Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes contained in Part II, Item 8 of this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed above under "Forward-Looking Statements" and under the caption "Risk Factors" in Part I, Item 1A of this report.
Industry Trends
The IT services industry is extremely competitive and characterized by continuous changes in client requirements and improvements in technologies. Our competition varies significantly by geographic region, as well as by the type of service provided. Many of our competitors are larger than CTG, and have greater financial, technical, sales, and marketing resources. In addition, the Company frequently competes with a client’s use of its own internal IT staff for projects. Our industry continues to be impacted by the use of lower-cost offshore delivery capabilities (primarily India and other parts of Asia). There can be no assurance that we will be able to continue to compete successfully with existing or future competitors or that future competition will not have a material adverse effect on our results of operations and financial condition.
The market demand for the Company’s services is heavily dependent on information and technology-related spending by major corporations, organizations and government entities in the markets and regions that we serve. The pace of technology advances, changes in business requirements, and the practices of our clients all have a significant impact on the demand for the services we provide. Competition for new engagements and pricing pressure has been strong as there are numerous competitors. The demand for the Company's IT Solutions and Services business decreased in 2022 as a large project completed in the second half of 2021 was not repeated in 2022. Additionally, higher inflation and challenging macroeconomic conditions in all of the countries in which we operate began to negatively impact demand in the second half of 2022. In 2021, demand for the Company's IT Solutions and Services business significantly improved as the impact of the COVID-19 pandemic was lower in 2021 than in 2020.
Acquisition of Eleviant
On September 29, 2022, the Company acquired 100% of the equity of Eleviant for approximately $19.0 million, including $17.4 million of cash on hand. In addition to the cash payment, Eleviant owners and executives were issued 173,802 shares of common stock valued at $1.2 million, and 200,000 stock options from the 2020 Equity Award Plan at the date of acquisition, valued at $0.4 million. Additionally, an earn-out of $5.0 million can be earned, a portion of which will be payable in each period subject to the achievement of revenue and gross profit targets for fiscal 2022, 2023 and 2024.
The U.S.-based Eleviant is a provider of digital transformation services and solutions, and is headquartered in Dallas, TX, with operations in Chennai and Coimbatore, India. Eleviant’s offerings support the new ways enterprises work, communicate, and scale today and focus on cloud, application modernization, mobile, artificial intelligence (AI), machine learning (ML), and robotic process automization (RPA). Eleviant’s services are supported by a portfolio of supporting solutions, including PeopleOne, a Digital Workplace platform for employee engagement, communication, and collaboration; vChat, a chatbot builder platform; and vBots, an RPA builder platform. The acquisition is expected to aid CTG in accelerating the growth of digital solutions sales to clients in the Americas and Europe and create new points of entry with proven technology services and solutions. Prior to acquisition, Eleviant recorded approximately $10 million of revenue annually.
The results of operations of Eleviant have been included in the Company’s consolidated financial results since the date of acquisition. As the Company has determined that the acquisition is not material to its existing operations, certain disclosures, including proforma financial information, have not been included in this annual report on Form 10-K.
Revenue and Cost Recognition
The Company recognizes revenue when control of the promised good or service is transferred to clients in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with progress billing schedules, primarily monthly, revenue is recognized as services are rendered to the client. Revenue for fixed-price contracts is recognized over time using an input-based approach. Over time revenue recognition best portrays
the Company’s performance in transferring control of the goods or services to the client. On most fixed price contracts, revenue recognition is supported through contractual clauses that require the client to pay for work performed to date, including cost plus a reasonable profit margin, for goods or services that have no alternative use to the Company. On certain contracts, revenue recognition is supported through contractual clauses that indicate the client controls the asset, or work in process, as the Company creates or enhances the asset. On a given project, actual salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at the completion of the project. Revenue is recognized based upon the percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs that could distort the percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and the Company's experience on similar projects, and includes management judgments and estimates that affect the amount of revenue recognized on fixed-price contracts in any accounting period. Losses on fixed-price projects are recorded when identified.
The Company’s revenue from contracts accounted for under time-and-material, progress billing, and percentage-of-completion methods as a percentage of consolidated revenue for the three years ended December 31, 2022, 2021, and 2020 was as follows:
Time-and-material
Progress billing
Percentage-of-completion
Total
Segments
The Company provides information technology and related services to its clients. These services include digital IT Solutions and Services, and Non-Strategic Technology Services. With digital IT Solutions and Services, the Company generally takes responsibility for the deliverables and some level of project and staff management, and these services may include high-end advisory or business-related consulting. When providing Non-Strategic Technology Services, including managed staffing, staff augmentation, and volume staffing, personnel are provided to clients based upon their requirements for specific skills, who then, in turn, take their direction from clients’ managers.
The Company’s strategy throughout its operations has been, and continues to be, to expand the amount of IT Solutions and Services it provides to its clients as compared with Non-Strategic Technology Services, and to focus on delivering digital solutions. IT Solutions and Services provide significant value to our clients, and drive higher bill rates and margins for the Company. Existing solutions include business, technology, and operations solutions that aid the Company's clients in digitally transforming their company, and ultimately meet the needs of its clients. The digital services the Company delivers includes the Internet of Things, Intelligent Automation, Data and Analytics, Cloud and Automated Testing.
In prior years, and in 2021 prior to the fourth quarter, the Company reported its results in one segment. This included operating segments for each of North America and Europe. The services the Company provided, regardless of geography or industry, were similar in nature and produced similar results. Additionally, the CEO, who is the Company’s chief operating decision maker, made decisions on investments and allocated resources at the North America or Europe level. Accordingly, given the consistency of the services provided and results, the Company aggregated those results into one reporting segment.
During the 2021 fourth quarter, the Company further refined its strategy to focus on providing digital services within its IT Solutions and Services business in both North America and in Europe. The focus includes investing in business development, solutions, delivery, and marketing for IT Solutions and Services, and critically evaluating each significant staffing engagement as it comes up for renewal to determine if the Company would continue to provide those services to its client. These decisions are based on, among other factors, critically evaluating the work performed, the availability of the resources, the client, the long-term opportunities for the services provided at the client, and the revenue and profit associated with the engagement. As part of this process, the Company determined that there are certain lower margin staffing services within its business that are no longer part of the Company’s long-term business plan.
Accordingly, in connection with this refinement of the Company’s strategy in the 2021 fourth quarter, the Company is operating and reporting in three segments within its business: North America IT Solutions and Services, Europe IT Solutions and Services, and Non-Strategic Technology Services. See Item 1. Business, “IT Solutions and Services,” and “Non-Strategic Technology Services” for further discussion of these segments.
The Company's 2022 third quarter acquisition of Eleviant Technologies, an expert in mobile, cloud, web blockchain, robotic process automation (RPA) and artificial intelligence (AI) technologies, strengthened its digital offerings in software engineering, including in such areas such as AI, machine learning (ML), and intelligent automation while expanding capabilities in cloud migration, mobile application development, and emerging technologies, including blockchain. The Company's software-as-a-service (SaaS) offerings expand through leveraging Eleviant’s PeopleOne intranet solution, vChat, vBots, and other platforms. In addition, The Company's Global Delivery Network capacity, agility, and flexibility increases with the addition of established Eleviant teams in Chennai and Coimbatore, India. Eleviant is included in the North America IT Solutions and Services segment as it is directly managed by that team.
CTG’s revenue by segment for the three years ended December 31, 2022, 2021 and 2020 was as follows:
(amounts in thousands)
North America IT Solutions and Services
Europe IT Solutions and Services
Non-Strategic Technology Services
Total
The Company provides a majority of its services in five vertical market focus areas: technology service providers, healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), financial services, manufacturing, and energy. The remainder of CTG’s revenue is derived from general markets.
CTG’s revenue by vertical market as a percentage of consolidated revenue for the years ended December 31, 2022, 2021, and 2020 was as follows:
Technology service providers
Healthcare
Financial services
Manufacturing
Energy
General markets
Total
Results of Operations
The table below sets forth percentage information calculated as a percentage of consolidated revenue as reported on the Company’s consolidated statements of income as included in Item 8, “Financial Statements and Supplementary Data” in this report.
Year Ended December 31,
(percentage of revenue)
Revenue
Direct costs
Gross profit
Operating expenses
Contribution profit
General and administrative expenses
Operating income
Interest and other income (expense), net
Income before income taxes
Provision (benefit) for income taxes
Net income
2022 as compared with 2021
The Company’s operating segments recorded revenue in 2022 and 2021 as follows:
Year-Over-
(amounts in thousands)
% of total
% of total
Year Change
North America IT Solutions and Services
Europe IT Solutions and Services
Non-Strategic Technology Services
Total
North America IT Solutions and Services revenue decreased $17.5 million or 17.2% in 2022 from 2021 as the Company completed in 2021 a very large project totaling more than $35 million in revenue that was not repeated in 2022. Revenue in Europe decreased 11.5% from the prior year as foreign currency exchange rates decreased significantly in 2022 which reduced revenue year-over-year.
Non-Strategic Technology Services revenue decreased $30.3 million or 25.0% during 2022 as compared with 2021. The Non-Strategic Technology revenue decrease was in large part due to the Company continuing to disengage from its lowest margin staffing projects, and from a continued decrease in demand for these services which began during the Pandemic.
The Company recorded revenue by geography in 2022 and 2021 as follows:
Year Ended December 31,
% of total
% of total
Year-Over-
Year Change
(dollars in thousands)
North America
Europe
Total
Reimbursable expenses billed to clients and included in revenue totaled $0.6 million and $1.1 million in 2022 and 2021, respectively.
The Company includes all billable consultants, including both employees and subcontractors, in its headcount. The Company’s total headcount was approximately 3,200 at December 31, 2022, which was a 7% decrease from approximately 3,450 at December 31, 2021. The Company added approximately 300 employees with the acquisition of Eleviant in the third quarter of 2022. The decrease in headcount is in large part due to the significantly declining revenue in the Company's Non-Strategic Technology Services segment. As the Company continues to disengage from lower margin Non-Strategic Technology Services, total headcount is expected to continue to decrease. Approximately 86% of the Company's total headcount was for technical resources and 14% for support positions.
The decrease in revenue in 2022 as compared with 2021 in the Company’s European operations was in large part due to the weakness relative to the U.S. dollar of the currencies in Belgium, Luxembourg, France, and the United Kingdom, the countries in which the Company’s European subsidiaries operate. In Belgium, Luxembourg, and France, the functional currency is the Euro, while in the United Kingdom the functional currency is the British Pound. In 2022 as compared with 2021, the average value of the Euro decreased 10.9%, and the average value of the British Pound decreased 10.1%. A significant portion of the Company's revenue from its European operations is recorded in Belgium, Luxembourg, and France. Revenue in constant currency is measured by applying the current period's average exchange rate to the prior periods. Based on this methodology, foreign currency exchange fluctuations contributed $18.6 million in revenue to the Company in 2021 and $1.2 million in operating income.
International Business Machines Corporation (IBM), CTG’s largest client, accounted for $57.1 million or 17.6% and $74.8 million or 19.1% of the Company’s consolidated revenue in 2022 and 2021, respectively. The National Technical Services Agreement with IBM expires on October 27, 2023. As part of the National Technical Services Agreement, the Company provides its services as a predominant supplier primarily to IBM’s Integrated Technology Services and the Systems and Technology Group business units. This agreement accounted for approximately 66% of all of the services provided to IBM by the Company in 2022. The Company’s accounts receivable from IBM at December 31, 2022 and 2021 totaled $14.0 million and $8.9 million, respectively. We expect to continue to derive a significant portion of our revenue from IBM in future years; however, a significant decline or the loss of the revenue from this client would have a significant negative effect on our operating results. No other client accounted for more than 10% of the Company’s revenue in 2022 or 2021.
The Company recorded operating results in 2022 and 2021 in its operating segments as follows:
North America IT Solutions and Services
Change
Revenue
Direct costs
Gross margin
Operating expenses
Contribution margin
Europe IT Solutions and Services
Change
Revenue
Direct costs
Gross margin
Operating expenses
Contribution margin
Non-Strategic Technology Services
Change
Revenue
Direct costs
Gross margin
Operating expenses
Contribution margin
North America IT Solutions and Services direct costs, defined as costs for billable staff including billable out-of-pocket expenses, were 62.3% and 67.9% of revenue in 2022 and 2021, respectively. The results of Eleviant subsequent to its acquisition on September 29, 2022, are included in this segment. During 2022, the Company continued to focus on selling and delivering digital transformation solutions, which yield higher margins. In 2021, this segment included a significant training, implementation, and support engagement for a health system that drove direct costs higher, which resulted in a lower gross margin, or 32.1% of revenue in 2021 compared with 37.7% of revenue in 2022.
Europe IT Solutions and Services direct costs were similar in 2022 and 2021 totaling 75.4% and 76.2% of revenue, respectively. The decrease in direct costs is due to a focus on selling digital engagements which incur less costs and yield a higher margin.
Non-Strategic Technology Services incurred a decrease in directs costs of 1.4% from 88.9% of revenue in 2021 to 87.5% in 2022. As a result, the gross margin increased to 12.5% from 11.1%. The increase year-over-year was driven by the Company continuing to disengage from its lowest margin staffing engagements.
Operating expenses were higher in 2022 as a percentage of revenue as compared with 2021 in the Company’s North America IT Solutions and Services segments given continued investments in business development, solutions and delivery. This increase also reflects a loss of operating leverage due to lower revenue in the segment. In the Non-Strategic Technology Services segment, there was a continued concerted effort to reduce costs and improve profits as the Company disengages from this revenue.
Interest and other expense was 0.5% of revenue in 2022 and 0.2% of revenue in 2021.
The Company’s effective tax rate (ETR) is calculated based upon the full year's operating results and various tax related items. The ETR in 2022 was 30.8%, while the 2021 ETR was (17.0)%. The ETR in 2021 was mainly impacted by a reversal of the valuation allowance against the Company’s U.S. deferred tax assets.
Net income for 2022 was 2.0% of revenue or $0.44 per diluted share, compared with 3.5% of revenue or $0.92 per diluted share in 2021. Diluted earnings per share were calculated using 15.2 million weighted-average equivalent shares outstanding in 2022 and 15.0 million in 2021.
2021 as compared with 2020
A discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 that are not in this report can be found under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on March 15, 2022, and is available on the SEC’s website at www.sec.gov .
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the Company’s management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s significant accounting policies are included in Note 1 to the consolidated financial statements contained in this annual report on Form 10-K under Item 8, “Financial Statements and Supplementary Data.” These policies, along with the underlying assumptions and judgments made by the Company’s management in their application, have a significant impact on the Company’s consolidated financial statements. The Company identifies its most critical accounting estimates as those that are the most pervasive and important to the portrayal of the Company’s financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding matters that are inherently uncertain. The Company’s most critical accounting estimates set forth below are related to the accounting for business combinations, a valuation allowance for deferred income taxes, and the valuation of goodwill.
Business Combinations - Accounting
On September 29, 2022, the Company acquired 100% of the equity of Eleviant for approximately $19.0 million, including $17.4 million of cash on hand, common stock valued at $1.2 million, and stock options valued at $0.4 million. Additionally, an earn-out of $5.0 million can be earned, a portion of which will be payable in each period subject to the achievement of revenue and gross profit targets for fiscal 2022, 2023 and 2024. Assets acquired and liabilities assumed are generally recorded at their fair value in an acquisition, where the excess of the purchase price over the fair value of the net asset acquired is recorded as goodwill. The determination of fair value for identifiable assets, including intangible assets, and liabilities assumed requires management to make estimates which are based on available information and assumptions with respect to the timing and amount of future revenue and expense associated with an asset. Examples where estimates may be required in the accounting for a business combination include customer relationships, technology, and contingent consideration. Estimates within these areas may include the amount of revenue, earnings before interest expense, taxes, depreciation and amortization (EBITDA), cash flow, useful lives, discount rates and the cost of capital. The Company completes its accounting for business combinations with the aid of a third party expert.
Income Taxes—Valuation Allowances on Deferred Tax Assets
At December 31, 2022, the Company had a total of approximately $2.9 million of deferred tax assets, and approximately $1.5 million of deferred tax liabilities recorded on its consolidated balance sheet. The deferred tax assets, net, primarily consist of deferred compensation, loss carryforwards, and state taxes. The changes in deferred tax assets and liabilities from period to period are determined based upon the changes in the differences between the basis of assets and liabilities for financial reporting purposes and the basis of assets and liabilities for tax purposes, as measured by the enacted tax rates when these differences are estimated to reverse. The Company has made certain assumptions regarding the timing of the reversal of these assets and liabilities, and whether taxable income in future periods will be sufficient to recognize all or a part of any gross deferred tax asset of the Company.
At December 31, 2022, the Company had deferred tax assets totaling approximately $0.4 million recorded resulting from net operating losses in previous years. The Company has analyzed each jurisdiction’s tax position, including forecasting potential taxable income in future periods and the expiration of the net operating loss carryforwards as applicable, and determined that it is unclear whether all of these deferred tax assets will be realized at any point in the future. Accordingly, at December 31, 2022, the Company had offset a portion of these assets with a valuation allowance totaling approximately $0.3 million, resulting in a net deferred tax asset from net operating loss carryforwards of approximately $0.1 million.
In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that all or some portion of the deferred tax assets will be realized, or that a valuation allowance is required. Management considers all available evidence, both positive and negative, in assessing realizability of its deferred tax assets. A key component of this assessment is management’s critical evaluation of current and future impacts of business and economic factors on the Company’s ability to generate future taxable income. Factors that may affect the Company’s ability to generate taxable income include, but are not limited to increased competition, a decline in revenue or margins, a loss of market share, the availability of qualified professional staff, and a decrease in demand for the Company’s services.
The Company’s deferred tax assets and their potential realizability are evaluated each quarter to determine if any changes should be made to the valuation allowance. Any change in the valuation allowance in the future could result in a
change in the Company’s ETR. A 1% change in the ETR in 2022 would have increased or decreased net income by approximately $96,000, or less than $0.01 per diluted share.
Goodwill Valuation
Goodwill recorded on the Company's consolidated balance sheet as of December 31, 2022 totaled $36.0 million and relates to four acquisitions completed by the Company between 2018 and 2022. The acquisition of Soft Company in 2018 is in the France IT Solutions and Services reporting unit, the 2019 acquisition of Tech-IT is in the Luxembourg IT Solutions and Services reporting unit, the 2020 acquisition of StarDust is in both the North America and France IT Solutions and Services reporting units, while the 2022 acquisition of Eleviant is in the North America IT Solutions and Services reporting unit. As of December 31, 2022, goodwill consisted of $18.8 million in the North America IT Solutions and Services segment, while the balance of $17.2 million is associated with the Europe IT Solutions and Services segment. The significant increase in goodwill in 2022 in the North America IT Solutions and Services segment is due to the acquisition of Eleviant. During 2021, $1.4 million of goodwill was allocated to the North America IT Solutions and Services segment, while the balance of $18.3 million remained in the Europe IT Solutions and Services segment. At December 31, 2020, the Company’s goodwill balance totaled $21.3 million, and was wholly included in the Company’s Europe IT Solutions and Services segment.
As of October 2022 fiscal month-end, we performed our annual goodwill impairment test for the Luxembourg and France IT Solutions and Services reporting units with the assistance of an external consultant and estimated the fair value based on a combination of the income (estimates of future discounted cash flows) and the market approach (market multiples for similar companies). The income approach uses a discounted cash flow (DCF) method that utilizes the present value of cash flows to estimate fair value of the reporting unit. The future cash flows for the reporting units were projected based upon on our estimates of future revenue, operating income and other factors such as working capital and capital expenditures. As part of our projections, we took into account expected industry and market conditions for the industries in which the reporting units operate, as well as trends currently impacting the reporting units. The market approach utilizes multiples of earnings before interest expense, taxes, depreciation and amortization (EBITDA) to estimate the fair value of the reporting unit. The market multiples used for our reporting units were based on competitor industry data, along with the market multiples for the Company and other factors.
Finally, we compared our estimates of fair value to the consolidated Company’s October 2022 month-end total public market capitalization, which included factoring in the business operations that do not have goodwill, and assessed implied control premiums. Based on the results of this analysis, we concluded that the estimated fair value determined under our approach for the annual goodwill impairment test for our France and Luxembourg IT Solutions and Services reporting units was reasonable.
From the impairment test, we noted the excess of the fair value over the carrying value for the France business unit is approximately 1%. The goodwill allocated to the French reporting unit at October 2022 month end totaled $12.2 million. While the reporting unit performed well and improved its results for the year ended October 2022 as compared with the prior year, there is no assurance it will continue to improve in the future. Additionally, challenges resulting from the current macroeconomic climate in France consisting of modest GDP growth matched with inflation of approximately 5% may make it difficult for the reporting unit to meet its targets in 2023.
In addition, we elected to perform a qualitative assessment for our annual goodwill impairment test of the North America IT Solutions and Services reporting unit. The qualitative assessment included our consideration of, among other things, the overall macroeconomic conditions, industry and market considerations, overall financial performance, including revenue and contribution profits, and other relevant company specific events. Based on the assessment of these items, we concluded that it is more likely than not that the fair value of our North America IT Solutions and Services reporting unit exceeded its respective carrying amount. Accordingly, there were no indicators of impairment and the quantitative impairment test was not performed for this reporting unit.
We concluded that the goodwill assigned to the France, Luxembourg, and North America IT Solutions and Services reporting units as of October 2022 were not impaired, and that they continue to not be impaired as of December 31, 2022. The estimates and assumptions on which the Company’s evaluations are based involve judgments and are based on current available information, any of which could prove wrong or inaccurate when made, or become wrong or inaccurate as a result of subsequent events. In the event the business significantly under achieves its goals for revenue and profit growth in the future, the carrying value for this business unit may not be supportable using a discounted cash flow projection, and an impairment charge may exist. See “Fair Value” in footnote 1, “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for further discussion.
Other Estimates
The Company has also made a number of estimates and assumptions relating to the reporting of its assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements pursuant to the rules and regulations of the SEC, the FASB, and other regulatory authorities. Such estimates primarily relate to the valuation of stock options for recording equity-based compensation expense, allowances for credit losses, investment valuation, discount rates associated with pension plans, incurred but not reported claims related to the Company's self-insured medical plan, valuation allowances for deferred tax assets, goodwill, acquisition and related accounting, legal matters, other contingencies and estimates of progress toward completion and direct profit or loss on contracts, as applicable. As future events and their effect on the Company's operating results cannot be determined with precision, actual results could differ from these estimates. Changes in the economic climates in which the Company operates may affect these estimates and will be reflected in the Company’s consolidated financial statements in the event they occur.
Financial Condition and Liquidity
Cash provided by operating activities was $11.9 million, $7.4 million, and $30.7 million in 2022, 2021, and 2020, respectively. In 2022, net income was $6.6 million, while other non-cash adjustments, primarily consisting of depreciation and amortization expense, equity-based compensation, deferred income taxes, and deferred compensation totaled $5.1 million. In 2021 and 2020, net income was $13.7 million and $7.6 million, respectively, while the corresponding non-cash adjustments, including non-taxable life insurance gains, a gain from a sale of a building and an impairment of capitalized software in 2020, netted to $0.5 million and $4.4 million, respectively.
Accounts receivable balances decreased $12.1 million in 2022 as compared with 2021, increased $10.3 million in 2021 as compared with 2020, and decreased $17.0 million in 2020 as compared with 2019. The decrease in the accounts receivable balance in 2022 was due to the Company receiving payment on a large outstanding receivable balance from a project completed in the 2021 fourth quarter, and lower revenue. Days Sales Outstanding (“DSO”) is calculated by dividing accounts receivable obtained from the consolidated balance sheet by average daily revenue for the fourth quarter of the respective year. DSO was 84 days at December 31, 2022 as compared with 67 days December 31, 2021. Although there was a decrease in the accounts receivable balance, the increase in DSO was primarily driven by the Company's significant decrease in revenue due to disengaging from low-margin projects and the significant project in 2021 which was not repeated in 2022. DSO was 67 days at December 31, 2021 as compared with DSO at December 31, 2020 of 74 days.
The cash surrender value of life insurance policies decreased $0.5 million in 2022, $0.1 million in 2021, and $0.7 million in 2020. The decrease in each of the years was due to normal appreciation of the existing cash surrender value of the outstanding policies at each respective point in time, which in turn was reduced by the benefits paid upon the death of two former executives in 2020. Accounts payable decreased $7.9 million in 2022, increased $2.9 million in 2021, and decreased $0.6 million in 2020. The change in each year was primarily due to the timing of certain payments near year-end. Accrued compensation decreased $2.8 million in 2022 primarily due to an overall decrease in headcount of approximately 250 year-over-year, and increased $2.1 million in 2021 primarily due to the growth in the Company’s IT Solutions and Services and higher incentives for 2021 paid in the first quarter of 2022. Accrued compensation decreased $3.1 million in 2020 primarily due to the US operations reducing its payroll lag from two weeks in 2019 to one week in 2020. Income taxes receivable decreased by $0.3 million in 2022 and $1.1 million in 2021 due to higher taxable income. Income taxes receivable increased $1.3 million in 2020 due to a change in tax legislation which created a one-time benefit of approximately $1.1 million. Deferred payroll taxes decreased $3.5 million in 2022 and $3.2 million in 2021. The decreases in 2022 and 2021 were due to the Company’s payments of the employer payroll taxes deferred under the CARES ACT in 2020. Advance billings increased $1.0 million in 2022, $1.8 million in 2021, and $1.3 million in 2020. The change in advance billings in any given period is determined by the nature and type of existing projects, and the advance payments, if any, associated with those projects.
Investing activities used $20.3 million, $2.5 million, and $5.0 million of cash in 2022, 2021, and 2020, respectively. Cash paid for the acquisition of Eleviant, net of cash acquired in the 2022 third quarter, was $18.2 million. In 2020, cash paid for the acquisition of StarDust, net of cash acquired, was approximately $4.3 million. The Company also used cash for additions to property, equipment and capitalized software of $1.5 million in 2022, $1.9 million in 2021, and $2.9 million in 2020. The Company expects the amount to be spent in 2023 on additions to property, equipment and capitalized software to be greater than the amount spent in 2022. The Company has no material commitments for future capital expenditures. During 2020, the Company sold its remaining owned real estate for $2.5 million. As the book value of the building was approximately $1.6 million, the Company recorded a gain of approximately $0.8 million, after fees. The Company paid premiums for life insurance totaling $0.6 million, $0.5 million, and $0.6 million in 2022, 2021, and 2020, respectively. The Company received a total of $0.4 million of proceeds from life insurance policies upon the death of former executives in 2020.
Financing activities used $1.0 million, $1.1 million, and $5.7 million of cash in 2022, 2021, and 2020, respectively. Net cash paid under the Company’s revolving credit agreement was zero in both 2022 and 2021, and $5.3 million in 2020. Payments made on long-term debt assumed as part of the Eleviant acquisition totaled $1.0 million in 2022. Deferred debt costs were $1.2 million in 2021 which were costs associated with putting the new Credit Agreement in place in 2021. These deferred costs will be amortized over the term of the new Credit Agreement, or 60 months. Payments made to taxing authorities that represent the value of shares withheld for taxes in employee equity-based compensation transactions totaled $1.2 million, $0.4 million, and $0.2 million in 2022, 2021, and 2020, respectively. Cash overdrafts relate to the amount of outstanding checks at a point in time, and netted to $0.8 million, zero, and $(0.4) million in the 2022, 2021, and 2020 periods, respectively. No share purchases for treasury were made in 2022, and as of December 31, 2022, $7.7 million was available under the Company's authorization to purchase shares in future periods. The Company recorded $0.2 million, $0.4 million, and zero during 2022, 2021, and 2020, respectively, from the proceeds from stock option exercises.
No dividends were paid in 2022, 2021, or 2020, and the Company does not currently foresee making a dividend payment in the future.
The Credit Agreement has a five-year term that expires in May 2026. Under this Credit Agreement, the Company can borrow up to $50.0 million depending on collateral availability. The Credit Agreement is collateralized by the Company’s accounts receivable in the United States, Belgium and Luxembourg. Interest rates range from 1.5% to 2.0% over SOFR or EURIBOR loans, and 0.5% to 1.0% over base rate (prime rate) loans. The London Interbank Offered Rate (“LIBOR”), the interest rate benchmark used as a reference rate on our Credit Agreement, began being phased out at the beginning of calendar year 2022, with the one-month LIBOR scheduled to cease immediately after June 30, 2023. A reference rate based on the Secured Overnight Financing Rate (“SOFR”), and other alternative benchmark rates, are replacing LIBOR. The Company can borrow under the agreement at either rate at its discretion. The Company’s previous Credit and Security Agreement was terminated during the 2021 second quarter.
At both December 31, 2022 and December 31, 2021, there were no amounts outstanding under the Credit Agreement. The Company borrows or repays its debts as needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll. There were no borrowings during 2022 or 2021. Total commitment fees incurred totaled approximately $0.2 million in 2020, while interest paid in 2020 totaled $0.2 million under the previous Credit and Security Agreement.
Under the Credit Agreement, the Company is required to meet one financial covenant in order to maintain borrowings under its revolving credit line, pay dividends, and make acquisitions. The covenant is measured quarterly, and at December 31, 2022 represented a fixed charge coverage ratio, where for the trailing twelve months the consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted for, amongst other items, equity-based compensation and severance expenses, must be greater than 1.0 times the consolidated interest expense paid in cash and any scheduled principal payments. The fixed charge coverage ratio is only tested if availability, subject to a maximum of the commitment of $50.0 million, on the measurement date is less than the greater of 12.5% of the total loan availability or $5.0 million. Actual borrowings by CTG under the Credit Agreement are subject to a borrowing base, which is a formula based on certain eligible receivables and reserves for each country included in the Credit Agreement (the United States, Belgium, and Luxembourg). Receivable balances from our largest client, IBM, have been removed from the Credit Agreement as collateral, as the Company had entered into a factoring arrangement for those receivables. See “Accounts Receivable Factoring” in footnote 1, “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for further discussion. Total availability as of December 31, 2022 was approximately $33.0 million. The Company’s compliance with its financial covenant was not required to be tested at December 31, 2022 as the availability under the Credit Agreement was in excess of 12.5% of the total loan availability. The Company was in compliance with its applicable covenants under the Credit Agreement at December 31, 2021, and under compliance under the previous Credit and Security Agreement at December 31, 2020.
As part of the Eleviant acquisition, the Company has $0.6 million outstanding under a revolving line of credit as of December 31, 2022. The interest rate is 8.0%, and the amount outstanding is included in "Accounts Payable" on the Company's Consolidated Balance Sheet.
Of the total cash and cash equivalents reported on the consolidated balance sheet at December 31, 2022 of $25.1 million, nearly all of which is held by the Company’s foreign operations and is considered to be indefinitely reinvested in those operations. The Company has not repatriated any of its cash and cash equivalents from its foreign operations in the past five years, and has no intention of doing so in the foreseeable future as the funds are generally required to meet the working capital needs of its foreign operations.
At December 31, 2022, the Company believes existing internally available funds, cash potentially generated from future operations, and funds potentially available under the Company's revolving line of credit (subject to collateral limits) totaling $49.8 million, will be sufficient to meet foreseeable working capital and capital expenditure needs, fund stock repurchases, fund acquisitions, pay a dividend (if any), and allow for future internal growth and expansion.
Off-Balance Sheet Arrangements
The Company did not have off-balance sheet arrangements or transactions in 2022, 2021, and 2020 other than guarantees in our European operations which support office leases and performance under government contracts. These guarantees totaled approximately $3.0 million at December 31, 2022. Also, the Company has purchase obligations over the next five years for certain software, recruiting and other services totaling $2.5 million.
Quantitative and Qualitative Disclosures about Market Risk
The Company’s primary market risk exposure consists of foreign currency exchange risk associated with the Company’s European operations. See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in this report.
Recently Issued Accounting Standards
See footnote 1 - "Recently Issued Accounting Standards" of the Notes to the Consolidated Financial Statements contained in Part II, Item 8 of this report for information regarding recent accounting pronouncements.
Contractual Obligations
The Company intends to satisfy its contractual obligations from operating cash flows, and, if necessary, from draws on its demand credit line. The Company’s purchase obligations over the next five years total approximately $2.5 million, including $1.0 million for software maintenance, support and related fees, $0.1 million for telecommunications, $0.1 million for recruiting services, $0.4 million for professional organization memberships and consulting fees, $0.8 million for computer-based training courses, and less than $0.1 million for facilities improvements and maintenance. In the accompanying Notes to Consolidated Financial Statements, see footnote 4, “Debt” for a description of our asset-based lending revolving credit agreement and outstanding borrowing obligations, footnote 6, “Lease Commitments” for lease obligations, and footnote 7, “Deferred Compensation Benefits” for a description of the pension and post-retirement obligations. The Company has not entered into any material off-balance sheet arrangements.
Item 7A. Quantitative and Qualita tive Disclosures About Market Risk
The Company’s primary market risk exposure consists of foreign currency exchange risk associated with the Company’s European operations.
During 2022, revenue was impacted by the year-over-year foreign currency exchange rate changes of Belgium, Luxembourg, France, and the United Kingdom, the countries in which the Company’s European subsidiaries operate. In Belgium, Luxembourg, and France, the functional currency is the Euro, while in the United Kingdom the functional currency is the British Pound. Revenue in constant currency is measured by applying the current period's average exchange rate to the prior periods. Based on this methodology, foreign currency exchange fluctuations contributed $18.6 million in revenue to the Company in 2021 and $1.2 million in operating income. The Company has historically not used any market rate sensitive instruments to hedge its foreign currency exchange risk as it conducts its foreign operations in local currencies, which generally limits risk. The Company believes the market risk related to intercompany balances in future periods will not have a material effect on its results of operations.
Item 8. Financial Stateme nts and Supplementary Data
Report of Independent Regist ered Public Accounting Firm
Board of Directors and Shareholders
Computer Task Group, Incorporated
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Computer Task Group, Incorporated (a New York corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 15, 2023 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment – France IT Solutions and Services Reporting Unit
As described in Note 1 to the consolidated financial statements, the Company evaluates goodwill impairment for each reporting unit every fourth quarter, or more frequently if an indicator of impairment is present. The Company’s goodwill balance related to the France IT Solutions and Services reporting unit is $12.2 million as of December 31, 2022. We have identified the annual goodwill impairment assessment of the France IT Solutions and Services reporting unit as a critical audit matter.
The principal consideration for our determination that the goodwill impairment assessment of the France IT Solutions and Services reporting unit is a critical audit matter is that auditing management’s estimated fair value used in the valuation of the France IT Solutions and Services reporting unit is challenging due to the high degree of auditor judgement necessary in evaluating significant assumptions such as forecasted revenue, forecasted earnings before interest, taxes, depreciation, and amortization, long-term discount rate, and estimated valuation multiples. These significant assumptions require subjective auditor judgement in order to assess their reasonableness.
Our audit procedures related to the goodwill impairment assessment of the France IT Solutions and Services reporting unit included the following, among others:
We tested the design and operating effectiveness of key controls over the Company's goodwill impairment assessment process including the control over the development and review of significant assumptions used in the determination of the fair value of the reporting unit.
We tested the significant assumptions, including forecasted revenue and forecasted earnings before interest, taxes, depreciation, and amortization by assessing the reasonableness of management’s forecasts compared to historical actual results and forecasted industry trends. We performed sensitivity analyses of forecasted revenue and earnings before interest, taxes, depreciation, and amortization assumptions to evaluate changes in the fair value that would result from changes in these assumptions.
With the assistance of our valuation specialists, we evaluated the selection of the long-term discount and growth rates, including testing the underlying source information and developing a range of independent estimates and comparing those to the rates selected by management. We also involved our valuation specialists to evaluate the reasonableness of estimated valuation multiples used in the valuation to both market data of comparable public companies and the Company's historical actual multiples.
Valuation of Acquired Customer Relationship Asset in a Business Combination
As described in Note 3 to the consolidated financial statements, the Company completed the acquisition of Eleviant Technologies, Inc. (“Eleviant”), during the year ended December 31, 2022 for purchase consideration of $23 million. This transaction was accounted for as a business combination in accordance with ASC 805, Business Combinations, which resulted in the identification and recognition of a customer relationship intangible asset (“customer relationship”). The Company used a discounted cash flow model to measure the fair value of the customer relationship. We identified the valuation of the acquired customer relationship asset in a business combination as a critical audit matter.
The principal consideration for our determination that the valuation of the acquired customer relationship asset in a business combination is a critical audit matter is due to the high degree of auditor judgement necessary in evaluating the fair value of the customer relationship asset. The significant assumptions used to estimate the fair value of the customer relationship include certain assumptions that form the basis of the future net cash flows such as forecasted revenue, forecasted earnings before interest, taxes, depreciation, and amortization, long-term discount rate, economic lives, and customer attrition. These significant assumptions require subjective auditor judgement in order to assess their reasonableness.
Our audit procedures related to the valuation of the acquired customer relationship asset in a business combination included the following, among others:
We tested the design and operating effectiveness of the key control over the development and review of significant assumptions used in the determination of the fair value of the customer relationship asset.
We tested the reasonableness of significant assumptions used, including forecasted revenue and forecasted earnings before interest, taxes, depreciation, and amortization by considering past performance of the acquired entity, current market forecasts, and whether such assumptions were consistent with evidence obtained in other areas of the audit.
With the assistance of our valuation specialist, we evaluated the appropriateness of the valuation methodology used to determine the fair value of the customer relationship and the reasonableness of certain significant assumptions used, including long-term discount rates, economic lives, and customer attrition.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2019.
Cleveland, Ohio
March 15, 2023
Consolidated Stat ements of Income
Year Ended December 31,
(amounts in thousands, except per-share data)
Revenue
Direct costs
Selling, general and administrative expenses
Operating income
Interest and other income
Gain on sale of building
Non-taxable life insurance gain
Interest and other expense
Income before income taxes
Provision (benefit) for income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Income
Year Ended December 31,
(amounts in thousands)
Net income
Foreign currency translation adjustment
Decrease (increase) in pension loss, net of taxes of $ 64 , $ 6 , and $( 156 ), in 2022, 2021 and 2020, respectively
Other comprehensive income (loss)
Comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated B alance Sheets
December 31,
(amounts in thousands, except share balances)
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $ 397 and $ 581 in 2022 and 2021, respectively
Prepaid and other current assets
Income taxes receivable
Total current assets
Property, equipment and capitalized software, net
Operating lease right-of-use assets
Deferred income taxes
Acquired intangibles, net
Goodwill
Cash surrender value of life insurance
Other assets
Investments
Total assets
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable
Accrued compensation
Advance billings on contracts
Short-term operating lease liabilities
Short-term deferred payroll taxes
Other current liabilities
Income taxes payable
Total current liabilities
Long-term debt
Deferred compensation benefits
Long-term operating lease liabilities
Deferred income taxes
Other long-term liabilities
Total liabilities
Shareholders’ Equity:
Common stock, par value $ 0.01 per share, 150,000,000 shares authorized;
27,017,824 shares issued in both periods
Capital in excess of par value
Retained earnings
Less: Treasury stock of 11,274,171 and 11,667,719 shares at cost, at December 31, 2022 and 2021, respectively
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statem ents of Cash Flows
Year Ended December 31,
(amounts in thousands)
Cash flow from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense
Equity-based compensation expense
Deferred income taxes
Deferred compensation benefits
Loss (gain) on the sale/disposal of property and equipment
Impairment of capitalized software
Non-taxable life insurance gain
Changes in assets and liabilities that provide (use) cash, excluding the effects of acquisitions:
Accounts receivable
Prepaid and other current assets
Other long-term assets
Cash surrender value of life insurance
Accounts payable
Accrued compensation
Income taxes payable / receivable
Deferred payroll taxes
Advance billings on contracts
Other current liabilities
Other long-term liabilities
Net cash provided by operating activities
Cash flow from investing activities:
Cash paid for acquisitions, net of cash received
Additions to property and equipment
Additions to capitalized software
Proceeds from the sale of property and equipment
Premiums paid for life insurance
Proceeds from life insurance
Net cash used in investing activities
Cash flow from financing activities:
Proceeds from long-term debt
Payments on long-term debt
Deferred debt financing costs
Proceeds from stock option plan exercises
Taxes remitted for shares withheld from equity-based compensation transactions
Proceeds from Employee Stock Purchase Plan
Change in cash overdraft, net
Net cash used in financing activities
Effect of exchange rates on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of non-cash transactions
Acquisition share issuance
Acquisition stock option issuance
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Shareholders’ Equity
Accumulated
Capital in
Other
Total
Common Stock
Excess of
Retained
Treasury Stock
Comprehensive
Shareholders’
Shares
Amount
Par Value
Earnings
Shares
Amount
Income (loss)
Equity
(amounts in thousands)
Balances as of December 31, 2019
Employee Stock Purchase Plan share
issuance
Stock Option Plan share issuance, net
Restricted stock plan share
issuance/forfeiture
Equity-based compensation
Net income
Foreign currency adjustment
Pension loss adjustment, net of tax
Balances as of December 31, 2020
Employee Stock Purchase Plan share
issuance
Stock Option Plan share issuance, net
Restricted stock plan share
issuance/forfeiture
Equity-based compensation
Net income
Foreign currency adjustment
Pension loss adjustment, net of tax
Balances as of December 31, 2021
Employee Stock Purchase Plan share
issuance
Stock Option Plan share issuance, net
Restricted stock plan share
issuance/forfeiture
Acquisition share issuance
Acquisition stock option issuance
Equity-based compensation
Net income
Foreign currency adjustment
Pension gain adjustment, net of tax
Balances as of December 31, 2022
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of Computer Task Group, Incorporated, and its subsidiaries (the “Company” or “CTG”), located in North and South America, Western Europe, and India. There are no unconsolidated entities, or off-balance sheet arrangements other than certain guarantees supporting office leases and the performance under government contracts in the Company's European operations, and purchase obligations for certain software, recruiting and other services. All intercompany accounts have been eliminated. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Such estimates primarily relate to the valuation allowances for deferred tax assets, actuarial assumptions including discount rates and expected rates of return, as applicable, for the Company’s defined benefit plans, the allowance for credit losses, the annual impairment assessment, assumptions underlying stock option valuation, investment valuation, estimates of progress toward completion and direct profit or loss on contracts, acquisition and related accounting, legal matters, and other contingencies. The current economic environments in the United States, Canada, Colombia, Western Europe, and India where the Company has operations have increased the degree of uncertainty inherent in these estimates and assumptions. Actual results could differ from those estimates.
The Company provides information and technology-related services to its clients. These services include information and technology-related solutions, including supplemental staffing as a solution. CTG provides these services to all of the markets that it serves. The services provided typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT solution. A typical client is an organization with large, complex information and data processing requirements. The Company provides a majority of its services in five vertical market focus areas: technology service providers, healthcare (which includes services provided to healthcare providers, health insurers (payers), and life sciences companies), financial services, manufacturing, and energy. The Company focuses on these five vertical areas as it believes that these areas are either higher growth markets than the general IT services market and the general economy, or are areas that provide greater potential for the Company’s growth due to the size of the vertical market. The remainder of CTG’s revenue is derived from general markets.
CTG’s revenue by vertical market as a percentage of consolidated revenue for the three years ended December 31, 2022, 2021, and 2020 is as follows:
Technology service providers
Healthcare
Financial services
Manufacturing
Energy
General markets
Total
Change in Presentation
During the fourth quarter of 2021, the Company further refined its strategy to focus on providing digital services within its IT Solutions business in both North America and Europe and determined that there are certain lower margin staffing accounts within its business that are no longer part of the Company’s long-term business plan. Accordingly, the Company changed its operating and reporting segments from one segment to three segments: North America IT Solutions and Services, Europe IT Solutions and Services, and Non-Strategic Technology Services. Refer to footnote 13, “Segments and Enterprise-Wide Disclosures” for further discussion on the impact of this change.
Certain reclassifications were made to prior period amounts in order to conform to the current year presentation. These reclassifications had no impact on the reported consolidated prior period financial results.
Revenue and Cost Recognition
The Company recognizes revenue when control of the promised good or service is transferred to clients, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended. For contracts with progress billing schedules, primarily monthly, revenue is recognized as services are rendered to the client. Revenue for fixed-price contracts is recognized over time using an input-based approach. Over time revenue recognition best portrays the Company’s performance in transferring control of the goods or services to the client. On most fixed price contracts, revenue recognition is supported through contractual clauses that require the client to pay for work performed to date, including cost plus a reasonable profit margin, for goods or services that have no alternative use to the Company. On certain contracts, revenue recognition is supported through contractual clauses that indicate the client controls the asset, or work in process, as the Company creates or enhances the asset. On a given project, actual salary and indirect labor costs incurred are measured and compared with the total estimate of costs of such items at the completion of the project. Revenue is recognized based upon the percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-price projects that include significant amounts of material or other non-labor related costs that could the percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and experience on similar projects, and includes management judgments and estimates that affect the amount of revenue recognized on fixed-price contracts in any accounting period. on fixed-price projects are recorded when identified.
The Company’s revenue from contracts accounted for under time-and-material, progress billing, and percentage-of-completion methods as a percentage of consolidated revenue for the three years ended December 31, 2022, 2021, and 2020 is as follows:
Time-and-material
Progress billing
Percentage-of-completion
Total
The Company recorded revenue by geography for 2022 compared to 2021 and 2021 compared to 2020 as follows:
Year Ended December 31,
% of total
% of total
Year-Over-
Year Change
(dollars in thousands)
North America
Europe
Total
Year Ended December 31,
% of total
% of total
Year-Over-
Year Change
(dollars in thousands)
North America
Europe
Total
The Company includes billable expenses in its accounts as both revenue and direct costs. These billable expenses totaled $ 0.6 million, $ 1.1 million, and $ 1.9 million in 2022, 2021, and 2020, respectively.
Significant Judgments
With the exception of cost estimates on certain fixed-price projects, there are no other significant judgments used to determine the timing of satisfaction of performance obligations or determining transaction price and amounts allocated to performance obligations. The Company allocates the transaction price based on standalone selling prices for contracts with clients that include more than one performance obligation. Standalone selling prices are based on the expected cost of the good or service plus margin approach. Certain clients may qualify for discounts and rebates, which the Company accounts for as variable consideration. The Company estimates variable consideration and reduces revenue recognized based on the amount it expects to provide to clients.
Contract Balances
For time-and-material and progress billing contracts, the timing of the Company’s satisfaction of its performance obligations is consistent with the timing of payment. For these contracts, the Company has the right to payment in the amount that corresponds directly with the value of the Company’s performance to date. The Company uses the right to invoice practical expedient that allows the Company to recognize revenue in the amount for which it has the right to invoice for time-and-material and progress billing contracts. Bill schedules for fixed-price contracts are generally consistent with the Company’s performance in transferring control of the goods or services to the client. There are no significant financing components in the Company's contracts with clients. Advance billings represent contract liabilities for cash payments received in advance of the Company's performance. Unbilled receivables are reported within “accounts receivable” on the consolidated balance sheet. Accounts receivable and contract liability balances fluctuate based on the timing of the client’s billing schedule and the Company’s period-end date. There are no significant costs to obtain or fulfill contracts with clients.
Transaction Price Allocated to Remaining Performance Obligations
As of December 31, 2022 , the aggregate transaction price allocated to unsatisfied or partially unsatisfied performance obligations for fixed-price and all progress billing contracts was approximately $ 9.4 million and $ 38.2 million, respectively. Approximately $ 32.9 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2023 . Approximately $ 14.7 million of the transaction price allocated to unsatisfied or partially unsatisfied performance obligations is expected to be earned in 2024 and beyond . The Company uses the right to invoice practical expedient. Therefore, no disclosure is required for unsatisfied performance obligations for contracts in which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
Taxes Collected from Clients
In instances where the Company collects taxes from its clients for remittance to governmental authorities, primarily in its international locations, taxes are recorded in the Company's accounts on a net basis.
Fair Value
Fair value is defined as the exchange price that would be received for an asset or paid for a liability in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants. The Company utilizes a fair value hierarchy for its assets and liabilities, as applicable, based upon three levels of input, which are:
Level 1—quoted prices in active markets for identical assets or liabilities (observable)
Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable or can be supported by observable market data for essentially the full term of the asset or liability (observable)
Level 3—unobservable inputs that are supported by little or no market activity, but are significant to determining the fair value of the asset or liability (unobservable)
At December 31, 2022 and 2021 , the carrying amounts of the Company’s cash of $ 25.1 million and $ 35.6 million, respectively, approximated fair value.
As described in Note 3 of the condensed consolidated financial statements, the Company acquired 100 % of the equity of StarDust in the 2020 first quarter and Eleviant in the 2022 third quarter.
In regards to the StarDust and Eleviant acquisitions, Level 3 inputs were used to estimate the fair values of the assets acquired and liabilities assumed. The valuation techniques used to assign fair values to intangible assets included the relief-from-royalty and excess earnings methods.
The Company recorded a contingent consideration liability related to the earn-out provision of which a portion will be payable in each period subject to the achievement by Eleviant of revenue and gross profit targets for fiscal 2022, 2023 and 2024. There is no payout if the achievements are below the target threshold. However, in subsequent years, if the preceding year’s targets were not met, an earn-out can be earned for both years if the combined total for gross profit or revenue for the two years exceeds the combined two-year targets. The fair value of this contingent consideration is determined using level 3 inputs. The fair value assigned to the contingent consideration liability is determined using the
real options method, which requires inputs such as revenue and gross profit forecasts, discount rate, and other market variables to assess the probability of Eleviant achieving the revenue and gross profit targets. The fair value as of the September 29, 2022 acquisition date was initially recorded in the 2022 third quarter as $ 4.0 million. As of December 31, 2022, the fair value of the remaining contingent consideration liability was determined to be $ 4.0 million.
In addition, the Company has a contingent consideration liability related to the earn-out provision of which a portion will be payable in each period subject to the achievement by StarDust of consolidated direct profit targets for fiscal 2020 and 2021. There is no payout if the achievement on either target is below a certain target threshold. The fair value of this contingent consideration is determined using level 3 inputs. The fair value assigned to the contingent consideration liability is determined using the real options method, which requires inputs such as consolidated direct profit forecasts, discount rate, and other market variables to assess the probability of StarDust achieving the revenue and EBIT targets. The fair value as of the March 3, 2020 acquisition date was determined to be $ 0.1 million. The Company paid $ 0.3 million during 2021 relating to the earn-out based on the achievement by StarDust of consolidated direct profit targets for the fiscal year 2020. The fair value of the remaining contingent consideration liability was determined to be zero as the consolidated direct profit target thresholds were not met by StarDust for the fiscal year 2021.
As of December 31, 20 22, goodwill recorded on the Company's consolidated balance sheet totaled $ 36.0 million, which relates to the acquisitions completed by the Company in 2018 through 2022. The acquisition of Soft Company in 2018 in the France IT Solutions and Services reporting unit, the 2019 acquisition of Tech-IT is in the Luxembourg IT Solutions and Services reporting unit, the 2020 acquisition of StarDust is in both the North America and France IT Solutions and Services reporting units, and the 2022 acquisition of Eleviant is in the North America IT Solutions and Services reporting unit. In connection with the Company's annual goodwill impairment test, the Company makes various assumptions to determine the estimated fair value of the reporting units to which the goodwill relates. The Company performs the annual impairment review in the fourth quarter of each year. The goodwill impairment test is performed at least annually, unless indicators of an impairment exist in interim periods. The Company compared the estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to the excess.
As of October 2022 fiscal month-end, the Company performed its annual goodwill impairment test for the Luxembourg and France IT Solutions and Services reporting units in conjunction with an external consultant and estimated the fair value based on a combination of the income (estimates of future discounted cash flows) and the market approaches (market multiples for similar companies). The income approach uses a discounted cash flow (DCF) method that utilizes the present value of cash flows and other Level 3 inputs to estimate the fair value of the reporting unit. The future cash flows for the reporting units were projected based upon the Company's estimates of future revenue, a terminal growth rate, operating income and other factors such as working capital and capital expenditures. As part of its projections, the Company took into account expected industry and market conditions for the industries in which the reporting units operate, as well as trends currently impacting the reporting units. As part of our DCF analysis, the Company projected revenue and operating profits, and assumed long-term revenue growth rates in the “terminal year” for both of the reporting units. These projections are based upon the Company's judgment and may change in the future based upon the inherent uncertainty in predicting future results. The market approach utilizes multiples of earnings before interest expense, taxes, depreciation and amortization (EBITDA) to estimate the fair value of the reporting unit. The market multiples used for the Company's reporting units were based on competitor industry data, along with the market multiples for the Company and other factors.
In addition, the Company elected to perform a qualitative assessment for its annual goodwill impairment test of the North America IT Solutions and Services reporting unit. The qualitative assessment included the Company's consideration of, among other things, the overall macroeconomic conditions, industry and market considerations, overall financial performance, including revenue and contribution profits, and other relevant company specific events.
The carrying value as of October 2022 was approximately $ 12.2 million, $ 5.0 million, and $ 18.8 million for the France, Luxembourg, and North America IT Solutions and Services reporting units, respectively.
The Company is also allowed to elect an irrevocable option to measure, on a contract-by-contract basis, specific financial instruments and certain other items that are currently not being measured at fair value. The Company did not elect to apply the fair value provisions of this standard for any specific contracts during the years ended December 31, 2022 and 2021 .
Life Insurance Policies
The Company has purchased life insurance on the lives of a number of former employees who are plan participants in the non-qualified defined benefit Executive Supplemental Benefit Plan. In total, there are policies on 16 individuals, whose average age is 79 years old. These policies have generated cash surrender value and the Company has taken loans against the policies. At December 31, 2022 , the insurance policies that have been borrowed against have a gross cash surrender value of $ 29.5 million, outstanding loans and interest totaling $ 26.0 million, and a net cash surrender value of $ 3.5 million. At December 31, 2021 , these insurance policies had a gross cash surrender value of $ 28.3 million, outstanding loans and interest totaling $ 25.2 million, and a net cash surrender value of $ 3.1 million.
At December 31, 2022 and 2021 , the total death benefit for the remaining policies was approximately $ 37.0 million and $ 36.0 million, respectively. Currently, upon the death of all of the plan participants, the Company would expect to receive approximately $ 10.6 million, and under current tax regulations, record a non-taxable gain of approximately $ 7.1 million.
During 2020, two participants in the plan passed away. Upon their deaths, the Company recorded a non-taxable life insurance gain totaling approximately $ 1.0 million, which it has recorded on its consolidated statements of income.
Cash and Cash Equivalents, and Cash Overdrafts
For purposes of the statement of cash flows, cash and cash equivalents are defined as cash on hand, demand deposits, and short-term, highly liquid investments with a maturity of three months or less. As the Company does not fund its bank accounts for the checks it has written until the checks are presented to the bank for payment, the "change in cash overdraft, net" line item as presented on the consolidated statement of cash flows represents the increase or decrease in outstanding checks for a given period. The cash in the Company’s U.S. banks is insured by the Federal Deposit Insurance Corporation up to the insurable limit of $ 250,000 . As of December 31, 2022, the Company has multiple accounts that carry balances in excess of this insurable limit. The Company’s cash in its foreign bank accounts is not insured.
Accounts Receivable Factoring
As part of its working capital management, the Company has a factoring agreement to sell certain trade accounts receivables on a non-recourse basis to a third-party financial institution. The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts receivable sold under the factoring agreement was approximately $ 16.7 million in 2022 and $ 35.8 million in 2021. Factoring fees for the sale of receivables were recorded in direct costs and were $ 0.1 million in each of the years ended December 31, 2022 , 2021, and 2020.
Property, Equipment and Capitalized Software Costs
Property and equipment are generally stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of one to fifteen years , and begins after an asset has been placed into service. Leasehold improvements are generally depreciated over the shorter of the term of the lease or the useful life of the improvement. The cost of property or equipment sold or otherwise disposed of, along with related accumulated depreciation, is eliminated from the accounts, and the resulting gain or loss, if any, is reflected in current earnings. Maintenance and repairs are charged to expense when incurred, while significant improvements to existing assets are capitalized. Depreciation expense for the Company totaled $ 1.8 million, $ 2.0 million, and $ 1.9 million in 2022, 2021, and 2020, respectively.
As of December 31, 2022 and 2021 , the Company had capitalized costs relating to software projects developed for internal use. Amortization periods for these projects range from three to five years , and begins when the software, or enhancements thereto, is available for its intended use. Amortization periods are evaluated annually for propriety.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such circumstances exist, the recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale,
if any, are reported at the lower of the carrying amount or fair value less costs to sell. The Company does not have any long-lived assets that are impaired as of December 31, 2022.
During the 2020 second quarter, the Company sold its corporate headquarters located in Buffalo, NY. As the sale price of the building was $ 2.5 million, and the book value of the building was approximately $ 1.6 million, the Company recorded a profit on the sale after related fees of approximately $ 0.8 million in the 2020 second quarter.
Leases
In accordance with Topic 842 "Leases", the Company is obligated under a number of short and long-term operating leases for office space and equipment, and for automobiles leased in Europe.
Segments
The Company provides information technology and related services to its clients. These services include digital IT Solutions and Services, and Staffing Services. With digital IT Solutions and Services, the Company generally takes responsibility for the deliverables and some level of project and staff management, and these services may include high-end advisory or business-related consulting. When providing Staffing Services, including managed staffing, staff augmentation, and volume staffing, personnel are provided to clients based upon their requirements for specific skills, who then, in turn, take their direction from clients’ managers.
In prior years, and in 2021 prior to the fourth quarter, the Company reported its results in one segment. This included operating segments for each of North America and Europe. The services the Company provided, regardless of geography or industry, were similar in nature and produced similar results. Additionally, the CEO, who is the Company’s chief operating decision maker, made decisions on investments and allocated resources at the North America or Europe level. Accordingly, given the consistency of the services provided and the results, the Company aggregated those results into one reporting segment.
During the 2021 fourth quarter, the Company further refined its strategy to focus on providing digital services within its IT Solutions business in both North America and in Europe. As part of this process, the Company also determined that there are certain lower margin staffing accounts within its business that are no longer part of the Company’s long-term business plan. The focus includes investing in business development, solutions, delivery, and marketing for IT Solutions, and critically evaluating each significant staffing engagement as it comes up for renewal to determine if the Company would continue to provide those services to its client. These decisions are based on, among other factors, critically evaluating the work performed, the availability of the resources, the client, the long-term opportunities for the services provided at the client, and the revenue and profit associated with the engagement.
As a part of this refinement of the strategy in the 2021 fourth quarter, the Company is operating and reporting in three segments within its business: North America IT Solutions and Services, Europe IT Solutions and Services, and Non-Strategic Technology Services.
Goodwill
The goodwill recorded on the Company's consolidated balance sheet at December 31, 2022 relates to the acquisition of Soft Company in the 2018 first quarter, Tech-IT in the 2019 first quarter, StarDust in the 2020 first quarter, and Eleviant in the 2022 third quarter. In accordance with current accounting guidance for “Intangibles - Goodwill and Other,” the Company performs goodwill impairment testing at least annually (in the Company’s fourth quarter), unless indicators of impairment exist in interim periods. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the long-lived assets, the carrying value would be reduced to the estimated fair value. There were no impairments recorded in the Company’s consolidated financial statements during 2022, 2021, or 2020.
The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 are as follows:
(amounts in thousands)
Balance at December 31, 2020
Acquired goodwill
Foreign currency translation
Balance at December 31, 2021
Acquired goodwill
Foreign currency translation
Balance at December 31, 2022
The Company’s goodwill at December 31, 2022 totaled $ 36.0 million, including $ 17.2 million in the Europe IT Solutions and Services segment and $ 18.8 milli on in the North America IT Solutions and Services segment. The significant addition to goodwill balances in the North America IT Solutions and Services segment is due to the acquisition of Eleviant in the third quarter of 2022. At December 3 1, 2021, the Company's goodwill totaled $ 19.7 million, including $ 18.3 million in the Europe IT Solutions and Services segment, and $ 1.4 million in the North America IT Solutions and Services segment. At December 31, 2020, the Company’s goodwill balance totaled $ 21.3 million, and was wholly included in the Company’s Europe IT Solutions and Services segment.
Acquired Intangibles Assets
Acquired intangible assets at December 31, 2022 consist of the following:
(amounts in thousands)
Estimated
Economic Life
Gross Carrying
Amount
Accumulated
Amortization
Foreign Currency Translation
Net Carrying
Amount
Trademarks
2 years
Technology
10 years
Customer relationships
7 - 13 years
Total
Acquired intangible assets at December 31, 2021 consisted of the following:
(amounts in thousands)
Estimated
Economic Life
Gross Carrying
Amount
Accumulated
Amortization
Foreign Currency Translation
Net Carrying
Amount
Trademarks
2 years
Technology
10 years
Customer relationships
7 - 13 years
Total
Amortization expense for the Company's acquired intangibles was $ 1.2 million in both 2022 and 2021, and $ 1.4 million in 2020.
Estimated amortization expense for the next five fiscal years, and thereafter, is as follows (amounts in thousands):
Year
Annual
Amortization
Thereafter
Total
Income Taxes
The Company provides for deferred income taxes for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that all or some portion of the deferred tax assets will be realized, or that a valuation allowance is required. Management considers all available evidence, both positive and negative, in assessing realizability of its deferred tax assets. A key component of this assessment is management’s critical evaluation of current and future impacts of business and economic factors on the Company’s ability to generate future taxable income. Factors that may affect the Company’s ability to generate taxable income include, but are not limited to increased competition, a decline in revenue or margins, a loss of market share, the availability of qualified professional staff, and a decrease in demand for the Company’s services. The analysis that the Company prepared to determine the valuation allowance required significant judgment and assumptions regarding future market conditions as well as forecasts for profits, taxable income, and taxable income by jurisdiction. Due to the sensitivity of the analysis, changes to the assumptions in subsequent periods could have a material effect on the valuation allowance. Additionally, management has determined that a valuation allowance is required its Netherlands and India deferred taxes. The total valuation allowance recorded these deferred tax assets is $ 0.7 million, a net decrease of $ 1.4 million during the year driven by a change in the discount rate on a European pension plan, of which less than $ 0.1 million was recorded as income tax in the consolidated statement of operations. The Company recognizes, as applicable, accrued interest and related to unrecognized tax benefits (if any) in tax expense.
The Company establishes an unrecognized tax benefit based upon the anticipated outcome of tax positions taken for financial statement purposes compared with positions taken on the Company’s tax returns. The Company records the benefit for unrecognized tax benefits only when it is more likely than not that the position will be sustained upon examination by the taxing authorities. The Company reviews its unrecognized tax benefits on a quarterly basis. Such reviews include consideration of factors such as the cause of the action, the degree of probability of an unfavorable outcome, the Company’s ability to estimate the liability, and the timing of the liability and how it will impact the Company’s other tax attributes.
Equity-Based Compensation
The Company records the fair value of equity-based compensation expense for all equity-based compensation awards granted and recognizes the cost in the Company’s income statement over the periods in which an employee or director is required to provide the services for the award. Compensation cost is not recognized for employees or directors that do not render the requisite services. The Company recognized the expense for equity-based compensation in its 2022, 2021, and 2020 consolidated statements of income on a straight-line basis based upon awards that are ultimately expected to vest. See Note 10, “Equity-Based Compensation.”
Net Income Per Share
Basic and diluted earnings per share (EPS) for the years ended December 31, 2022, 2021, and 2020 are as follows:
For the year ended
Net
Income
Weighted
Average
Shares
Earnings
per
Share
(amounts in thousands, except per-share data)
December 31, 2022
Basic EPS
Dilutive effect of outstanding equity instruments
Diluted EPS
December 31, 2021
Basic EPS
Dilutive effect of outstanding equity instruments
Diluted EPS
December 31, 2020
Basic EPS
Dilutive effect of outstanding equity instruments
Diluted EPS
Weighted-average shares represent the average number of issued shares less treasury shares, and for the basic EPS calculations, unvested restricted stock.
Certain options representing 0.9 million at December 31, 2022, and 0.6 million at both December 31, 2021 and 2020 were outstanding but were not included in the computation of diluted earnings per share as their effect on the computation would have been anti-dilutive.
Accumulated Other Comprehensive Loss
The components that comprised accumulated other comprehensive loss on the consolidated balance sheet at December 31, 2022 and 2021 are as follows:
(amounts in thousands)
Foreign currency translation adjustment
Pension loss, net of tax of $ 755 in 2022 and $ 819 in 2021
Accumulated other comprehensive loss
During 2022, 2021, and 2020, actuarial losses were amortized to expense as follows:
(amounts in thousands)
Amortization of actuarial losses
Income tax
Net of tax
The amortization of actuarial losses is included in determining net periodic pension cost. See Note 7, "Deferred Compensation Benefits" for additional information.
Foreign Currency
The functional currency of the Company’s foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for assets and liabilities using current exchange rates in effect at the balance sheet date, for equity accounts using historical exchange rates, and for revenue and expense activity using the applicable month’s average exchange rates. The Company recorded a nominal amount of expense in 2022, 2021, and 2020 from foreign currency transactions for balances settled during the year or intended to be settled as of each respective year-end.
Guarantees
The Company has a number of guarantees in place in its European operations which support office leases and performance under government projects. These guarantees totaled approximately $ 3.0 million and $ 3.1 million at December 31, 2022 and 2021 , respectively, and generally have expiration dates ranging from January 2023 through October 2034.
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for accounting contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference the London Interbank Offering Rate (“LIBOR”) or another reference rate expected to be discontinued due to the reference rate reform. It is effective for all entities between March 12, 2020 and December 31, 2022. The Company does not expect a significant impact from the adoption of this standard as provisions have been made in its Credit and Security Agreement to use an alternate benchmark interest rate when the use of LIBOR is discontinued.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” Among other clarifications and simplifications related to income tax accounting, the new standard simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company adopted this new standard on January 1, 2021 on a prospective basis and the adoption did not have a material impact on the Company’s consolidated financial statements.
Subsequent Events
The Company has evaluated all subsequent events through the filing date of this Form 10-K with the SEC and there were no subsequent events which required recognition, adjustment to or disclosure in the consolidated financial statements.
Property, Equipment and Capitalized Software
Property, equipment and capitalized software at December 31, 2022 and 2021 are summarized as follows:
December 31,
Useful Life
(amounts in thousands)
(years)
Equipment
Furniture
Capitalized software
Other software
Leasehold improvements
Accumulated depreciation and amortization
The Company capitalizes software projects developed for commercial use. The Company recorded capitalized software costs during 2022 and 2021 as follows:
For the year ended December 31,
(amounts in thousands)
Capitalized software, beginning balance
Foreign currency translation
Capitalized software
Capitalized software amortization periods range from three to five years , and are evaluated periodically for propriety. The Company capitalized a total of $ 0.5 million of costs related to the development of software for sale or license during 2022. Amortization expense and accumulated amortization for these projects at December 31, 2022 and 2021 are as follows:
For the year ended December 31,
(amounts in thousands)
Accumulated amortization, beginning balance
Amortization expense
Accumulated amortization
Acquisitions
Eleviant Technologies Inc. ("Eleviant”)
On September 29, 2022, the Company acquired 100 % of the equity of Eleviant for approximately $ 19.0 million, including $ 17.4 million of cash on hand. In addition to the cash payment, Eleviant owners and executives were issued 173,802 shares of common stock valued at $ 1.2 million, and 200,000 stock options from the 2020 Equity Award Plan at the date of acquisition, valued at $ 0.4 million.
The U.S.-based Eleviant is a provider of digital transformation services and solutions, and is headquartered in Dallas, TX, with operations in Chennai and Coimbatore, India. Eleviant’s offerings support the new ways enterprises work, communicate, and scale today and focus on cloud, application modernization, mobile, artificial intelligence (AI), machine learning (ML), and robotic process automization (RPA). Eleviant’s services are supported by a portfolio of supporting solutions, including PeopleOne, a Digital Workplace platform for employee engagement, communication, and collaboration; vChat, a chatbot builder platform; and vBots, an RPA builder platform. The acquisition is expected to aid CTG in accelerating the growth of digital solutions sales to clients in the Americas and Europe and create new points of entry with proven technology services and solutions.
The results of operations of Eleviant have been included in the Company’s consolidated financial results since the date of acquisition. As the Company has determined that the acquisition is not material to its existing operations, certain disclosures, including proforma financial information, have not been included in this annual report on Form 10-K.
An earn-out of $ 5.0 million can be earned, a portion of which will be payable in each period subject to the achievement of revenue and gross profit targets for fiscal 2022, 2023 and 2024. Additionally, for each $ 10,000 of gross profit or revenue achieved above the targets, an additional $ 2,000 can be earned, with no maximum limit. There is no payout if the achievement is below the target threshold. However, in subsequent years, if the preceding year’s targets were not met, an earn-out can be earned for both years if the combined total for gross profit or revenue for the two years exceeds the combined two-year targets. The fair value as of the September 29, 2022 acquisition date was $ 4.0 million. The remaining fair value of the remaining contingent consideration liability was determined to be approximately $ 4.0 million as of December 31, 2022. Approximately $ 0.9 million and $ 3.1 million of the remaining contingent consideration liabilities is recorded in "Other current liabilities" and "Other long-term liabilities", respectively, on the consolidated balance sheet as of December 31, 2022.
The acquisition fair value of the consideration for the acquisition of Eleviant consisted of the following as of September 29, 2022:
(amounts in thousands)
Cash consideration
Share issuance
Stock option issuance - 3 month vest
Stock option issuance - 12 month vest
Fair value of contingent consideration
Fair value of purchase consideration
The following table summarizes the allocation of the aggregate purchase price consideration to the fair value of the assets acquired and liabilities assumed as of September 29, 2022:
(amounts in thousands)
Assets Acquired:
Cash
Accounts receivable
Prepaids and other current assets
Property and equipment, net
Taxes receivable
Acquired intangibles
Goodwill
Total assets acquired
Liabilities Assumed:
Accounts payable
Short-term debt
Accrued compensation
Other current liabilities
Long-term debt
Deferred compensation benefits
Deferred tax liability
Total liabilities assumed
Net assets acquired
At December 31, 2022, the Company allocated value to current assets and liabilities based on book values at September 29, 2022, which approximates fair value. The excess consideration was recorded as goodwill, which is not deductible for income tax purposes, and is driven by Eleviant providing a high level of digital IT solutions and offshore delivery capabilities.
(amounts in thousands)
Fair Value
Estimated
Economic Life
Technology
10 years
Customer relationships
10 years
Fair value of purchase consideration
The Company incurred acquisition-related legal and consulting fees, expenses related to retention bonuses, and amortization of intangible assets of approximately $ 0.8 million in 2022, which were recorded as a component of selling, general, and administrative expenses in the consolidated statements of income. The accounting for this acquisition was updated in the fourth quarter of 2022, including an allocation to intangible assets of $ 7.3 million, but the preliminary purchase accounting for intangible assets has not yet been finalized as of December 31, 2022.
StarDust SAS (“StarDust”)
On March 3, 2020, the Company acquired 100 % of the equity of StarDust, for approximately $ 6.1 million (€ 5.5 million based on a EUR into USD exchange rate of 1.1145 ). The acquisition was funded using cash on hand and borrowings under the Credit and Security Agreement. The France-based StarDust, is a leading provider of testing and quality assurance for digital services with offices in Marseille, France, and Montreal, Canada. StarDust offers a complete range of testing services, including functional, multilingual, operational, environmental, regression, and application benchmarking, covering digital services and website, software, mobile applications, and Internet of Things connected objects. The acquisition expanded the Company’s global testing capabilities.
The results of operations of StarDust have been included in the Company’s consolidated financial results since the date of acquisition. As the Company has determined that the acquisition is not material to its existing operations, certain disclosures, including proforma financial information, have not been included in this annual report on Form 10-K.
An earn-out of up to $ 1.1 million (€ 1.0 million based on a EUR into USD exchange rate of 1.1145 ) can be earned, a portion of which will be payable in each period subject to the achievement of consolidated direct profit targets for fiscal 2020 and 2021. Additionally, for each € 10,000 of consolidated direct profit achieved above the target, an additional € 1,000 can be earned, with no maximum limit. There is no payout if the achievement is below the target threshold. The fair value as of the March 3, 2020 acquisition date was determined to be $ 0.1 million. During 2021, the Company paid $ 0.3 million relating to the earn-out based on the achievement by StarDust of consolidated direct profit targets for the fiscal year 2020. As of December 31, 2021, the fair value of the remaining contingent consideration liability was determined to be zero as the consolidated direct profit targets were not met by StarDust for the fiscal year 2021.
The acquisition date fair value of the consideration for the acquisition of StarDust consisted of the following as of March 3, 2020:
(amounts in thousands)
Cash consideration
Fair value of contingent consideration
Fair value of purchase consideration
The following table summarizes the allocation of the aggregate purchase consideration to the fair value of the assets acquired and liabilities assumed as of March 3, 2020:
(amounts in thousands)
Assets Acquired:
Cash
Accounts receivable
Prepaids & other
Property & equipment, net
Acquired intangibles
Goodwill
Total assets acquired
Liabilities Assumed:
Accounts payable
Accrued compensation
Taxes payable
Other liabilities
Deferred income taxes
Total liabilities assumed
Net assets acquired
The purchase consideration for the acquisition was allocated to the assets acquired and liabilities assumed based upon their respective fair values. The excess consideration was recorded as goodwill, which is not deductible for income tax purposes.
(amounts in thousands)
Fair Value
Estimated
Economic Life
Trademarks
2 years
Technology
10 years
Customer relationships
7 years
Fair value of purchase consideration
The Company incurred adjustments to the fair value of the earn-out liability, and amortization of intangible assets of approximately $ 0.1 million and $( 0.2 ) million in 2022 and 2021, respectively, which were recorded as a component of selling, general, and administrative expenses in the consolidated statements of income. The purchase price allocation for this acquisition has been finalized.
Debt
The Company entered into an asset-based lending revolving credit agreement (Credit Agreement) during the 2021 second quarter, which has a five-year term that expires in May 2026 , replacing its previous agreement. Under this Credit Agreement, the Company can borrow up to $ 50.0 million depending on collateral availability. The Credit Agreement is collateralized by the Company’s accounts receivable in the United States, Belgium, and Luxembourg. The London Interbank Offered Rate (“LIBOR”), the interest rate benchmark used as a reference rate on the Company's Credit Agreement, began being phased out at the beginning of calendar year 2022, with the one-month LIBOR scheduled to cease immediately after June 30, 2023. A reference rate based on the Secured Overnight Financing Rate (“SOFR”), and other alternative benchmark rates, are replacing LIBOR. The Company can borrow under the agreement at either rate at its discretion. Interest rates range from 1.5 % to 2.0 % over SOFR or EURIBOR loans, and 0.5 % to 1.0 % over base rate (prime rate) loans. The Company’s previous Credit and Security Agreement was terminated during the 2021 second quarter.
At December 31, 2022 and December 31, 2021, there were no amounts outstanding under the Credit Agreement. The Company borrows or repays its debts as needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll.
There were no borrowings during 2022 and 2021. Total commitment fees incurred totaled approximately $ 0.2 million in 2020, while interest paid in 2020 totaled $ 0.2 million under the previous Credit and Security Agreement.
Under the Credit Agreement, the Company is required to meet one financial covenant in order to maintain borrowings under its revolving credit line, pay dividends, and make acquisitions. The covenant is measured quarterly, and at December 31, 2022 represented a fixed charge coverage ratio, where for the trailing twelve months the consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted for, amongst other items, equity-based compensation and severance expenses, must be greater than 1.0 times the consolidated interest expense paid in cash and any scheduled principal payments. The fixed charge coverage ratio is only tested if availability, subject to a maximum of the commitment of $ 50.0 million, on the measurement date is less than the greater of 12.5 % of the total loan availability or $ 5.0 million. Actual borrowings by CTG under the Credit Agreement are subject to a borrowing base, which is a formula based on certain eligible receivables and reserves for each country included in the Credit Agreement (the United States, Belgium, and Luxembourg). Receivable balances from the Company's largest client, IBM, have been removed from the Credit Agreement as collateral, as the Company had entered into a factoring arrangement for those receivables. Total availability as of December 31, 2022 was approximately $ 33.0 million. The Company’s compliance with its financial covenant was not required to be tested at December 31, 2022 as the availability under the Credit Agreement was in excess of 12.5 % of the total loan availability. The Company was in compliance with its applicable covenants at December 31, 2021 and under the previous Credit and Security Agreement at December 31, 2020.
As part of the Eleviant acquisition, the Company has $ 0.7 million outstanding under a revolving line of credit as of December 31, 2022. The interest rate is 8.0 %, and the amount outstanding is included in "Accounts Payable" on the Company's Consolidated Balance Sheet.
During 2021, the Company wrote-off approximately $ 0.1 million in deferred financing fees associated with its previous Credit and Security Agreement. The Company incurred approximately $ 1.4 million in fees associated with the Credit Agreement which have been deferred and will be amortized over the life of the agreement ( 60 months).
Income Taxes
The provision for income taxes for 2022, 2021, and 2020 consists of the following:
(amounts in thousands)
Domestic and foreign components of income before
income taxes are as follows:
Domestic
Foreign
Total income before income taxes
The provision (benefit) for income taxes consists of:
Current tax:
U.S. federal
Foreign
U.S. state and local
Total current tax
Deferred tax:
U.S. federal
Foreign
U.S. state and local
Total deferred tax
Total tax
The effective and statutory income tax rate can be reconciled
as follows:
Tax at statutory rate
State tax, net of federal benefit
Non-taxable income
Non-deductible expenses
Change in estimate primarily related to foreign taxes
Change in valuation allowance related to U.S. federal taxes
Change in estimate primarily related to U.S. federal taxes
Tax credits
GILTI
Foreign rate differential
Other, net
Total tax
Effective income tax rate
The ETR was lower in 2021 primarily due to the reversal of the valuation allowance against the Company’s US deferred tax assets.
The Company’s deferred tax assets and liabilities at December 31, 2022 and 2021 consist of the following:
December 31,
(amounts in thousands)
Assets
Deferred compensation
Loss and credit carryforwards
Accruals deductible for tax purposes when paid
State taxes
Depreciation
Unrealized gain
Leases
Research and development expenses
Other
Gross deferred tax assets
Deferred tax asset valuation allowance
Gross deferred tax assets less valuation allowance
Liabilities
Amortization
Depreciation
Leases
Deferred compensation
Gross deferred tax liabilities
Net deferred tax assets (liabilities)
Net deferred tax assets and liabilities are recorded as follows:
Net non-current assets
Net non-current liabilities
Net deferred tax assets (liabilities)
In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that all or some portion of the deferred tax assets will be realized, or that a valuation allowance is required. Management considers all available evidence, both positive and negative, in assessing realizability of its deferred tax assets. A key component of this assessment is management’s critical evaluation of current and future impacts of business and economic factors on the Company’s ability to generate future taxable income. Factors that may affect the Company’s ability to generate taxable income include, but are not limited to, increased competition, a decline in revenue or margins, a loss of market share, the availability of qualified professional staff, and a decrease in demand for the Company’s services. The analysis that the Company prepared to determine the valuation allowance required significant judgment and assumptions regarding future market conditions as well as forecasts for profits, taxable income, and taxable income by jurisdiction. Due to the sensitivity of the analysis, changes to the assumptions in subsequent periods could have a material effect on the valuation allowance. Additionally, management has determined that a valuation allowance is required against its Netherlands and India deferred taxes. The total valuation allowance recorded these deferred tax assets is $ 0.7 million, a net decrease of $ 1.4 million during the year driven by a change in the discount rate on a European pension plan, of which less than $ 0.1 million was recorded as income tax in the consolidated statement of operations.
The Company has various state net operating loss carryforwards of $ 0.6 million. The state carryforwards begin to expire in 2023 . The Company has net operating loss carryforwards in the Netherlands, United Kingdom, and India of $ 0.2 million, $ 0.5 million, and $ 0.8 million, respectively. The carryforwards in the Netherlands begin to expire in 2023 , the carryforwards in the United Kingdom have no expiration date, and the carryforwards in India begin to expire in 2028 .
At December 31, 2022, the Company believes it has adequately provided for its tax-related liabilities, and that no reserve for unrecognized tax benefits is necessary. No significant change in the total amount of unrecognized tax benefits is expected within the next twelve months. The Company recognizes accrued interest and penalties related to unrecognized tax benefits (if any) in tax expense, as applicable. At December 31, 2022 and 2021 , the Company had no accrual for the payment of interest and penalties.
The Company has not recorded a U.S. deferred tax liability for the excess book basis over the tax basis of its investments in foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations.
Net income tax payments during 2022, 2021, and 2020 totaled $ 3.0 million, $ 2.7 million, and $ 4.2 million, respectively.
Lease Commitments
The Company accounts for its leases under Topic 842, “Leases”. The Company is obligated under a number of long-term operating leases for office space and office equipment, and for automobiles leased in Europe.
Most leases contain both lease components (fixed payments for rent) and non-lease components (common-area maintenance and other services). The Company has elected the practical expedient to separate lease and non-lease components for its office leases and has elected to group lease and non-lease components for its vehicle leases. Some leases contain renewal options with escalation clauses commensurate with local market fluctuations, however, generally limiting an annual increase to no more than 5.0 % of the existing lease payment. The exercise of lease renewal options is at the Company’s sole discretion. The Company has excluded renewal options in the measurement of right-of-use assets and lease liabilities if they are not reasonably certain of exercise.
Operating leases are included in the right-of-use lease assets, short-term lease liabilities, and long-term lease liabilities on the consolidated balance sheet. The Company measures the operating lease liabilities at lease commencement date based on the present value of remaining lease payments using the rate implicit in the lease when readily determinable, or the Company’s secured incremental borrowing rate. The Company has made an accounting policy election not to recognize a lease liability or right-of-use asset for leases with a lease term of twelve months or less and do not include an option to purchase the underlying asset. The Company recognizes lease expense on a straight-line basis over the lease term and variable lease expense in the period incurred. Variable lease cost consists primarily of common-area maintenance, insurance, and taxes, which are paid based on actual costs incurred by the lessor.
Lease costs for the year ended December 31, 2022 and December 31, 2021 were as follows:
For the Year Ended
(amounts in thousands)
December 31, 2022
December 31, 2021
Operating lease costs
Variable lease costs
Short-term lease costs
Maturities for the Company’s lease liabilities for all operating leases as of December 31, 2022 are as follows:
Year
Total Operating Leases
(amounts in thousands)
2028 & thereafter
Total undiscounted operating lease payments
Less: Interest
Total present value of operating lease liabilities
The weighted average remaining lease term and discount rate for all operating leases as of December 31, 2022 are as follows:
December 31, 2022
Weighted average remaining lease term (years)
Weighted average remaining discount rate
Supplemental cash flow information related to the Company’s operating leases for 2022 is as follows:
(amounts in thousands)
December 31, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflow from operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Deferred Compensation Benefits
The Company maintains a non-qualified defined-benefit Executive Supplemental Benefit Plan (ESBP) that provides certain former key executives with deferred compensation benefits, based on years of service and base compensation, payable during retirement. The plan was amended as of November 30, 1994, to freeze benefits for the participants in the plan at that time.
The Company also retained certain potential obligations related to a contributory defined-benefit plan for its previous employees located in the Netherlands (NDBP) when the Company disposed of its subsidiary, CTG Nederland, B.V. Benefits paid are a function of a percentage of career average pay. This plan was curtailed for additional contributions in January 2003.
The Company also maintains a fully funded pension plan related to CTG Belgium and CTG Health Solutions (Belgium) employees (BDBP). This is a plan with active employees and the Company expects to make future contributions.
As a result of the acquisition of Soft Company on February 15, 2018, the Company maintains an unfunded pension plan related to the current Soft Company employees (FDBP). The Company did not make contributions to this plan in 2021 or 2022 and does not anticipate making contributions to the plan in 2023. No benefit payments were made in 2021 or 2022 and none are expected to be paid in 2023.
On March 3, 2020, the Company acquired StarDust and now maintains an unfunded pension plan related to the current StarDust employees (SDBP). The Company did not make contributions to this plan in 2021 or 2022 and does not anticipate making contributing to this plan in 2023. No benefit payments were made in 2021 or 2022 and none are expected to be paid in 2023.
On September 29, 2022, the Company acquired Eleviant and now maintains an unfunded defined-benefit gratuity plan related to the current Eleviant employees (IDBP). The Company did not make contributions to this plan in 2022 and does not anticipate making contributing to this plan in 2023. No benefit payments were made in 2022 and none are expected to be paid in 2023.
Net periodic pension cost for the years ended December 31, 2022, 2021, and 2020 for all of the plans is as follows:
Net Periodic Pension Cost
(amounts in thousands)
Service cost
Interest cost
Expected return on assets
Amortization of actuarial loss
Net periodic pension cost
The change in benefit obligation and reconciliation of fair value of plan assets for the years ended December 31, 2022 and 2021 for the ESBP, NDBP, BDBP, FDBP, SDBP, and IDBP plans are as follows:
Changes in Benefit Obligation
(amounts in thousands)
Benefit obligation at beginning of period
Service cost
Interest cost
Benefits paid
Acquisition
Actuarial loss
Effect of exchange rate changes
Benefit obligation at end of period
Reconciliation of Fair Value of Plan Assets
Fair value of plan assets at beginning of period
Actual return on plan assets
Employer contributions
Benefits paid
Effect of exchange rate changes
Fair value of plan assets at end of period
Accrued benefit cost
Accrued benefit cost for the ESBP, NDBP, BDBP, FDBP, SDBP, and IDBP is included in the consolidated balance sheet as follows:
(amounts in thousands except percentages)
ESBP
NDBP
BDBP
FDBP
SDBP
IDBP
As of December 31, 2022:
Non-current assets
Current liabilities
Non-current liabilities
Discount rates:
Benefit obligation
Net periodic pension cost
Salary increase rate
Expected return on plan assets
As of December 31, 2021:
Non-current assets
Current liabilities
Non-current liabilities
Discount rates:
Benefit obligation
Net periodic pension cost
Salary increase rate
Expected return on plan assets
For the ESBP, the accumulated benefit obligation at December 31, 2022 and 2021 was $ 3.7 million and $ 4.4 million, respectively. The amounts included in other comprehensive income relating to the pension loss adjustment in 2022 and 2021 , net of tax, was both approximately $( 0.2 ) million. The discount rate used in 2022 was 4.76 %, which is reflective of a series of bonds that are included in the Moody’s AA long-term corporate bond yield whose cash flow approximates the payments to participants under the ESBP for the remainder of the plan. This rate was an increase of 266 basis points from the rate used in the prior year and resulted in a decrease in the plan’s liabilities of $ 0.7 million. Benefits paid to participants are funded by the Company as needed, and are expected to total approximately $ 0.5 million in 2023. The plan is deemed unfunded as the Company has not specifically identified Company assets to be used to discharge the deferred compensation benefit liabilities. The Company has purchased insurance on the lives of certain plan participants in amounts considered sufficient to reimburse the Company for the costs associated with the plan for those participants. The Company does not anticipate making contributions to the plan other than for current year benefit payments as required in 2023 or future years.
For the NDBP, the accumulated benefit obligation at December 31, 2022 and 2021 was $ 8.8 million and $ 13.9 million, respectively. The discount rate used in 2022 was 3.40 %, which is reflective of a series of corporate bonds whose cash flow approximates the payments to participants under the NDBP for the remainder of the plan. This rate was an increase of 240 basis points from the rate used in the prior year. The increase in the discount rate and foreign currency fluctuations resulted in a decrease in the plan’s liabilities of $ 5.1 million in 2022.
The assets f or the NDBP are held by Aegon, a financial services firm located in the Netherlands. The Company maintains a contract with Aegon to insure future benefit payments of the NDBP; however, due to certain terms of the agreement and potential obligations to the Company, the NDBP has not been settled. The benefit payments to be made in 2023 are expected to be paid by Aegon from plan assets. The assets for the plan are included in a general portfolio of government bonds, a portion of which is allocated to the NDBP based upon the estimated pension liability associated with the plan. The fair market value of the plan’s assets equals the contractual value of the NDBP in any given year. The fair value of the assets is determined using a Level 3 methodology (see Note 1 “Summary of Significant Accounting Policies—Fair Value”). In 2022 and 2021, the plan investments had a targeted minimum return of 4.0 %, which is consistent with historical returns and the 4.0 % return guaranteed to the participants of the plan. Aegon intends to maintain the current investment strategy of investing plan assets solely in government bonds in 2023.
For the BDBP, the accumulated benefit obligation at December 31, 2022 and 2021 was $ 12.4 million and $ 12.3 million, respectively. The discount rate used in 2022 was 3.80 %, which is reflective of a series of corporate bonds whose cash flow approximates the payments to participants under the BDBP for the remainder of the plan. This rate was an increase of 275 basis points from the rate used in the prior year. The increase in discount rates resulted in an increase in the plan’s liabilities of $ 0.1 million in 2022.
The assets for the BDBP are held by Allianz for the CTG Belgium plan and by Vivium for the CTG Health Solutions (Belgium) plan, both financial services firms are located in Belgium. The Company maintains a contract with Allianz to insure future benefit payments of the BDBP. Contributions made by the Company to Allianz and Vivium are based on employees’ current salaries. The benefit payments to be made in 2023 are expected to be paid by Allianz and Vivium from plan assets. The assets for the plan are included in the overall portfolio of assets held by Allianz and Vivium. The fair market value of the plan’s assets equals the contractual value of the BDBP in any given year (which is the mathematical reserve held by Allianz and Vivium). The fair value of the assets is determined using a Level 3 methodology (see Note 1 “Summary of Significant Accounting Policies—Fair Value”). Allianz and Vivium do not guarantee a minimum return on the plan investments, whereas Belgian law sets a minimum return to be guaranteed to the participants of the plan.
For the FDBP, the accumulated benefit obligation at December 31, 2022 and 2021 was $ 0.3 million and $ 0.4 million, respectively. The amounts included in other comprehensive loss relating to the pension loss adjustment in 2022 and 2021 were $( 0.1 ) million and $( 0.2 ) million, respectively. The discount rate used in 2022 was 3.30 %, which is reflective of a series of corporate bonds whose cash flows approximates the payments to participants under the FDBP for the remainder of the plan. This rate was an increase of 230 basis points from the rate used in the prior year. The plan is deemed unfunded as the Company has not specifically identified Company assets to be used to discharge the deferred compensation benefit liabilities.
For the SDBP, the accumulated benefit obligation at both December 31, 2022 and 2021 was less than $ 0.1 million. The amounts included in other comprehensive loss relating to the pension loss adjustment in 2022 and 2021 were less than $( 0.1 ) million and less than $ 0.1 million, respectively. The discount rate used in 2022 was 3.30 %, which is reflective of a series of corporate bonds whose cash flows approximates the payments to participants under the SDBP for the remainder of the plan. The plan is deemed unfunded as the Company has not specifically identified Company assets to be used to discharge the deferred compensation benefit liabilities.
For the IDBP, the accumulated benefit obligation at December 31, 2022 was $ 0.3 million. The amounts included in other comprehensive loss relating to the pension loss adjustment in 2022 was less than $ 0.1 million. The discount rate used in 2022 was 6.90 %, which is reflective of government bonds whose cash flows approximates the payments to participants under the IDBP for the remainder of the plan. The plan is deemed unfunded as the Company has not specifically identified Company assets to be used to discharge the deferred compensation benefit liabilities.
Anticipated benefit payments for the ESBP, NDBP, BDBP, FDBP, SDBP, and IDBP expected to be paid in future years are as follows:
(amounts in thousands)
Total
For the ESBP, NDBP, BDBP, FDBP, SDBP, and IDBP, the amounts included in accumulated other comprehensive loss, net of tax, that have not yet been recognized as components of net periodic benefit cost as of December 31, 2022 are $ 0.8 million, $ 2.0 million, $ 1.6 million, $( 0.2 ) million, less than $ 0.1 million, and less than $ 0.1 million, respectively, for unrecognized actuarial losses (gains). The amounts included in accumulated other comprehensive loss, net of tax, that have not yet been recognized as components of net periodic benefit cost as of December 31, 2021 were $ 1.1 million, $ 6.7 million, $ 1.5 million, $( 0.1 ) million, less than $ 0.1 million, and zero , respectively, for unrecognized actuarial losses (gains).
The amounts recognized in other comprehensive loss, net of tax, for 2022, 2021, and 2020 related to year-over-year changes in the discount rate, totaled $( 4.9 ) million, $( 2.5 ) million, and $ 2.3 million, respectively. Net periodic pension cost and the amounts recognized in other comprehensive loss, net of tax, for the ESBP, NDBP, BDBP, FDBP, SDBP, and IDBP for 2022, 2021, and 2020 totaled $( 4.2 ) million, $( 2.0 ) million, and $ 2.7 million, respectively.
The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2023 for the ESBP, NDBP, BDBP, FDBP, SDBP, and IDBP for unrecognized actuarial gains and losses total $ 0.4 million.
The Company also maintains the Key Employee Non-Qualified Deferred Compensation Plan for certain key executives. Company contributions to this plan, if any, are based on annually defined financial performance objectives. There were no contributions to the plan in 2022, 2021, or 2020, and the Company does not anticipate making contributions in 2023. The investments in the plan are included in the total assets of the Company. Participants in the plan have the ability to purchase stock units from the Company at current market prices using their available investment balances within the plan. In return for the funds received, the Company releases shares out of treasury stock equivalent to the number of share units purchased by the participants. These shares of common stock are not entitled to any voting rights, but will receive dividends in the event any are paid. The shares are being held by the Company, and will be released to the participants as prescribed by their payment elections under the plan. There were no stock unit purchases during 2022. During 2021, an executive purchased 20,958 stock units from the Company using their available investment balance. There were no stock unit purchases during 2020.
The Company maintains the Non-Employee Director Deferred Compensation Plan for its non-employee directors. During 2022, $ 0.1 million was contributed to the plan for a director. No cash contributions were made to the plan for the directors during 2021 or 2020. During 2022 and 2021, the Directors were granted shares out of the Company’s 2020 Equity Award Plan which were deposited into this plan. For 2020, the Directors were granted shares out of the Company’s 2010 Equity Award Plan. These shares of common stock are not entitled to any voting rights, but will receive dividends in the event any are paid. The shares are being held by the Company, and will be released to the participants as prescribed by their payment elections under the p lan. Durin g 2021, two directors retired from the Company’s Board of Directors, which resulted in 416,265 shares being released from this plan.
Employee Benefits
401(k) Profit-Sharing Retirement Plan
The Company maintains a contributory 401(k) profit-sharing retirement plan covering substantially all U.S. employees. There were discretionary Company contributions of $ 0.7 million and $ 0.5 million in 2022 and 2021, respectively, but no contributions during 2020.
Other Retirement Plans
The Company maintains various other defined contribution retirement plans covering European employees. Company contributions charged to operations were $ 0.4 million in both 2022 and 2021, and $ 0.3 million in 2020.
Employee Health Insurance
The Company provides various health insurance plans for its employees, including a self-insured plan for its salaried and hourly employees in the U.S. In 2015, the Company began offering compliant healthcare coverage as required under The Patient Protection and Affordable Care Act (PPACA). Where possible, the Company has passed the cost of this coverage on to its clients where the employees that elect this coverage are engaged.
Shareholders’ Equity
Employee Stock Purchase Plan
Under the Company’s First Employee Stock Purchase Plan (ESPP), employees may apply up to 10 % of their compensation to purchase the Company’s common stock. Shares are purchased at the closing market price on the business day preceding the date of purchase. As of December 31, 2022 , approximately 134,000 shares remain unissued under the ESPP. During 2022, 2021, and 2020 , approximately 22,000 , 19,000 , and 29,000 shares, respectively, were purchased under the ESPP at an average price of $ 8.10 , $ 8.74 , and $ 4.90 per share, respectively.
Preferred Stock
At December 31, 2022 and 2021 , the Company had 2.5 million shares of par value $ 0.01 preferred stock authorized for issuance, but no ne outstanding.
Equity-Based Compensation
The Company issues stock options and restricted stock in exchange for services of key employees and independent directors. In accordance with current accounting standards, the calculated cost of its equity-based compensation awards is recognized in the Company’s consolidated statements of income over the period in which an employee or director is required to provide the services for the award. Compensation cost will not be recognized for employees or directors that do not render the requisite services. The Company recognizes the expense for equity-based compensation in its consolidated statements of income on a straight-line basis based upon the number of awards that are ultimately expected to vest.
Equity-based compensation expense, the corresponding tax benefit and net equity-based compensation expense for 2022, 2021, and 2020 are as follows:
(amounts in thousands)
Equity-based compensation expense
Tax benefit
Net equity-based compensation expense
On September 17, 2020, the shareholders approved the Company’s 2020 Equity Award Plan (2020 Plan). Under the provisions of the 2020 Plan, stock options, restricted stock, stock appreciation rights, and other awards may be granted or awarded to key employees and independent directors of the Company, as well as non-employees. The Compensation Committee of the Board of Directors determines the nature, amount, pricing and vesting of the grants or awards. All options and awards remain in effect until the earliest of the expiration, exercise, or surrender date. Options generally become exercisable in three or four equal installments, typically beginning one year from the date of grant, and expire no more than 15 years from the date of grant. A total of 1,950,000 shares may be granted or awarded under the 2020 plan, of which 939,123 were available for grant as of December 31, 2022.
On May 12, 2010, the shareholders approved the Company’s 2010 Equity Award Plan (2010 Plan). Under the provisions of the 2010 Plan, stock options, restricted stock, stock appreciation rights, and other awards may be granted or awarded to key employees and independent directors of the Company, as well as non-employees. The Compensation Committee of the Board of Directors determines the nature, amount, pricing and vesting of the grants or awards. All options and awards remain in effect until the earliest of the expiration, exercise, or surrender date. Options generally
become exercisable in three or four equal installments, typically beginning one year from the date of grant, and expire no more than 15 years from the date of grant. There are no shares or options available for grant under this plan as of December 31, 2022.
On April 26, 2000, the shareholders approved the Company’s 2000 Equity Award Plan (Equity Plan). Under the provisions of the Equity Plan, stock options, restricted stock, stock appreciation rights, and other awards could previously be granted or awarded to key employees and independent directors of the Company. The Compensation Committee of the Board of Directors determined the nature, amount, pricing, and vesting of the grants or awards. All options and awards remain in effect until the earlier of the expiration, exercise, or surrender date. Options generally become exercisable in three or four equal annual installments, typically beginning one year from the date of grant, and expire no more than 15 years from the date of grant. In certain limited instances, options granted at fair market value were expected to vest nine and one-half years from the date of grant. There are no shares or options available for grant under this plan as of December 31, 2022.
Under the Company’s 1991 Restricted Stock Plan, a total of 800,000 shares of restricted stock may be granted to certain key employees, 20,116 of which are available for grant as of December 31, 2022.
The Company gr anted 334,790 stock options during 2022 from the 2020 Equity Award Plan. Of those 334,790 stock options, 134,790 stock options were granted on March 18, 2022 to senior management, and 200,000 were granted on September 29, 2022 as part of the Eleviant acquisition. The stock options granted on March 18, 2022 vest ratably over three years , and are being expensed over that period. Of the 200,000 stock options granted for the Eleviant acquisition on September 29, 2022, 100,000 vest ratably over three months , and the remaining 100,000 vest ratably over one year, with both being expensed over the respective periods. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted on the date of grant. The per-option weighted-average fair value on the date of grant of stock options granted in 2022 was $ 3.14 for the March 18, 2022 options, $ 1.66 for the September 29, 2022 stock options that vest in three months , and $ 2.25 for the September 29, 2022 options that vest in one year .
The Company gra nted 105,906 stock options during 2021 from the 2020 Equity Award Plan. The options vest ratably over three years, and are being expensed over that period. There were no other stock options granted during 2021. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted on the date of grant. The per-option weighted-average fair value on the date of grant of stock options was $ 3.46 .
The Company granted 173,010 stock options during 2020 from the 2010 Equity Award Plan. The options vest ratably over three years, and are being expensed over that period. The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted on the date of grant. The per-option weighted-average fair value on the date of grant of stock options granted in 2020 was $ 1.77 .
The fair value of the options at the date of grant was estimated using the following weighted-average assumptions for the years ended December 31, 2022, 2021, and 2020:
Expected life (years)
Dividend yield
Risk-free interest rate
Expected volatility
The Company used historical volatility calculated using daily closing prices for its common stock over periods that equal the expected term of the options granted to estimate the expected volatility for the grants made in 2022, 2021, and 2020 . The risk-free interest rate assumption was based upon U.S. Treasury yields appropriate for the expected term of the Company’s stock options based upon the date of grant. The expected term of the stock options granted was based upon the options expected vesting schedule and historical exercise patterns. The Company did no t pay a dividend in 2022, 2021, or 2020, and does not anticipate paying a dividend in the future.
During 2022, 2021, and 2020 , the Company issued restricted stock to certain key employees. The stock vests over a period of three or four years, with 33 % or 25 % of the stock issued vesting one year from the date of grant, and another 33 % or 25 % vesting each year thereafter until the stock is fully vested. The Company is recognizing compensation expense for these shares ratably over the expected term of the restricted stock, which is three or four years . In the event the Company issued stock to its independent directors, the stock vests at retirement. As the independent directors are eligible for retirement from the Company’s Board of Directors at any point in time, the Company will recognize the expense associated with these shares on the date of grant. The shares of restricted stock issued are considered
outstanding, can be voted, and are eligible to receive dividends, if any are paid. However, the restricted shares do not include a non-forfeitable right for the holder to receive dividends and none will be paid in the event the awards do not vest. Accordingly, only vested shares of outstanding restricted stock are included in the calculation of basic earnings per share.
During 2022, the Company granted 92,815 shares with a performance condition to senior management from the 2020 Equity Award Plan. The closing price of the Company's stock on that day was $ 9.12 per share. Under these grant agreements, the Company's cumulative three-year non-GAAP earnings per share for the years 2022, 2023, and 2024 must equal or exceed $ 2.86 for 100 % of the grants to vest. If the combined cumulative three-year non-GAAP earnings per share is 80 % or more but less than 100% of the earnings per share target, a pro-rata portion of the grants shall vest. If at least 80% of the three-year non-GAAP earnings per share target is not met, the grants will expire. The performance share units have a grant date fair value of approximately $ 0.7 million and the Company is expensing these grants over the derived service period. Of the 92,815 performance shares granted during 2022, no shares were cancelled during 2022, and 92,815 shares were outstanding as of December 31, 2022.
During 2021, the Company granted 79,917 shares with a performance condition to senior management from the 2020 Equity Award Plan. The closing price of the Company’s stock on that day was $ 9.17 per share. Under these grant agreements, the Company’s cumulative three-year non-GAAP earnings per share for the years 2021, 2022, and 2023 must equal or exceed $ 2.01 for 100 % of the grants to vest. If the combined cumulative three-year non-GAAP earnings per share is 80 % or more but less than 100% of the earnings per share target, a pro-rata portion of the grants shall vest. If at least 80% of the three-year non-GAAP earnings per share target is not met, the grants will expire. The performance share units have a grant date fair value of approximately $ 0.7 million and the Company is expensing these grants over the derived service period. Of the 79,917 performance shares granted during 2021, 5,997 shares were cancelled during 2022, and 73,920 shares were outstanding as of December 31, 2022.
During 2020, the Company granted 115,410 shares with a performance condition to senior management from the 2010 Equity Award Plan. The closing price of the Company’s stock on that day was $ 5.88 per share. Under these grant agreements, the Company’s cumulative three-year non-GAAP earnings per share for the years 2020, 2021, and 2022 must equal or exceed $ 1.77 for 100 % of the grants to vest. If the combined cumulative three-year non-GAAP earnings per share is 80 % or more but less than 100% of the earnings per share target, a pro-rata portion of the grants shall vest. If at least 80% of the three-year non-GAAP earnings per share target is not met, the grants will expire. The performance share units have a grant date fair value of approximately $ 0.7 million and the Company is expensing these grants over the derived service period. Of the 115,410 performance shares granted during 2020, 8,920 shares were cancelled during 2022, and 106,490 shares were outstanding as of December 31, 2022.
As of December 31, 2022 , total remaining stock-based compensation expense for non-vested equity-based compensation was approximately $ 3.5 million, which is expected to be recognized on a weighted-average basis over the next 24 months. Historically, the Company has issued shares out of treasury stock to fulfill the share requirements from stock option exercises and restricted stock grants.
A summary of stock option activity under the 2020 Plan, 2010 Plan, and Equity Plan is as follows:
2020 Plan
Options
Weighted-
Average
Exercise
Price
2010 Plan
Options
Weighted-
Average
Exercise
Price
Equity Plan
Options
Weighted-
Average
Exercise
Price
Outstanding at December 31, 2019
Granted
Exercised
Canceled or forfeited
Expired
Outstanding at December 31, 2020
Granted
Exercised
Canceled or forfeited
Expired
Outstanding at December 31, 2021
Granted
Exercised
Canceled or forfeited
Expired
Outstanding at December 31, 2022
Options Exercisable at December 31, 2022
Under the 2020 Plan, there were no shares exercised in 2022 or 2021. Under the 2010 Plan, there were 18,620 shares exercised in 2022 , and 45,096 shares exercised in both 2021 and 2020. Under the Equity Plan, there were 40,000 shares exercised in 2022, 65,300 shares exercised in 2021, and no shares exercised in 2020. For 2022, 2021, and 2020 , the intrinsic value of the options exercised under the Equity Plan was $ 0.2 million, $ 0.3 million, and less than $ 0.1 million, respectively, and under the 2010 Plan was $ 0.1 million for both 2022 and 2021, and zero for 2020.
A summary of restricted stock activity under the 2020 Plan, 2010 Plan, the Equity Plan and the 1991 Restricted Stock Plan is as follows:
2020 Plan
Restricted
Stock
Weighted-
Average
Fair Value
2010 Plan
Restricted
Stock
Weighted-
Average
Fair Value
Equity Plan
Restricted
Stock
Weighted-
Average
Fair Value
Restricted
Stock Plan
Weighted-
Average
Fair Value
Outstanding at
Dec. 31, 2019
Granted
Released
Canceled or forfeited
Outstanding at
Dec. 31, 2020
Granted
Released
Canceled or forfeited
Outstanding at
Dec. 31, 2021
Granted
Released
Canceled or forfeited
Outstanding at
Dec. 31, 2022
Options Outstanding at December 31, 2022
A summary of stock options outstanding at December 31, 2022 for the 2020 Plan, 2010 Plan, and the Equity Plan is as follows:
Range of Exercise Prices:
Number of
Options
Outstanding
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Life in Years
Aggregate
Intrinsic Value
2020 Plan
2010 Plan
Equity Plan
Options Exercisable at December 31, 2022
A summary of stock options that are exercisable at December 31, 2022 for the 2020 Plan, 2010 Plan, and the Equity Plan is as follows:
Range of Exercise Prices:
Number of
Options
Exercisable
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
in Years
Aggregate
Intrinsic Value
2020 Plan
2010 Plan
Equity Plan
The aggregate intrinsic values as calculated in the above charts detailing options that are outstanding and those that are exercisable, respectively, are based upon the Company’s closing stock price on December 31, 2022 of $ 7.56 per share.
Significant Clients
In 2022 , International Business Machines Corporation (IBM) was the Company’s largest client. The National Technical Services Agreement with IBM expires on October 27, 2023 . In 2022, 2021, and 2020 , IBM accounted for $ 57.1 million or 17.6 %, $ 74.8 million or 19.1 %, and $ 77.5 million or 21.2 % of the Company’s consolidated revenue, respectively. The Company’s accounts receivable from IBM at December 31, 2022 and 2021 amounted to $ 14.0 million and $ 8.9 million, respectively.
No other client accounted for more than 10% of revenue in 2022, 2021, and 2020 .
Contingencies
The Company and its subsidiaries are involved from time to time in various legal proceedings and tax audits arising in the ordinary course of business. At December 31, 2022 and 2021, the Company was in discussion with various governmental agencies relative to tax matters, including income, sales and use, and property and franchise taxes. The outcome of these audits and legal proceedings, as applicable, involving the Company and its subsidiaries cannot be predicted with certainty, and the amount of any liability that could arise with respect to such audits cannot be accurately predicted. However, as none of these matters are individually or in the aggregate significant and as management has not recorded an estimate of its potential liability for these audits at December 31, 2022 and 2021 . The Company does not expect the conclusion of these matters to have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
Segments and Enterprise-Wide Disclosures
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance.
The Company provides information technology and related services to its clients. These services include digital IT Solutions and Services, and Staffing Services. With digital IT Solutions and Services, the Company generally takes responsibility for the deliverables and some level of project and staff management, and these services may include high-end advisory or business-related consulting. When providing Staffing Services, including managed staffing, staff augmentation, and volume staffing, personnel are provided to clients based upon their requirements for specific skills, who then, in turn, take their direction from clients’ managers.
The Company’s strategy throughout its operations is to expand the amount of IT Solutions and Services it provides to its clients as compared with Staffing Services, and to focus on delivering digital solutions. IT Solutions and Services provide significant value to the Company's clients, and drive higher bill rates and margins for the Company. The Company's existing solutions include business, technology, and operations solutions that aid its clients in digitally transforming their company, and ultimately meet the needs of their clients. The digital services the Company delivers includes the Internet of Things, Intelligent Automation, Data and Analytics, Cloud and Automated Testing.
In prior years, and in 2021 prior to the fourth quarter, the Company reported its results in one segment. This included operating segments for each of North America and Europe. The services the Company provided, regardless of geography or industry, were similar in nature and produced similar results. Additionally, the CEO, who is the Company’s chief operating decision maker, made decisions on investments and allocated resources at the North America or Europe level. Accordingly, given the consistency in the services provided and the results, the Company aggregated those results into one reporting segment.
During the 2021 fourth quarter, the Company further refined its strategy to focus on providing digital services within its IT Solutions business in both North America and in Europe. As part of this process, the Company also determined that there are certain lower margin staffing accounts within its business that are no longer part of the Company’s long-term business plan. The focus includes investing in business development, solutions, delivery, and marketing for IT Solutions, and critically evaluating each significant staffing engagement as it comes up for renewal to determine if the Company would continue to provide those services to its client. These decisions are based on, among other factors, critically evaluating the work performed, the availability of the resources, the client, the long-term opportunities for the services provided at the client, and the revenue and profit associated with the engagement.
Accordingly, the Company reports its operations in three segments within its business: North America IT Solutions and Services, Europe IT Solutions and Services, and Non-Strategic Technology Services. The results for the Eleviant business acquired in the 2022 third quarter are reflected within the North America IT Solutions and Services segment.
The segments are composed of the following:
IT Solutions and Services in North America and Europe
IT Solutions and Services include business, technology, and operations solutions that aid the Company's clients in digitally transforming their company, and ultimately meet the needs of their clients. The digital services the Company delivers includes the Internet of Things, Intelligent Automation, Data and Analytics, Cloud and Automated Testing.
Non-Strategic Technology Services
The Company’s Non-Strategic Technology Services address a range of information and technology resource needs, from filling specific talent gaps to managing high-volume staffing programs. The Company recruits, retains, and manages IT talent for its clients, which are primarily large technology service providers and other companies with multiple locations and a significant need for high-volume professional IT resources. This segment consists of the lowest margin services the Company provides to its clients. This segment consists primarily of staffing services in North America, and a minor amount (less than 5 % of revenue in this segment) of such services in Europe.
The Company makes decisions related to resource allocation based upon the contribution profit of each of its segments. Contribution profit reflects gross profit less any operating expenses directly related to each respective segment. Those operating expenses primarily include sales, solutions, delivery, and recruiting expenses. General and administrative expenses are not allocated to the individual segments and primarily include corporate support costs such as finance and accounting, internal IT, human resources, benefits and marketing.
The operating results for the Company’s segments for 2022, 2021, and 2020 were as follows:
North America IT
Europe IT
Non-Strategic
(amounts in thousands)
Solutions & Services
Solutions & Services
Technology Services
Total
Revenue
Direct costs
Gross profit
Operating expenses
Contribution profit
General and administrative expenses
Operating income
North America IT
Europe IT
Non-Strategic
(amounts in thousands)
Solutions & Services
Solutions & Services
Technology Services
Total
Revenue
Direct costs
Gross profit
Operating expenses
Contribution profit
General and administrative expenses
Operating income
North America IT
Europe IT
Non-Strategic
(amounts in thousands)
Solutions & Services
Solutions & Services
Technology Services
Total
Revenue
Direct costs
Gross profit
Operating expenses
Contribution profit
General and administrative expenses
Operating income
Depreciation allocated to Europe IT Solutions and Services totaled $ 0.6 million, $ 0.8 million, and $ 0.7 million in the years ended December 31, 2022, 2021, and 2020, respectively. Depreciation allocated to North America IT Solutions and Services totaled $ 0.2 million, $ 0.3 million, and $ 0.2 million in the years ended December 31, 2022, 2021 and 2020, respectively. Depreciation allocated to Non-Strategic Technology Services was less than $ 0.1 million in the years ended December 31, 2022, and 2021, and $ 0.1 million in the year ended December 31, 2020.
The Company has not provided any other expense or asset information for each of its segments as the Company’s CEO, who is the chief operating decision maker, does not use this information in any way to make resource decisions or
to manage the segments. The Company does not prepare balance sheet or statement of cash flow information for its segments.
The Company’s goodwill at December 31, 2022 totaled $ 36.0 million, including $ 17.2 million in the Europe IT Solutions and Services segment and $ 18.8 milli on in the North America IT Solutions and Services segment. The significant addition to goodwill balances in the North America IT Solutions and Services segment is due to the acquisition of Eleviant in the third quarter of 2022. The Company's goodwill at December 3 1, 2021 totaled $ 19.7 million, including $ 18.3 million in the Europe IT Solutions and Services segment, and $ 1.4 million in the North America IT Solutions and Services segment.
CTG’s reportable information is based on geographical areas. The accounting policies of the individual geographical areas are the same as those described in Note 1, “Summary of Significant Accounting Policies.”
Financial Information About Geographic Areas
(amounts in thousands)
Revenue from External Customers:
United States
Belgium (1)
Luxembourg (3)
Other countries
Total foreign revenue
Total revenue
Long-lived Assets*:
United States
France (2)
Luxembourg (3)
Other countries
Total long-lived assets*
Deferred Tax Assets, Net of Valuation Allowance:
United States
Europe
Total deferred tax assets, net
*Long-lived Assets exclude goodwill
Revenue for the Company's Belgium operations has been disclosed separately as it exceeds 10% of consolidated revenue in at least one of the years presented.
Long-lived assets for the Company's France operations have been disclosed separately as they exceed 10% of consolidated long-lived assets in at least one of the years presented.
Revenue and long-lived assets for the Company's Luxembourg operations have been disclosed separately as they exceed 10% of the consolidated balances in at least one of the years presented.
