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CTG's profits soar 90% in fourth quarter

Computer Task Group said net income soared 90 percent in the fourth quarter, driven by tighter cost controls and an increase in more profitable work developing software solutions for health care payers.

The Buffalo-based international information technology staffing and software company reported profits of $2.3 million for the quarter, or 15 cents per share, up from $1.2 million, or 7 cents per share, a year earlier. The recent quarter included a $500,000 gain, or 3 cents per share, from currency exchange on borrowings.

Total revenues fell 1.4 percent to $83.3 million, but operating income rose 75 percent to $3.2 million as the margin expanded significantly.

Executives credited the performance to company's strategy of going after the faster-growing market for health insurance software and electronic medical records. Health care currently contributes 26 percent of the company's revenues, and officials say that's an opportunity that is only going to get bigger as the federal government pushes the use of more technology in the health care system.

As a result, the company has been able to achieve its goal of growing well above the 4.1 percent pace of growth for U.S. technology spending.

"CTG's strong results in the quarter and the full year reflect the value of our strategy to increase our solutions business with a focus on the health care market," said Chairman and Chief Executive Officer James R. Boldt in a press release.

The $787 billion federal stimulus package includes $19 billion in federal funding for health care technology over the next few years, with a focus toward President Obama's goal of using electronic medical records to lower costs and improve medical care.

CTG's advances in those areas, and its existing work with health care providers and payers, "are competitive advantages that position CTG very favorably for the future," Boldt said.

However, he also cautioned that the recession had started to affect the company in the fourth quarter, mostly in its lower-margin staffing business, as demand for outside technology services waned.

In particular, one major customer notified the company in mid-October that it would not need 250 CTG staff, cutting revenues by $21 million. The customer further cut its need by another 175 over the next few months, bringing the total impact to 425 billable staff and $36 million in lost revenues. CTG remains a prime services supplier for the client.

CTG compensated for lower revenues in that arena by growing the solutions business and cutting costs. Most of the company's software solutions for health care payers are now being piloted at various client sites, and Boldt said the company was confident, "based on preliminary results," that it would be able to start offering them commercially this year.

Looking ahead, the company expects first-quarter revenues to fall about 15 percent and for profits per share to drop about 11 percent, assuming the economy remains weak for the first three quarters of 2009 before government stimulus efforts begin having an effect. For the year, it projected a 16 percent drop in revenues and a 29 percent drop in profits per share.

"We continue to have the liquidity to support our business needs and growth plans," Boldt said. "At the same time, we are remaining vigilant on cost control to help us weather what is certain to be a difficult year for businesses and consumers."

During the quarter, solutions revenue rose 2.3 percent to $29.9 million, representing 36 percent of total revenues. Staffing revenues fell 3.3 percent to $53.4 million, and comprised the bulk of revenues, with managed staffing services being the primary contributor.

Revenues from Europe fell 3.8 percent to $19.1 million, and represented 23 percent of all income, as currency exchange fluctuations hurt total revenues by $2 million.

Selling, general, and administrative costs fell to $15.4 million, representing 18.5 percent of revenues. The decline from 20 percent of revenues a year ago came from tighter cost control and lower overhead expenses because there was less staffing demand.

e-mail: jepstein@buffnews.com

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