CTG announces Q4 & full year results
Diluted net income per share for the 2013 fourth quarter was $0.22, compared with 2012 fourth quarter net income of $0.29 which included a non-operational gain of $0.8 million or $0.05 per diluted share from insurance proceeds.
Excluding this non-operational gain, net income per diluted share for the 2013 fourth quarter was two cents or 8% less than last year's fourth quarter.
The company also announced that CTG's Board of Directors at its February meeting declared a quarterly cash dividend of six cents per common share, a one cent or 20% increase from its previous level. The dividend is payable on April 1, 2014 to shareholders of record on March 19, 2014.
"Fourth quarter earnings were within our guidance range and the operating margin of 5.9% was at the same level as last year's fourth quarter despite lower revenue," said CTG Chairman and Chief Executive Officer James R. Boldt. "Disciplined cost control and the favorable effect from higher margin engagements in both our staffing and solutions business helped to offset the unfavorable impact of lower revenue in our healthcare business on earnings. All things considered, we had a very good year with earnings 5% higher than 2012 after the exclusion of 2012 non-operational gains, making 2013 our most profitable year in well over a decade."
Mr. Boldt continued, "The decline in revenue in 2013 from our healthcare business was primarily due to a reduction in provider spending on IT investments as large hospitals were affected by a 2% reduction in Medicare reimbursements tied to the federal budget sequestration. While spending on electronic health records (EHR) work softened later in the year as projects were delayed, revenue from data analytics software products increased in 2013. At 31% of total revenue, our healthcare business was the largest contributor to revenue in 2013."
2013 Fourth Quarter Review
Revenue, operating income, net income, and diluted net income per share for the 2013 fourth quarter as compared with the 2012 fourth quarter are as follows (dollar amounts in thousands except per share data).
The Company's operating margin was 5.9% in both the 2013 and 2012 fourth quarters.
Solutions revenue in the 2013 fourth quarter decreased by $4.9 million or 10.7% to $40.4 million, representing 39% of total revenue compared with 42% in the 2012 fourth quarter. Staffing revenue decreased by $0.3 million or 0.5% to $62.3 million, or 61% of total revenue, compared with 58% in the 2012 fourth quarter. European revenue, which includes the acquisition of etrinity in 2013, was $20.9 million, or 20.3% of total revenue, in the 2013 fourth quarter, a $2.6 million increase from $18.3 million, or 17.0% of total revenue, in the 2012 fourth quarter. Foreign currency exchange fluctuations had a $0.9 millionfavorable effect on revenue in the quarter compared with the 2012 fourth quarter. There were 65 billing days in the fourth quarter of 2013 and 64 billing days in the fourth quarter of 2012.
Selling, general, and administrative (SG&A) expenses were $16.2 million or 15.8% of revenue, compared with $17.1 million or 15.8% of revenue in the 2012 fourth quarter.
Cash provided from operations was $18.2 million in the 2013 fourth quarter, compared with cash provided from operations of$11.4 million in the 2012 fourth quarter. At December 31, 2013, the Company had $46.2 million in cash compared with $40.6 million at the end of the 2012 fourth quarter. The Company had no outstanding debt at the end of the 2013 and 2012 fourth quarters.
2013 Full Year Review
Results for the 2013 full year reflect the same trends seen in the fourth quarter. Revenue, operating income, net income, and diluted net income per share for 2013 as compared with 2012 were as follows (dollar amounts in thousands except per share data):
The Company's operating margin in 2013 expanded by 10 basis points to 5.9% from 5.8% in 2012. In 2013, CTG's solutions business decreased 5.3% to $164.9 million, or 39% of total revenue, and its staffing business grew 1.5% to $254.1 million, or 61% of total revenue. European revenue, which includes the acquisition of etrinity in 2013, increased 12.4% in 2013 to $77.1 million and represented 18.4% of total revenue. Foreign currency exchange fluctuations had a $2.3 million favorable effect on revenue in 2013 compared with 2012. At December 31, 2013, headcount was 3,700, a decrease of 200, or 5%, from 3,900 at year-end 2012.
Selling, general, and administrative expenses were $64.0 million, or 15.3% of revenue, compared with $66.9 million, or 15.8% of revenue, in 2012. In 2013, CTG recorded $2.8 million in depreciation and amortization expense, and $4.0 million for capital expenditures.
The Company's effective tax rate in 2013 was 35.6% compared with 36.5% in 2012.
Stock Repurchase Program
CTG repurchased 116,000 of its shares in the 2013 fourth quarter at an average price of $17.43 per share. In 2013, the Company repurchased 399,000 shares at an average price of $18.36 per share. In January 2014, the Company extended its 10b5-1 stock repurchase plan to facilitate the repurchase of its common stock during its self-imposed blackout periods prior to the announcement of quarterly results. On December 31, 2013, approximately 1.1 million shares were available under its current repurchase authorizations.
CTG is issuing the following initial guidance for 2014 based on its current business activity, pipeline, and forecast:
Boldt commented, "We expect first quarter results to lag the rest of the year as spending from healthcare providers remains muted. We do expect spending to pick up modestly later in the year as large hospitals make the financial adjustments to fund the necessary IT investments to implement and optimize EHR systems and to comply with health reform mandates and initiatives. We also look for revenue and earnings to gain momentum as the year progresses as work in our pipeline for application management outsourcing services and data analytics projects ramps up."
Mr. Boldt added, "Our focus on growing our business in the healthcare market remains the right strategic course for CTG. Healthcare is the largest component of the U.S. GDP, and its sheer size and the demographics of an aging population will drive spending on technology to lower costs and facilitate better treatments. There are many diverse opportunities to grow our healthcare business for the long-term. These include health reform initiatives like accountable care that is changing reimbursement models, the need to implement EHRs and health information exchanges to facilitate the secure sharing of health information among different providers, and regulatory compliance mandates like the October 2014 deadline for conversion to the ICD-10 standard for diagnostic coding.
"Further out, European health providers are looking to U.S. EHR systems to contain the cost of healthcare and make its delivery more efficient. With our 2013 purchase of Belgian health IT services firm etrinity and our 600 person strong IT consulting organization in western Europe, CTG is very well positioned for the eventual start of EHR implementations. Data analytics is emerging as the next big growth opportunity in health IT. Our suite of proven proprietary data analytics products designed to lower costs and improve outcomes prepares us well to capitalize on that opportunity. CTG is further differentiated in the data analytics space by our recently formed relationship with the Center for Computational Research (CCR) at the State University of New York at Buffalo that gives us access to the CCR's powerful supercomputing resources including one of the largest, fastest supercomputers in the world."
Mr. Boldt concluded, "CTG is approaching all of these opportunities from a position of strength. We are a respected, well established leader in health IT. We also bring the advantage of being a financially strong company with the resources and cash flow to continue making investments in our business along with funding an active share repurchase program and a regular quarterly cash dividend. Reflecting their confidence in CTG's prospects and its financial strength, the Board of Directors recently increased the cash dividend on CTG common stock just a year after initiating it. Long term, CTG is in an excellent position to continue on our course of growing our business and earnings to create value for CTG shareholders."