client,
but can you just go through the math a little bit with me,
like the dimension of the bill rate decrease and what you
passed through, and what kind of turnover that triggered?
J. Boldt Yes. Actually, I can't obviously talk about who the
customer was, but the bill rate to the client was 5%,
which, we believe and told the customer, that in this
current market is totally unwarranted. We reduced the
technical staff's wages by 5% if their bill rate decreased
by 5%, which is pretty typical these days.
B. Sutherland Then because of the turnover, you're talking
about more than just the cost of friction. You mean, the
inability to staff as many slots as many days actually
impacted revenue as well?
J. Boldt Yes. We literally had people quit. I mean, they just
walked out rather than
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take the bill rate reduction. Particularly starting in
May, the demand for staffing has just increased
dramatically. I mean it was so high an increase that, at
first, we thought it was just an admiration. The billable
staff now have other alternatives, so rather than take a
rate reduction and look for another job, they just said,
"No, thanks."
B. Sutherland This is so cock-eyed, I'm having trouble processing it. I
don't see the strength in strategic staffing in your
numbers, of course.
J. Boldt Yes. Our strategic staffing business has gone up for the
last four quarters in a row through the first quarter of
this year in terms of the number of billable staff, etc.
And in the second quarter, that didn't go up. I think the
billable staff actually declined because the turnover went
up so dramatically.
B. Sutherland This was a pretty big client?
J. Boldt Yes, it was.
B. Sutherland The healthcare business, the two big deals you've gotten,
Jim, are to do what kind of work?
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JULY 20, 2004/10:00 A.M. CDT
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J. Boldt It's a package implementation.
B. Sutherland Is that typical of what you're getting or is it all over
the place?
J. Boldt We do a lot of package implementation and integration.
These are two huge projects: one is here in the United
States, and one is in England.
B. Sutherland Those will probably run most of the year?
J. Boldt Yes. Actually, the one in England, I think the entire
project runs five years or so.
B. Sutherland How about what's new with AMO?
J. Boldt Well, we're certainly seeing a lot of interest in AMO. I
think every CEO in the country has picked up the Wall
Street Journal and read something about outsourcing a
portion of the business. We did sign one new AMO up in the
second quarter of the year. Probably in almost every one
of the AMO that were pursuing, currently, a portion of at
least goes offshore, but most of the work is still done
here in the United States.
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JULY 20, 2004/10:00 A.M. CDT
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B. Sutherland I guess to really kind of see year-over-year,
aside from seasonalities, when you fully embed this
strategic staffing setback, you'll start to see sequential
growth as soon as Q4, in your mind, or too early to tell?
I mean, it seems like with all the strategic staffing
momentum, you should.
J. Boldt I'm not sure about versus the previous year's
quarter, but, certainly, we would expect that revenues
would go up in the fourth quarter versus the third quarter
of the year.
B. Sutherland On a same day basis.
J. Boldt Same day basis, yes.
B. Sutherland Thanks, Jim.
Moderator Our next question comes from the line Dan Boyer with
Boenning & Scattergood.
D. Boyer A question pertaining to that contract where you asked for
the give back. I'm relatively unfamiliar with this
industry. I work with Bill, and I think
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his research is excellent. But do you see this as a
beginning of a trend in the industry where someone can use
their weight to reconfigure a contract, or would you
characterize this is an isolated incident?
J. Boldt I absolutely believe it's an isolated incident, but it's
actually the reverse of a trend that had been occurring.
After 2000, as there were more technical workers
unemployed, wages came down, and bill rates tended to come
down. Pretty much about a year ago, we thought that we'd
absolutely seen the end of that. There were some customers
who asked for lower bill rates because wages, in total,
had dropped. In the last year, we really haven't seen much
of that other than this one isolated incident.
D. Boyer Thank you.
Moderator There are no further questions at this time, sir. Please
continue.
J. Boldt I'd like to thank you for your continued support, and for
joining us today. Have a great day.