Q1 '21 Earnings Preview

CTG, Inc. (CTG) reports Q1 ’21 results on Thursday, April 29. Our estimates are generally consistent with consensus, and we anticipate CTG will again meet or exceed Street expectations. Key to our view is management’s prior indication that revenue per billable day in Q1 could hold steady from the 2020 high watermark achieved in Q4, which suggests our projections may prove conservative. As for guidance, we assume management will again refrain from providing specific financial targets for Q2 or the year given ongoing lockdowns in key European markets. That said, we surmise the aspirational targets pertaining to CTG’s 2023 Vision will be a major focus during the call. Given the meaningful appreciation in shares since the start of the year, CTG now trades above our $11.00 price target, which is based on a FY ’21 EV/EBITDA multiple of 8x. We believe the upcoming print is unlikely to serve as a significant catalyst considering the stock performance to date although we think a case for further upside remains. In this regard, we note that Kelly Services (KELYA) acquired staffing and workforce solutions provider Softworld earlier this month for $215 million in cash, implying a valuation north of 2x sales. Softworld was reportedly growing at a double-digit rate despite COVID-related headwinds but a sizeable discount to that multiple would still support meaningful upside for CTG. We plan to reevaluate our price target after the upcoming print.

Exhibit I: Our Estimates Versus Consensus

For Q1, we project revenue, adjusted EBITDA and non-GAAP EPS of $92.4 million, $3.7 million and $0.12, respectively, generally in line with consensus of $93.2 million, $3.7 million and $0.12. Our estimates assume continued strong growth in IT Solutions revenue to $37.5 million (+29% Y/Y), partially offset by a modest decline in IT Staffing revenue to $54.9 million (-5% Y/Y). Reflecting the higher mix of solutions, we anticipate significant gross margin expansion relative to the year ago period, somewhat offset by higher operating expenses. Looking forward, we surmise management’s Q2 commentary should be supportive of current Street expectations for a flat to sequential decline in revenue and continued Y/Y increases in profitability. We believe this view is appropriate due to ongoing lockdown restrictions in CTG’s key European markets, which are expected to remain in place throughout the first half of Q2. Moreover, Q2 will have fewer billable days than in Q1. We continue to anticipate accelerating growth in 2H ’21 and beyond as economies reopen, positioning CTG to deliver upon its aspirational goals for 2023.

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.