Q4 '20 Earnings Preview
CTG, Inc. (CTG) reports Q4 ’20 results on Tuesday, February 23. Our estimates are generally in line with consensus, and we expect the company to meet or exceed our projections. Aside from continued execution amid the pandemic, we believe CTG’s results also benefited from favorable currency fluctuations in Q4, thereby increasing the contribution from higher margin IT Solutions revenue. As for the outlook, recall that CTG ceased providing guidance following the onset of the COVID-19 pandemic. While lockdowns associated with the pandemic continue to impact CTG’s business at present, we believe that management may put forth at least quarterly guidance, if not its usual annual targets. Our price target remains unchanged at $8.25 based on a FY ’21 EV/EBITDA multiple of 6x.
Exhibit I: Our Estimates Versus Consensus
Our Q4 estimates include revenue of $93.9 million (-5.4% Y/Y), adjusted EBITDA of $3.9 million (4.2% margin) and non-GAAP EPS of $0.12, in line with Street expectations for $93.7 million, $3.9 million and $0.12, respectively. Underlying our assumptions are IT Solutions revenue of $37.3 million (-1.6% Y/Y) and IT Staffing revenue of $56.6 million (-7.8% Y/Y). With over 40% of revenue from Europe and the Euro further strengthening against the U.S. dollar during Q4, we remain comfortable with our top line projections and see potential for upside. Gross margin should also exhibit meaningful expansion versus the year-ago period due to a higher mix of solutions revenue and a reduction in lower margin staffing engagements. Finally, we assume operating expenses increase modestly on both a sequential and Y/Y basis to $18.1 million.
As far as guidance is concerned, we are unsure whether management is willing to revert to its historical practice of providing annual guidance given the ongoing pandemic. However, we anticipate that CTG will provide at least a near-term outlook given that results over the past few quarters have been relatively stable. In this regard, we think guidance should compare favorably with our expectations for Q1 given potential tailwinds from currency and a higher number of billing days. If management opts for its usual annual guidance, hereto we remain comfortable as our full year estimates remain conservative, reflecting revenue growth in the low single digit range and only a slight increase in adjusted EBITDA.
Our report with model and disclosures is available here.
Disclosure(s):
K. Liu & Company LLC (“the firm”) receives or intends to seek compensation from the companies covered in its research reports. The firm has received compensation from CTG, Inc. (CTG) in the past 12 months for “Sponsored Research.”
Sponsored Research produced by the firm is paid for by the subject company in the form of an initial retainer and a recurring monthly fee. The analysis and recommendations in our Sponsored Research reports are derived from the same process and methodologies utilized in all of our research reports whether sponsored or not. The subject company does not review any aspect of our Sponsored Research reports prior to publication.