Computer Task Group said third-quarter earnings rose 27 percent, as new and expanded health care projects and contracts raised higher margin business.
The Buffalo-based information technology software and services company reported net income of $3.81 million, or 23 cents per share, up from $2.99 million, or 18 cents per share, a year ago.
During the quarter, the company bought back 38,000 shares at an average price of $14.32. It still has 550,000 shares it can buy under its existing authorization. Earlier this month, it also extended its special stock repurchase plan under federal law that allows it to buy back shares during the self-imposed “blackout” periods just before quarterly earnings are announced.
Operating income rose 38 percent to $6.32 million, as the profit margin improved by nearly 1.5 percentage points, while total revenues rose 5 percent to $106.4 million.
Specifically, health care revenues rose 17 percent and represented 33 percent of total revenues, up from 30 percent a year ago. It’s the second straight quarter that health care comprised more than one-third of the total. Health care revenues have grown 20 percent so far this year.
“CTG delivered another quarter of strong financial results with the increasing volume and profitability of solutions work in our health care business continuing to drive this year’s significant growth in margins and earnings,” Chairman and Chief Executive Officer James R. Boldt said.
Overall, solutions revenue rose 13 percent to $44.2 million and represented 42 percent of total revenues, up from 39 percent a year ago. That’s the fourth straight quarter that solutions revenue comprised more than 40 percent of revenues.
Staffing revenue rose to $62.2 million from $62 million, but its contribution fell to 58 percent of the total from 61 percent. As a result, the company’s business mix is shifting toward the higher margin solutions arena. “As expected, the softness in the economy is muting growth in our less-profitable staffing business, which was stable in the quarter,” Boldt said. “Growing our health care IT business remains the major focus of CTG’s growth strategy.”
Both medical providers and insurers contributed to CTG’s health care business in areas including electronic medical records and other systems implementations, outsourcing and consulting. EMR revenues rose 25 percent and comprised 17 percent of total revenues in the quarter because of “the ramp-up and expansion of large EMR projects,” Boldt said, noting that the company was working on 18 large projects at the end of the quarter while awaiting client decisions on three proposals.
European revenues rose 2 percent to $16.3 million, comprising 15 percent of revenues, down from 16 percent a year ago. The company, which has an operation based in Brussels, home to most European Union operations, benefited from growth in EU spending on external technology support. That offset lower corporate technology spending and the impact of foreign currency exchange.
Selling, general and administrative expenses ticked up to $16.8 million from $16.4 million a year ago but fell compared with revenues to 15.8 percent from 16.2 percent because the company controlled costs while growing revenues.
The company also tightened its profit and revenue expectations for the fourth quarter and full year, even increasing the midpoint for profits, based on results so far and business trends. It now expects about $109 million in revenues and 23 cents per share in profits for the quarter, and about $425 million in revenues and 88 cents per share in profits for the year.
“This year’s strong growth in revenue from our health care division, CTG’s most profitable business unit, has us in position to achieve our sixth year in the last seven of robust double-digit earnings growth,” Boldt said. “Health care revenue is now about one-third of total revenue, furthering CTG’s transformation to an IT services and solutions company with a primary focus on health care IT.”