Computer Task Group, Incorporated

Q1 consolidated revenue was $78.2 million. Consolidated gross margin was 25.7%, up 270 basis points year over year and 430 basis points over two years. GAAP operating income was $0.7 million, with non-GAAP operating income of $2.1 million, or 2.7% of revenue. Net income was $300,000, or $0.02 per diluted share; non-GAAP diluted EPS was $0.08. North America IT Solutions & Services revenue rose 13.5%, while Europe revenue declined 5.6% on currency effects. For 2023, CTG now expects total revenue of $310 million-$340 million, with IT Solutions & Services revenue of $265 million-$285 million, non-strategic technology services down $40 million-$45 million, GAAP diluted EPS of $0.34-$0.42, and non-GAAP diluted EPS of $0.56-$0.64. Management said the midpoint of IT Solutions & Services revenue implies 18% year-over-year growth and more than 10% growth in that segment in Q2 versus last year.

Filip Gyde framed the quarter as another step in CTG’s transformation into a pure-play IT solutions business, emphasizing that the company is shifting toward digital solutions, especially software engineering. He highlighted strong bookings, the successful integration of Eleviant, and the opportunity to win higher-value business from existing clients that previously bought lower-margin staffing services. His tone was confident and strategic, with repeated emphasis on long-term margin expansion and the goal of reaching 7% adjusted EBITDA margins by the end of 2023 and 10% by the end of 2025.

John Laubacker focused on the financial effects of the mix shift and the costs associated with transformation. He cited $78.2 million of revenue, 25.7% consolidated gross margin, $0.7 million of GAAP operating income, $2.1 million of non-GAAP operating income, and cash and cash equivalents of $23.3 million, with only $1.4 million drawn on the revolver and no other long-term debt. He explained that the 2023 EPS midpoint was lowered by $0.02 because of slower pass-through of European wage increases, stronger macro headwinds in Europe, and Q1 investments in sales, solutions, delivery, and marketing; he also noted the ERP project will cost an estimated $8 million-$10 million over roughly two years.

Analysts focused on the large $20 million healthcare deal, asking about the vertical, ramp timing, and whether revenue would be stable once fully ramped; management said it is a separate opportunity from the Eleviant-driven win, it is in healthcare, and it began planning at the end of last quarter and is ramping now. Questions also centered on Europe, where management said wage inflation is being passed through gradually, roughly half of contracts have inflation adjustment provisions, but labor constraints and slower client decisions remain issues. On guidance, management said the lower EPS midpoint reflects Europe-specific inflation pass-through timing, stronger macro pressure, and deliberate Q1 hiring/investment to support growth.