UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File No. 1-9410b
COMPUTER TASK GROUP, INCORPORATED
(Exact name of registrant as specified in its charter)
New York
16-0912632
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
300 Corporate Parkway, Suite 214N, Amherst, New York
14226
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (716) 882-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CTG
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “an emerging growth company” in Rule 12b-2 of the
Exchange Act:
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of
the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common
equity was last sold on the last business day of the registrant’s most recently completed second quarter was $132.1 million. Solely for the purposes of this calculation, all
persons who are or may be executive officers or directors of the registrant have been deemed to be affiliates.
The total number of shares of Common Stock of the Registrant outstanding at March 10, 2023 was 15,747,376.
PCAOB Auditor Firm Id: 248
Auditor Name: Grant Thornton LLP
Auditor Location: Cleveland, OH, United States
DOCUMENTS INCORPORATED BY REFERENCE: None.
SEC Form 10-K Index
Section
Page
Part I
Item 1.
Business
2
Item 1A.
Risk Factors
9
Item 1B.
Unresolved Staff Comments
15
Item 2.
Properties
16
Item 3.
Legal Proceedings
16
Item 4.
Mine Safety Disclosures
16
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
17
Item 6.
[Reserved]
19
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
29
Item 8.
Financial Statements and Supplementary Data
30
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
67
Item 9A.
Controls and Procedures
67
Item 9B.
Other Information
69
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
69
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
70
Item 11.
Executive Compensation
74
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
89
Item 13.
Certain Relationships and Related Transactions, and Director Independence
90
Item 14.
Principal Accountant Fees and Services
91
Part IV
Item 15.
Exhibit and Financial Statement Schedules
92
Item 16.
Form 10-K Summary
94
Signatures
96
As used in this annual report on Form 10-K, references to “CTG,” “the Company,” “the Registrant,” “we,” “us,” or “our” refer to
Computer Task Group, Incorporated and its subsidiaries, unless the context suggests otherwise.
PART I
Forward-Looking Statements
This annual report on Form 10-K contains forward-looking information and statements made by the management of the Company that
are based on the beliefs of management as well as assumptions made by, and information currently available to, the Company, and are
subject to a number of risks and uncertainties. Further, certain forward-looking statements are based upon assumptions as to future events
that may not prove to be accurate. These forward-looking statements are current only as of the date of this annual report. The Company
assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking
statements include words or phrases such as “anticipates,” “believes,” “expects,” “might,” “plans,” “may,” “will,” “would,” “should,” “could,”
“seeks,” “estimates,” ”anticipates,” “project,” “predict,” “potential,” “currently,” “continue,” “intends,” “outlook,” and words and phrases of similar
impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions
and the business environment, and statements regarding future levels of or trends in business strategy and expectations, new business
opportunities, cost control initiatives, business wins, market demand, revenue, operating expenses, capital expenditures, and financing. The
forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous
factors and risks could cause actual results to differ materially from those in the forward-looking statements, including the following:
•
the availability to CTG of qualified professional staff
•
competition for clients and talent, including technical, sales and management personnel
•
increased bargaining power of large clients
•
the occurrence of cyber incidents and the Company's ability to protect confidential client data
•
the partial or complete loss of the revenue the Company generates from its largest client, International Business Machines
Corporation (IBM)
•
the uncertainty of clients' implementations of cost reduction projects
•
the mix of work between IT Solutions and Services and Non-Strategic Technology Services, and the risk of disengaging from
Non-Strategic Technology Services
•
currency exchange risks
•
risks associated with domestic and foreign operations, including uncertainty and business interruptions resulting from political
changes and actions in the U.S. and abroad, such as the conflict between Russia and Ukraine and recent developments in
China, and volatility in the global credit and financial markets and economy
•
renegotiations, nullification, or breaches of contracts with clients, vendors, subcontractors or other parties
•
the impact of current and future laws and government regulations, as well as repeal or modification of such, affecting the IT
solutions and services industry, taxes and the Company's operations in particular
•
industry, economic, and political conditions, including fluctuations in demand for IT services
•
consolidation among the Company's competitors or clients
•
the need to supplement or change our IT services in response to new offerings in the industry or changes in client
requirements for IT products and solutions
•
the risks associated with acquisitions
•
actions of activist shareholders
•
the continuing effects of the COVID-19 pandemic and the regulatory, social, and business responses thereto on the
Company’s business, operations, employees, contractors, and clients
•
unpredictability and severity of catastrophic events, including acts of terrorism, outbreak of war or hostilities, civil unrest,
adverse climate or weather events and pandemics or other public health emergencies, as well as our response to any of the
aforementioned factors, and
•
the risks described in Item 1A of this annual report on Form 10-K and from time to time in the Company's other reports filed
with the Securities and Exchange Commission (SEC). These may be obtained through the Securities and Exchange
Commission’s Electronic Data Gathering and Analysis Retrieval System (“EDGAR”) at www.sec.gov.
1
Item 1.
Business
Overview
CTG was incorporated in Buffalo, New York on March 11, 1966, and its corporate headquarters is located at 300 Corporate Parkway,
Suite 214N, Amherst, New York 14226 (716-882-8000). CTG has operations in North and South America, Western Europe, and India. CTG’s
employees and billable subcontractors total approximately 3,200 people worldwide at December 31, 2022. During 2022, the parent,
Computer Task Group, Incorporated (United States), had seventeen operating subsidiaries:
•
Computer Task Group of Canada, Inc.
•
La Societe de Tests StarDust Inc. (Canada)
•
Computer Task Group Belgium N.V.
•
CTG ITS S.A. (Belgium)
•
Computer Task Group IT Solutions, S.A. (Luxembourg)
•
Computer Task Group Luxembourg PSF S.A.
•
Computer Task Group (U.K.) Limited (United Kingdom)
•
CTG SAS (France)
•
StarDust SAS (France)
•
Computer Task Information Technology Services Private Limited (India)
•
CTG LATAM SAS (Colombia)
•
CTG Federal Systems, LLC (primarily United States)
•
Eleviant Technologies Inc. (United States)
•
Eleviant Technologies Private Limited (India)
•
Impiger Mobile, Inc. (United States)
•
Eleviant Consulting Services, Inc. (United States)
•
Eleviant Technologies, Inc. (Canada)
The Company provides information technology (“IT”) and related services to its clients. These services include information and
technology-related solutions, including staffing as a solution. With solution services, the Company generally takes responsibility for the
deliverables and some level of project and staff management, and 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, who
then, in turn, take their direction from the clients’ managers.
IT Solutions and Services
CTG is a leading provider of IT solutions and services, serving as a catalyst for our clients’ digital transformation. We increase project
momentum and the speed at which our clients achieve their desired outcomes. Our solutions portfolio addresses critical challenges for clients
in North America, South America, Western Europe, and India in high-growth industries. Clients we typically support are organizations with
large, complex technology, information, and data requirements. Some have begun their digital transformation and are struggling to drive their
desired results, while many are just starting to define their digital transformation needs and strategy.
CTG's Digital Transformation Solutions portfolio spans three areas that collectively address many of our clients' most pressing
transformation challenges and are designed to address their unique business, technology, and operational needs. Our capabilities ensure
that our clients utilize the right information technology to meet their business needs, maximize their IT systems' value, and operate efficiently
and effectively. The following describes the typical services provided:
•
Business Process Transformation Solutions ensure clients can meet today's challenges, map to tomorrow's growth, and align
their organizations' technology solutions to their business objectives. We combine strategic
2
advisory services, technologies and platforms, and implementation and integration processes to accelerate business outcomes,
improve workflows, and drive efficiencies. These solutions services include Advisory, Data Strategy, Digital Workplace, Enterprise
Platforms, Information Disclosure, and Regulatory and Compliance.
•
Technology Transformation Solutions accelerate digital transformation by keeping our clients ahead of the digital curve and
delivering the sustainable business value they expect from their technology investments. CTG's Technology Transformation
Solutions also help our clients stay ahead of their competition by rapidly adopting digital technologies with confidence through
solutions that include Application Development, Automation, Cloud, Data Management, Enterprise Platform Implementation, and
Testing.
•
Operations Transformation Solutions ensure our clients have the correct operations infrastructure in place to achieve the
organizational agility necessary to accelerate their business velocity. Our Global Delivery Network supports our Operations
Transformation Solutions, enabling cost-effective solutions delivery at optimal staffing levels to ensure exceptional customer service
while reducing client costs. These solutions include Application support, IT Operations support, Cloud, and Infrastructure.
Non-Strategic Technology Services - Staffing
CTG’s staffing services address a range of information and technology resource needs, from filling specific talent gaps to managing
high-volume staffing programs. CTG 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.
Capabilities
Our expertise in key technologies–what we call Digital Accelerators–underpins our solutions and ensures our clients receive optimal
value from their digital technologies and methodologies. CTG's Digital Accelerators evolve to meet market needs and address the most
innovative technology platforms and thinking. These Digital Accelerators include Agile and DevOps, Internet of Things (IoT), Intelligent
Automation, Data and Analytics, Cloud, and Automated Testing.
As the pace of change accelerates, CTG accelerates our clients' digital environment through a unique combination of Transformation
Solutions, Digital Accelerators, leading industry talent, domain expertise, innovative tools and methodologies, a partner ecosystem, and a
Global Delivery Network.
•
Industry-leading Digital and Technology Talent. CTG cultivates a workplace that attracts, develops, and retains the best digital
and technology experts. Being Great Place to Work® Certified validates our workplace culture that has made CTG a leading IT
and digital solutions and services company for more than 50 years.
•
Deep Domain Expertise. CTG serves clients in high-growth sectors across the globe and brings industry experience that we
leverage to build and deliver digital solutions customized for the unique challenges, requirements, and regulations companies face
in each industry we serve. CTG serves clients in high-growth global sectors, such as healthcare, energy, manufacturing, financial
services, technology service providers, and other general markets.
•
Innovative Tools and Methodologies. CTG leverages up-to-date best practices, technologies, and methodologies (e.g., Agile,
SAFe, DASA, ITIL) to support our clients' need for greater speed-to-market, innovation, continuous improvement, and to support
today's high-performance IT teams. CTG also builds and provides a number of proprietary tools and platforms (e.g., We Are
Testers, BugTrapp) designed to meet the unique needs of our clients.
•
Partner Ecosystem. Given our clients' specialized and evolving needs and the accelerated pace at which new technologies
emerge, we know that we must leverage industry partnerships to increase the value we provide to our clients. Our strong partner
network, representing today's leading technologies, allows our clients to access and utilize today's leading technologies, coupled
with our supporting solutions, methodologies, and industry experience.
•
Global Delivery Network. Through established operations in North and South America, Western Europe, and India, CTG's
delivery centers leverage a centralized model to deliver a broad spectrum of high-quality, cost-effective services and solutions.
3
Acquisition of Eleviant
On September 29, 2022, CTG acquired Eleviant Technologies, an expert in mobile, cloud, web blockchain, robotic process automation
(RPA) and artificial intelligence (AI) technologies. The acquisition strengthened CTG’s digital offerings in areas such as AI, machine learning
(ML), and intelligent automation while expanding capabilities in cloud migration, mobile application development, and emerging technologies,
including blockchain. CTG's software-as-a-service (SaaS) offerings expand through leveraging Eleviant’s PeopleOne intranet solution, vChat,
vBots, and other platforms. In addition, CTG's Global Delivery Network capacity, agility, and flexibility increases with the addition of
established Eleviant teams in Chennai and Coimbatore, India.
Segments
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 around providing digital services within its IT solutions
business in both North America and Europe. As part of this process, the Company also determined that there are certain accounts that are
no longer part of the Company’s long-term business plan. Accordingly, 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.
CTG’s revenue by segment for the three years ended December 31, 2022, 2021 and 2020 was as follows:
(amounts in thousands)
2022
2021
2020
North America IT Solutions and Services
$
84,038 $
101,506 $
67,948
Europe IT Solutions and Services
149,931
169,341
154,847
Non-Strategic Technology Services
91,111
121,438
143,296
Total
$
325,080 $
392,285 $
366,091
IT Solutions and Services (North America and Europe)
Consistent with its long-term strategy, the Company invested in recent years in business development, solutions, delivery, recruiting
and marketing resources to drive its IT Solutions and Services. IT Solutions and Services include the activities described under “IT Solutions
and Services” and “Capabilities” above. In North America, IT Solutions and Services revenue decreased 17.2% in 2022 from 2021 as the
Company completed in 2021 a very large project totaling more than $25 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. In 2021, as compared with 2020, North America IT Solutions and Services revenue increased 49.4%, while the increase in revenue was
9.4% in Europe over that same time period. The increases were mainly the result of strong demand for the Company’s services, including the
significant project previously referenced, and as a direct result of the business development investments that the Company had made.
Additionally, the revenue from the Company’s acquisition of Eleviant is included in the North America IT Solutions and Services segment.
Non-Strategic Technology Services
Consistent with its long-term strategy, the Company is not investing in low margin Non-Strategic Technology Services, and as these
contracts expire, is often electing to disengage from the project. This segment only consists of lower margin IT staffing and related services in
North America and Europe as described in “Non-Strategic Technology Services - Staffing” above. Nearly all of the revenue in this segment is
in North America. The revenue in this segment decreased 25.0% in 2022 as compared to 2021, and 15.3% in 2021 as compared to 2020.
Vertical Markets
The Company provides a majority of its services through five vertical market focus areas: technology service providers, healthcare
(which includes services provided to healthcare providers, health insurers (payers), and life sciences
4
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 three years ended December 31, 2022, 2021, and
2020 was as follows:
2022
2021
2020
Technology service providers
22.5%
26.7%
31.3%
Healthcare
18.1%
21.6%
14.9%
Financial services
15.9%
16.2%
15.8%
Manufacturing
15.5%
11.7%
13.5%
Energy
5.8%
5.1%
6.2%
General markets
22.2%
18.7%
18.3%
Total
100.0%
100.0%
100.0%
Technology Service Providers
Demand from our largest Non-Strategic Technology Services client, IBM, which is included in this vertical market, decreased in both
2022 and 2021. Additionally, revenue as a percentage of consolidated revenue decreased in 2022 and 2021 as compared with previous
years due to a change in business mix as the Company focused on driving its IT Solutions and Services, which are not included in this
vertical market.
Healthcare
In 2022, the overall demand from our healthcare clients decreased as a result of a large training, implementation, and support
engagement for a health system in North America completed in the 2021 fourth quarter that was not repeated in 2022. In contrast,
consolidated revenue for the Company’s healthcare vertical market increased in 2021 as compared to 2020 as a result of the large 2021
fourth quarter project.
Financial Services
Revenue for the Company’s financial services vertical market as a percentage of consolidated revenue decreased in 2022 as
compared with 2021 due to weaker demand from several clients in the Europe IT Solutions and Services segment. Revenue for the
Company’s financial services vertical market as a percentage of consolidated revenue increased in 2021 as compared to 2020 due to strong
demand from several clients for project related work in the North America IT Solutions and Services segment.
Manufacturing
The consolidated revenue in our manufacturing vertical market is primarily generated from several large Non-Strategic Technology
Services clients, including Lenovo (through SDI International as a vendor manager for Lenovo), which is one of our largest clients. Revenue
from Lenovo and other large clients increased in 2022 as a percentage of consolidated revenue compared with 2021 as a result of the
significant reduction in consolidated revenue, and decreased in 2021 as compared with 2020 as the demand for these services decreased in
recent years. Additionally, the Company continues to disengage from its lowest margin Non-Strategic Technology Services business, which is
generally included in this vertical market.
Energy
Revenue for the Company's energy vertical market increased as a percentage of consolidated revenue in 2022 given strong demand
for our services in this vertical market, but decreased as a percentage of revenue in 2021.
For the year ended December 31, 2022, CTG provided its services to approximately 541 clients, primarily in North America and
Europe. In North America, the Company operates in the United States and Canada, with about 99% of 2022 North American revenue
generated in the United States. In Europe, the Company operates in Belgium, Luxembourg, France, and the United Kingdom. Of total 2022
consolidated revenue of $325.1 million, approximately 53.3% was generated in North America and 46.7% in Europe. Revenue generated in
India and Colombia was insignificant and is included in the North America total, but now includes our recent acquisition of Eleviant in late
2022, and we expect this to increase in future years. One client, IBM, accounted for greater than 10% of CTG’s consolidated revenue in
2022.
5
Revenue Recognition and Backlog
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 our
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:
2022
2021
2020
Time-and-material
76.1%
79.8%
81.0%
Progress billing
19.1%
17.8%
15.9%
Percentage-of-completion
4.8%
2.4%
3.1%
Total
100.0%
100.0%
100.0%
As of December 31, 2022 and 2021, the backlog for fixed-price and all managed-support contracts was approximately $47.6 million
and $68.5 million, respectively. Approximately 69% or $32.9 million of the December 31, 2022 backlog is expected to be earned in 2023.
Approximately 47% of the $68.5 million of backlog at December 31, 2021, or $32.1 million, was earned in 2022. Revenue is subject to slight
seasonal variations, with a minor slowdown and a decrease in billable resource utilization in months of high vacation and legal holidays (July,
August, and December). Backlog does not tend to be seasonal; however, it does fluctuate based upon the timing of entry into long-term
contracts.
Competition
The IT services market, for both information and technology solutions and IT and professional staffing services, is highly competitive.
The market is also highly fragmented with many providers and no single competitor maintaining clear market leadership. Competition varies
by location, the type of service, and the client to whom services are provided. The Company’s competition comes from four major channels:
large national or international companies, including major accounting and consulting firms and large companies headquartered in India;
hardware vendors and suppliers of packaged software systems; small local firms or individuals specializing in specific programming services
or applications; and from a client’s internal IT staff. CTG competes against all four of these channels for its share of the market. The
Company believes that to compete successfully, it is necessary to have a local geographic presence, offer appropriate IT solutions, provide
skilled professional resources, and price its services competitively.
Intellectual Property
The Company has registered its symbol and logo with the U.S. Patent and Trademark Office and has taken steps to preserve its rights
in other countries where it operates. We regard patents, trademarks, copyrights and other intellectual property as important to our success,
and we rely on them in the United States and foreign countries to protect our investments in products and technology. Our patents expire at
various times, but we believe that the loss or expiration of any individual patent would not materially affect our business. We, like any other
company, may be subject to claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties
from time to time in the ordinary course of business. CTG has entered into agreements with various software and hardware vendors from
time to time in the normal course of business, and has capitalized certain costs under software development projects.
6
Human Capital Resources
Employees
CTG’s business depends on the Company’s ability to attract, develop and retain qualified professional staff to execute our strategy and
provide services to its clients. The Company has a structured recruiting organization that works with its clients to meet their requirements by
recruiting, retaining, and providing high quality, motivated staff. As the Company works with a number of subcontractors, the Company
includes subcontractors in its total headcount, which equals approximately 3,200 total resources worldwide, with approximately 1,800 in
North America, South America and India, with the remaining 1,400 in Europe as of December 31, 2022. Of these resources, approximately
86% are IT professionals and 14% are individuals who work in sales, recruiting, delivery, administrative and support positions. The Company
believes that its relationship with its employees is good and supported by the Company’s 2022 recognition as a Great Place to Work® in
nearly all eligible countries in which we operate. No employees are covered by a collective bargaining agreement or are represented by a
labor union. CTG is an equal opportunity employer.
In 2022, we focused on adding additional staff with IT Solutions backgrounds in both North America and Europe to drive our IT
Solutions and Services segments in line with our business strategy. Employees are encouraged to learn and grow their careers, by using our
internal learning tools to complete classes or reach certifications, externally through classes primarily to achieve certifications, or through
external classes paid for in part or in full through a tuition reimbursement program.
Social Responsibility
Our social responsibility principles inform the way we work. CTG is committed to the highest standards in our labor practices, the
health and safety of our employees, and business ethics.
CTG has business operations in North America, Western Europe, India and Colombia, all regions with strict labor laws regarding
human rights. We have internal policies intended to ensure our compliance with these laws, and we will not knowingly conduct business with
anyone who violates these laws or basic human rights. We are committed to adhering to the Fair Labor Standards Act (“FLSA”), local labor
laws, and prevailing wage rates. CTG prohibits any form of workplace or sexual harassment, and all employees are required to work in a
manner that prevents harassment in the workplace. This policy is one component of CTG’s commitment to a discrimination-free work
environment.
None of CTG’s leased office space is subject to industrial hazards and all adhere to the Occupational Safety and Health Administration
(“OSHA”) office standards. We will not knowingly transact business with, or place our team members at, companies that do not enforce
appropriate workplace safety and health standards.
Our Code of Business Conduct serves as our baseline for business ethics, and all employees are required to adhere to these
guidelines. We are committed to providing clients with high-quality services that conform to mutually agreed-upon requirements and maintain
certifications that support our Quality Policy, including ISO 9001:2015 certification for our European operations.
CTG Luxembourg PSF holds the “Entreprise Socialement Responsable” (Socially Responsible Enterprise) label that is awarded by the
INDR Luxembourg (Institut National pour le Développement Durable et la Responsabilité Sociale des Entreprises), an organization that aims
to promote responsible business practices in Luxembourg.
Our whistleblower hotline ensures that there is a confidential way to report any concerns with CTG business practices. Specific to CTG
Luxembourg, PSF S.A., we have complaint handling (traitement des réclamations) processes for clients, in accordance with the Commission
de Surveillance du Secteur Financier's (CSSF) Regulation 16-07 and Circular 17/671.
Environmental Responsibility
CTG maintains a relatively small carbon/environmental footprint. As a professional services provider, much of our focus is on the
individual behavior of our team members and the decisions we make in managing our office spaces. Our environmental strategy has three
areas of focus:
Personal Initiative
Many of our improvements come from our employee's environmentally conscious efforts. CTG supports these efforts by:
7
•
Maintaining employee policies and initiatives to reduce our carbon/environmental footprint and tracking our results
•
Providing flexible and remote-working opportunities to reduce emissions
•
Supporting environment-focused programs, such as Earth Day
•
Raising awareness of environmentally sound practices through policy manuals, in-house publications, and websites
Corporate Contracts and Purchasing
CTG is committed to doing business with companies that share our environmental concern. Examples include purchasing
environmentally-friendly products and prioritizing property management companies and office spaces that utilize environmentally
friendly materials, policies, and services.
Corporate Stewardship
We are conscious of our impact on the communities our teams call home. Over the years, we have made significant improvements that
support reducing the carbon/environmental footprint of our North American corporate headquarters, located in Amherst, New York. In
all locations, we are committed to ensuring that none of our outdated computer systems and electronics end up in landfills and that our
office waste be disposed of through local energy-from-waste programs.
Available Company Information
The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (Exchange Act), and reports filed
under Section 16 of the Exchange Act are available without charge on the Company’s website at www.ctg.com as soon as reasonably
practicable after such reports are filed with, or furnished to, the SEC. The Company’s code of ethics (Code of Business Conduct), committee
charters and governance policies (including a fraud and insider trading policy) are also available without charge on the Company’s website at
https://investors.ctg.com/corporate-governance/governance-documents. If applicable, the Company intends to disclose future amendments
to, or waivers from, certain provisions of the Code of Conduct on the Company's website or in a current report on Form 8-K. The information
on our website is not part of this Annual Report on Form 10-K. Additionally, the SEC’s website, www.sec.gov, contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC.
8
Item 1A. Risk Factors
The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information
contained in this Annual Report on Form 10-K. The risk factors below represent what we believe are the known material risk factors with
respect to the Company and our business, but are not the only risks we face. Additional risks unknown to us or that we currently believe are
insignificant may also affect our business. Any of the risks described below or elsewhere in this Annual Report on Form 10-K or our other
filings with the SEC could materially adversely affect our business, operations, financial position or future financial results.
Business Related Risks
Our business depends on the availability of a large number of highly qualified IT professionals, sales and management
personnel, and our ability to recruit and retain these individuals.
We actively compete with many other IT service providers for qualified personnel, including professional IT staff, recruiters, sales and
business development specialists, and management. The Company is experiencing significant competition for qualified resources due to a
general shortage of available IT digital solutions talent. We believe this competition will continue in the future, and it may have a negative
impact on the Company’s operating results if we are unable to hire the resources we need to meet the requirements from our clients on a
timely basis.
The availability of qualified personnel may affect our ability to provide services and meet the requirements of our clients. An inability to
fulfill client requirements at agreed-upon rates due to a lack of available qualified personnel may adversely affect our revenue and operating
results in the future.
The Company also continues to experience wage inflation globally, making hiring and retaining key personnel difficult. Continued
increases in wage requirements may reduce operating profits if the Company is unable to pass such increases along to clients. Additionally,
the turnover of employees is disruptive to providing our services to clients and may impact our ability to complete engagements as required,
impacting our operating results and our reputation as a digital IT Solutions provider, which may in turn impact our ability to win future
engagements.
Our business long-term strategy to disengage from Non-Strategic Technology Services could have an adverse effect on our
revenue and operating results if not successfully executed.
During the fourth quarter of 2021, the Company further refined its strategy to focus on providing digital services within its IT Solutions
and Services businesses in both North America and Europe. As part of this process, the Company determined that there are certain lower-
margin staffing services accounts within its business that are no longer part of the Company’s long-term business plans. The Company’s
inability to successfully execute on its strategy of disengaging from its lowest margin staffing services, Non-Strategic Technology Services,
may negatively impact revenue and operating results.
Decreases in demand for our services in the future would have an adverse effect on our revenue and operating results.
The Company’s revenue and operating results are significantly impacted by changes in demand for its services. In the past, when
global economic conditions declined, there was a significant decrease in demand for the Company’s services, which negatively affected the
Company’s revenue and operating results as compared with prior years. Declines in demand for our IT services in 2023 or future years would
adversely affect our revenue and operating results as it has in the past.
Our client contracts generally have a short term or are terminable on short notice, and a significant number of failures to
renew contracts in place, or early terminations or renegotiations of our existing client contracts could adversely affect our results
of operations.
Our clients typically retain us on a non-exclusive, engagement-by-engagement basis, rather than under exclusive long-term contracts.
We performed 76.1% of our services on a time-and-materials basis during 2022. As such, our clients generally have the right to terminate a
contract with us upon written notice without the payment of any financial penalty. Client projects may involve multiple engagements or stages,
and there is a risk that a client may choose not to retain us for additional stages of a project, or that a client will cancel or delay additional
planned engagements. These terminations, cancellations, or delays could result from factors that are beyond our control and are unrelated to
our work product or the progress of the project but could be related to business or financial conditions of the client, changes in client
strategies or the economy in general. When contracts are terminated, we lose the anticipated future revenue, and we may not be able to
eliminate the associated costs that would have been required to support those contracts in a timely manner.
9
Consequently, our operating results in subsequent periods may be lower than expected. Our clients can cancel or reduce the scope of their
engagements with us on short notice. If they do so, we may be unable to reassign our professionals to new engagements without delay. The
cancellation or reduction in scope of an engagement could, therefore, reduce the utilization rate of our professionals, which would have a
negative impact on our business, financial condition, and results of operations. As a result of these and other factors, our past financial
performance should not be relied on as a guarantee of similar or improved future performance. Due to these factors, we believe that our
results from operations in the future may fluctuate from period to period.
Cyber Related Risks
We could be subject to liability and damage to our reputation resulting from cyber-attacks or data breaches.
Cyber risks for companies providing global IT and professional services, especially in regulated industries, continue to increase. This
increase in risk may be attributed to the increasing value and dependence on data, including organizations’ intellectual property and citizens’
personal data that could be misused for identity theft and fraud. While the value and dependence of data has increased, likewise the reliance
on electronic communications, mobile technologies, social networking, hybrid and cloud-based resources, smart devices, and emerging
technologies continues to grow. In most regions, the regulatory compliance requirements surrounding data protection and privacy have also
increased. In addition, the sophistication, motivation, and organization of cyber-attacks continues to evolve, as does the sophistication of
threat actors such as organized crime, hackers, terrorists, activists, insider threats, and foreign governments.
The Company’s business, operations, and its clients rely on the secure processing, transmission, storage, integrity, and availability of
data, services, and resources provided by its IT environments and operational processes. The Company’s complex IT environments and
variety of delivery services support a wide range of technologies, industries, regulatory compliance requirements, and clients globally.
Although the Company has not experienced any prior material data breaches, regulatory non-compliance incidents, or cyber security
incidents, its environments may be impacted by cyber-attacks or cyber security incidents caused via the aforementioned threat actors, the
Company's personnel, or the Company’s third party providers. These incidents could result in data loss, the disruption or loss of the
Company's internal or client-supporting operations and services, adversely affect the Company’s adherence with regulatory requirements, or
result in a data breach. Data losses and data breaches could include the unauthorized disclosure, misuse, loss, and destruction of both the
Company’s and its clients’ intellectual property, financial information, or other regulated or privacy-related information. This includes but is
not limited to United States personally identifiable information (PII), personal data under the European General Data Protection Regulation
(GDPR), data covered under Luxembourg Law on the Financial Sector, protected health information (PHI) under the United States Health
Insurance Portability and Accountability Act of 1996 (HIPAA), and data covered under the increasing number of U.S. state privacy and data
breach laws, and other countries’ privacy laws.
The Company’s failure to protect sensitive data and address the regulatory compliance requirements of data and associated internal or
delivery services under the Company’s control could result in reputational damage, fines and penalties, litigation costs, external
investigations, compensation costs including reimbursement and monetary awards, prohibition of providing services in a region or industry,
and/or additional compliance and remediation costs that could have a material, adverse impact on the Company's operations. It could also
have an adverse impact on the Company’s ability to maintain and execute new contracts with clients that produce or work with similar data,
and make it more difficult to retain and recruit qualified personnel to perform its services in the future. As cyber threats continue to become
more sophisticated and the regulatory compliance and privacy landscape continues to evolve resulting in changes to the Company’s risk
profile, the Company may be required to expend and invest in additional resources, personnel, and technologies to enhance and implement
new risk mitigation strategies.
Competition Related Risks
Increased competition and the bargaining power of our large clients may cause our billing rates to decline, which would have
an adverse effect on our revenue and, if we are unable to control our personnel costs accordingly, on our margins and operating
results.
We have experienced reductions in the rates we bill a number of our larger clients for services due to highly competitive market
conditions. Additionally, we actively compete against many other companies for business at both new and existing clients. Billing rate
reductions or competitive pressures may lead to a decline in revenue. When faced with such pressures, if we are unable to make
commensurate reductions in our personnel costs, our margins and operating results would be adversely affected.
10
Existing and potential clients may outsource or consider outsourcing their IT requirements to foreign countries in which we
may not currently have operations, which could have an adverse effect on our ability to retain existing clients or obtain new clients.
In recent years, more companies are using, or are considering using, low-cost offshore outsourcing centers to perform technology-
related work and complete projects. Currently, we have partnered with clients to perform services outside of North America in both India and
Colombia to mitigate and reduce this risk to our Company. However, the risk of additional outsourcing of IT solutions overseas to countries
where we do not have operations could have a material, adverse impact on our future operations.
The IT services industry is highly competitive and fragmented, which means that our clients have a number of choices for
providers of IT services, and we may not be able to compete effectively.
The market for our services is highly competitive. Moreover, the market is fragmented, and no company holds a dominant position.
Accordingly, our competition for client requirements and experienced personnel varies significantly by geographic area and by the type of
service provided. Some of our competitors are larger and have greater technical, financial, and marketing resources, and greater name
recognition than we have in the markets we collectively serve. In addition, clients may elect to increase their internal IT system resources to
satisfy their custom software development and integration needs. Finally, our industry is being impacted by the growing 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 introduction of new IT services or changes in client requirements for IT services may render our existing offerings
obsolete or unnecessary, which, if we are unable to keep pace with these corresponding changes, could have an adverse effect on
our business.
Our success depends, in part, on our ability to implement and deliver services that anticipate and keep pace with rapid and continuing
changes in technology, industry standards, and client preferences and requirements. We may not be successful in anticipating or responding
to these developments on a timely basis, and our offerings may not be successful in the marketplace. Also, services, solutions, and
technologies developed by our competitors may make our solutions or staffing offerings uncompetitive or obsolete. Any one of these
circumstances could have a material adverse effect on our ability to obtain and successfully complete client engagements.
Operations Related Risks
We derive a significant portion of our revenue from one client, and a significant reduction in the amount of requirements
requested by this client would have an adverse effect on our revenue and operating results.
IBM is CTG’s largest client, and we provide services to various IBM divisions in a number of locations. The National Technical Services
Agreement (NTS 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 totaled $14.0 million and $8.9 million, respectively.
If we are unable to bill for our services or collect our receivables, our results of operations, financial condition, and cash
flows could be adversely affected.
Our business depends on our ability to obtain payment from our clients of the amounts they owe us for work performed. We evaluate
the financial condition of our clients and typically bill and collect on reasonable cycles. However, we might not accurately assess the
creditworthiness of our clients, or macroeconomic conditions could result in financial difficulties for our clients, including bankruptcy and
insolvency. In certain industries, some clients have requested longer payment terms, which has adversely affected, and may continue to
adversely affect, our cash flows. The timely collection of client balances also depends on our ability to complete our contractual commitments
as required. If we are unable to meet our commitments or bill our clients on a timely basis, our results of operations and cash flows could be
adversely affected. We have established allowances for losses of receivables and unbilled services where we deem amounts to be
uncollectible. The actual uncollectible amounts from clients could differ from those that we currently anticipate and have reserved for.
11
If we repatriate our cash balances from our foreign operations, we may be subject to additional tax liabilities.
We earn a portion of our operating income outside of the United States, and any repatriation or deemed repatriation of funds currently
held in foreign jurisdictions to the United States may result in additional tax liabilities for the Company. In addition, there have been changes
to the tax laws in the United States that impact how United States-based multinational corporations are taxed on foreign earnings. Any further
changes in these tax laws could have a material adverse impact on our tax expense and cash flows.
Ineffective internal controls could affect the Company's business and operating results.
The Company's internal control over financial reporting may not prevent or detect misstatements because of the inherent limitations of
internal controls, including the possibility of human error, the circumvention or overriding of controls, poorly designed or ineffective controls,
or fraud. Internal controls that are deemed effective can provide only reasonable assurance with respect to the preparation and fair
presentation of the Company's consolidated financial statements. If the Company fails to maintain the adequacy of its internal controls,
including the failure to implement new or improve existing controls, or fails to properly execute or properly test these controls, the Company's
business and operating results could be adversely impacted and the Company could fail to meet its financial reporting obligations.
Changing economic conditions and the effect of such changes on accounting estimates could have a material impact on our
results of operations.
The Company has 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 its consolidated financial statements pursuant to the rules and regulations of the SEC and other
accounting rulemaking 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 recorded 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 effects 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. Such changes could result in a material impact on the Company’s results of operations.
An impairment of our long-lived assets, including goodwill, could have a material non-cash adverse impact on our results of
operations.
As of December 31, 2022, the Company carried a goodwill balance of $36.0 million. The Company assesses goodwill for impairment
when events or circumstances indicate that the carrying value may not be recoverable, or at a minimum, on an annual basis. The valuation of
goodwill depends on a variety of factors, including the success of the Company’s business, global market and economic conditions, earnings
growth and expected cash flows. Impairments to goodwill and other intangible assets may be caused by factors outside the Company’s
control, such as increasing competitive pricing pressures, changes in foreign currency exchange rates, lower than expected sales and profit
growth rates, and various other factors. Significant and unanticipated changes could require a non-cash charge for impairment in a future
period, which may significantly affect the Company’s results of operations in the period of such change.
Global Pandemic and Related Risks
The impact of the COVID-19 pandemic has had, and may continue to have, an adverse effect on our business and our
financial results.
The COVID-19 pandemic has negatively affected the global economy, disrupted consumer spending and global supply chains, and
created significant volatility and disruption of financial markets. The COVID-19 pandemic has had and may to continue to have an adverse
effect on our business and financial performance. The extent of any further lingering impacts of the COVID-19 pandemic on our business,
including our ability to execute our business strategies as planned, are uncertain and cannot be predicted.
Our business, financial condition and results, cash flows and liquidity and results of operations could be materially and adversely
affected by any such future developments.
12
Regulatory or Legislative Related Risks
Our business is subject to economic, political, regulatory and other risks associated with domestic and international
operations which could have an adverse effect on our operating results if we are unable to mitigate or hedge these risks.
We have operations in the United States and Canada in North America, in Belgium, Luxembourg, France, and the United Kingdom in
Europe, in India, and in Colombia. Although our foreign operations conduct their business in their local currencies, these operations are
subject to their own currency fluctuations, legislation, employment and tax law changes, and economic climates. As they relate to our foreign
operations, these factors are different from those of the United States. Although we actively manage these foreign operations with local
management teams, our overall operating results may be negatively affected by local economic conditions, changes in foreign currency
exchange rates, or tax, regulatory or other economic changes beyond our control.
Our foreign operations will continue to expose us to foreign currency exchange rate fluctuations, including the impact of the significant
decline in the value of the Euro on the Company's consolidated operating results. The future impact of foreign currency exchange rate
fluctuations on our results of operations cannot be accurately predicted. Accordingly, there can be no assurance that foreign currency
exchange rates:
• will be stable in the future;
• can be mitigated with currency hedging or other risk management strategies; or
• will not have a material adverse effect on our business, operating results and financial condition.
In addition, any widespread outbreak of an illness, pandemic or other local or global health issue (including COVID-19), natural
disasters, climate change impacts, economic weakness, including continued inflation or a recession, or uncertain political climates,
international hostilities including recent developments in China and war, such as the conflict between Russia and Ukraine, or any terrorist
activities, could adversely affect customer demand, the Company’s operations, and its ability to source and deliver services to its customers,
which could have a material adverse effect on the Company’s financial results. The Company continues to monitor the impact that Brexit has
had on its operations. To date, there has been a nominal impact on the Company’s operating results from Brexit. As the total revenue
generated by our British subsidiary is immaterial as compared with the Company’s total consolidated revenue, we do not expect the nominal
impact the exit has had on the Company’s operations to date to change in the foreseeable future. Furthermore, although we have no
operations directly in the Ukraine, the global economy has been negatively impacted by the military conflict there, which in part has
exacerbated inflationary conditions in North America and Western Europe where we conduct nearly all our operations. Macroeconomic
conditions continue to also impact the global economy. The scope and duration of these conditions is uncertain. However, the Company is
already seeing an impact through its clients delaying IT purchasing decisions and increasing labor and other costs. These conditions may
have a significant negative impact on the Company’s operating results in the future if they continue to persist.
All of these factors are outside of our control, but may nonetheless harm our future results and cause us to adjust our strategy in order
to compete effectively.
Increased focus and expectations on climate change and other ESG matters could have a material adverse effect on our
business, financial condition and results of operations and damage our reputation.
An increase in focus on ESG matters by institutional investors, governmental and non-governmental organizations, consumers,
shareholders, communities, and other stakeholders and the related expectations could have a material, adverse effect on our business,
financial condition and results of operations and our reputation. These trends have led to, among other things, increased public and private
social accountability reporting requirements relating to labor practices, climate change, and other ESG matters and thus greater demands on
our solutions and services. The increased focus may also lead to new regulations and client, shareholder and consumer demands that could
require us to incur additional costs or make changes to our operations to comply with these regulations. We expect that these trends will
continue. If we are unable to adequately respond to, or we are not perceived as adequately responding to, existing or new requirements or
demands, clients may choose to obtain services from a competitor.
Government cuts in healthcare programs, such as Medicare, and delays in legislative or regulatory healthcare mandates
could cause a reduction in IT spending by our healthcare clients, which could materially and adversely affect our revenue and
results of operations.
The Company’s growth efforts include a focus on the healthcare market. Growth in this market depends on continued spending by our
healthcare clients on IT projects. Cuts in government healthcare programs, such as sequestration, which has periodically cut Medicare
reimbursements to hospitals and health systems, may result in reduced expenditures by our healthcare clients on IT projects. If additional
government cuts in healthcare programs occur, whether due to the failure of Congress to adopt a budget, pass appropriations bills or raise
the U.S. debt ceiling or for
13
other reasons, there may be delays, reductions or cessation of funding to our clients, which could cause our clients to purchase less IT
services from us, and materially and adversely affect our revenue and results of operations.
In addition, delays in implementation of legislative or regulatory healthcare mandates could adversely affect the IT spending by our
healthcare clients to implement such mandates. If the implementation of existing or contemplated legislative or regulatory healthcare
mandates are deferred, the resulting reduction in IT spending by our healthcare clients could materially and adversely affect our revenue and
results of operations.
Changes in government regulations and laws affecting the IT services industry, and the industries in which our clients
operate, including accounting principles and interpretations, and the taxation of domestic operations could adversely affect our
results of operations.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including new SEC regulations,
create uncertainty for companies such as ours. These laws, regulations, and standards are subject to varying interpretations which, in many
instances, is due to their lack of specificity. As a result, the application of these standards and regulations in practice may evolve over time as
new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and
higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of
corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, tax regulations and other standards have
resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance activities.
The Financial Accounting Standards Board (FASB), the SEC, and the Public Company Accounting Oversight Board (PCAOB) or other
accounting rule making authorities have issued and may continue to issue new accounting rules or auditing standards that are different from
those that we presently apply to our financial results. Such new accounting rules or auditing standards could require significant changes from
the way we currently report our financial condition, results of operations or cash flows.
U.S. generally accepted accounting principles have been the subject of frequent changes in interpretations, and the frequency of future
accounting policy changes may accelerate. Such future changes in financial accounting standards may have a significant effect on our
reported results of operations, including results of transactions entered into before the effective date of the changes.
We are subject to income and other taxes in the United States (federal and state) and numerous foreign jurisdictions. Our provisions
for income and other taxes and our tax liabilities in the future could be adversely affected by numerous factors. These factors include, but are
not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in
countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in various federal, state
and international tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact our financial condition,
results of operations, and cash flows in future periods.
Acquisition Related Risks
Risks to the Company from acquisitions include integration challenges, disruptions of the Company's core business, a
failure to achieve objectives, and the assumption of liabilities.
The Company regularly evaluates acquisitions to aid the Company's growth in revenue and profits by expanding the services the
Company offers in the geographies in which the Company operates, and its client base. Acquisitions often present significant challenges and
risks relating to the integration of the business into the Company, and there can be no assurances that the Company will manage acquisitions
successfully, that the Company's core business will not be significantly disrupted after an acquisition is finalized, or that strategic acquisition
opportunities will be available to the Company on acceptable terms. The risks from an acquisition include the Company failing to achieve
strategic objectives and anticipated revenue and profit improvements, borrowing a significant amount of money to fund the acquisitions which
creates financial stress for the Company's operations, as well as failing to retain the key personnel of the acquired business. Additionally,
failure to meet financial objectives of an acquisition could lead to impairment charges of intangible assets and goodwill in future periods.
Finally, the assumption of liabilities related to litigation or other legal proceedings involving the acquired business may present a significant
risk.
14
Capital Resources Related Risks
We may require additional capital to support our business, and this capital may not be available to us on acceptable terms, if
at all.
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 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. 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 can borrow under the agreement at either rate at its discretion. It is possible that the volatility
of and uncertainty around SOFR as a LIBOR replacement rate and the applicable credit adjustment as well as rising interest rates would
result in higher borrowing costs for us, and would adversely affect our liquidity, financial condition, and earnings. The Company’s previous
Credit and Security Agreement was terminated during the 2021 second quarter.
At December 31, 2022, we had no borrowings outstanding under our revolving credit facility. The Company may be dependent on our
revolving credit facility to meet working capital and operational requirements, and access to our facility is dependent on, among other things,
compliance with applicable covenants, including fixed charge coverage ratio, consolidated earnings before interest, taxes, depreciation, and
amortization (EBITDA) targets, and a limit on annual expenditures for property, plant, equipment, and capitalized software. The fixed charge
coverage ratio is only tested if availability on a measurement date is below a threshold. The amount available for borrowing under the
revolving credit facility could be significantly reduced due to poor operational performance, or other factors. Any loss or material reduction of
our ability to access funds under the revolving credit facility could materially and negatively impact our liquidity.
Risk from Activist Shareholders
Actions of activist stockholders could cause us to incur substantial costs, divert management’s and the board’s attention
and resources, and have an adverse effect on our business and stock price.
From time to time, we may be subject to proposals by stockholders urging us to take certain corporate actions. If activist stockholder
activities ensue, our business could be adversely affected as responding to proxy contests and reacting to other actions by activist
stockholders can be costly and time-consuming, disrupt our operations, and divert the attention of management and our board of directors, all
of which could interfere with our ability to execute our strategic plan. We may be required to retain the services of various professionals to
advise us on activist stockholder matters, including legal, financial and communications advisors, the costs of which may adversely affect our
financial results. In addition, the perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist
stockholder initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, clients, and
employees, and cause our stock price to experience periods of volatility or stagnation.
Share Price Related Risks
Our share price could fluctuate and be difficult to predict.
Our share price has fluctuated in the past and could continue to fluctuate in the future in response to various factors, including both
external and internal, and those beyond our control. These factors may include, among others:
•
changes in macroeconomic or political factors unrelated to our business in the geographies in which we operate;
•
general or industry-specific market conditions or changes in financial markets;
•
our failure to meet our growth or financial objectives (including revenue, operating margins, and earnings per share targets);
•
our ability to generate cash flow to return cash to our shareholders at historical levels or levels expected by our stockholders;
•
announcements by us or competitors about developments in our business or prospects; and
•
projections or speculation about our business by the media or investment analysts.
Item 1B. Unresolved Staff Comments
None.
15
Item 2. Properties
All of the Company locations, totaling approximately 23 sites, are leased facilities. Of the total locations, 11 of these are located in
Europe in the countries of Belgium, Luxembourg, France and the United Kingdom, where our European operations support the Europe IT
Solutions and Services segment. The Company has one location in Canada, five in India, one in Colombia, and the remaining locations are in
the United States. All of these locations support the North America IT Solutions and Services segment. These facilities generally serve as
sales and support offices and their size varies with the number of people employed at each office, ranging from approximately 100 to 23,000
square feet. The Company’s lease terms vary from periods of less than a year to fifteen years and typically have flexible renewal options. The
Company believes that its leased facilities are adequate to support its current and anticipated future needs.
Item 3. Legal Proceedings
The Company and its subsidiaries are involved from time to time in various legal proceedings arising in the ordinary course of
business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with
certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately,
management does not expect these matters, if any, to have a material adverse effect on the financial position, results of operations, or cash
flows of the Company. See footnote 12 to the Company’s audited financial statements for the fiscal year ended December 31, 2022 included
in Item 8, “Financial Statements and Supplementary Data.”
Item 4. Mine Safety Disclosures
Not applicable.
16
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stock Market Information
The Company’s common stock is traded on The NASDAQ Stock Market LLC under the symbol CTG.
On March 10, 2023, there were 1,172 holders of record of the Company’s common shares. The Company currently does not pay a
dividend. At December 31, 2022, under the terms of the Company's revolving credit facility, the Company is required to meet a financial
covenant in order to pay dividends. The Company was in compliance with this financial covenant at December 31, 2022 and December 31,
2021. For additional information regarding these financial covenants, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition and Liquidity." The determination of the timing, amount and the payment of
dividends, if any, on the Company’s common stock in the future is at the discretion of the Board of Directors and will depend upon, among
other things, the Company’s profitability, liquidity, financial condition, capital requirements, and compliance with the covenants under the
Company's Credit Agreement. The Company currently has no intention to pay a dividend in the foreseeable future.
For information concerning common stock issued in connection with the Company’s equity compensation plans, see Item 12, “Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Issuer Purchases of Equity Securities
The Company’s Board of Directors has authorized the repurchase of its stock up to a total of $30.0 million. As of March 10, 2023, the
Company had repurchased approximately $22.3 million shares pursuant to the authorization, leaving a remaining authorization of
approximately $7.7 million. No shares were purchased during 2022 under this authorization.
The information below includes shares withheld by or surrendered to the Company to satisfy tax withholding obligations associated
with employee equity awards. The information for the fiscal fourth quarter of 2022 is as follows:
Total Number
Maximum
of Shares
Dollar Amount
Total
Average
Purchased as
that May Yet
Number
Price
Part of Publicly
be Purchased
of Shares
Paid per
Announced Plans
Under the Plans
Period
Purchased
Share*
or Programs
Or Programs
October 1 - October 31
— $
—
— $
7,727,724
November 1 - November 30
— $
—
— $
7,727,724
December 1 - December 31
— $
—
— $
7,727,724
Total
— $
—
—
* Excludes broker commissions
17
Company Performance Graph
The following graph displays a five-year comparison of cumulative total shareholder returns for the Company’s common stock, the S&P
500 Index, the Dow Jones U.S. Computer Services Index, and a Peer Group, assuming a base index of $100 at the end of 2017. The
cumulative total return for each annual period within the five years presented is measured by dividing (1) the sum of (A) the cumulative
amount of dividends for the period, assuming dividend reinvestment, and (B) the difference between the Company’s share price at the end
and the beginning of the period by (2) the share price at the beginning of the period. The calculations were made excluding trading
commissions and taxes.
Base
Period
Indexed Returns
Years Ending
December
December
December
December
December
December
2017
2018
2019
2020
2021
2022
Computer Task Group, Inc.
$
100.00 $
80.00 $
101.57 $
120.00 $
195.49 $
148.24
S&P 500 Index
$
100.00 $
95.62 $
125.72 $
148.85 $
191.58 $
156.88
Dow Jones U.S. Computer Services Index
$
100.00 $
88.01 $
111.02 $
126.89 $
153.06 $
132.69
Peer Group
$
100.00 $
108.05 $
148.02 $
139.96 $
260.91 $
204.66
Peer Group
BGSF, Inc.
Cross Country Healthcare, Inc.
Huron Consulting Group Inc.
Information Services Group, Inc.
Mastech Digital, Inc.
Perficient, Inc.
PRGX Global, Inc. - included through March 3, 2021 when it was taken private
RCM Technologies, Inc.
The Hackett Group, Inc.
The information included under this section entitled “Company Performance Graph” is deemed not to be “soliciting material” or “filed”
with the SEC, is not subject to the liabilities of Section 18 of the Exchange Act, and shall not be deemed incorporated by reference into any of
the filings previously made or made in the future by the Company under the Exchange Act or the Securities Act of 1933, except to the extent
the Company specifically incorporates any such information into a document that is filed.
18
Item 6. [Reserved]
19
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
20
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:
2022
2021
2020
Time-and-material
76.1%
79.8%
81.0%
Progress billing
19.1%
17.8%
15.9%
Percentage-of-completion
4.8%
2.4%
3.1%
Total
100.0%
100.0%
100.0%
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.
21
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)
2022
2021
2020
North America IT Solutions and Services
$
84,038 $
101,506 $
67,948
Europe IT Solutions and Services
149,931
169,341
154,847
Non-Strategic Technology Services
91,111
121,438
143,296
Total
$
325,080 $
392,285 $
366,091
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:
2022
2021
2020
Technology service providers
22.5%
26.7%
31.3%
Healthcare
18.1%
21.6%
14.9%
Financial services
15.9%
16.2%
15.8%
Manufacturing
15.5%
11.7%
13.5%
Energy
5.8%
5.1%
6.2%
General markets
22.2%
18.7%
18.3%
Total
100.0%
100.0%
100.0%
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,
2022
2021
2020
(percentage of revenue)
Revenue
100.0%
100.0%
100.0%
Direct costs
75.4%
78.0%
79.0%
Gross profit
24.6%
22.0%
21.0%
Operating expenses
11.0%
10.2%
10.0%
Contribution profit
13.6%
11.8%
11.0%
General and administrative expenses
10.2%
8.6%
8.5%
Operating income
3.4%
3.2%
2.5%
Interest and other income (expense), net
(0.5)%
(0.2)%
0.4%
Income before income taxes
2.9%
3.0%
2.9%
Provision (benefit) for income taxes
0.9%
(0.5)%
0.8%
Net income
2.0%
3.5%
2.1%
22
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
2022
% of total
2021
Year Change
North America IT Solutions and Services
25.9% $
84,038
25.9% $
101,506
(17.2)%
Europe IT Solutions and Services
46.1%
149,931
43.2%
169,341
(11.5)%
Non-Strategic Technology Services
28.0%
91,111
30.9%
121,438
(25.0)%
Total
100.0% $
325,080
100.0% $
392,285
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
2022
% of total
2021
Year-Over-
Year Change
(dollars in thousands)
North America
53.3% $
173,409
55.7% $
218,344
(20.6)%
Europe
46.7%
151,671
44.3%
173,941
(12.8)%
Total
100.0% $
325,080
100.0% $
392,285
(17.1)%
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.
23
The Company recorded operating results in 2022 and 2021 in its operating segments as follows:
North America IT Solutions and Services
2022
2021
Change
Revenue
100.0%
100.0%
—
Direct costs
62.3%
67.9%
(5.6)%
Gross margin
37.7%
32.1%
5.6%
Operating expenses
16.9%
13.6%
3.3%
Contribution margin
20.8%
18.5%
2.3%
Europe IT Solutions and Services
2022
2021
Change
Revenue
100.0%
100.0%
—
Direct costs
75.4%
76.2%
(0.8)%
Gross margin
24.6%
23.8%
0.8%
Operating expenses
12.6%
12.6%
0.0%
Contribution margin
12.0%
11.2%
0.8%
Non-Strategic Technology Services
2022
2021
Change
Revenue
100.0%
100.0%
—
Direct costs
87.5%
88.9%
(1.4)%
Gross margin
12.5%
11.1%
1.4%
Operating expenses
2.9%
4.0%
(1.1)%
Contribution margin
9.6%
7.1%
2.5%
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.
24
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
25
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.
26
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.
27
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.
28
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 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.
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.
29
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered 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.
30
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
31
Consolidated Statements of Income
Year Ended December 31,
2022
2021
2020
(amounts in thousands, except per-share data)
Revenue
$
325,080 $
392,285 $
366,091
Direct costs
245,003
305,835
289,133
Selling, general and administrative expenses
69,001
73,708
67,828
Operating income
11,076
12,742
9,130
Interest and other income
359
587
506
Gain on sale of building
—
—
824
Non-taxable life insurance gain
—
—
987
Interest and other expense
1,881
1,592
786
Income before income taxes
9,554
11,737
10,661
Provision (benefit) for income taxes
2,945
(1,993)
3,022
Net income
$
6,609 $
13,730 $
7,639
Net income per share:
Basic
$
0.46 $
0.99 $
0.56
Diluted
$
0.44 $
0.92 $
0.53
Weighted average shares outstanding:
Basic
14,440
13,926
13,621
Diluted
15,156
14,971
14,427
The accompanying notes are an integral part of these consolidated financial statements.
32
Consolidated Statements of Comprehensive Income
Year Ended December 31,
2022
2021
2020
(amounts in thousands)
Net income
$
6,609 $
13,730 $
7,639
Foreign currency translation adjustment
(3,296)
(4,052)
5,461
Decrease (increase) in pension loss, net of taxes of $64, $6, and $(156), in
2022, 2021 and 2020, respectively
4,930
2,479
(2,286)
Other comprehensive income (loss)
1,634
(1,573)
3,175
Comprehensive income
$
8,243 $
12,157 $
10,814
The accompanying notes are an integral part of these consolidated financial statements.
33
Consolidated Balance Sheets
December 31,
2022
2021
(amounts in thousands, except share balances)
Assets
Current Assets:
Cash and cash equivalents
$
25,140 $
35,584
Accounts receivable, net of allowances of $397 and $581 in 2022 and 2021, respectively
70,979
84,252
Prepaid and other current assets
3,769
2,849
Income taxes receivable
—
80
Total current assets
99,888
122,765
Property, equipment and capitalized software, net
5,061
5,242
Operating lease right-of-use assets
18,506
22,132
Deferred income taxes
2,886
4,946
Acquired intangibles, net
12,943
7,280
Goodwill
35,998
19,676
Cash surrender value of life insurance
4,120
4,018
Other assets
2,101
2,228
Investments
116
47
Total assets
$
181,619 $
188,334
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable
$
14,254 $
21,150
Accrued compensation
19,016
22,534
Advance billings on contracts
5,480
4,762
Short-term operating lease liabilities
5,905
6,444
Short-term deferred payroll taxes
—
3,508
Other current liabilities
7,066
6,585
Income taxes payable
212
—
Total current liabilities
51,933
64,983
Long-term debt
—
—
Deferred compensation benefits
6,424
11,437
Long-term operating lease liabilities
12,466
15,612
Deferred income taxes
1,482
1,792
Other long-term liabilities
3,335
73
Total liabilities
75,640
93,897
Shareholders’ Equity:
Common stock, par value $0.01 per share, 150,000,000 shares authorized;
27,017,824 shares issued in both periods
270
270
Capital in excess of par value
109,868
110,330
Retained earnings
114,651
108,042
Less: Treasury stock of 11,274,171 and 11,667,719 shares at cost, at December 31, 2022
and 2021, respectively
(103,504)
(107,265)
Accumulated other comprehensive loss
(15,306)
(16,940)
Total shareholders’ equity
105,979
94,437
Total liabilities and shareholders’ equity
$
181,619 $
188,334
The accompanying notes are an integral part of these consolidated financial statements.
34
Consolidated Statements of Cash Flows
Year Ended December 31,
2022
2021
2020
(amounts in thousands)
Cash flow from operating activities:
Net income
$
6,609 $
13,730 $
7,639
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense
2,999
3,172
3,309
Equity-based compensation expense
2,563
2,640
2,483
Deferred income taxes
19
(4,731)
(370)
Deferred compensation benefits
(474)
(639)
(108)
Loss (gain) on the sale/disposal of property and equipment
21
15
(799)
Impairment of capitalized software
—
—
855
Non-taxable life insurance gain
—
—
(987)
Changes in assets and liabilities that provide (use) cash, excluding the
effects of acquisitions:
Accounts receivable
12,138
(10,302)
16,961
Prepaid and other current assets
(864)
(374)
(65)
Other long-term assets
120
(408)
(596)
Cash surrender value of life insurance
492
100
749
Accounts payable
(7,905)
2,936
(577)
Accrued compensation
(2,804)
2,085
(3,081)
Income taxes payable / receivable
340
1,125
(1,304)
Deferred payroll taxes
(3,508)
(3,150)
6,658
Advance billings on contracts
993
1,813
1,267
Other current liabilities
(78)
(561)
(818)
Other long-term liabilities
1,224
(40)
(478)
Net cash provided by operating activities
11,885
7,411
30,738
Cash flow from investing activities:
Cash paid for acquisitions, net of cash received
(18,210)
—
(4,324)
Additions to property and equipment
(1,001)
(1,940)
(1,780)
Additions to capitalized software
(473)
—
(1,105)
Proceeds from the sale of property and equipment
12
—
2,442
Premiums paid for life insurance
(594)
(531)
(616)
Proceeds from life insurance
—
—
400
Net cash used in investing activities
(20,266)
(2,471)
(4,983)
Cash flow from financing activities:
Proceeds from long-term debt
—
—
40,845
Payments on long-term debt
(1,030)
—
(46,135)
Deferred debt financing costs
—
(1,206)
—
Proceeds from stock option plan exercises
216
366
—
Taxes remitted for shares withheld from equity-based compensation
transactions
(1,230)
(399)
(168)
Proceeds from Employee Stock Purchase Plan
181
165
143
Change in cash overdraft, net
843
—
(370)
Net cash used in financing activities
(1,020)
(1,074)
(5,685)
Effect of exchange rates on cash and cash equivalents
(1,043)
(1,147)
2,014
Net (decrease) increase in cash and cash equivalents
(10,444)
2,719
22,084
Cash and cash equivalents at beginning of year
35,584
32,865
10,781
Cash and cash equivalents at end of year
$
25,140 $
35,584 $
32,865
Supplemental disclosure of non-cash transactions
Acquisition share issuance
$
1,178 $
- $
-
Acquisition stock option issuance
$
391
$
-
$
-
The accompanying notes are an integral part of these consolidated financial statements.
35
Consolidated Statements of Shareholders’ Equity
Accumulat
ed
Capital in
Other
Total
Common Stock
Excess of Retained
Treasury Stock
Comprehe
nsive
Shareholders’
Shares
Amount
Par Value Earnings
Shares
Amount
Income
(loss)
Equity
(amounts in thousands)
Balances as of December 31, 2019
27,018
$
270 $ 112,096 $
86,673
12,311 $ (114,261 ) $
(18,542 ) $
66,236
Employee Stock Purchase Plan share
issuance
—
—
(128 )
—
(29 )
271
—
143
Stock Option Plan share issuance, net
—
—
(193 )
—
(6 )
193
—
—
Restricted stock plan share
issuance/forfeiture
—
—
(4,851 )
—
(434 )
4,683
—
(168 )
Equity-based compensation
—
—
2,483
—
—
—
—
2,483
Net income
—
—
—
7,639
—
—
—
7,639
Foreign currency adjustment
—
—
—
—
—
—
5,461
5,461
Pension loss adjustment, net of tax
—
—
—
—
—
—
(2,286 )
(2,286 )
Balances as of December 31, 2020
27,018
$
270 $ 109,407 $
94,312
11,842 $ (109,114 ) $
(15,367 ) $
79,508
Employee Stock Purchase Plan share
issuance
—
—
(9 )
—
(19 )
174
—
165
Stock Option Plan share issuance, net
—
—
(427 )
—
(82 )
793
—
366
Restricted stock plan share
issuance/forfeiture
—
—
(1,281 )
—
(73 )
882
—
(399 )
Equity-based compensation
—
—
2,640
—
—
—
—
2,640
Net income
—
—
—
13,730
—
—
—
13,730
Foreign currency adjustment
—
—
—
—
—
—
(4,052 )
(4,052 )
Pension loss adjustment, net of tax
—
—
—
—
—
—
2,479
2,479
Balances as of December 31, 2021
27,018
$
270 $ 110,330 $ 108,042
11,668 $ (107,265 ) $
(16,940 ) $
94,437
Employee Stock Purchase Plan share
issuance
—
—
(24 )
—
(22 )
205
—
181
Stock Option Plan share issuance, net
—
—
(233 )
—
(49 )
449
—
216
Restricted stock plan share
issuance/forfeiture
—
—
(2,742 )
—
(149 )
1,512
—
(1,230 )
Acquisition share issuance
—
—
(417 )
—
(174 )
1,595
—
1,178
Acquisition stock option issuance
—
—
391
—
—
—
—
391
Equity-based compensation
—
—
2,563
—
—
—
—
2,563
Net income
—
—
—
6,609
—
—
—
6,609
Foreign currency adjustment
—
—
—
—
—
—
(3,296 )
(3,296 )
Pension gain adjustment, net of tax
—
—
—
—
—
—
4,930
4,930
Balances as of December 31, 2022
27,018
$
270 $ 109,868 $ 114,651
11,274 $ (103,504 ) $
(15,306 ) $
105,979
The accompanying notes are an integral part of these consolidated financial statements.
36
Notes to Consolidated Financial Statements
1.
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:
2022
2021
2020
Technology service providers
22.5%
26.7%
31.3%
Healthcare
18.1%
21.6%
14.9%
Financial services
15.9%
16.2%
15.8%
Manufacturing
15.5%
11.7%
13.5%
Energy
5.8%
5.1%
6.2%
General markets
22.2%
18.7%
18.3%
Total
100.0%
100.0%
100.0%
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.
37
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
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 is as follows:
2022
2021
2020
Time-and-material
76.1%
79.8%
81.0%
Progress billing
19.1%
17.8%
15.9%
Percentage-of-completion
4.8%
2.4%
3.1%
Total
100.0%
100.0%
100.0%
The Company recorded revenue by geography for 2022 compared to 2021 and 2021 compared to 2020 as follows:
Year Ended December 31,
% of total
2022
% of total
2021
Year-Over-
Year Change
(dollars in thousands)
North America
53.3%
$173,409
55.7%
$218,344
(20.6)%
Europe
46.7%
151,671
44.3%
173,941
(12.8)%
Total
100.0%
$325,080
100.0%
$392,285
(17.1)%
Year Ended December 31,
% of total
2021
% of total
2020
Year-Over-
Year Change
(dollars in thousands)
North America
55.7%
$218,344
55.8%
$204,264
6.9%
Europe
44.3%
173,941
44.2%
161,827
7.5%
Total
100.0%
$392,285
100.0%
$366,091
7.2%
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.
38
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
39
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, 2022, 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.
40
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,
41
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.
42
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
$
21,275
Acquired goodwill
—
Foreign currency translation
(1,599)
Balance at December 31, 2021
$
19,676
Acquired goodwill
17,439
Foreign currency translation
(1,117)
Balance at December 31, 2022
$
35,998
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 million 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 31, 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
$
1,532 $
(1,380) $
(152) $
—
Technology
10 years
1,141
(161)
(23)
957
Customer relationships
7-13 years
17,196
(4,053)
(1,157)
11,986
Total
$
19,869 $
(5,594) $
(1,332) $
12,943
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
$
1,532 $
(1,454) $
(70) $
8
Technology
10 years
591
(110)
10
491
Customer relationships
7-13 years
10,496
(3,121)
(594)
6,781
Total
$
12,619 $
(4,685) $
(654) $
7,280
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
2023
$
1,673
2024
1,692
2025
1,692
2026
1,692
2027
1,290
Thereafter
4,904
Total
$
12,943
43
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 against its Netherlands
and India deferred taxes. The total valuation allowance recorded against 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 benefit in the consolidated statement of operations. The Company recognizes, as applicable, accrued interest and penalties
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
$
6,609
14,440 $
0.46
Dilutive effect of outstanding equity instruments
—
716
(0.02)
Diluted EPS
$
6,609
15,156 $
0.44
December 31, 2021
Basic EPS
$
13,730
13,926 $
0.99
Dilutive effect of outstanding equity instruments
—
1,045
(0.07)
Diluted EPS
$
13,730
14,971 $
0.92
December 31, 2020
Basic EPS
$
7,639
13,621 $
0.56
Dilutive effect of outstanding equity instruments
—
806
(0.03)
Diluted EPS
$
7,639
14,427 $
0.53
Weighted-average shares represent the average number of issued shares less treasury shares, and for the basic EPS calculations,
unvested restricted stock.
44
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)
2022
2021
Foreign currency translation adjustment
$
(10,993) $
(7,697)
Pension loss, net of tax of $755 in 2022 and $819 in 2021
(4,313)
(9,243)
Accumulated other comprehensive loss
$
(15,306) $
(16,940)
During 2022, 2021, and 2020, actuarial losses were amortized to expense as follows:
(amounts in thousands)
2022
2021
2020
Amortization of actuarial losses
$
494 $
489 $
298
Income tax
(81)
(39)
(1)
Net of tax
$
413 $
450 $
297
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.
45
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.
2.
Property, Equipment and Capitalized Software
Property, equipment and capitalized software at December 31, 2022 and 2021 are summarized as follows:
December 31,
Useful Life
2022
2021
(amounts in thousands)
(years)
Equipment
2-10 $
6,739 $
6,796
Furniture
5-10
1,790
1,875
Capitalized software
3-5
1,484
2,377
Other software
2-5
2,799
2,234
Leasehold improvements
1-15
2,274
2,346
$
15,086 $
15,628
Accumulated depreciation and amortization
(10,025)
(10,386)
$
5,061 $
5,242
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)
2022
2021
Capitalized software, beginning balance
$
1,607
$
1,619
Foreign currency translation
(123)
(12)
Capitalized software
$
1,484
$
1,607
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)
2022
2021
Accumulated amortization, beginning balance
$
978
$
502
Amortization expense
254
476
Accumulated amortization
$
1,232
$
978
3.
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.
46
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
$
17,382
Share issuance
1,178
Stock option issuance - 3 month vest
166
Stock option issuance - 12 month vest
225
Fair value of contingent consideration
4,000
Fair value of purchase consideration
$
22,951
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
$
755
Accounts receivable
1,605
Prepaids and other current assets
178
Property and equipment, net
437
Taxes receivable
48
Acquired intangibles
7,250
Goodwill
17,439
Total assets acquired
$
27,712
Liabilities Assumed:
Accounts payable
$
492
Short-term debt
601
Accrued compensation
355
Other current liabilities
205
Long-term debt
982
Deferred compensation benefits
324
Deferred tax liability
1,802
Total liabilities assumed
4,761
Net assets acquired
$
22,951
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.
47
(amounts in thousands)
Fair Value
Estimated
Economic Life
Technology
$
550
10 years
Customer relationships
6,700
10 years
Fair value of purchase consideration
$
7,250
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
$
6,122
Fair value of contingent consideration
111
Fair value of purchase consideration
$
6,233
48
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
$
1,798
Accounts receivable
1,303
Prepaids & other
71
Property & equipment, net
327
Acquired intangibles
1,282
Goodwill
2,757
Total assets acquired
$
7,538
Liabilities Assumed:
Accounts payable
$
285
Accrued compensation
307
Taxes payable
222
Other liabilities
163
Deferred income taxes
328
Total liabilities assumed
$
1,305
Net assets acquired
$
6,233
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
$
100
2 years
Technology
591
10 years
Customer relationships
591
7 years
Fair value of purchase consideration
$
1,282
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.
4.
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.
49
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).
50
5.
Income Taxes
The provision for income taxes for 2022, 2021, and 2020 consists of the following:
2022
2021
2020
(amounts in thousands)
Domestic and foreign components of income before
income taxes are as follows:
Domestic
$
2,955 $
4,797 $
2,497
Foreign
6,599
6,940
8,164
Total income before income taxes
$
9,554 $
11,737 $
10,661
The provision (benefit) for income taxes consists of:
Current tax:
U.S. federal
$
188 $
(219) $
258
Foreign
2,586
2,654
2,679
U.S. state and local
160
138
365
Total current tax
2,934
2,573
3,302
Deferred tax:
U.S. federal
69
(3,810)
—
Foreign
(17)
60
(280)
U.S. state and local
(41)
(816)
—
Total deferred tax
11
(4,566)
(280)
Total tax
$
2,945 $
(1,993) $
3,022
The effective and statutory income tax rate can be reconciled
as follows:
Tax at statutory rate
$
2,006 $
2,465 $
2,239
State tax, net of federal benefit
144
280
53
Non-taxable income
(224)
(192)
(393)
Non-deductible expenses
694
9
569
Change in estimate primarily related to foreign taxes
303
352
(227)
Change in valuation allowance related to U.S. federal taxes
—
(5,229)
1,952
Change in estimate primarily related to U.S. federal taxes
49
—
(1,141)
Tax credits
(512)
(260)
(679)
GILTI
—
—
146
Foreign rate differential
441
504
488
Other, net
44
78
15
Total tax
$
2,945 $
(1,993) $
3,022
Effective income tax rate
30.8%
(17.0)%
28.3%
The ETR was lower in 2021 primarily due to the reversal of the valuation allowance against the Company’s US deferred tax assets.
51
The Company’s deferred tax assets and liabilities at December 31, 2022 and 2021 consist of the following:
December 31,
2022
2021
(amounts in thousands)
Assets
Deferred compensation
$
2,959
$
4,498
Loss and credit carryforwards
701
1,454
Accruals deductible for tax purposes when paid
231
908
State taxes
715
639
Depreciation
34
42
Unrealized gain
143
74
Leases
4,726
5,691
Research and development expenses
1,086
—
Other
41
13
Gross deferred tax assets
10,636
13,319
Deferred tax asset valuation allowance
(746)
(2,128)
Gross deferred tax assets less valuation allowance
9,890
11,191
Liabilities
Amortization
(3,221)
(1,847)
Depreciation
(521)
(477)
Leases
(4,726)
(5,691)
Deferred compensation
(18)
(22)
Gross deferred tax liabilities
(8,486)
(8,037)
Net deferred tax assets (liabilities)
$
1,404
$
3,154
Net deferred tax assets and liabilities are recorded as follows:
Net non-current assets
$
2,886
$
4,946
Net non-current liabilities
(1,482)
(1,792)
Net deferred tax assets (liabilities)
$
1,404
$
3,154
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 against 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 benefit 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.
52
Net income tax payments during 2022, 2021, and 2020 totaled $3.0 million, $2.7 million, and $4.2 million, respectively.
6.
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
$
6,776
$
7,611
Variable lease costs
342
405
Short-term lease costs
415
430
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)
2023
$
5,997
2024
4,351
2025
3,170
2026
2,240
2027
1,235
2028 & thereafter
3,555
Total undiscounted operating lease payments
20,548
Less: Interest
(2,177)
Total present value of operating lease liabilities
$
18,371
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)
5.34
Weighted average remaining discount rate
3.85%
53
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
6,776
Right-of-use assets obtained in exchange for new operating lease liabilities
4,076
7.
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
2022
2021
2020
(amounts in thousands)
Service cost
$
451 $
499 $
428
Interest cost
353
197
355
Expected return on assets
(638)
(702)
(657)
Amortization of actuarial loss
500
495
304
Net periodic pension cost
$
666 $
489 $
430
54
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
2022
2021
(amounts in thousands)
Benefit obligation at beginning of period
$
30,957 $
34,729
Service cost
451
499
Interest cost
352
197
Benefits paid
(1,086)
(1,036)
Acquisition
274
—
Actuarial loss
(3,874)
(1,341)
Effect of exchange rate changes
(1,502)
(2,091)
Benefit obligation at end of period
25,572
30,957
Reconciliation of Fair Value of Plan Assets
Fair value of plan assets at beginning of period
19,978
20,656
Actual return on plan assets
812
636
Employer contributions
1,195
1,199
Benefits paid
(988)
(922)
Effect of exchange rate changes
(1,274)
(1,591)
Fair value of plan assets at end of period
19,723
19,978
Accrued benefit cost
$
5,849 $
10,979
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
$
— $
— $
58 $
— $
— $
—
Current liabilities
$
503 $
— $
— $
— $
— $
38
Non-current liabilities
$
3,168 $
1,583 $
— $
283 $
31 $
301
Discount rates:
Benefit obligation
4.76%
3.40%
3.80%
3.30%
3.30%
6.90%
Net periodic pension cost
2.10%
1.00%
3.80%
1.00%
1.00%
6.40%
Salary increase rate
—%
—%
4.05%
2.20%
2.20%
5.00%
Expected return on plan assets
—%
4.00%
3.00%
—%
—%
—%
As of December 31, 2021:
Non-current assets
$
— $
— $
100 $
— $
— $
—
Current liabilities
$
509 $
— $
— $
36 $
— $
—
Non-current liabilities
$
3,844 $
6,280 $
— $
367 $
41 $
—
Discount rates:
Benefit obligation
2.10%
1.00%
1.05%
1.00%
0.35%
—%
Net periodic pension cost
1.56%
0.40%
1.05%
0.35%
0.45%
—%
Salary increase rate
—%
—%
3.75%
1.90%
1.75%
—%
Expected return on plan assets
—%
4.00%
3.10%
—%
—%
—%
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.
55
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 for 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.
56
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)
2023
$
910
2024
947
2025
1,662
2026
1,671
2027
934
2028 - 2032
6,492
Total
$
12,616
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 plan. During 2021, two directors retired from the Company’s Board of
Directors, which resulted in 416,265 shares being released from this plan.
8.
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.
57
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.
9.
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
none outstanding.
10.
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:
2022
2021
2020
(amounts in thousands)
Equity-based compensation expense
$
2,563 $
2,640 $
2,483
Tax benefit
(635)
(654)
—
Net equity-based compensation expense
$
1,928 $
1,986 $
2,483
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
58
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 granted 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 granted 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:
2022
2021
2020
Expected life (years)
2.8
5.1
3.7
Dividend yield
—%
—%
—%
Risk-free interest rate
3.4%
0.8%
2.2%
Expected volatility
43.1%
41.9%
36.1%
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 not 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
59
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.
60
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
— $
—
731,234 $
12.69
295,425 $
5.89
Granted
— $
—
173,010 $
5.88
— $
—
Exercised
— $
—
(45,096) $
4.95
— $
—
Canceled or forfeited
— $
—
— $
—
— $
—
Expired
— $
—
— $
—
(50,125) $
7.18
Outstanding at December 31, 2020
— $
—
859,148 $
11.73
245,300 $
5.62
Granted
105,906 $
9.17
— $
—
— $
—
Exercised
— $
—
(45,096) $
4.95
(65,300) $
5.61
Canceled or forfeited
— $
—
— $
—
— $
—
Expired
— $
—
(27,500) $
12.16
— $
—
Outstanding at December 31, 2021
105,906 $
9.17
786,552 $
12.10
180,000 $
5.63
Granted
334,790 $
7.60
— $
—
— $
—
Exercised
— $
—
(18,620) $
6.71
(40,000) $
4.52
Canceled or forfeited
(7,298) $
8.52
(4,460) $
5.88
— $
—
Expired
— $
—
(58,875) $
14.93
— $
—
Outstanding at December 31, 2022
433,398 $
8.06
704,597 $
12.05
140,000 $
5.94
Options Exercisable at December 31, 2022
135,305 $
7.40
646,262 $
12.60
140,000 $
5.94
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.
61
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
1991
Restricted
Stock Plan
Weighted-
Average
Fair Value
Outstanding at
Dec. 31, 2019
— $
—
1,146,884 $
5.49
40,000 $
4.97
24,375 $
5.75
Granted
— $
—
599,928 $
5.02
— $
—
— $
—
Released
— $
—
(131,949) $
5.02
— $
—
(11,470) $
5.75
Canceled or
forfeited
— $
—
(129,878) $
5.41
— $
—
(1,925) $
5.75
Outstanding at
Dec. 31, 2020
— $
—
1,484,985 $
5.35
40,000 $
4.97
10,980 $
5.75
Granted
267,036 $
9.55
— $
—
— $
—
— $
—
Released
(11,912) $
9.44
(408,232) $
5.13
(40,000) $
4.97
(10,730) $
5.75
Canceled or
forfeited
(4,558) $
10.11
(147,008) $
7.68
— $
—
(250) $
5.75
Outstanding at
Dec. 31, 2021
250,566 $
9.54
929,745 $
5.07
— $
—
— $
—
Granted
334,333 $
8.63
— $
—
— $
—
— $
—
Released
(34,353) $
9.75
(350,830) $
4.94
— $
—
— $
—
Canceled or
forfeited
(19,332) $
9.54
(30,970) $
4.72
— $
—
— $
—
Outstanding at
Dec. 31, 2022
531,214 $
8.95
547,945 $
5.17
— $
—
— $
—
62
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
$6.78 - $6.78
198,000 $
6.78
9.8 $
154,440
$9.12 - $9.17
235,398 $
9.14
8.8
—
433,398 $
8.06
9.5 $
154,440
2010 Plan
$4.20 - $7.48
305,501 $
5.84
5.7 $
523,938
$13.58 - $13.60
200,000 $
13.59
3.9
—
$15.90 - $16.93
51,096 $
16.67
2.1
—
$20.68 - $21.41
148,000 $
21.17
3.7
—
704,597 $
12.05
4.5 $
523,938
Equity Plan
$4.78 - $4.78
40,000 $
4.78
1.4 $
111,200
$5.25 - $7.18
100,000 $
6.41
1.6
115,200
140,000 $
5.94
1.5 $
226,400
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
$6.78 - $6.78
100,000 $
6.78
9.8 $
78,000
$9.12 - $9.17
35,305 $
9.17
8.2
—
135,305 $
7.40
9.4 $
78,000
2010 Plan
$4.20 - $7.48
247,166 $
5.84
5.3 $
425,935
$13.58 - $13.60
200,000 $
13.59
3.9
—
$15.90 - $16.93
51,096 $
16.67
2.1
—
$20.68 - $21.41
148,000 $
21.17
3.7
—
646,262 $
12.60
4.2 $
425,935
Equity Plan
$4.78 - $4.78
40,000 $
4.78
1.4 $
111,200
$5.25 - $7.18
100,000 $
6.41
1.6
115,200
140,000 $
5.94
1.5 $
226,400
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.
11.
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.
63
No other client accounted for more than 10% of revenue in 2022, 2021, and 2020.
12.
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.
13.
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.
64
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:
2022
North America IT
Europe IT
Non-Strategic
(amounts in thousands)
Solutions & Services
Solutions & Services
Technology Services
Total
Revenue
$
84,038 $
149,931 $
91,111 $
325,080
Direct costs
52,315
112,990
79,698
245,003
Gross profit
31,723
36,941
11,413
80,077
Operating expenses
14,203
18,954
2,632
35,789
Contribution profit
$
17,520 $
17,987 $
8,781
44,288
General and administrative expenses
33,212
Operating income
$
11,076
2021
North America IT
Europe IT
Non-Strategic
(amounts in thousands)
Solutions & Services
Solutions & Services
Technology Services
Total
Revenue
$
101,506 $
169,341 $
121,438 $
392,285
Direct costs
68,885
129,030
107,920
305,835
Gross profit
32,621
40,311
13,518
86,450
Operating expenses
13,883
21,345
4,904
40,132
Contribution profit
$
18,738 $
18,966 $
8,614
46,318
General and administrative expenses
33,576
Operating income
$
12,742
2020
North America IT
Europe IT
Non-Strategic
(amounts in thousands)
Solutions & Services
Solutions & Services
Technology Services
Total
Revenue
$
67,948 $
154,847 $
143,296 $
366,091
Direct costs
43,953
117,029
128,151
289,133
Gross profit
23,995
37,818
15,145
76,958
Operating expenses
9,368
20,366
6,992
36,726
Contribution profit
$
14,627 $
17,452 $
8,153
40,232
General and administrative expenses
31,102
Operating income
$
9,130
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
65
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 million 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 31, 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
2022
2021
2020
(amounts in thousands)
Revenue from External Customers:
United States
$
169,510 $
215,637 $
203,495
Belgium
61,117
68,109
59,851
Luxembourg
57,676
72,699
66,411
Other countries
36,777
35,840
36,334
Total foreign revenue
155,570
176,648
162,596
Total revenue
$
325,080 $
392,285 $
366,091
Long-lived Assets*:
United States
$
9,414 $
2,081 $
1,710
France
4,714
5,663
6,841
Luxembourg
2,294
3,125
3,879
Other countries
1,582
1,653
2,182
Total long-lived assets*
$
18,004 $
12,522 $
14,612
Deferred Tax Assets, Net of Valuation Allowance:
United States
$
2,699 $
4,612 $
—
Europe
187
334
393
Total deferred tax assets, net
$
2,886 $
4,946 $
393
*Long-lived Assets exclude goodwill
(1)
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.
(2)
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.
(3)
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.
66
(1)
(3)
(2)
(3)
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management has evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer
and Chief Financial Officer, the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined
in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this annual report. Based on that evaluation, the Company’s
Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as
of the end of the period covered by this annual report.
As described above, on September 29, 2022 we completed the acquisition of Eleviant. SEC guidance permits management to omit an
assessment of an acquired business’ internal control over financial reporting from management’s assessment of internal control over financial
reporting for a period not to exceed one year from date of acquisition. We are in the process of integrating Eleviant’s operations within our
internal control structure. In executing this integration, we are analyzing, evaluating, and where necessary, making changes in controls and
procedures related to the Eleviant business. Accordingly, management has excluded controls relating to Eleviant from its assessment of
effectiveness of internal control over financial reporting as of December 31, 2022.
(a)
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial
reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may
not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over
financial reporting may deteriorate.
Management of the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting
based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, the Company’s management did not identify any control deficiencies it considered to be material
weaknesses under the rules specified by the Public Company Accounting Oversight Board’s Auditing Standard No. 5, and therefore
concluded that its internal control over financial reporting was effective as of December 31, 2022.
The Company acquired Eleviant on September 29, 2022, and management excluded from its assessment of the effectiveness of
internal control over financial reporting as of December 31, 2022, Eleviant’s internal control over financial reporting associated with assets
representing $3.4 million of consolidated assets and revenues representing $2.8 million of consolidated revenues included in the
consolidated financial statements of the Company as of and for the year ended December 31, 2022.
Our independent registered public accounting firm has issued an attestation report on the Company’s effectiveness of internal control
over financial reporting. Their report appears below under (b), “Attestation Report of the Registered Public Accounting Firm.”
67
(b)
Attestation Report of the Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Computer Task Group, Incorporated
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Computer Task Group, Incorporated (a New York corporation) and
subsidiaries (the “Company”) 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”). In our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013
Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated March 15, 2023
expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial
reporting of Eleviant Technologies, Inc., a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting
2 and 1 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022. As
indicated in Management’s Report, Eleviant Technologies, Inc. was acquired during 2022. Management’s assertion on the effectiveness of
the Company’s internal control over financial reporting excluded internal control over financial reporting of Eleviant Technologies, Inc.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Cleveland, Ohio
March 15, 2023
68
(c)
Changes in Internal Control Over Financial Reporting
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
Company’s internal control over financial reporting as of the end of the period covered by this annual report. There were no changes in the
Company’s internal control over financial reporting that occurred during the Company's last fiscal quarter, which ended on December 31,
2022, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
Effective as of March 14, 2023, in connection with a periodic review of the Company's Restated By-Laws (the "Bylaws"), the Board of
Directors of the Company adopted amendments to the Bylaws (as amended, the "Amended Bylaws") to among other things, update certain
provisions related to the Company's advance notice provision to include additional requirements regarding the information shareholders must
submit and representations shareholders must make in connection with providing advance notice of shareholder meeting proposals and
director nominations, require any shareholder submitting a proposal or a nomination to represent whether such shareholder intends to solicit
proxies in support of director nominations or other business, reserve use of the white proxy card to the Board of Directors, and make certain
administrative, modernizing, clarifying and conforming changes. In connection with the Amended Bylaws, for the Company's 2023 Annual
Meeting of Shareholders tentatively scheduled for September 14, 2023, for proposals made outside of Rule 14a-8 and for director
nominations to be submitted at the 2023 Annual Meeting, to be timely, shareholders’ notices, including the required information set forth in
the Amended Bylaws must be given, either by personal delivery or by United States mail, postage prepaid, to and received by the Secretary
of the Company by 5:30 p.m., Eastern Time, at Computer Task Group, Incorporated, Attn: Secretary, 300 Corporate Parkway, Suite 214N,
Amherst, New York 14226 no earlier than May 23, 2023 and no later than June 22, 2023, including any notice of a solicitation of proxies for
the 2023 Annual Meeting of Shareholders under Rule 14a-19 of the Exchange Act. The foregoing description does not purport to be complete
and is qualified in its entirety by reference to the full text of the Bylaws, a copy of which is filed as Exhibit 3.2 to this annual report on Form
10-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
69
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding the Company’s Code of Business Conduct is set forth herein under “Available Company Information” in Part I,
Item 1 of this annual report on Form 10-K. All of our employees, including our principal executive officer, principal financial officer, principal
accounting officer and controller, or persons performing similar functions, and our directors are subject to our Code of Business Conduct.
The Company maintains a separate standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act
consisting of all of our non-management, independent directors (with such independence noted in the director biographies below), with
James R. Helvey III as the designated audit committee financial expert. Mr. Helvey is independent, as independence for audit committee
members is defined under applicable SEC rules and in the listing standards applicable to CTG.
For a discussion of changes to procedures for shareholders to recommend nominees to our Board of Directors, see discussion of our
Amended Bylaws in Item 9B. Other Information of this annual report on Form 10-K.
Filip J.L. Gydé
President & Chief Executive
Officer, Computer Task Group,
Incorporated
Age: 62
Director since 2019
Experience
•
Chief Executive Officer, Computer Task Group, Incorporated (2019 – present); Executive Vice President, General Manager and
President for CTG’s European operations (2018 – 2019); Senior Vice President and General Manager of CTG’s European
operations (2000 – 2014, 2015 – 2018), Interim Executive Vice President of operations, assisting the Interim CEO in
overseeing CTG’s worldwide operations (2014 – 2015); Managing Director for Luxembourg (1999 – 2000); Managing
Director for Belgium (1996 – 2014), joined 1987
Education
•
MBA, University of Antwerp
•
MS, Ghent University
Qualifications
With regard to Mr. Gydé, the Nominating and Corporate Governance Committee and the Board believe that it is important that they
have immediate access to his direct involvement in the management of the Company as the Chief Executive Officer, as he brings
more than 30 years of experience in the IT services industry to his positions.
James R. Helvey, III
Managing Partner, Cassia Capital
Partners
Age: 64
Independent Director since 2015
Experience
•
Co-founder and Managing Partner, Cassia Capital Partners, LLC, (2011 – present)
•
Partner and the Risk Management Officer, CMT Asset Management Limited, a private investment firm (2005 – 2011)
•
Candidate for the United States Congress in the 5th District of North Carolina (2003 – 2004)
•
Chair and Chief Executive Officer, Cygnifi Derivatives Services, LLC, an online derivatives services provider (2000 – 2002)
•
Managing Director at JP Morgan & Co., including Vice Chair of the Risk Management Committee, Chair of the Liquidity
Committee, Global Head of Derivative Counterparty Risk Management, Head of the swap derivative trading business in
Asia, and head of short-term interest rate derivatives and foreign exchange forward trading in Europe, (1985 – 2000)
Education
•
MA, Columbia University, School of International and Public Affairs, where he was an International Fellow
•
Fulbright Scholar, University of Cologne in Germany
•
BA, magna cum laude, Wake Forest University
Other Boards
•
Coca-Cola Bottling Co. Consolidated (2016 – present)
•
Trustee Wake Forest University (1997 – 2017)
•
Pike Corporation, Lead Independent Director (2005 – 2014)
•
Verger Capital Management LLC
•
Piedmont Federal Savings Bank
70
•
Wake Forest Baptist Medical Center & Health Sciences
Qualifications
With regard to Mr. Helvey, the Nominating and Corporate Governance Committee and the Board particularly noted his extensive
financial experience and prior audit committee experience.
David H. Klein
President, Klein Solutions Group
Age: 74
Independent Director since 2012
Experience
•
President of Klein Solutions Group, LLC, which provides advice on policy, strategy, operations and finance to healthcare
delivery and payer organizations (2012 – present)
•
Special advisor to the CEO, University of Rochester (UR) Medical Center (2012 – present)
•
Professor of Public Health Sciences, UR School of Medicine and Dentistry and Executive Professor of Healthcare
Management, UR Simon Business School (2012 – present)
•
Chief Executive Officer, The Lifetime Healthcare Companies, comprised of Excellus BlueCross BlueShield (BCBS), Univera
Healthcare, Lifetime Health Medical Group, Lifetime Care (home care agency), EBS-RMSCO Benefit Solutions (benefits
consulting firm and third party administration) and MedAmerica (long-term care insurance company) (2003 – 2012)
•
Director of the national Blue Cross Blue Shield Association (BCBSA) and America’s Health Insurance Plans (2003 – 2012)
•
Executive with the national BlueCross BlueShield Association and Health Care Service Corporation (1984 – 1986)
Education
•
MBA, University of Chicago – 1972
•
BS, Rensselaer Polytechnic Institute – 1970
Other Boards
•
Privately held companies: Landmark Health (2014 - 2021), Cogito (2016 – present), NextHealth Technologies (2017 – 2022),
Excel Venture Partners Fund (2017 – present), Opyn (2019 - present), Honest Medical Group (2022 - present)
•
Member, Cressey & Company private equity fund Distinguished Executives Council (2016 – present)
•
Advisor, Health Catalyst Capital Management, LLC and Triple Tree Capital Partners venture funds (2019 – present)
•
Former non-executive chair (2016 – 2020), New York eHealth Collaborative which operates New York State’s health
information exchange (2014 – 2021)
•
Director of Commonwealth Care Alliance (a health plan that serves high-cost, high-need patients) (2019 – present)
Qualifications
With regard to Mr. Klein, the Nominating and Corporate Governance Committee and the Board particularly noted his extensive
experience managing health plan entities and his knowledge of the healthcare industry, an important market for the Company’s
services.
Valerie Rahmani
Age: 65
Independent Director since 2015
Experience
•
Chief Executive Officer of Damballa, Inc. (2009 – 2012)
•
IBM: General Manager Internet Security Systems (2008 – 2009), General Manager of Global Technology Services business
(2004 – 2008), Head of Sales and Services Strategy unit (2003 – 2005), General Manager of UNIX server business (2001 –
2003), General Manager of Mobile business (2000 – 2001); joined 1984
Education
•
DPhil, University of Oxford
•
MA, University of Oxford
Other Boards
•
Elliott Opportunity II Corp. (2021 – present)
•
Rungway, a social media startup (2019 – 2021)
•
Entrust Corporation (2019 – present)
•
London Stock Exchange Group plc (2017 – present)
71
•
RenaissanceRe Holdings Ltd (2017 – present)
•
Aberdeen Asset Management PLC (2015-2017)
•
Teradici Corporation, a private technology company (2010 – 2015)
Qualifications
With regard to Ms. Rahmani, the Nominating and Corporate Governance Committee and the Board particularly noted her
experience in technology and cyber-security and her extensive management experience within the IT Services industry.
Raj Rajgopal
President, RR Advisory Services
Age: 62
Independent Director since 2020
Experience
•
President, RR Advisory Services, LLC, an advisory firm that offers due diligence and consulting services to venture capital,
private equity, and large enterprises (2019 – present)
•
Board observer, Wevo Conversion, a provider of artificial intelligence and machine learning based digital marketing platform
(2020 – present)
•
Independent Director of Vuzix Corporation (2021 – present), a provider of augmented reality/virtual reality smart glasses to
enable enterprise digital transformation
•
President, Virtusa Corporation (2013 – 2019); successfully led Virtusa’s transformation from an engineering services firm to a
leading digital consulting, digital solutions and IT services organization; Independent consultant to Virtusa Corporation (2003
– 2005), helped set the company’s long-term growth strategy
•
Global leadership roles in both the U.S. and the U.K., Capgemini, a global leader in consulting, technology services and digital
transformation (1991 – 2003)
•
Director of Advanced Technologies, BGS Systems, Inc. (1985 – 1989)
Education
•
MBA, Massachusetts Institute of Technology
•
MS, Virginia Tech
•
BTech, Indian Institute of Technology, Madras
Qualifications
With regard to Mr. Rajgopal, the Nominating and Corporate Governance Committee and the Board particularly noted his extensive
experience in IT digital transformation services and global business background.
Kathryn A.
Stein
Chief Strategy Officer and Global
Business Leader of Enterprise
Services, Genpact Limited
Age: 45
Independent Director since 2021
Experience
•
Chief Strategy Officer and Global Business Leader of Analytics, Data and Enterprise Services, Genpact Limited, a Business
and IT services provider (2016 – present)
•
Partner, Market Business Leader – Retirement for the East Market, Mercer (2015 – 2016) Partner, Global Chief Operating
Officer, Retirement, Health and Benefits (2014 – 2015) Partner, Director of North America Region Strategy and Operation
(2012 – 2014); Principal, Global Strategy and Corporate Development (2010 – 2012)
•
Project Leader, Boston Consulting Group (2003 – 2005)
•
Assistant Director, Strategic Planning, Center for Strategic and International Studies (2003 – 2005)
•
Consultant, MarketBridge Consulting (1999 – 2003)
Education
•
MBA, Columbia Business School
•
BA, University of North Carolina at Chapel Hill
Qualifications
With regard to Ms. Stein, the Nominating and Corporate Governance Committee and the Board particularly noted her extensive
experience in IT digital transformation services and mergers and acquisitions.
The Nominating and Corporate Governance Committee and the Board of Directors focus on the experience, qualifications, attributes
and skills discussed in each of the director’s biographies set forth above. In each case, the Nominating and Corporate Governance
Committee and the Board of Directors considered the achievements throughout the successful careers of each of the individuals.
72
Executive Officers of the Company
As of March 10, 2023, the following individuals are executive officers of the Company:
Name
Age
Office
Period During
Which Served
as Executive Officer
Other Positions
and Offices
with Registrant
Filip J. L. Gydé
62
President and Chief Executive Officer
Executive Vice President, President and General
Manager of Europe
Senior Vice President and General Manager of
Europe
Interim Executive Vice President of Operations
Senior Vice President and General Manager of
Europe
Mar. 1, 2019 to date
May 8, 2018 to Feb. 28, 2019
Apr. 6, 2015 to May 7, 2018
Oct. 15, 2014 to Apr. 5, 2015
Oct. 1, 2000 to Oct. 14, 2014
Director
John M. Laubacker
56
Executive Vice President and Chief Financial Officer
Senior Vice President
Senior Vice President and Interim Chief Financial
Officer
Apr. 21, 2017 to date
Apr. 6, 2015 to Apr. 20, 2017
Oct. 15, 2014 to Apr. 5, 2015
Treasurer
Peter P. Radetich
69
Senior Vice President, General Counsel and
Secretary
Apr. 28, 1999 to date
Secretary
Thomas J. Niehaus
61
Executive Vice President, General Manager of the
Americas
May 5, 2019 to date
None
Bob Daelman
57
Senior Vice President Europe
Vice President Belgium and United Kingdom
Nov. 15, 2022 to date
Jan. 23, 2019 to Nov. 14, 2022
None
Mr. Gydé was promoted to President and Chief Executive Officer on March 1, 2019. Previously, Mr. Gydé served as an Executive Vice
President, President and General Manager for the Company's European operations. Mr. Gydé was Interim Executive Vice President of
Operations from October 15, 2014 until April 5, 2015, responsible for operating activities of the overall Company. Previously he was Senior
Vice President and General Manager of CTG Europe from October 1, 2000 through October 14, 2014. Prior to that, Mr. Gydé was Managing
Director of the Company’s operations in Belgium. Mr. Gydé has been with the Company since May 1987.
Mr. Laubacker currently serves as an Executive Vice President, Chief Financial Officer (CFO) and Treasurer. Mr. Laubacker was
promoted to CFO on April 21, 2017. Previously, Mr. Laubacker was promoted to Vice President in February 2017 and has served as
Treasurer since 2006. Prior to that, Mr. Laubacker was the Director of Audit and Treasury Services and the Manager of External Reporting.
Mr. Laubacker joined the Company in January 1996.
Mr. Radetich currently serves as Senior Vice President, General Counsel and Secretary. Mr. Radetich was promoted to General
Counsel and Secretary in April 1999, and joined the Company in June 1988 as Associate General Counsel.
Mr. Niehaus currently serves as an Executive Vice President, and General Manager of the Americas. Mr. Niehaus rejoined the
Company in May 2019. Prior to joining CTG, Mr. Niehaus served as the managing member of TJN Advisory, a private advisory services
consulting firm. Previously, Mr. Niehaus was the President and Chief Operating Officer of Encore Health Resources from 2011 to 2017, and
then Chief Executive Officer of Encore in 2017. Mr. Niehaus worked for CTG from 1999 to 2011, including serving as a Senior Vice
President.
Mr. Daelman was promoted Senior Vice President Europe on November 15, 2022. Previously, Mr. Daelman was promoted to Vice
President of our Belgium and United Kingdom operations on January 23, 2019. Previously, Mr. Daelman was Managing Director Belgium
since May of 2016. Prior to that, Mr. Daelman held various titles from Manager to Managing Director of the Company’s operations in Belgium.
Mr. Daelman joined the Company in October of 2001.
Mr. Wauthier resigned from his position as a Director of the Company effective November 15, 2022. Previously, Mr. Wauthier was
promoted to Senior Vice President of our European operations on April 1, 2020. Prior to that, Mr. Wauthier was a Vice President from
January 23, 2019 through March 31, 2020, and before that was Managing Director of our Luxembourg operation from August 30, 1996 to
January 22, 2019. Mr. Wauthier joined the Company in 1995.
73
Item 11. Executive Compensation
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee Composition and Primary Purposes
The Compensation Committee of the Board of Directors (“Compensation Committee”) consists of Valerie Rahmani, Chair, James R.
Helvey III, David H. Klein, Raj Rajgopal, and Kathryn Stein. During 2022, the Compensation Committee held a total of four meetings. The
Board of Directors has determined that the members of the Compensation Committee are independent.
The Compensation Committee has a charter that is available on our Company’s website as described above under “Available
Company Information” in Part I, Item 1 of this annual report on Form 10-K. The Compensation Committee reviews the charter annually and
updates the charter as necessary.
The primary purposes of the Compensation Committee are to:
(1)
review and approve corporate goals and objectives relevant to the Company’s compensation philosophy,
(2)
evaluate the CEO’s performance and determine the CEO’s compensation in light of those goals and objectives,
(3)
review and approve executive officer compensation, incentive compensation plans and equity-based plans, and
(4)
produce an annual report on executive compensation, and approve the Compensation Discussion and Analysis for inclusion in the
Company’s annual proxy statement and this annual report on Form 10-K for the year ended December 31, 2022.
Effect of Say-on-Pay Vote
We carefully consider the results of our advisory shareholder Say-on-Pay votes and take into account feedback we receive from our
shareholders. At the September 2022 annual meeting, shareholders were asked to approve, on an advisory basis, the Company's fiscal 2021
executive compensation programs. Of those who voted, over 97% voted in favor of our proposal. In light of these results, and in
consideration of shareholder input obtained from outreach efforts taken in connection with the 2022 meeting, the Compensation Committee
carefully reviewed the Company's executive compensation practices. The Committee concluded that the Company's existing executive
compensation programs continue to be the most appropriate for the Company and effective in rewarding executives commensurate with
business results. The Committee believes that the best way to align the CEO's compensation with shareholder interests is to place the
majority of his compensation at-risk in the form of long-term performance based equity awards and annual incentive opportunity. We will
continue to keep an open dialogue with our shareholders to help ensure that we have a regular pulse on investor perspectives.
Compensation Philosophy and Executive Compensation Objectives
Given the exceptionally competitive nature of the IT Industry, the Compensation Committee and management believe it is strategically
critical to attract, retain and motivate the most talented employees possible by providing competitive total compensation packages. This
general philosophy on compensation applies to all employees of the Company. With regard to executive officer compensation, the Company
seeks to accomplish the following high-level objectives:
•
Offer a Competitive Total Compensation Package. To attract the most talented executive officers possible, the Company should
tailor each executive officer’s total compensation plan to reflect average total compensation offered at similar organizations. This
is accomplished by means of routine compensation surveying, the process for which is described further below.
•
Tie Total Compensation to Performance in a Meaningful Manner. To promote the Company’s overall annual and long-term
financial and operating objectives, a significant portion of total compensation should be based upon the accomplishment of
specific Company objectives within an executive officer’s purview. This is accomplished by means of various performance-based
incentive compensation described further below.
•
Encourage Executives to Think Like Shareholders. To promote the best interests of shareholders, executive officers should be
encouraged to maintain a significant equity interest in the Company. This is accomplished by means of various equity award plans
and stock ownership requirements described further below.
74
How Executive Compensation is Determined
In order to promote the Company’s objective of tying total compensation to performance in a meaningful manner, the Company has
adopted a uniform approach to compensation planning. In short, once the Board of Directors has reviewed and approved the corporate goals
and objectives for the entire Company, the Compensation Committee begins the process of setting compensation for the executive officers.
Once compensation has been set for the executive officers, they in turn are able to set performance-based objectives for their direct reports.
This approach to compensation planning continues throughout the organization. In this manner, the compensation planning process seeks to
optimize shareholder value by integrating appropriate employee responsibilities with corporate objectives.
In an effort to accomplish the Company’s objective of offering competitive total compensation packages, the Compensation Committee
routinely surveys total compensation packages for all executive officers. In October 2022, as has been the practice for several years, the
Compensation Committee retained the services of Pay Governance LLC (“Pay Governance”), as its independent compensation consulting
firm, to undertake an annual compensation review for each of the Company’s executive officers (excluding Mr. Daelman). The Company paid
$11,234 to Pay Governance for these services in October 2022. Pay Governance reports to and acts solely at the direction of the
Compensation Committee. Pay Governance does not provide any other services to the Company or any of the Company’s executive officers
individually, aside from those services provided to the Compensation Committee. Pay Governance has provided the Compensation
Committee with appropriate assurances and confirmation of its independent status. Furthermore, the Compensation Committee has
considered the factors set forth in 17 C.F.R. §240.10C-1(b) (4) (i)-(vi) and believes that Pay Governance has been independent throughout its
services to the Committee. Prior to conducting the study, Pay Governance was provided with job descriptions for each of the executive
officers (excluding Mr. Daelman) and was specifically instructed to provide the Compensation Committee with a Competitive Market Analysis,
a written report for each executive officer reflecting the competitive range of base salary, target total cash compensation, and target direct
total compensation for comparable positions.
Surveying Methodology Used. Pay Governance used a Mercer Benchmark executive compensation database to create the report.
This database contains compensation data from over 2,500 companies in a variety of industries. Pay Governance used a third party firm
specializing in international compensation for Mr. Wauthier. From this data, Pay Governance performed regression analyses designed to
identify a competitive range for jobs in similar companies by revenue size, and in similar business units or with similar position-specific
revenue responsibilities. Pay Governance’s competitive range is based solely on external competitive data and does not take individual
performance or internal pay equity into account. The competitive range identified in the Pay Governance report approximates the statistical
mean within one standard deviation. As such, the competitive range tends to fall within approximately 15% of either side of the median for
base salary, and 20% for target total cash compensation and target direct total compensation. Deviation within this range is usually explained
by differences in experience, length of service and/or differences in responsibilities.
For 2022, the Pay Governance report observed that target total direct compensation for all named executive officers, except Mr. Gydé
who fell below the competitive range, was within the competitive range. The total compensation for Mr. Gydé was within the competitive
range prior to his promotion to CEO in March 2019.
To further assess the Company’s overall compensation practices versus the market, Pay Governance collected pay data for the CFO
position from the most recent proxy statements for a number of peer companies selected by the Compensation Committee. The companies
selected were ASGN, Inc., Cross Country Healthcare, Inc., EPAM Systems, Inc., Information Services Group, Inc., Kforce, Inc., Mastech
Digital, Inc., and Perficient, Inc. Pay Governance selected only the CFO position because all companies are required to report data on this
position, and the duties are generally comparable. The results of this comparison indicated that the compensation level for the CFO fell below
the 25th percentile of the peer companies.
Upon completion of the report, the Compensation Committee met independently with a representative of Pay Governance to review
the document. The Compensation Committee used a separate Pay Governance study, in conjunction with the Company’s overall long-term
financial and operating objectives for 2022, to set total compensation for Mr. Gydé, the Company’s CEO. Mr. Gydé did not have a direct role
in establishing the terms of his compensation, the details of which for 2022 are discussed below.
The CEO used the Pay Governance Competitive Market Analysis, in conjunction with the Company’s overall long-term financial and
operating objectives for 2022, to make compensation recommendations to the Board for each executive officer. It has been the practice of
the Board to approve total compensation packages that contain a significant portion of tailored, performance-based incentives within the
executive officer’s purview. The executive officers have no direct role in
75
establishing the terms of their compensation. The details of each named executive officer’s total compensation for 2022 are discussed below.
Components of Executive Compensation
The compensation paid to the Company’s executive officers, as reflected in the tables set forth in this annual report on Form 10-K for
the year ended December 31, 2022, can be broken down into the following three general categories: (i) Baseline Compensation, (ii)
Performance-Based Incentives, and (iii) Equity-Based Incentives.
Baseline Compensation
Baseline Compensation includes annual base salary, standard employee benefits generally available to all employees and participation
in certain executive-level employee benefit programs. Once awarded, compensation payments made under this component are provided
during the course of the year without regard to achievement of specific performance-based objectives. The Company chooses to pay this
component of compensation, as it comprises the foundation of executive compensation. As such, the Company considers maintaining
competitive levels of baseline compensation essential to attracting and retaining talented personnel.
Annual Base Salary —In an effort to stay competitive, annual salaries for executive officers (except for Mr. Daelman) are reviewed by
the Compensation Committee on a yearly basis. With respect to determining the base salary of executive officers, the Committee takes into
consideration the compensation report prepared by Pay Governance, the executive’s individual performance as well as internal equity
considerations. Of these factors, the Pay Governance report is generally given the most weight. In addition, if circumstances warrant, such
as a change in role or responsibility, the Compensation Committee may grant discretionary bonuses from time to time to executive officers.
Standard Employee Benefits —Executive officers are entitled to participate in the same benefit programs afforded generally to all other
employees of the Company. Such benefits generally include a 401(k) program (for U.S. Executives, Pension for European Executives),
Medical/Dental/Vision Health Plans, Employee Stock Purchase Plan, Short-Term and Long-Term Disability Plans, and a Flexible Spending
Account Plan.
Executive-Level Benefits —In addition to the benefits afforded to employees generally, executive officers are also eligible to participate
in or receive the benefit of the following Company sponsored Executive-Level Benefits: Long-Term Executive Disability Plan, Executive Life
Insurance Plan, Accidental Death & Dismemberment and Travel Accident Plan, Income Tax Preparation and Advice program, and the
Company’s change in control agreements. Mr. Gydé and Mr. Daelman do not have change in control agreements as Belgian law designates
the calculation of separation benefits. A summary of these Executive-Level Benefits is provided below:
•
Long-Term Executive Disability Plan. The Company will pay, on the executive’s behalf, the premiums associated with maintaining
a long-term disability policy with approximately 70% salary replacement up to $25,000 per month. The benefits provided under
the Long-Term Executive Disability Plan are provided in lieu of the Long-Term Disability Plan afforded to employees generally.
•
Executive Life Insurance Plan. The Company will pay, on the executive’s behalf, the premiums associated with maintaining a life
insurance policy with coverage equal to three times current annual base salary.
•
Accidental Death & Dismemberment & Travel Accident Plan. The Company will pay, on the executive’s behalf, the premiums
associated with maintaining an accidental death and dismemberment policy with coverage equal to four times current annual base
salary.
•
Income Tax Preparation and Advice Program. The Company will generally reimburse executives annually for out-of-pocket fees
expended, up to $2,000 (€6,000 for Mr. Gydé) on tax preparation, financial planning or advice.
•
Change in Control Agreements. For the executive officers who have change in control agreements, the change in control
agreements contain double trigger mechanisms. Pursuant to the terms of these agreements, executives are generally entitled to
the following benefits in the event of a change in control (as defined in the agreements): (a) immediate vesting of all stock-related
awards granted under the 2020 Equity Award Plan, 2010 Equity Award Plan, the Equity Award Plan, or the 1991 Restricted Stock
Plan; (b) immediate vesting and cash payout of any, if any, deferred compensation accruing pursuant to the Company’s
Nonqualified Key Employee Deferred Compensation Plan; and (c) to the extent that the executive’s stock option rights are
impeded or adversely affected by the resulting change in control (i.e., no comparable conversion options offered), an executive is
entitled to an immediate lump sum payout of the built-in gain on all unexercised stock options, calculated as of the date of the
change in control. Further, additional severance benefits apply in the event the executive’s employment is terminated for Good
Reason by the executive or without Cause by the Company
76
within six (6) months before or twenty-four (24) months after the date of change in control. These additional severance benefits
include: a lump sum payment of two times the executive’s annual rate of salary, a lump sum payment of two times the executive’s
average annual Incentive (calculated from the preceding three years), a lump sum payout (in lieu of continued healthcare
coverage) equal to 25% of current salary and highest annual Incentive (from the preceding three years), indemnification coverage
for a period of sixty (60) months, a cash-out of equity-based compensation; and payout of any and all deferred compensation
accruing up to the date of termination. For more information on Potential change in control related payments, see “Potential
Payments upon Termination or Change in Control.”
Performance-Based Incentives
Performance-Based Incentives include an annual cash incentive (“Incentive”). Compensation payments provided under this program
are conditional upon the accomplishment of specific performance-based goals. The Company chooses to pay this component of
compensation because it believes this compensation program is critical to motivating executive officers in a manner that directly affects
shareholder value.
Annual Cash Incentive Compensation —Each executive officer’s total annual compensation includes a potential Incentive award.
Incentive payments are contingent upon the accomplishment of certain performance-based objectives selected by the Compensation
Committee annually. In selecting objectives, the Compensation Committee seeks to individually tailor performance criteria for each executive
officer. The amounts of the Incentive, and the formula for calculating actual payments, are regularly reviewed and surveyed in conjunction
with the Pay Governance study discussed earlier. In 2022, the Compensation Committee established performance objectives for the
executive officers (excluding Mr. Daelman) based on targeted levels of revenue, non-GAAP consolidated operating income and gross margin
improvement. To the extent an executive officer has specific operational responsibilities, performance objectives were split between: (i)
consolidated revenue, non-GAAP operating income for the entire Company and consolidated gross margin improvement, and (ii) business
unit revenue, gross profit and business unit gross margin improvement for that executive officer’s focus of operation. Targets for non-
operational executive officers, including the CEO, were based solely on consolidated revenue, non-GAAP operating income for the entire
Company and gross margin improvement. In 2022, the planned consolidated revenue, consolidated operating income targets and gross
margin improvement for all executive officer incentive plans (excluding Mr. Daelman) were $287,178,000, $16,909,000, and 23.6% (an
increase of 1.6% from 2021), respectively. Non-GAAP operating income traditionally excludes severance, and acquisition-related expenses
consisting of due diligence costs, amortization of intangible assets, and changes in the value of earn-out payments upon the achievement of
certain financial targets from the Company’s recent acquisitions as described further in the Company’s quarterly press releases.
For Mr. Daelman, in 2022, management established performance objectives based on targeted levels of gross profit and line of
business profit for the Company's Belgium and United Kingdom operations, and line of business profit and gross margin for all European
operations. In 2022, the planned targets were $20,524,784, $12,169,796, $21,304,482, and 24.7%, respectively.
The formula for calculating each executive officer’s Incentive provides that at least 80% of the stipulated plan target (“Threshold”) must
be achieved before any remuneration is awarded for that objective. If the Threshold is achieved, the executive officer receives 50% of the
designated plan award for that objective. Then, for each additional 1% achieved above the Threshold, up to 100% of the plan target
(“Objective Goal”), the executive officer receives another 2.5% of the designated plan award for that objective. For each additional 1%
achieved above the Objective Goal, the executive officer receives another 5% of the designated plan award for that objective. Each plan
prohibits the receipt of amounts in excess of two hundred percent 200% of the designated plan award for that objective.
The plan award is generally calculated as a percentage of annual base salary. In 2022, the plan awards were:
(i)
For Mr. Gydé, 102% of base salary actually paid,
(ii)
For Mr. Laubacker, CFO, approximately 62% of base salary actually paid,
(iii)
For Mr. Niehaus, EVP, approximately 65% of base salary actually paid,
(iv)
For Mr. Radetich, SVP, approximately 67% of base salary actually paid,
(v)
For Mr. Wauthier, previously SVP, approximately 49% of base salary actually paid, and
77
(vi)
For Mr. Daelman, SVP, approximately 44% of base salary actually paid.
The Compensation Committee believes that each executive officer’s Incentive plan targets for 2022 involved a reasonably challenging
degree of difficulty that considers current economic challenges and reflects the Board’s desire to maintain flexibility in enhancing the
executive officer’s focus, motivation and enthusiasm. In exceptional circumstances, the Compensation Committee exercises discretion to
award Incentive compensation absent achievement of the specified thresholds or to reduce or increase the size of any award or payout. In
this manner, the Compensation Committee believes that each executive officer’s Incentive plan targets are reasonably tailored to promote the
Company’s overall annual and long-term financial goals.
Equity-Based Incentives
This component of executive compensation consists of grants of restricted stock and stock options under the Company’s 2020 Equity
Award Plan. In making such grants, the Compensation Committee considers an executive’s past contributions and expected future
contributions towards Company performance. Grants are made to key employees of the Company who, in the opinion of the Compensation
Committee, have had and are expected to continue to have a significant impact on the long-term performance of the Company. The awards
are designed to reward individuals who remain with the Company and to further align employee interests with those of the Company’s
shareholders. The Company chooses to pay this component of compensation because it believes that stock ownership by management is
beneficial in aligning management’s activities and decisions with shareholders’ interests of maximizing share value.
Except in circumstances of new or recently promoted executive officers, the Compensation Committee generally grants equity
compensation on a set date each year. The Company does not time or plan the release of material non-public information for the purpose of
affecting the value of compensation. Equity awards may also be granted at other meetings of the Compensation Committee to individuals
who become executive officers, are given increased responsibilities during the year or in recognition of special accomplishments. The
Company has adopted stock ownership guidelines for senior executive officers requiring: (i) the CEO to own Company shares valued at five
(5) times his or her own base salary, and (ii) the CFO, Executive Vice Presidents, and Senior Vice Presidents with oversight of operating
segments, to own Company shares valued at three (3) times his or her own base salary. These requirements are measured five years after
an executive begins their role in the senior leadership position.
Restricted Stock Grants During 2022 —The Compensation Committee granted restricted stock awards under the 2020 Equity Award
Plan to various executive officers as identified in the tables below. In general, recipients of restricted stock awards receive a specified
number of non-transferable restricted shares to be held by the Company, in the name of the grantee, until satisfaction of stipulated vesting
requirements. Upon satisfaction of such vesting requirements, restrictions prohibiting transferability will be removed from the vested shares.
In determining whether to grant an individual restricted stock, the Compensation Committee considers an executive’s contribution toward
Company performance, expected future contribution and the number of options and shares of common stock presently held by the executive.
For awards of restricted stock granted in 2022 to the executive officers (excluding Mr. Daelman), the shares vest at the end of a three-year
period. If the Company’s cumulative three-year non-GAAP earnings per share for the years 2022, 2023, and 2024 equals or exceeds $2.86,
then 100% of the grants will 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. Non-GAAP earnings per share traditionally excludes severance, and acquisition-related expenses
consisting of due diligence costs, amortization of intangible assets, and changes in the value of earn-out payments upon the achievement of
certain financial targets from the Company’s recent acquisitions as described further in the Company’s quarterly press releases.
For awards of restricted stock granted to Mr. Daelman, the shares vest ratably over four years, beginning one year from the date of
grant with no performance obligation.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of
Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board
that the Compensation Discussion and Analysis be included in this annual report on Form 10-K for the year ended December 31, 2022 and in
the Company’s 2022 Proxy Statement.
78
Submitted by the Compensation Committee
Valerie Rahmani, Chair
James R. Helvey III
David H. Klein
Raj Rajgopal
Kathryn A. Stein
Compensation Committee Interlocks and Insider Participation
During the last completed fiscal year, the Compensation Committee was comprised entirely of independent directors. The
Compensation Committee of the Board of Directors is composed of Valerie Rahmani, Chair, James R. Helvey III, David H. Klein, Raj
Rajgopal, and Kathryn A. Stein. No member of the Compensation Committee is a current or former officer or employee of the Company.
During the year ended December 31, 2022, none of our executive officers served as a director or member of the Compensation Committee
(or other committee performing similar functions) of another entity when an executive officer of such entity served as a director of the
Company or on the Compensation Committee.
2022 SUMMARY COMPENSATION TABLE
Non-Equity
Stock
Option
Incentive Plan
All Other
Name and
Salary
Awards
Awards
Compensation
Compensation
Total
Principal Position
Year
($) (11)
($) (1)
($) (2)
($) (3)
($)
($)
Filip J.L. Gydé
2022
$
626,870 $
599,987 $
199,999 $
639,197 $
73,046
(5)
$
2,139,099
President and CEO
2021
$
564,805 $
431,247 $
143,753 $
850,590 $
71,392
(5)
$
2,061,787
2020
$
465,481 $
386,198 $
128,743 $
758,850 $
65,742
(5)
$
1,805,014
John M. Laubacker
2022
$
395,000 $
209,988 $
69,997 $
245,845 $
41,254
(4) (6) $
962,084
EVP, CFO and Treasurer
2021
$
395,000 $
191,250 $
63,747 $
347,632 $
34,464
(4) (6) $
1,032,093
2020
$
343,462 $
187,396 $
62,498 $
324,169 $
41,902
(4) (6) $
959,427
Thomas J. Niehaus
2022
$
335,000 $
127,498 $
42,500 $
219,241 $
91,055
(4) (7) $
815,294
EVP and GM, CTG North America
2021
$
335,000 $
112,488 $
37,499 $
415,712 $
63,913
(4) (7) $
964,612
2020
$
298,269 $
201,155 $
33,740 $
224,856 $
70,033
(4) (7) $
828,053
Peter P. Radetich
2022
$
300,000 $
112,486 $
37,498 $
201,593 $
35,480
(4) (8) $
687,057
SVP and General Counsel
2021
$
300,000 $
112,488 $
37,499 $
303,253 $
31,968
(4) (8) $
785,208
2020
$
266,635 $
108,662 $
36,232 $
299,339 $
22,073
(4) (8) $
732,941
Bob Daelman
SVP, Europe (Nov. 15, 2022 to current)
2022
$
296,890 $
49,993 $
— $
130,712 $
36,664
(9)
$
514,259
VP Belgium and United Kingdom (during 2022
prior to promotion)
Rénald Wauthier
2022
$
334,830 $
99,536 $
33,177 $
165,637 $
38,660
(10)
$
671,840
SVP, Europe (Apr. 1, 2020 to Nov. 15, 2022)
2021
$
339,766 $
98,055 $
32,690 $
230,671 $
42,524
(10)
$
743,706
2020
$
289,389 $
197,333 $
28,189 $
200,415 $
28,048
(10)
$
743,374
79
(1)
The amounts in this column reflect the aggregate grant date fair value for the awards granted in the fiscal years ended December 31, 2022, 2021, and 2020 as applicable, as computed in
accordance with FASB ASC Topic 718. The assumptions used in the calculation of these amounts are included in footnote 10 to the Company’s audited financial statements for the fiscal year
ended December 31, 2022 included in Item 8, “Financial Statements and Supplementary Data.”
(2)
The amounts in this column reflect the aggregate grant date fair value for the options granted in the fiscal years ended December 31, 2022, 2021, and 2020 as applicable, as computed in
accordance with FASB ASC Topic 718. The assumptions used in the calculation of these amounts are included in footnote 10 to the Company’s audited financial statements for the fiscal year
ended December 31, 2022 included in Item 8, “Financial Statements and Supplementary Data.”
(3)
Represents cash payments earned under the respective executive’s annual cash incentive plan.
(4)
Life Insurance. During 2022, 2021, and 2020, the Company provided life insurance benefits for Messrs. Laubacker, Niehaus and Radetich. The premiums paid by the Company in 2022 for this
benefit totaled $13,045, $46,074 and $0, respectively. The premiums paid by the Company in 2021 for this benefit totaled $7,657, $29,857 and $0, respectively. The premiums paid by the
Company for this benefit in 2020 for Messrs. Laubacker, Niehaus and Radetich totaled $19,579, $47,575, and $0, respectively.
(5)
The Company paid Mr. Gydé: (i) 92% of one month’s pay as vacation pay and (ii) a year-end premium equal to one month’s base salary. The Company also contributes towards Mr. Gydé’s
cafeteria plan account, which is a plan generally available to all Belgium employees. Company contributions to Mr. Gydé’s cafeteria plan totaled $52,047 in 2022, $47,811 in 2021, and $45,169
in 2020. The Company also leases an automobile for Mr. Gydé’s use, which is an option provided to all Belgium employees with a likelihood of traveling. The cost to the Company for leasing
Mr. Gydé’s automobile was $14,678 in 2022, $16,482 in 2021, and $15,904 in 2020. Mr. Gydé also received $6,321, $7,099, and $4,669 for the Income Tax Preparation and Financial Advice
Program in 2022, 2021, and 2020, respectively. For the amounts paid to Mr. Gydé in Euros, the amounts were converted to United States Dollars based on the average foreign currency
exchange rates for 2022, 2021, and 2020.
(6)
In addition to life insurance premiums (as further disclosed in footnote 4), during 2022, 2021, and 2020, Mr. Laubacker received a total value of $28,209, $26,807, and $19,828, respectively, in
Other Compensation for the following Benefits (which are further described in this Item 11, Executive Compensation): Short-Term and Long-Term Executive Disability Plans, Accidental Death &
Dismemberment & Travel Accident Plan, 401(k) discretionary match, and the Company’s Medical and Dental Plan.
(7)
In addition to life insurance premiums (as further disclosed in footnote 4), during 2022, 2021, and 2020, Mr. Niehaus received a total value of $44,981, $34,056, and $20,251, respectively, for
the following Benefits (which are further described in this Item 11, Executive Compensation): Short-Term and Long-Term Executive Disability Plans, Accidental Death & Dismemberment &
Travel Accident Plan, 401(k) discretionary match, the Company’s Medical and Dental Plan, and the Income Tax Preparation and Advice Program.
(8)
During 2022, 2021, and 2020, Mr. Radetich received a total value of $35,480, $31,968, and $20,910, respectively, for the following Benefits (which are further described in this Item 11,
Executive Compensation): Short-Term and Long-Term Executive Disability Plans, Accidental Death & Dismemberment & Travel Accident Plan, 401(k) discretionary match, the Company’s
Medical and Dental Plan, and the Income Tax Preparation and Advice Program.
(9)
The amounts included in the table above represent compensation paid to Mr. Daelman for the full year ended December 31, 2022, including amounts paid prior to his promotion. Mr. Daelman
who was promoted to SVP on November 15, 2022 received $11,378 for the Company leasing an automobile for the benefit of Mr. Daelman, which is an option provided to all Belgian employees
with a likelihood of traveling. For the amounts paid to Mr. Daelman in Euros, the amounts were converted to United States Dollars based on the average foreign currency exchange rates for
2022. The Company also paid Mr. Daelman: (i) 92% of one month’s pay as vacation pay and (ii) a year-end premium equal to one month’s base salary. The Company also contributes towards
Mr. Daelman’s cafeteria plan account, which is a plan generally available to all Belgium employees. Company contributions to Mr. Daelman’s cafeteria plan totaled $25,286 in 2022.
(10)
Mr. Wauthier, who resigned from his position as SVP with the Company on November 15, 2022 (additional details described below), received $14,655, $16,457, and $21,233 in 2022, 2021, and
2020, respectively, for the Company leasing an automobile for the benefit of Mr. Wauthier, which is an option provided to all Luxembourg employees with a likelihood of traveling. Mr. Wauthier
also received a total of $24,005, $26,067, and $6,815 in 2022, 2021, and 2020, respectively, for other benefits. For the amounts paid to Mr. Wauthier in Euros, the amounts were converted to
United States Dollars based on the average foreign currency exchange rates for 2022, 2021, and 2020.
(11)
During 2020, all of the named executive officers (except Mr. Daelman) took a reduction in pay equaling 20% of their base compensation for 25 weeks during the year. Mr. Wauthier was
reimbursed for his reduction in pay under a program administered by the Luxembourg government.
Specific Executive Officer Compensation Plans and Employment Agreements
Filip J.L. Gydé, CEO. In 2022, Mr. Gydé’s total compensation included annual base salary payments of $626,870, an Incentive of
$639,197, grants of 65,788 restricted shares with a value of $599,987 (of which approximately 67% of the grants have a performance
condition), and a grant of 63,694 stock options with a value of $199,999. In setting baseline compensation and the performance standards for
Mr. Gydé, the Compensation Committee considered the Pay Governance report. The total amount of compensation that Mr. Gydé received
was based on a combination of his baseline compensation, and the extent to which the thresholds for compensation were achieved under his
performance based incentives. Pursuant to Belgian law, the Company is required to pay Mr. Gydé certain additional benefits that are
generally afforded to all Belgian employees. These benefits totaled $73,046 (see the “2022 Summary Compensation Table”).
John M. Laubacker, CFO. In 2022, Mr. Laubacker’s total compensation included annual salary payments of $395,000, an Incentive of
$245,845, grants of 23,025 restricted shares with a value of $209,988 (of which approximately 67% of the grants have a performance
condition), and a grant of 22,292 stock options with a value of $69,997. In setting baseline compensation and the performance standards for
Mr. Laubacker’s compensation, the Compensation Committee considered the Pay Governance report. The total amount of compensation
that Mr. Laubacker received was based on a combination of his baseline compensation, and the extent to which the thresholds for
compensation were achieved under his performance based incentives. Mr. Laubacker also received additional benefits totaling $41,254 (see
the “2022 Summary Compensation Table”).
Thomas J. Niehaus, EVP. In 2022, Mr. Niehaus’ total compensation included annual base salary payments of $335,000, an Incentive
of $219,241, grants of 13,980 restricted shares with a value of $127,498 (of which approximately 67% of the grants have a performance
condition), and a grant of 13,535 stock options with a value of $42,500. In setting
80
baseline compensation and the performance standards for Mr. Niehaus’ compensation, the Compensation Committee considered the Pay
Governance report. The total amount of compensation that Mr. Niehaus received was based on a combination of his baseline compensation,
and the extent to which the thresholds for compensation were achieved under his performance-based incentives. Mr. Niehaus also received
additional benefits totaling $91,055 (see the “2022 Summary Compensation Table”).
Peter P. Radetich, SVP. In 2022, Mr. Radetich’s total compensation included annual base salary payments of $300,000, an Incentive
of $201,593, grants of 12,334 restricted shares with a value of $112,486 (of which approximately 67% of the grants have a performance
condition), and a grant of 11,942 stock options with a value of $37,498. In setting baseline compensation and the performance standards for
Mr. Radetich’s compensation, the Compensation Committee considered the Pay Governance report and his past performance. The total
amount of compensation that Mr. Radetich received was based on a combination of his baseline compensation, and the extent to which the
thresholds for compensation were achieved under his performance-based incentives. Mr. Radetich also received additional benefits totaling
$35,480 (see the “2022 Summary Compensation Table”).
Bob Daelman, SVP. In 2022, Mr. Daelman’s total compensation included annual base salary payments of $296,890 an Incentive of
$130,712, grants of 5,980 restricted shares with a value of $49,993 (of which none of the grants have a performance condition). Pursuant to
Belgian law, the Company is required to pay Mr. Daelman certain additional benefits that are generally afforded to all Belgian employees.
These benefits totaled $36,664 (see the “2022 Summary Compensation Table”).
Rénald Wauthier, previously SVP. Effective November 15, 2022, Mr. Wauthier resigned from his position as Senior Vice President
for the Company's European operations. In accordance with Luxembourg Law, the Company terminated Mr. Wauthier's employment contract
with six months' notice period, and agreed to extend the notice period for an additional 17 days through May 31, 2023. Mr. Wauthier was
granted an exemption of work for the whole notice period. Mr. Wauthier will receive his full gross monthly salary, including any indexations
generally provided to all employees in Luxembourg, a year-end premium equal to one month’s salary, employer’s contribution to the
applicable pension plan (for both 2022 and 2023), use of the Company car under the terms and conditions stipulated in the leasing plan
through his notice period, payment for accrued but untaken leave as of the date of his resignation, and other benefits normally afforded to
employees. In addition to this, Mr. Wauthier was paid a gross legal severance, and will be paid his 2022 Incentive based on actual final
results for 2022. Mr. Wauthier remains an employee of the Company through May 31, 2023, and as such will be entitled to any prior granted
share units and/or stock options that will vest until this date. Mr. Wauthier also received a settlement amount, and a fixed amount towards the
payment of legal fees incurred. In 2022, Mr. Wauthier’s 2022 total compensation included annual base salary payments of $334,830, an
Incentive of $165,637, grants of 10,693 restricted shares with a value of $99,536 (of which approximately 67% of the grants have a
performance condition), and a grant of 9,448 stock options with a value of $32,690. The total amount of compensation that Mr. Wauthier
received was based on a combination of his baseline compensation, and the extent to which the thresholds for compensation were achieved
under his performance-based incentives. Mr. Wauthier also received additional benefits totaling $38,660 (see the “2022 Summary
Compensation Table”).
CEO to Median Employee Pay Ratio
We believe executive pay must be internally consistent and equitable to motivate our employees to create shareholder value. We are
committed to internal pay equity, and the Compensation Committee monitors the relationship between the pay our executive officers receive
and the pay our non-managerial employees receive. The compensation for our CEO in 2022 was approximately 40 times the median pay of
our employees.
Our CEO to median employee pay ratio is calculated in accordance with the SEC’s rules and regulations under item 402(u) of
Regulation S-K. We identified the median employee by examining the 2022 total cash compensation (which includes cash bonuses for all
individuals who receive them), excluding our CEO, who were actively employed by us on December 31, 2022, the last day of our fiscal year.
We included full-time, part-time, and seasonal employees. For employees that were not located in the US, we converted their total cash
compensation from local currencies to US dollars by using the 2022 average currency exchange rates per www.irs.gov
(https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates). We did not make any other assumptions,
adjustments, or estimates with respect to the total cash compensation, and we did not annualize the compensation for any employees that
were not employed by us for all of 2022. We believe the use of total cash compensation for all employees is a consistently applied
compensation measure because we do not widely distribute annual equity awards to employees.
81
After identifying the median employee based on total cash compensation, we calculated the annual total compensation for such
employee using the same methodology we use for our named executive officers as set forth in the 2022 Summary Compensation Table in
our Proxy Statement.
As illustrated in the table below, our 2022 CEO to median employee pay ratio is 40:1:
Filip J.L. Gydé, President
and CEO
Median CTG Employee
Salary
$
626,870
$
52,846
Overtime Pay
—
—
Stock Awards
799,986
—
Non-Equity Incentive
639,197
—
All Other Compensation
73,046
—
$
2,139,099
$
52,846
Ratio
40.48
1.00
2022 GRANTS OF PLAN-BASED AWARDS
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards (1)
Estimated Future Payouts
Under Equity Incentive
Plan Awards
Threshold
Target
Maximum
Threshol
d
Target
Maximum
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units
All Other
Option
Awards:
Number of
Securities
Underlying
Options
Exercise or
Base Price of
Option
Awards
Grant Date
Fair Value of
Stock and
Option Awards
Name
Grant Date
($) (1)
($) (2)
($) (3)
(#) (4)
(#) (5)
(#) (5)
#
#
($/sh)
($) (6)
Filip J.L. Gydé
—
$
325,000
$
650,000
$
1,300,000
—
—
—
—
—
—
—
3/18/2022
—
—
—
21,930
43,859
43,859
—
—
— $
400,000
3/18/2022
—
—
—
—
—
—
21,929
—
— $
200,000
3/18/2022
—
—
—
—
—
—
—
63,694 $
9.12 $
200,000
John M. Laubacker
—
$
125,000
$
250,000
$
500,000
—
—
—
—
—
—
—
3/18/2022
—
—
—
7,675
13,530
13,530
—
—
— $
140,000
3/18/2022
—
—
—
—
—
—
7,675
—
— $
70,000
3/18/2022
—
—
—
—
—
—
—
22,292 $
9.12 $
70,000
Thomas J. Niehaus
—
$
112,500
$
225,000
$
450,000
—
—
—
—
—
—
—
3/18/2022
—
—
—
4,660
9,320
9,320
—
—
— $
85,000
3/18/2022
—
—
—
—
—
—
4,660
—
— $
42,500
3/18/2022
—
—
—
—
—
—
—
13,535 $
9.12 $
42,500
Peter P. Radetich
—
$
102,500
$
205,000
$
410,000
—
—
—
—
—
—
—
3/18/2022
—
—
—
4,112
8,223
8,223
—
—
— $
75,000
3/18/2022
—
—
—
—
—
—
4,111
—
— $
37,500
3/18/2022
—
—
—
—
—
—
—
11,942 $
9.12 $
37,500
Rénald Wauthier
—
$
—
$
—
$
—
—
—
—
—
—
—
—
3/18/2022
—
—
—
3,638
7,276
7,276
—
—
— $
66,357
3/18/2022
—
—
—
—
—
—
3,638
—
— $
33,179
3/18/2022
—
—
—
—
—
—
—
10,566 $
9.12 $
33,179
Bob Daelman
—
$
68,483
$
136,966
$
273,932
—
—
—
—
—
—
—
5/20/2022
—
—
—
—
—
—
5,980
—
— $
50,000
(1)
The amounts shown reflect Incentives that would be paid for achieving 80% of the plan target.
(2)
The amounts shown reflect Incentives that would be paid for achieving 100% of all stipulated plan targets.
(3)
The amounts shown reflect the maximum Incentives that would be paid under the stipulated plan.
(4)
The number of shares shown reflect the number of shares that will be awarded for achieving 80% of the plan target.
(5)
The number of shares shown reflect the number of shares that will be awarded for achieving 100% or more of the plan target. Further discussion of incentive plan
calculations is provided under the sections entitled “Components of Executive Compensation,” and “Performance-Based Incentives” contained herein.
(6)
The amounts in this column reflect the aggregate grant date fair value for the stock or options granted in the fiscal year ended December 31, 2022 as computed in
accordance with FASB ASC Topic 718. The assumptions used in the calculation of these amounts are included in footnote 10 to the Company’s audited financial
statements, which are included in the Annual Report under Item 8, “Financial Statements and Supplementary Data.”
Grants of Plan-Based Awards
Each of the Non-Equity Incentive Plan Awards represented in the table above were Incentive awards granted to the named executive
officers during 2022. Such Incentive awards are described earlier in this report under the heading “Performance-Based Incentives.” The
formula for calculating each executive officer’s Incentive provides that at least 80% of the stipulated plan target (“Threshold”) must be
achieved before any remuneration is awarded for that objective. If the Threshold is achieved, the executive officer receives 50% of the
designated plan award for that objective. Then, for each 1% point achieved above the Threshold, up to 100% of the plan target (“Objective
Goal”), the executive officer receives another 2.5% of the designated plan award for that objective. For each 1% point achieved above the
Objective Goal, the executive officer receives another 5% of the designated plan award for that objective. Each plan prohibits the receipt of
amounts in excess of 200% of the designated plan award for that objective.
82
Pursuant to Company policies, an Incentive is only earned by and payable to an individual who remains in the Company’s employ on
the date of Incentive distribution. Incentive payments for 2022 were made on February 24, 2023.
Each of the equity awards represented in the table above were granted pursuant to the 2020 Equity Award Plan. The restricted stock
awards represented in the table above were granted by the Board to the named executive officers on March 18, 2022 (except for Mr.
Daelman) and certain of those grants include a performance condition. For the performance awards of restricted stock granted in 2022 to the
executive officers, the shares vest at the end of a three-year period. If the Company’s cumulative three-year non-GAAP earnings per share
for the years 2022, 2023, and 2024 equals or exceeds $2.86, then 100% of the grants will 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. For the remaining restricted stock awards
that were granted to the named executive officers, those awards vest ratably over three years, beginning one year from the date of grant.
For Mr. Daelman, the restricted stock awards represented in the table above were granted by management on May 20, 2022 and none
of those grants include a performance condition. The shares for Mr. Daelman vest ratably over four years, beginning one year from the date
of grant.
For the stock option awards that were granted to the named executive officers, these options are non-qualified stock options with a
grant price of $9.12 per option, vest ratably over three years, and expire 10 years from the date of grant.
Recipients of restricted stock awards and stock option awards were required to enter into agreements with the Company governing the
vesting, exercise and/or transferability (as applicable) of such awards. Vesting requirements for time-based restricted stock awards are
based solely on continued employment.
83
2022 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards
Stock Awards
Name/Grant Date
Number of Securities
Underlying
Unexercised Options
Exercisable (#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned Options
(#)
Option
Exercise
Price ($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
Market Value of
Shares or Units of
Stock That Have
Not Vested ($)
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested (#)
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested
($)
Filip J.L. Gydé
2/12/2013
9,000
—
—
$
20.68
2/12/2023
—
—
—
—
2/19/2014
9,000
—
—
$
16.93
2/19/2024
—
—
—
—
11/10/2015
13,600
—
—
$
7.48
11/10/2025
—
—
—
—
3/6/2020
43,753
21,877
(1)
—
$
5.88
3/6/2030
—
—
—
—
3/24/2021
13,850
27,697
(2)
—
$
9.17
3/24/2031
—
—
—
—
3/18/2022
—
63,694
(3)
—
$
9.12
3/18/2032
—
—
—
—
—
—
—
—
—
158,677 (16)
$
1,199,598
—
—
John M. Laubacker
2/12/2013
7,000
—
—
$
20.68
2/12/2023
—
—
—
—
2/19/2014
7,000
—
—
$
16.93
2/19/2024
—
—
—
—
11/10/2015
10,400
—
—
$
7.48
11/10/2025
—
—
—
—
5/15/2017
24,900
—
—
$
5.75
5/15/2027
—
—
—
—
3/6/2020
21,240
10,620
(4)
—
$
5.88
3/6/2030
—
—
—
—
3/24/2021
6,142
12,282
(5)
—
$
9.17
3/24/2031
—
—
—
—
3/18/2022
—
22,292
(6)
—
$
9.12
3/18/2032
—
—
—
—
—
—
—
—
—
66,353 (17)
$
501,629
—
—
Thomas J. Niehaus
5/31/2019
26,500
—
—
$
—
5/31/2029
—
—
—
—
3/6/2020
11,467
5,733
(7)
—
$
—
3/6/2030
—
—
—
—
3/24/2021
3,613
7,225
(8)
—
$
—
3/24/2031
—
—
—
—
3/18/2022
—
13,535
(9)
—
$
—
3/18/2032
—
—
—
—
—
—
—
—
—
43,934 (18)
$
332,141
—
—
Peter P. Radetich
2/12/2013
9,000
—
—
$
20.68
2/12/2023
—
—
—
—
2/19/2014
9,000
—
—
$
16.93
2/19/2024
—
—
—
—
11/10/2015
14,500
—
—
$
7.48
11/10/2025
—
—
—
—
3/6/2020
12,313
6,157
(10)
—
$
5.88
3/6/2030
—
—
—
—
3/24/2021
3,613
7,225
(11)
—
$
9.17
3/24/2031
—
—
—
—
3/18/2022
—
11,942
(12)
—
$
9.12
3/18/2032
—
—
—
—
—
—
—
—
—
37,611 (19)
$
284,339
—
—
Rénald Wauthier
3/6/2020
9,580
4,790
(13)
—
$
—
3/6/2030
—
—
—
—
3/24/2021
3,150
6,298
(14)
—
$
—
3/24/2031
—
—
—
—
3/18/2022
—
10,566
(15)
—
$
—
3/18/2032
—
—
—
—
—
—
—
—
—
42,449 (20)
$
320,914
—
—
Bob Daelman
—
—
—
$
—
18,353 (21)
138,749
—
—
(1)
21,877 vest on 3/6/2023
(2)
13,848 and 13,849 vest on 3/24/2023 and 3/24/2024 respectively
(3)
21,230, 21,232 and 21,232 vest on 3/18/2023, 3/18/2024 and 3/18/2025 respectively
(4)
10,620 vest on 3/6/2023
(5)
6,141 and 6,141 vest on 3/24/2023 and 3/24/2024 respectively
(6)
7,430, 7,431 and 7,431 vest on 3/18/2023, 3/18/2024 and 3/18/2025 respectively
(7)
5,733 vest on 3/6/2023
(8)
3,612 and 3,613 vest on 3/24/2023 and 3/24/2024 respectively
(9)
4,511, 4,512 and 4,512 vest on 3/18/2023, 3/18/2024 and 3/18/2025 respectively
(10)
6,157 vest on 3/6/2023
(11)
3,612 and 3,613 vest on 3/24/2023 and 3/24/2024 respectively
(12)
3,980, 3,981 and 3,981 vest on 3/18/2023, 3/18/2024 and 3/18/2025 respectively
(13)
4,790 vest on 3/6/2023
(14)
3,149 and 3,149 vest on 3/24/2023 and 3/24/2024 respectively
(15)
3,522, 3,522 and 3,522 vest on 3/18/2023, 3/18/2024 and 3/18/2025 respectively
(16)
For Mr. Gydé, the shares were granted from 3/6/2020 to 3/18/2022 and vest over time periods no longer than three years from the date of grant. Of these shares, 119,001 include a performance
condition.
(17)
For Mr. Laubacker, the shares were granted from 3/6/2020 to 3/18/2022 and vest over time periods no longer than three years from the date of grant. Of these shares, 50,504 include a
performance condition.
(18)
For Mr. Niehaus, the shares were granted from 3/6/2020 to 3/18/2022 and vest over time periods no longer than three years from the date of grant. Of these shares, 28,968 include a
performance condition.
(19)
For Mr. Radetich, the shares were granted from 3/6/2020 to 3/18/2022 and vest over time periods no longer than three years from the date of grant. Of these shares, 28,721 include a
performance condition.
(20)
For Mr. Wauthier, the shares were granted from 5/31/2019 to 3/18/2022 and vest over time periods no longer than three years from the date of grant. Of these shares, 23,995 include a
performance condition.
(21)
For Mr. Daelman, the shares were granted from 5/31/2019 to 5/20/2022 and vest over time periods no longer than four years from the date of grant.
84
2022 OPTION EXERCISES AND STOCK VESTED
The following table provides information for each of the Company’s named executive officers regarding stock option exercises and vesting of
stock awards during 2022.
Option Awards
Stock Awards
Name of Executive Officer
Number of Shares
Acquired on
Exercise (#) (1)
Value Realized on
Exercise ($)
(1)
Number of Shares
Acquired on
Vesting (#) (1)
Value Realized on
Vesting ($)
(1)
Filip J.L. Gydé
—
$
—
103,799
$
947,860
John M. Laubacker
—
$
—
48,454
$
442,432
Thomas J. Niehaus
—
$
—
25,301
$
230,174
Peter P. Radetich
—
$
—
32,827
$
299,696
Rénald Wauthier
—
$
—
16,128
$
147,021
Bob Daelman
—
$
—
7,632
$
67,281
(1)
For Option Awards, the value realized is the difference between the fair market value of the underlying stock at the time of exercise and the exercise price. For Stock Awards, the value realized
is based on the fair market value of the underlying stock on the vest date.
Pension Benefits
The Company maintains an Executive Supplemental Benefit Plan (Supplemental Plan) which provides certain former executives with
deferred compensation benefits. The Supplemental Plan was amended as of December 1, 1994 in order to freeze the then-current benefits,
provide no additional benefit accruals for participants and to admit no new participants. None of the named executive officers participates in
the Supplemental Plan.
Generally, the Supplemental Plan provides for retirement benefits of up to 50% of a participating employee’s base compensation at
termination or as of December 1, 1994, whichever is earlier, and pre-retirement death benefits calculated using the same formula that is used
to calculate normal and early retirement benefits. Benefits are based on service credits earned each year of employment prior to and
subsequent to admission to the Supplemental Plan through December 1, 1994. Retirement benefits and pre-retirement death benefits are
paid during the 180 months following retirement or death, respectively, while disability benefits are paid until normal retirement age. Normal
retirement is age 60. For any participant who is also a participant in the Deferred Compensation Plan, the normal retirement age was
increased to 65.
2022 NONQUALIFIED DEFERRED COMPENSATION
Name of Executive Officer
Executive
Contributions
in Last FY ($)
(1)
Registrant
Contributions in
Last FY ($)
Aggregate
Earnings in Last
FY ($)
Aggregate
Withdrawals /
Distributions ($)
Aggregate
Balance at Last
FYE ($)
Filip J.L. Gydé
—
—
$
—
— $
—
John M. Laubacker
—
—
$
(53,053 )
— $
174,533
Thomas J. Niehaus
—
75,071
$
(12,889 )
— $
104,130
Peter P. Radetich
—
—
$
(117,649 )
— $
386,751
Rénald Wauthier
—
—
$
—
— $
—
Bob Daelman
—
—
$
—
— $
—
(1)
During 2017, the Company discontinued its contributions under the Nonqualified Key Employee Deferred Compensation Plan. Mr. Gydé, Mr. Daelman and Mr. Wauthier do not have an account
under the Deferred Compensation Plan as they are not eligible to participate in the plan.
On February 2, 1995, the Compensation Committee approved the creation of a Nonqualified Key Employee Deferred Compensation
Plan (“Deferred Compensation Plan”). The Deferred Compensation Plan is a successor plan to the Supplemental Plan. Participants in the
Deferred Compensation Plan are eligible to elect to defer a percentage of their annual cash compensation. Prior to 2017, participants were
eligible to receive a Company contribution of a percentage of their base compensation and annual Incentive if the Company attained annual
defined performance objectives for the year. These performance objectives were on an annual basis for the upcoming year. The contribution
to the Deferred Compensation Plan by the Company was discontinued during 2017.
Plan participants have a 100% non-forfeitable right to the value of their corporate contribution account after the fifth anniversary of
employment with the Company. If a participant terminates employment due to death, disability, retirement at age 65, or upon the occurrence
of a Change in Control Event (as defined in the Deferred Compensation Plan), the participant or his or her estate will be entitled to receive
the benefits accrued for the participant as of the date of such event. The Company contributions will be forfeited in the event a participant
incurs a separation from service for cause. Participants are 100% vested in their own contributions. All amounts in the Deferred
Compensation Plan, including elective deferrals, are held as general assets of the Company and are subject to the claims of creditors of the
Company.
85
Potential Payments upon Termination or Change in Control
Agreement with Mr. Gydé—Employment Agreement. Effective as of March 1, 2019 the Company and Mr. Gydé entered into an
employment agreement that provides that each party may terminate the employment agreement in accordance with the provisions of the
Belgian law of July 3, 1978 relating to employment contracts. Any termination indemnities that may be due and owing to Mr. Gydé will take
into account the co-employment between the Company and the Company’s Belgian subsidiary and will be done according to the transitional
provisions as included in the articles 67, 68 and 69 of the Belgian Law of December 26, 2013 regarding the introduction of a unified statute,
with the period May 1, 1987 until December 31, 2013 fully to be taken into account and severance payments to be calculated under the
scheme of article 68 of said legislation. Prior to his appointment as Chief Executive Officer in March 2019, Mr. Gydé had not entered into an
employment agreement with the Company itself since Belgian law mandates certain separation benefits.
Under Belgian law, Mr. Gydé is entitled to notice prior to a termination of his employment by the Company, expressed as a period of
months for service prior to January 1, 2014 plus a period of weeks for service after January 1, 2014. As of December 31, 2022, Mr. Gydé
would have been entitled to 27 months plus 27 weeks of notice. Alternatively, in lieu of providing notice, the Company may elect to pay a
termination indemnity to Mr. Gydé. The amount of the termination indemnity is determined pursuant to Belgian law and is based on the
duration of Mr. Gydé’s employment with the Company and the amount of his gross annual compensation package. If Mr. Gydé’s employment
with the Company and the Company’s Belgian subsidiary had been terminated without notice on December 31, 2022, Mr. Gydé would have
been entitled to a termination indemnity totaling $3,613,916. In the event of a termination of Mr. Gydé’s employment, his equity awards would
be subject to the terms of the 2020 and 2010 Equity Award Plans.
Agreement with Mr. Gydé—Change in Control. In connection with his promotion to Chief Executive Officer, Mr. Gydé’s stock option
and restricted stock awards granted under the Company’s 2020 and 2010 Equity Award Plans were amended pursuant to a letter agreement
in May 2019 (the “Letter Agreement”) to provide for immediate vesting in the event his employment is terminated for any reason other than
Cause, death or Disability within 6 months before or 24 months after a change in control. Mr. Gydé does not otherwise have a change in
control agreement.
Pursuant to the Letter Agreement, upon a termination of his employment for any reason other than Cause, death or Disability within 6
months before or 24 months after a change in control, Mr. Gydé would have immediately become fully vested in any stock option or restricted
stock awards previously granted. These awards are more fully described in the table entitled “Outstanding Equity Awards at Fiscal Year-end.”
If the stock price of the Company was $7.56, which was the closing price of the stock on December 31, 2022, then Mr. Gydé could potentially
have realized gains, before tax, from the sale of vested securities in the following amounts:
Name of Executive Officer
Restricted Stock
Stock Options
Filip J.L. Gydé
$
1,199,598
$
111,346
In addition, pursuant to the Letter Agreement, in the event of a change in control, Mr. Gydé’s stock-based award with performance-
based vesting conditions would, immediately prior to the change in control, be deemed to have satisfied the performance-based vesting
conditions at the greater of the target level or the pro rata portion of the level of achievement of the performance goals that the Compensation
Committee determines he likely would have received for the performance period during which his employment was terminated, had his
employment not terminated. Such performance-based equity awards would then vest, unless sooner accelerated, monthly in equal
installments over the remaining performance period (a “Modified Award”), and the Board would cause any successor to assume the Modified
Awards.
With respect to any stock-based award with performance-based vesting conditions, in the event of a change in control in which the
Company’s common stock ceases to be listed on the New York Stock Exchange or the NASDAQ Global Select Market or the Company’s
common stock is converted into any consideration other than shares of common stock listed on the New York Stock Exchange or the
NASDAQ Global Select Market, then immediately prior to such change in control, the Board in its reasonable discretion must take one of the
following actions:
•
terminate such awards as of immediately prior to the consummation of the change in control in exchange for a payment equal to
the excess of the fair market value of such award;
•
accelerate all vesting conditions in such award so that the award is fully exercisable immediately prior to the consummation of the
change in control, with such vesting and notice of exercise contingent upon consummation of the change in control;
86
•
issue substitute awards that will substantially preserve the realizable value and otherwise applicable terms of any affected awards
previously granted to Mr. Gydé; or
•
any combination of the foregoing.
Because Mr. Gydé does not have a change in control agreement and Belgian law does not provide for payments upon a change in
control, so long as his compensation, duties and responsibilities are not reduced as a result of a change in control, a change in control alone
would not trigger any payments to Mr. Gydé, other than with respect to his equity awards, as described above. If Mr. Gydé’s employment
were terminated or constructively terminated in connection with a change in control, however, he would be entitled to notice or the termination
indemnity described in the section entitled “Agreement with Mr. Gydé—Employment Agreement.”
Agreements with Mr. Laubacker. Mr. Laubacker has an employment agreement affording severance benefits upon termination.
Pursuant to the terms of such agreement, in the event of termination by Mr. Laubacker for Good Reason (as that term is defined in the
agreement), or by the Company other than for Cause (as that term is defined in the agreement), Mr. Laubacker would receive a lump-sum
cash payment equal to his current base salary plus an amount equal to the average annual Incentive paid to Mr. Laubacker during the most
recent three-year period. Mr. Laubacker would also continue to receive medical and dental benefits for a period of twelve (12) months. Had
Mr. Laubacker’s employment been terminated on December 31, 2022, he would have been eligible to receive an initial lump-sum cash
payment equal to $700,882. Mr. Laubacker would also receive, for a period of twelve months, continuing medical and dental coverage under
any plans he participates in as of the effective date of such termination. The value of continued medical and dental benefits would likely total
approximately $10,693.
Agreement with Mr. Daelman—Employment Agreement. Any termination indemnities that may be due and owing to Mr. Daelman
will be done according to the transitional provisions as included in the articles 67, 68 and 69 of the Belgian Law of December 26, 2013
regarding the introduction of a unified statute, with the period October 16, 2001 until December 31, 2013 fully to be taken into account and
severance payments to be calculated under the scheme of article 68 of said legislation. Prior to his appointment as Executive Vice President
November 15, 2022, Mr. Daelman had not entered into an employment agreement with the Company itself since Belgian law mandates
certain separation benefits.
Under Belgian law, Mr. Daelman is entitled to notice prior to a termination of his employment by the Company, expressed as a period
of months for service prior to January 1, 2014 plus a period of weeks for service after January 1, 2014. As of December 31, 2022, Mr.
Daelman would have been entitled to 13 months plus 27 weeks of notice. Alternatively, in lieu of providing notice, the Company may elect to
pay a termination indemnity to Mr. Daelman. The amount of the termination indemnity is determined pursuant to Belgian law and is based on
the duration of Mr. Daelman’s employment with the Company and the amount of his gross annual compensation package. If Mr. Daelman’s
employment with the Company’s Belgian subsidiary had been terminated without notice on December 31, 2022, Mr. Daelman would have
been entitled to a termination indemnity totaling $744,017. In the event of a termination of Mr. Daelman’s employment, his equity awards
would be subject to the terms of the 2020 and 2010 Equity Award Plans.
Because Mr. Daelman does not have a change in control agreement and Belgian law does not provide for payments upon a change in
control, so long as his compensation, duties and responsibilities are not reduced as a result of a change in control, a change in control alone
would not trigger any payments to Mr. Daelman. If Mr. Daelman’s employment were terminated or constructively terminated in connection
with a change in control, however, he would be entitled to notice or the termination indemnity described in this section.
Agreements with Other Executive Officers. Each of the other named executive officers, except Mr. Gydé and Mr. Daelman, have
entered into a change in control agreement with the Company. All executive officers Change in Control agreements contain double trigger
mechanisms.
If a change in control occurred on December 31, 2022, then each of the named executive officers (excluding Mr. Gydé and Mr.
Daelman) would have immediately become fully vested in any stock option or restricted stock awards previously granted. These awards are
more fully described in the table entitled “Outstanding Equity Awards at Fiscal Year-end.” If the stock price of the Company was $7.56, which
was the closing price of the stock on December 31, 2022, then the named executive officers could potentially have realized gains, before tax,
from the sale of vested securities in the following amounts:
87
Name of Executive Officer
Restricted Stock
Stock Options
John M. Laubacker
$
501,629
$
99,426
Thomas J. Niehaus
$
332,141
$
117,936
Peter P. Radetich
$
284,339
$
32,190
Rénald Wauthier
$
320,914
$
24,142
Bob Daelman
$
138,749
$
—
Had the above mentioned executive officers’ employment been terminated without cause by the Company or by themselves with good
reason within 6 months prior to or 24 months following such a change in control, they would also have been entitled to receive, by the tenth
day following their termination, lump-sum cash payments from the Company in the following amounts:
•
Mr. Laubacker would have received a lump-sum payment of $1,587,422;
•
Mr. Niehaus would have received a lump-sum payment of $1,430,884;
•
Mr. Radetich would have received a lump-sum payment of $1,286,937; and
•
Mr. Wauthier would have received a lump-sum payment of $1,208,747.
These payments equal two (2) times the sum of each individual’s current annual salary, which as of December 31, 2022 were
$395,000 for Mr. Laubacker, $335,000 for Mr. Niehaus, $300,000 for Mr. Radetich, and $334,829 for Mr. Wauthier. It also includes two (2)
times their average annual Incentive payment from the last three years and an amount equal to 25% of each individual’s current base salary
and the highest annual Incentive payment from the last three years. This amount is intended to cover fringe benefits such as 401(k), health,
medical, dental, disability and similar benefits for a period of twenty-four months.
2022 DIRECTOR COMPENSATION
Name of Director
Fees Earned or
Paid in Cash ($)
Stock Awards
($)
(1)
Option
Awards ($)
Non-Equity
Incentive Plan
Compensation
($)
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings ($)
All Other
Compensation ($)
Total ($)
James R. Helvey III
$
175,000
$
90,000
$
— $
— $
— $
— $
265,000
David H. Klein
$
70,000
$
90,000
$
— $
— $
— $
— $
160,000
Valerie Rahmani
$
70,000
$
90,000
$
— $
— $
— $
— $
160,000
Raj Rajgopal
$
60,000
$
90,000
$
— $
— $
— $
— $
150,000
Kathryn Stein
$
60,000
$
90,000
$
— $
— $
— $
— $
150,000
(1)
At the election of the directors, the director’s base compensation fees for 2022 were paid 40% in cash and 60% in the form of deferred stock units granted under the 2020 Equity Award Plan
and deposited into the Director Deferred Compensation Plan. Awards vest ratably throughout the year and were fully vested at December 31, 2022.
As of December 31, 2022, David H. Klein had 33,096 stock options outstanding which had been granted in prior years for service on
the Board.
In 2010, the Company’s shareholders approved the Non-Employee Director Deferred Compensation Plan (“Director Deferred
Compensation Plan”). The Director Deferred Compensation Plan allows non-employee directors the ability to defer up to 100% of their total
director compensation. During 2022, $70,000 was deposited into the Director Deferred Compensation Plan for David H. Klein's fees earned.
For 2022, base compensation for each board member totaled $150,000, which the board elected to receive as 40% cash payments
and 60% in deferred stock units, while the chair of the committees receive the additional compensation as cash payments. The Chairman of
the Board of Directors (Mr. Helvey) also received a $100,000 annual fee. The Chairman of the Audit Committee (Mr. Helvey) received a
$15,000 annual fee, and the Chairman of the Compensation Committee (Ms. Rahmani) received a $10,000 annual fee, while the Chairman of
the Nominating and Governance Committee (Mr. Klein) received an annual fee of $10,000. Directors are reimbursed for expenses they incur
while attending board and committee meetings. Mr. Gydé did not receive any additional compensation for his services as a director.
The Company has adopted stock ownership guidelines requiring each independent director to own Company shares valued at five (5)
times the director’s base annual retainer fee. Such directors are expected to achieve these ownership levels within five (5) years of their
election to the Board. To determine the value of each director’s equity ownership, and for the purposes of satisfying the ownership guidelines,
the following forms of equity will be included in the value calculation: shares beneficially owned by the incumbent, his or her spouse and/or
minor children, whether owned outright
88
or in trust; any time-based restricted stock; and any stock held for the director’s benefit in any deferred compensation plan. As of the date of
this proxy statement, all directors have met their ownership guidelines other than Kathryn A. Stein and Raj Rajgopal who recently joined the
Board and are in the process of achieving such guidelines.
The Director Deferred Compensation Plan is administered by the Compensation Committee in accordance with Section 409A of the
Internal Revenue Code. All amounts credited to the participant are invested, as approved by the Compensation Committee, and the
participant is credited with the actual earnings of the investments. Company contributions, including investment earnings, may be in cash or
the stock of the Company. Plan participants have an immediate 100% non-forfeitable right to the value of their contributions. If a participant
does not make an election in the time and manner specified in the Plan, payment of the vested value of his or her account will be paid in
shares for share units owned, and in cash for the cash balance in their account. A participant’s eligibility terminates upon retirement or
resignation from service.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners
As of March 10, 2023, the following persons were beneficial owners of more than 5% of the Company’s common stock. The beneficial
ownership information presented is based upon information furnished by each person or contained in public filings made with the SEC. The
Company is not aware of any arrangements, including any pledge by any person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company. Except as otherwise indicated, each holder has sole voting and investment
power with respect to the shares indicated. The following table shows the nature and amount of their beneficial ownership. We have
determined beneficial ownership in accordance with the rules of the SEC.
Title of Class
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent of Class (6)
Common Stock
Royce & Associates LP
1,715,104 (1)
10.9%
745 Fifth Avenue
New York, NY 10151
Common Stock
Minerva Advisors LLC, and related parties
1,256,347 (2)
8.0%
50 Monument Road, Suite 201
Bala Cynwyd, PA 19004
Common Stock
Dimensional Fund Advisors LP
999,841 (3)
6.3%
Building One
6300 Bee Cave Road
Austin, TX 78746
Common Stock
The Vanguard Group
833,737 (4)
5.3%
100 Vanguard Blvd.
Malvern, PA 19355
Common Stock
Askeladden Capital Management LLC
785,720 (5)
5.0%
14 Sunrise Ct.
Trophy Club, Texas 76262
Common Stock
Renaissance Technologies LLC, and
773,657 (6)
4.9%
related parties
800 Third Avenue
New York, NY 10022
(1)
Based solely on information contained in a Schedule 13G filed January 23, 2023, indicating that Royce & Associates, LP has sole voting and sole dispositive power over
1,715,104 shares.
(2)
Based solely on information contained in a Schedule 13G filed on February 13, 2023, indicating that Minerva Advisors LLC, Minerva Group, LP, Minerva GP, LP, Minerva
GP, Inc. and David P. Cohen have sole voting power and sole dispositive power over 1,003,879 shares; and that Minerva Advisors LLC and David P. Cohen have shared
voting power and shared dispositive power over 252,468 shares.
(3)
Based solely on information contained in a Schedule 13G filed February 14, 2023, indicating that Dimensional Fund Advisors LP has sole voting power over 979,116
shares and sole dispositive power over 999,841 shares.
(4)
Based solely on information contained in a Schedule 13G filed February 9, 2023, indicating that The Vanguard Group has sole dispositive power over 828,926 shares
and shared dispositive power over 4,811 shares.
(5)
Based solely on information contained in a Schedule 13D filed March 10, 2023, indicating that Askeladden Capital Management LLC has shared voting power and
shared dispositive power over 785,720 shares.
(6)
Based solely on information contained in a Schedule 13G filed February 13, 2023, indicating that Renaissance Technologies LLC and Renaissance Technologies
Holdings Corporation have sole voting power over 773,657 shares and sole dispositive power over 773,657 shares.
(7)
Percent of class ownership is based upon 15,747,376 shares of common stock outstanding as of March 10, 2023.
89
Security Ownership by Management
The table below sets forth, as of March 10, 2023, the beneficial ownership of the Company’s common stock by (i) each director
individually, (ii) each executive officer named in the summary compensation table individually, and (iii) all directors and executive officers of
the Company as a group.
Name of Individual or Number in Group
Shares Owned
Shares
Beneficially
Owned (1)
Total
Ownership (2)
Percent of Class
(3)
Filip J.L. Gydé
324,591
137,158
461,749
2.9 %
James R. Helvey III
170,601
—
170,601
1.1 %
David H. Klein
172,269
—
172,269
1.1 %
Valerie Rahmani
150,024
—
150,024
1.0 %
Raj Rajgopal
25,321
—
25,321
0.2 %
John M. Laubacker
159,643
93,873
253,516
1.6 %
Thomas J. Niehaus
70,133
55,436
125,569
0.8 %
Peter P. Radetich
154,215
53,175
207,390
1.3 %
Rénald Wauthier
7,990
24,191
32,181
0.2 %
Bob Daelman
18,353
—
18,353
0.1 %
Kathryn A. Stein
15,616
—
15,616
0.1 %
All directors and executive officers as a group (10 persons)
1,268,756
363,833
1,632,589
10.4 %
(1)
Amounts represent number of shares available to purchase through the exercise of options that were exercisable on or within 60 days after March 10, 2023.
(2)
The beneficial ownership information presented is based upon information furnished by each person or contained in filings made with the Securities and Exchange Commission. Except as
otherwise indicated, each holder has sole voting and investment power with respect to the shares indicated.
(3)
Percent of class ownership is based upon 15,747,376 shares of common stock outstanding as of March 10, 2023.
The following table sets forth, as of December 31, 2022, certain information related to the Company’s compensation plans under which
shares of its common stock are authorized for issuance:
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights (a)
Weighted-average
exercise price of
outstanding options,
warrants and rights (b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities listed
in column (a) (c)
Equity compensation plans approved by security
holders:
2020 Equity Award Plan
433,398 $
8.06
939,123
2010 Equity Award Plan
704,597 $
12.05
—
2000 Equity Award Plan
140,000 $
5.94
—
1991 Restricted Stock Plan
— $
—
20,116
Equity compensation plans not approved by security
holders:
None
Total
1,277,995
959,239
At December 31, 2022, the Company did not have any outstanding rights or warrants. All outstanding awards are either stock options
or restricted stock.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The Board of Directors affirmatively determined in February 2023 that each of the Company’s five non-management directors, James
R. Helvey III, David H. Klein, Valerie Rahmani, Raj Rajgopal, and Kathryn Stein, is an independent director in accordance with our corporate
governance policies and the standards of the NASDAQ Stock Market. As these five directors are independent, a majority of our Company’s
Board of Directors is currently independent as so defined. The Board of Directors has determined that there are no relationships between the
Company and the directors classified as independent other than service on our Company’s Board of Directors.
The foregoing independence determination also included the conclusions of the Board of Directors that:
•
each member of the Audit Committee, Nominating and Corporate Governance Committee, and Compensation Committee is
respectively independent under the standards listed above for purposes of membership on each of these committees; and
90
•
each of the members of the Audit Committee also meets the additional independence requirements under Rule 10A-3(b) of the
Securities and Exchange Act of 1934, as amended.
Mr. James R. Helvey III serves as the independent Chairman of the Board of Directors and is responsible for scheduling and setting
the agenda for the executive sessions of the independent directors. Such executive sessions are expected to occur at regularly scheduled
times during the fiscal year ending December 31, 2023, typically in conjunction with a regularly scheduled Board meeting, in addition to the
separate meetings of the standing committees of the Board of Directors.
In accordance its charter, the Audit Committee reviews related person transactions. The Audit Committee charter provides that the
Company will not enter into transactions required to be disclosed under Item 404 of the SEC’s Regulation S-K unless the Audit Committee or
another independent body of the Board reviews and approves or ratifies the transactions. Under the SEC’s rules, a “related person” includes
any of our directors or executive officers, certain of our shareholders and any of their respective immediate family members. Covered
transactions under the SEC’s rules include those in which the Company is a participant, a “related person” that will have a direct or indirect
material interest, and the amount involved exceeds $120,000.
Item 14. Principal Accountant Fees and Services
Appointment of Auditors and Fees
The Audit Committee appointed Grant Thornton LLP as the independent registered public accounting firm to audit the Company’s
financial statements for fiscal 2022 and 2021.
To the best of the Company’s knowledge, no member of that firm has any past or present interest, financial or otherwise, direct or
indirect, in the Company or any of its subsidiaries. Matters involving auditing and related functions are considered and acted upon by the
Audit Committee.
Audit Fees —The aggregate fees billed for professional services rendered by Grant Thornton LLP for the audit of the Company’s
annual financial statements for the last fiscal year, including the Company’s foreign subsidiaries, the reviews of the financial statements
included in the Company’s Form 10-K and 10-Qs, and services rendered in connection with the Company’s obligations under Section 404 of
the Sarbanes-Oxley Act of 2002 and related regulations were approximately $776,930 in 2022 and $729,770 in 2021.
Audit-Related Fees —There were no fees billed for assurance and related services rendered by Grant Thornton LLP in 2022. Fees
billed for assurance related services rendered by Grant Thornton LLP were $25,000 in 2021 and were reasonably related to the performance
of the audit or review of the Company’s financial statements.
Tax Fees — There were a total of $33,325 and $14,168 of tax fees for compliance, tax advice and tax planning provided by Grant
Thornton LLP in 2022 and 2021, respectively.
All Other Fees — There were no other fees paid to Grant Thornton LLP in 2022 or 2021.
The Audit Committee pre-approves all fees paid to and all services performed by the Company’s independent registered public
accounting firm, including the nature, type and scope of service to be performed during the year. Any services to be performed during the
year that are outside the scope of the initial services and fees approved by the Audit Committee must be approved prior to being performed.
In addition, the independent registered public accounting firm is required to confirm that such services does not impair its independence.
91
PART IV
Item 15. Exhibit and Financial Statement Schedules
(a)
Index to Consolidated Financial Statements and Financial Statement Schedule
(1)
Financial Statements:
Consolidated Statements of Income
32
Consolidated Statements of Comprehensive Income
33
Consolidated Balance Sheets
34
Consolidated Statements of Cash Flows
35
Consolidated Statements of Shareholders’ Equity
36
Notes to Consolidated Financial Statements
37
(2)
Index to Consolidated Financial Statement Schedule
Financial statement schedule:
Schedule II—Valuation and Qualifying Accounts
95
(b)
Exhibits
The Exhibits to this annual report on Form 10-K are listed on the attached Exhibit Index
92
EXHIBIT INDEX
Exhibit
Description
Reference
2.
1
Share Purchase Agreement, dated as of September 29, 2022, by and between Computer Task Group,
Incorporated and the Stockholders of Eleviant Technologies, Inc.
(16)
3.
1
Restated Certificate of Incorporation of Registrant
(15)
2
Amended and Restated By-laws of Registrant
#
4.
1
Specimen Common Stock Certificate
(2)
2
Description of the Company’s Securities Registered Under Section 12 of the Securities Exchange Act
of 1934
(15)
10.
1
Computer Task Group, Incorporated Non-Qualified Key Employee Deferred Compensation Plan 2007
Restatement
(1) +
2
Computer Task Group, Incorporated Executive Supplemental Benefit Plan 1997 Restatement
(3) +
3
First Amendment to the Computer Task Group, Incorporated Executive Supplemental Benefit Plan
1997 Restatement
(3) +
4
Compensation Arrangements for the Named Executive Officers
##
5
Employment Agreement, signed March 12, 2020, between the Registrant and John M. Laubacker
(8) +
6
Computer Task Group, Incorporated First Employee Stock Purchase Plan, Amended and Restated as
of September 16, 2021
(14) +
7
Restated Computer Task Group, Incorporated 2010 Equity Award Plan
(5) +
8
Computer Task Group, Incorporated Non-Employee Director Deferred Compensation Plan
(4) +
9
Computer Task Group, Incorporated Indemnification Agreement (Directors)
(11) +
10
Computer Task Group, Incorporated Indemnification Agreement (Executive Officers)
(12) +
11
Officer Change in Control Agreement
(9) +
12
Employment Agreement, dated March 1, 2019, between Computer Task Group, Incorporated,
Computer Task Group Belgium NV and Filip J.L. Gydé
(6) +
13
Annex to Employment Agreement dated March 1, 2019, between Computer Task Group,
Incorporated, Computer Task Group Belgium NV and Filip J.L. Gydé
(7) +
14 Computer Task Group, Incorporated 2020 Equity Award Plan
(10) +
15
Credit Agreement, dated as of May 19, 2021, among Computer Task Group, Incorporated as borrower
and certain other related entities as borrowers and guarantors, and Bank of America N.A., a national
banking association, in its capacity as collateral agent and administrative agent for itself and certain
secured parties, Bank of America N.A., as Sole Lead Arranger and Sole Book Runner
(13)
21.
Subsidiaries of the Registrant
#
23.
Consent of Independent Registered Public Accounting Firm
#
31.
1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
#
2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
#
32.
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
##
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
#
101.SCH
Inline XBRL Taxonomy Extension Schema Document
#
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
#
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase
#
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
#
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
#
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
93
References
# Filed herewith
## Furnished herewith
+ Management contract or compensatory plan or arrangement
(1)
Filed as Exhibit 10 (h) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, and incorporated herein
by reference (file No. 001-09410 filed on March 7, 2007)
(2)
Filed as Exhibit 4 (a) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, and incorporated herein
by reference (file No. 001-09410 filed on March 10, 2008)
(3)
Filed as Exhibit 10 (k) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, and incorporated herein
by reference (file No. 001-09410 filed on March 10, 2008)
(4)
Filed as Appendix A to the Registrant's Proxy Statement on Schedule 14A, dated April 2, 2010, for its Annual Meeting of Shareholders
held on May 12, 2010 (file No. 001-09410 filed on March 31, 2010)
(5)
Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2017, and
incorporated herein by reference (file No. 001-09410 filed on October 26, 2017)
(6)
Filed as Exhibit 10.1 to the Registrant’s Form 8-K on March 4, 2019, and incorporated herein by reference (file No. 001-09410)
(7)
Filed as Exhibit 10.2 to the Registrant’s Form 8-K on March 4, 2019, and incorporated herein by reference (file No. 001-09410)
(8)
Filed as Exhibit 10 (e) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, and incorporated herein
by reference (file No. 001-09410 filed on March 13, 2020)
(9)
Filed as Exhibit 10 (k) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019, and incorporated herein
by reference (file No. 001-09410 filed on March 13, 2020)
(10)
Filed as Appendix A to the Registrant's Proxy Statement on Schedule 14A dated August 13, 2020, for its Annual Meeting of
Shareholders held on September 17, 2020 (file No. 001-09410 filed on August 13, 2020)
(11)
Filed as Exhibit 10.01 to the Registrant’s Form 8-K on November 12, 2020, and incorporated herein by reference (file No. 001-09410)
(12)
Filed as Exhibit 10.02 to the Registrant’s Form 8-K on November 12, 2020, and incorporated herein by reference (file No. 001-09410)
(13)
Filed as Exhibit 10.1 to the Registrant’s Form 8-K on May 20, 2021, and incorporated herein by reference (file No. 001-09410)
(14)
Filed as Appendix A to the Registrant's Proxy Statement on Schedule 14A dated August 19, 2021, for its Annual Meeting of
Shareholders held on September 16, 2021 (file No. 001-09410 filed on August 19, 2021)
(15)
Filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2021, and incorporated herein
by reference (file No. 001-09410 filed on March 15, 2022)
(16)
Filed as Exhibit 2.1 to the Registrant’s Form 8-K on September 29, 2022, and incorporated herein by reference (file No. 001-09410)
Item 16. Form 10-K Summary
None.
94
COMPUTER TASK GROUP, INCORPORATED
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
Balance at
January 1
Additions
Deductions
Balance at
December 31
2022
Accounts deducted from accounts receivable -
Allowance for credit losses
$
581
208
(392)
$
397
Accounts deducted from deferred tax assets -
Deferred tax asset valuation allowance
$
2,128
30
(1,412)
$
746
2021
Accounts deducted from accounts receivable -
Allowance for credit losses
$
561
447
(427)
$
581
Accounts deducted from deferred tax assets -
Deferred tax asset valuation allowance
$
7,664
207
(5,743)
$
2,128
2020
Accounts deducted from accounts receivable -
Allowance for credit losses
$
84
595
(118)
$
561
Accounts deducted from deferred tax assets -
Deferred tax asset valuation allowance
$
5,695
2,389
(420)
$
7,664
A.
These balances primarily reflect additions to the allowance charged to expense resulting from the normal course of business, less
deductions for recovery of accounts that were previously reserved, and additions and deductions for foreign currency translation
B.
These balances primarily reflect additions or deductions to the valuation allowance associated with the U.S. deferred tax assets,
reversal of the valuation allowance against the U.S. deferred tax assets and addition of a valuation allowance against the India
deferred taxes, changes in foreign currency exchange rates, and deductions for expiring net operating loss carryforwards
95
A
A
B
B
A
A
B
B
A
A
B
B
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
COMPUTER TASK GROUP, INCORPORATED
By
/s/ Filip J.L. Gydé
Filip J.L. Gydé
President and Chief Executive Officer
Dated: March 15, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
(i)
Principal Executive Officer
President and Chief Executive Officer
March 15, 2023
/s/ Filip J.L. Gydé
Filip J.L. Gydé
(ii)
Principal Accounting and Principal Financial Officer
Executive Vice President, Chief Financial
Officer, and Treasurer
March 15, 2023
/s/ John M. Laubacker
John M. Laubacker
(iii)
Directors
/s/ Filip J.L. Gydé
Director
March 15, 2023
Filip J.L. Gydé
/s/ James R. Helvey III
Chairman of the Board of Directors
March 15, 2023
James R. Helvey III
/s/ David H. Klein
Director
March 15, 2023
David H. Klein
/s/ Valerie Rahmani
Director
March 15, 2023
Valerie Rahmani
/s/ Raj Rajgopal
Director
March 15, 2023
Raj Rajgopal
/s/ Kathryn A. Stein
Director
March 15, 2023
Kathryn A. Stein
96
Exhibit 3.2
BY-LAWS
of
COMPUTER TASK GROUP, INCORPORATED
AMENDED AND RESTATED
MARCH 14, 2023
ARTICLE I
Shareholders’ Action
Section 1. Annual Meeting. An annual meeting of the shareholders, for the election of directors to succeed those whose terms expire and for
the transaction of such other business as may properly come before the meeting, shall be held at such place within or without the State of New York each
calendar year on such date and at such time as may be designated by the Board of Directors. The Board of Directors may in its sole discretion also, to the
extent permitted by law, designate that a meeting of shareholders be held by means of remote communication in lieu of, or in addition to, a physically
located meeting of shareholders. In such case, the phrase “in person” herein shall include persons present by means of remote communication.
Section 2. Special Meetings. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation, special meetings of the shareholders for any purpose or purposes may be
called only by, and shall be held at such place, date and hour as shall be designated by, (i) the Chairman of the Board, (ii) the President or (iii) the Board of
Directors.
Section 3. Order of Business and Procedure.
(A) Annual Meetings. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought
before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise brought before the meeting by or at the direction of the Board of Directors or (iii)
brought before the meeting by a shareholder of record in accordance with the procedure set forth below. Subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or upon liquidation, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must have given written notice thereof, either by personal delivery or by United States mail, postage prepaid, to
and received by the Secretary of the Corporation at the principal executive offices of the Corporation no later than 5:30 pm, Buffalo time, on a date not later
than 90 and not earlier than 120 days prior to the one-year anniversary of the date of the preceding year’s annual meeting of shareholders; provided,
however, that, subject to the last sentence of this Section 3(A), if the meeting is convened more than 30 days prior to or delayed by more than 60 days after
one-year anniversary of the date of the preceding year’s annual meeting, or if no annual meeting was held in the preceding year, notice by the shareholder
of record to be timely must be so received no earlier than 5:30 pm, Buffalo time, on the 120th day prior to the date of the annual meeting and no later than
5:30 pm, Buffalo time, on the later of (1) the 90th day before such annual meeting or (2) if the first public announcement of the date of such annual meeting
is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is
first made. In no event shall an adjournment or postponement of an annual meeting of shareholders for which notice has been given, commence a new time
period (or extend any time period) for the giving of a notice by a shareholder under this Section 3(A). Nothing in this Section 3(A) shall be deemed to affect
any rights of shareholders to request inclusion of non-binding proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
Any such notice shall set forth as to each matter the shareholder proposes to bring before the annual meeting: (1) a brief description of the
business desired to be brought before the meeting and the reasons for conducting such business at the meeting and in the event that such business includes a
proposal to amend either the Certificate of Incorporation or By-laws of the Corporation, the language of the proposed amendment; (2) a description of all
agreements, arrangements and understandings between such shareholder and any other person or
Exhibit 3.2
persons (including their names) in connection with the proposal of such business by such shareholder, and (3) any material interest of any shareholder in
such business.
Any such notice shall also set forth as to the shareholder giving the notice and the beneficial owner or owners, if any, or other persons on
whose behalf the proposal is made or acting in concert therewith (each, a “party”): (1) the name and address of such party; (2) a representation that the
shareholder is, as of the date of such notice, a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to propose such business; (3) the class, series, and number of shares of the Corporation that are owned, directly or indirectly,
beneficially and of record by each such party as of the date of such notice; (4) a description of, as of the date of such notice, any option, warrant,
convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or any other instrument or contract providing for a
settlement payment or mechanism based on the price of any class or series of shares of the Corporation or with a value derived in whole or in part from the
value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or
series of capital stock of the Corporation, cash or otherwise (a “Derivative Instrument”), including the class, series and number of shares of the Corporation
subject to such Derivative Instrument or upon which such settlement is based, directly or indirectly owned beneficially by each such party, and a description
of, as of the date of such notice, any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of
shares of the Corporation, including the class, series and number of shares of the Corporation subject to such opportunity or upon which such opportunity is
based; (5) a description of, as of the date of such notice, any proxy, contract, arrangement, understanding or relationship pursuant to which any party, either
directly or acting in concert with another person or persons, has a right to vote, directly or indirectly, any shares of any security of the Corporation; (6) a
description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and/or such
beneficial owner, any of their respective affiliates or associates, and any other person (each of the foregoing, a “Shareholder Associated Person”), including,
in the case of a nomination, the nominee, including any agreements, arrangements or understandings relating to any compensation or payments to be paid to
any such proposed nominee, pertaining to the nomination or other business proposed to be brought before the meeting of shareholders (which description
shall identify the name of each other person who is a party to such agreement, arrangement or understanding; (7) a description of, as of the date of such
notice, any short interest or other borrowing arrangement in any security of the Corporation held by each such party (for purposes of this Section 3(A), a
person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security); (8) a
description of, as of the date of such notice, any rights to dividends on the shares of the Corporation owned beneficially directly or indirectly by each such
party that are separated or separable from the underlying shares of the Corporation; (9) a description of, as of the date of such notice, any proportionate
interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which any party is a general
partner or, directly or indirectly, beneficially owns an interest in a general partner; (10) a description of, as of the date of such notice, any performance-
related fees (other than an asset-based fee), including the amount thereof, that each such party is directly or indirectly entitled to based on any increase or
decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such
interests held by members of each such party’s immediate family sharing the same household; (11) the names and addresses of other shareholders and
beneficial owners known by any shareholder giving the notice (and/or beneficial owner, if any, on whose behalf the nomination or proposal is made) to
support such nomination or proposal, and to the extent known, the class and number of all shares of the Corporation’s capital stock owned beneficially
and/or of record by such other shareholder(s) and/or beneficial owner(s); (12) any other information relating to each such party that would be required to be
disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the
election of directors in a contested election pursuant to Section 14 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) (whether
or not such party intends to deliver a proxy statement or conduct its own proxy solicitation); and (13) a statement as to whether or not such shareholder or
any Shareholder Associated Person will (a) deliver a proxy statement and form of proxy to holders of at least the percentage of voting power of all of the
shares of Common Stock reasonably believed by such party, as the case may be, to be sufficient under applicable law to approve the proposal, (b) otherwise
solicit proxies or votes from shareholders in support of such proposal or nomination and/or (c) solicit proxies in support of any proposed nominee in
accordance with Rule 14a-19 promulgated under the Exchange Act. For purposes of these By-laws, a person shall be deemed to be “acting in concert” with
another person if such person knowingly acts toward a
Exhibit 3.2
common goal relating to the management, governance or control of the corporation in parallel with such other person where (A) each person is conscious of
the other person’s conduct or intent and this awareness is an element in their decision-making process and (B) at least one additional factor suggests that
persons intend to act in parallel, which additional factors may include attending meetings, conducting discussions or making or soliciting invitations to act
in parallel.
A shareholder providing notice of a business proposed to be brought before an annual meeting shall further update and supplement such
notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 3(A) shall be true and correct as of
the record date for such annual meeting and as of the date that is 10 business days prior to such annual meeting or any adjournment or postponement
thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation
not later than 5:30 pm, Buffalo time, on the date five business days after the record date for such annual meeting (in the case of the update and supplement
required to be made as of the record date), and not later than 5:30 pm, Buffalo time, on the date five business days prior to the date for such annual meeting,
if practicable (or, if not practicable, on the first practicable date prior to such annual meeting) or any adjournment or postponement thereof (in the case of
the update and supplement required to be made as of 10 business days prior to the meeting or any adjournment or postponement thereof).
No business shall be conducted at an annual meeting except in accordance with the procedures set forth in these By-laws, and the chairman
of any annual meeting of shareholders shall have the power and the duty to determine whether any business proposed to be brought before the meeting has
been made in accordance with the procedures set forth in these By-laws and, if any proposed business is not in compliance with these By-laws, to declare
that such proposed business shall not be presented for shareholder action at the meeting and shall be disregarded.
(B) Special Meetings. At a special meeting of the shareholders, only such business as is specified in the notice of such special meeting
given by or at the direction of (i) the Chairman of the Board, (ii) the President or (iii) the Board of Directors shall come before such meeting.
(C) Other Procedural Matters. All other matters of procedure at every meeting of shareholders shall be determined by the chairman of the
meeting.
Section 4. Quorum. At every meeting of the shareholders, except as otherwise provided by law or these By-laws, a quorum must be present
for the transaction of business and a quorum shall consist of the holders of record of not less than one-third of the outstanding shares of the Corporation
entitled to vote, present either in person or by proxy. When a quorum is once present to organize a meeting, it is not broken by the subsequent departure or
withdrawal of any shareholders.
Section 5. Adjournments or Postponements. Before any meeting of shareholders is called to order, the Board of Directors shall have the
power to postpone such meeting of shareholders to another place, if any, date and time. After any meeting of shareholders is called to order, (i) the Board of
Directors, (ii) the chairman of such meeting, or (iii) the holders of a majority of shares entitled to vote who are present in person or by proxy at such
meeting, whether or not they constitute a quorum, shall have the power to adjourn the meeting to another place, if any, date and time. Subject to any notice
required by law, at any adjourned or postponed meeting at which a quorum is present any business may be transacted which might have been transacted on
the original date of the meeting.
Section 6. Voting; Proxies. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, each holder of
record of any class or series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation shall be entitled at
each meeting of shareholders of such number of votes, if any, for each share of such stock as may be fixed pursuant to resolutions adopted by the Board
pursuant to Article 4 of the Certificate of Incorporation and each holder of record of Common Stock shall be entitled at each meeting of shareholders to one
vote for each share of such stock, in each case registered in such holder’s name on the books of the Corporation on the record date designated by the Board
of Directors. Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, all questions that shall come before a meeting of
shareholders shall be decided by a majority of the votes cast. A shareholder may vote either in person or by written proxy signed by such shareholder or
such shareholder’s attorney-in-fact and delivered to the secretary of the meeting. No proxy shall be valid after the expiration of eleven (11) months from the
date thereof unless otherwise
Exhibit 3.2
provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it or his personal representatives, unless it is entitled
“irrevocable proxy,” in which event its revocability shall be determined by the law of the State of New York in effect at the time. Any shareholder directly
or indirectly soliciting proxies from other shareholders must use a proxy card color other than white, which shall be reserved for the exclusive use by the
Board of Directors.
Section 7. Inspectors of Elections. Two inspectors of election, neither of whom shall be a candidate for the office of director if directors are
to be elected at such meeting, may be appointed by the Board of Directors in advance of any meeting of shareholders or by the person presiding at such
meeting, and shall be appointed by the person presiding if such appointment is requested by a shareholder present at such meeting and entitled to vote
thereat. Such inspectors shall serve at such meeting and any adjournments thereof. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability.
Section 8. Shareholders’ List. A list of shareholders as of the record date, certified by the corporate officer responsible for its preparation or
by the transfer agent, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any
meeting is challenged, the inspectors of election, or person presiding thereat, shall require such list of shareholders to be produced as evidence of the right
of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote thereat may vote at such
meeting.
Section 9. Action Without a Meeting. Whenever shareholders are required or permitted to take any action by vote, such action may be taken
without a meeting on written consent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon.
ARTICLE II
Notice of Meetings
Section 1. Shareholders’ Meetings. Written notice of every meeting of shareholders shall be given in the manner required by law not less
than ten (10) nor more than fifty (50) days before the date of the meeting to each shareholder of record entitled to vote at the meeting. If mailed, such notice
is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of
shareholders, or if he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then
directed to him at such other address. The notice shall state the place, date and hour of the meeting and, in the case of a meeting to be held solely or in part
by remote communication, the means of remote communication authorized by the Board of Directors for participation in such meeting. Unless it is the
annual meeting, the notice shall also indicate that it is being issued by or at the direction of the person or persons calling the meeting. Notice of a special
meeting shall also state the purpose or purposes for which the meeting is called. If at any meeting, action is proposed to be taken which would, if taken,
entitle shareholders fulfilling statutory procedural requirements to receive payment for their shares, the notice of meeting shall include a statement of that
purpose and to that effect, specifically designating the applicable statutory provisions.
When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place, if any,
thereof, and the means of remote communications, if any, by which shareholders may be deemed to be present in person or by proxy and vote at such
adjourned meeting are announced at the meeting at which the adjournment is taken, unless the Board of Directors fixes a new record date for the adjourned
meeting. When a meeting is adjourned or postponed to another time or place, if the date of such adjourned or postponed meeting is more than 50 days after
the scheduled date of such adjourned or postponed meeting, the Board of Directors shall fix a new record date, which shall not be more than 50 nor less
than 10 days before the date of such postponed meeting. When a meeting is adjourned to another time or place and the time and place, if any, thereof, and
the means of remote communications, if any, by which shareholders may be deemed to be present in person or by proxy and vote at such adjourned meeting
is not announced at the meeting at which the adjournment is taken, or when a meeting is postponed to another time and place, or if a new record date is
fixed by the Board of Directors for an adjourned or postponed meeting, the Board of Directors shall give notice of the place, if any, date,
Exhibit 3.2
and time of the adjourned or postponed meeting to each shareholder entitled to vote at such adjourned or postponed meeting as of the applicable record date
fixed by the Board of Directors for notice of such adjourned or postponed meeting.
Section 2. Board Meetings. Written notice of each special meeting of the Board of Directors, stating the place, date and hour thereof, shall
be given by the President, the Secretary or an Assistant Secretary, or by any member of the Board of Directors to each other member, not less than twenty-
four (24) hours before the meeting by mailing the same to each member at his residence or usual place of business, by delivering the same to each member
personally or by facsimile or electronic transmission of the same. A notice of each regular meeting shall not be required. Notwithstanding the foregoing, the
first meeting of a newly elected Board of Directors may be held without notice immediately after the annual meeting of shareholders, if a quorum of the
Board is present.
Section 3. Committee Meetings. Unless the Board otherwise directs, notice requirements for meetings of committees of the Board shall be
the same as notice requirements for meetings of the Board itself.
Section 4. Waiver of Notice. Notice of a shareholders’ meeting need not be given to any shareholder who submits a signed waiver of notice,
in person or by proxy, whether before or after the meeting. Notice of a meeting of the Board of Directors or a committee thereof need not be given to any
director who submits a signed waiver of notice, whether before or after the meeting. The attendance of any shareholder at a shareholders’ meeting, in
person or by proxy, without protesting at the commencement of such meeting the lack of notice of such meeting, and the attendance of any director at a
meeting of the Board or a committee thereof without protesting prior thereto or at its commencement the lack of notice to him, shall constitute a waiver of
notice by such director.
ARTICLE III
Directors
Section 1. Number, Qualification and Election. Subject to the rights of the holders of any class or series of capital stock having a preference
over the Common Stock as to dividends or upon liquidation, the number of directors of the Corporation shall be fixed from time to time by the vote of a
majority of the entire Board. The directors, other than those who may be elected by the holders of shares of any class or series of stock having a preference
over the Common Stock of the Corporation as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold
office, into two classes as nearly equal in number as possible (but with not less than three directors in each class or such lesser number as may be permitted
by law), as determined by the Board, one class of directors to be originally elected for a term expiring at the annual meeting of shareholders to be held in
1987 and another class of directors to be originally elected for a term expiring at the annual meeting of shareholders to be held in 1988, with each class to
hold office until its successors are elected and qualified. At each annual meeting of the shareholders of the Corporation, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the second year
following the year of their election.
Notwithstanding the immediately preceding paragraph, in the event that the number of directors of the Corporation (i) shall be fixed at nine
or a greater number or (ii) shall be fixed at a number that would, under law, permit the directors to be divided into three classes, then, at the next succeeding
annual meeting of the shareholders of the Corporation (the “Three-Class Annual Meeting”), the directors, other than those who may be elected by the
holders of any class or series of capital stock having a preference over the Common Stock as to dividends or upon liquidation, shall be divided into three
classes, as nearly equal in number as possible (but with no less than three directors in each class or such lesser number as may be permitted by law) as shall
be provided in or pursuant to the By-laws of the Corporation. At the Three-Class Annual Meeting, one class shall be originally elected for a term expiring
at the second succeeding annual meeting and another class shall be originally elected for a term expiring at the third succeeding annual meeting. The class
of directors whose term, pursuant to the immediately preceding paragraph, would not have expired until the annual meeting next succeeding the Three-
Class Annual Meeting shall complete the term for which such class was originally elected. At each annual meeting of the shareholders subsequent to the
Three-Class Annual Meeting, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring in
the third year following the year of their election.
Exhibit 3.2
In any election of directors, the persons receiving a plurality of the votes cast, up to the number of directors to be elected in such election,
shall be deemed elected.
No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director or cause,
directly or indirectly, a decrease in the number of classes of directors, except as required by law. All the directors shall be at least 21 years of age.
Section 2. Notification of Nominations. Subject to the rights of the holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation, nominations for the election of directors may be made by or at the direction of the Board of Directors
or by any shareholder entitled to vote for the election of directors who complies with the procedures set forth in this Section 2. The number of nominees a
shareholder may nominate for election at the annual meeting (or in the case of one or more shareholders giving the notice on behalf of a beneficial owner,
the number of nominees such shareholders may collectively nominate for election at the annual meeting on behalf of such beneficial owner) shall not
exceed the number of directors to be elected at such annual meeting. Any shareholder entitled to vote for the election of directors at a meeting of
shareholders may nominate persons for election as directors only if written notice of such shareholder’s intent to make such nomination is given, either by
personal delivery or by United States mail, postage prepaid, to and received by the Secretary of the Corporation at the principal executive offices of the
Corporation (i) with respect to an election to be held at a special meeting of shareholders for the election of directors, by 5:30 pm, Buffalo time, on the 10th
day following the date public announcement of the date of such meeting is first made and (ii) with respect to an election to be held at an annual meeting of
shareholders, by 5:30 pm, Buffalo time, on a date not less than 90 and not earlier than 120 days prior to the one-year anniversary of the date of the
preceding year’s annual meeting of shareholders; provided, however, that, subject to the last sentence of this paragraph, if the meeting is convened more
than 30 days prior to or delayed by more than 60 days after the one-year anniversary of the date of the preceding year’s annual meeting, or if no annual
meeting was held in the preceding year, notice by the shareholder of record to be timely must be so received no earlier than by 5:30 pm, Buffalo time, on
the 120th day prior to the date of the annual meeting and no later than by 5:30 pm, Buffalo time, on the later of (1) the 90th day before the date of such
annual meeting or (2) if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the
10th day following the day on which public announcement of the date of such meeting is first made. Notwithstanding anything in the preceding sentence to
the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there has been no public announcement
naming all of the nominees for director or indicating the increase in the size of the Board of Directors made by the Corporation at least 10 days before the
last day a shareholder may deliver a notice of nomination in accordance with the preceding sentence, a notice by a shareholder of record required by this
Section 2 shall also be considered timely, but only with respect to nominees for any new positions created by such increase in the number of directors, if it
shall be received by the Secretary at the principal executive offices of the Corporation not later than by 5:30 pm, Buffalo time, on the 10th day following
the day on which such public announcement is first made by the Corporation. In no event shall an adjournment or postponement of an annual meeting of
shareholders for which notice has been given, commence a new time period (or extend any time period) for the giving of a notice by a shareholder under
this Section 2.
Each such notice shall set forth as to the shareholder giving the notice and the beneficial owner or owners, if any, or other persons on whose
behalf the nomination is made or acting in concert therewith (each, a “party”): (1) the name and address of such party; (2) a representation that the
shareholder giving the notice is, as of the date of such notice, a holder of record of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (3) the class, series, and number of shares of the
Corporation that are owned, directly or indirectly, beneficially and of record by each such party as of the date of such notice; (4) a description of, as of the
date of such notice, any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or providing
for a settlement payment or mechanism based on the price of any class or series of shares of the Corporation or with a value derived in whole or in part
from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying
class or series of capital stock of the Corporation or otherwise (a “Derivative Instrument”), including the class, series and number of shares of the
Corporation subject to such Derivative Instrument, directly or indirectly owned beneficially by each such party, and a description of, as of the date of such
notice, any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the
Corporation, including the class, series and
Exhibit 3.2
number of shares of the Corporation subject to such opportunity; (5) a description of, as of the date of such notice, any proxy, contract, arrangement,
understanding or relationship pursuant to which any party, either directly or acting in concert with another person or persons, has a right to vote, directly or
indirectly, any shares of any security of the Corporation; (6) a description of, as of the date of such notice, any short interest or other borrowing
arrangement in any security of the Corporation held by each such party (for purposes of this Section 2, a person shall be deemed to have a short interest in a
security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or
share in any profit derived from any decrease in the value of the subject security); (7) a description of, as of the date of such notice, any rights to dividends
on the shares of the Corporation owned beneficially directly or indirectly by each such party that are separated or separable from the underlying shares of
the Corporation; (8) a description of, as of the date of such notice, any proportionate interest in shares of the Corporation or Derivative Instruments held,
directly or indirectly, by a general or limited partnership in which any party is a general partner or, directly or indirectly, beneficially owns an interest in a
general partner, including the number thereof; (9) a description of, as of the date of such notice, any performance-related fees (other than an asset-based
fee) that each such party is directly or indirectly entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative
Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of each such party’s immediate family
sharing the same household; (10) any other information relating to each such party that would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested
election pursuant to Section 14 of the Exchange Act (whether or not such party intends to deliver a proxy statement or conduct its own proxy solicitation);
and (11) a statement as to whether or not each such party will deliver a proxy statement and form of proxy to holders of at least the percentage of voting
power of all of the shares of Common Stock reasonably believed by such party, to be sufficient to elect the persons proposed to be nominated by the
shareholder.
Each such notice shall also set forth as to each person whom the shareholder proposes to nominate for election or reelection as a director:
(1) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by the shareholder; (2) the name and address of each such nominee; (3) such
other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors; (4)
a written representation and agreement of each nominee (in the form provided by the Secretary of the Corporation upon written request) that such nominee,
if elected as a director of the Corporation, would be in compliance and will comply with all corporate governance, conflict of interest, confidentiality and
stock ownership and trading policies and guidelines of the Corporation; (5) the consent of each nominee to serve as a director of the Corporation if so
elected and (if applicable) to being named in the Corporation’s proxy statement and form of proxy as a nominee; and (6) the written representation and
agreement of each nominee that such nominee currently intends to serve as a director of the Corporation for the full term for which such person would be
standing for election, if elected.
A shareholder providing notice of a nomination for the election of a director shall further update and supplement such notice, if necessary,
so that the information provided or required to be provided in such notice pursuant to this Section 2 shall be true and correct as of the record date for the
meeting and as of the date that is 10 business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall
be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than 5:30 pm, Buffalo time, on the
date five business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not
later than 5:30 pm, Buffalo time, on the date five business days prior to the date for the meeting, if practicable (or, if not practicable, on the first practicable
date prior to such meeting) any adjournment or postponement thereof (in the case of the update and supplement required to be made as of 10 business days
prior to the meeting or any adjournment or postponement thereof). A shareholder providing notice of a nomination for the election of a director shall also,
no later than 5:30 pm, Buffalo time, on the date five business days after a request by or on behalf of the Board of Directors, provide to the Secretary by
United States mail, postage prepaid, or personal delivery at the principal executive offices of the Corporation, such additional information requested by or
on behalf of the Board of Directors to assess the qualifications of any person whom the shareholder proposes to nominate for election or reelection as a
director.
Exhibit 3.2
A person shall not be eligible for election or re-election as a director at an annual meeting unless (x) the person is nominated by a
shareholder in accordance with, and complies with all the terms and conditions of, this Section 2; or (y) the person is nominated by or at the direction of the
Board of Directors or a duly authorized committee thereof. Notwithstanding the foregoing provisions of this Section 2, unless otherwise required by law, if
the shareholder (or a qualified representative of the shareholder) does not appear at the annual or special meeting of shareholders of the Corporation to
present a nomination or proposed business advanced by such shareholder, such nomination shall be disregarded and such proposed business shall not be
transacted, notwithstanding that such proposal is set forth in the notice of meeting and notwithstanding that proxies in respect of such vote may have been
received by the Corporation. For purposes of this Section 2, to be considered a qualified representative of the shareholder, a person must be a duly
authorized officer, manager, partner or agent of such shareholder as set forth in a writing executed by such shareholder or an electronic transmission
delivered by such shareholder to act for such shareholder as proxy at the meeting of shareholders and such person must produce such writing or electronic
transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of shareholders. Notwithstanding anything to the contrary
in these bylaws, unless otherwise required by law, if any shareholder or Shareholder Associated Person (i) provides notice pursuant to Rule 14a-19(b)
promulgated under the Exchange Act with respect to any proposed nominee and (ii) subsequently fails to comply with the requirements of Rule 14a-19(a)
(2) or Rule 14a-19(a)(3) promulgated under the Exchange Act (or fails to timely provide reasonable evidence sufficient to satisfy the Corporation that such
shareholder has met the requirements of Rule 14a-19(a)(3) promulgated under the Exchange Act in accordance with the following sentence), then the
nomination of each such proposed nominee shall be disregarded, notwithstanding that the nominee is included as a nominee in the Corporation’s proxy
statement, notice of meeting or other proxy materials for any annual meeting (or any supplement thereto) and that notwithstanding proxies or votes in
respect of the election of such proposed nominees may have been received by the Corporation (which proxies and votes shall be disregarded). Upon
request by the Corporation, if any shareholder or Shareholder Associated Person provides notice pursuant to Rule 14a-19(b) promulgated under the
Exchange Act, such shareholder shall deliver to the Corporation, no later than five (5) business days prior to the applicable meeting, reasonable evidence
that it or such Shareholder Associated Person has met the requirements of Rule 14a-19(a)(3) promulgated under the Exchange Act. Notwithstanding
anything to the contrary set forth herein, and for the avoidance of doubt, the nomination of any person whose name is included as a nominee in the
Corporation’s proxy statement, notice of meeting or other proxy materials for any annual meeting (or any supplement thereto) as a result of any notice
provided by any Shareholder Associated Person pursuant to Rule 14a-19(b) promulgated under the Exchange Act with respect to such proposed nominee
and whose nomination is not made by or at the direction of the Board of Directors or any authorized committee thereof shall not be deemed (for purposes of
this Section 2 or otherwise) to have been made pursuant to the Corporation’s notice of meeting (or any supplement thereto) and any such nominee may only
be nominated by a shareholder of the Corporation in full compliance with this Section 2 and Section 3 of Article I.
The chairman of the meeting shall have the power and the duty to determine whether a nomination has been made in accordance with the
procedures set forth in these By-laws and, if any proposed nomination is not in compliance with these By-laws, to declare that such nomination shall not be
presented for shareholder action at the meeting and shall be disregarded.
Notwithstanding the foregoing provisions of this Section 2, a shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section 2. Nothing in this Section 2 shall be deemed to affect
any rights of shareholders to request inclusion of non-binding proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
Section 3. Resignation. Any director of the Corporation may resign at any time by giving his resignation to the Secretary of the
Corporation. Unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective.
Section 4. Removal. Subject to the rights of the holders of any class or series of capital stock having a preference over the Common Stock
as to dividends or upon liquidation, any director may be removed from office (i) without cause by the affirmative vote of the holders of at least 66 2/3% of
the combined voting power of the then outstanding shares of stock of all classes and series of the Corporation entitled to vote generally in the election of
directors (“Voting Stock”), voting together as a single class, (ii) for cause by the affirmative vote of the holders of at
Exhibit 3.2
least a majority of the then outstanding Voting Stock or (iii) for cause by the affirmative vote of a majority of the entire Board of Directors. For purposes of
this Section 4, “cause” shall mean the willful and continuous failure of a director substantially to perform such director’s duties to the Corporation (other
than any such failure resulting from incapacity due to physical or mental illness) or the willful engaging by a director in gross misconduct materially and
demonstrably injurious to the Corporation.
Section 5. Newly Created Directorships and Vacancies. Subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock of the Corporation as to dividends or upon liquidation, newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall only be
filled by the vote of the Board of Directors; provided, that, if the number of directors then in office is less than a quorum, such newly-created directorships
and vacancies shall be filled by the vote of a majority of the remaining directors then in office. Any director elected in accordance with the preceding
sentence of this paragraph shall hold office until the next annual meeting of shareholders and until such director’s successor shall have been elected and
qualified.
Section 6. Compensation. No director as such shall receive any compensation, either by way of salary, fees for attendance at meetings, or
otherwise, or shall be reimbursed for his expenses, except pursuant to authorization of the Board of Directors. This section shall not preclude any director
from serving the Corporation in any other capacity or from receiving compensation for such services and reimbursement for his related expenses.
Section 7. Meetings. Meetings of the Board of Directors shall be held at such times and at such places as may be determined by action of
the Board of Directors or, in the absence of such action, by a majority of the entire Board then in office or by the Chairman of the Board, or by the
President, or in his absence any Vice President, pursuant to such notice as is required by Article II of these By-laws.
Section 8. Quorum. At all meetings of the Board of Directors, except as otherwise provided by law, the Certificate of Incorporation or these
By-laws, a quorum shall be required for the transaction of business and shall consist of not less than one-half of the entire Board, and the vote of a majority
of the directors present shall decide any question that may come before the meeting. A majority of the directors present at any meeting, although less than a
quorum, may adjourn the same from time to time, without notice other than announcement at the meeting.
Section 9. Procedure. The Board of Directors, by resolution or resolutions adopted by a majority of the entire Board, shall appoint one of
the directors as the Chairman of the Board. The Chairman of the Board, or in his or her absence, such director as appointed as chair of the meeting by the
majority of the directors present at such meeting, shall preside over meetings of the Board of Directors. The order of business and all other matters of
procedure at every meeting of directors may be determined by the presiding officer.
Section 10. Committees of the Board. The Board of Directors, by resolution or resolutions adopted by a majority of the entire Board, may
designate from among its members one or more committees, including an executive committee, each consisting of one or more directors, and each of
which, to the extent provided in the applicable resolution, shall have all the authority of the Board, except insofar as its exercise of such authority may be
inconsistent with any provision of law, the Certificate of Incorporation or these By-laws. The Board may designate one or more directors as alternate
members of a committee, who may replace any absent member or members at any meeting of such committee. The committees shall keep regular minutes
of their proceedings and make the same available to the Board upon request.
Section 11. Action Without a Meeting. Any action required or permitted to be taken by the Board or any committee thereof may be taken
without a meeting if all members then in office of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or
committee.
Section 12. Presence at Meeting by Telephone. Members of the Board of Directors or any committee thereof may participate in a meeting
of such Board or committee by means of a conference telephone or similar
Exhibit 3.2
communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation in a meeting by such means
shall constitute presence in person at such meeting.
ARTICLE IV
Officers
Section 1. Offices; Term of Office. The Board of Directors shall annually, at the first meeting of the Board after the annual meeting of
shareholders, appoint or elect a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, and a Treasurer and may also appoint the
Chairman of the Board as an officer of the Corporation. The Board of Directors may from time to time elect or appoint such additional officers as it may
determine. Such additional officers shall have such authority and perform such duties as the Board of Directors may from time to time prescribe.
The Chairman of the Board (if appointed as an officer), the Chief Executive Officer, the President, each Vice President, the Secretary, and
the Treasurer shall, unless otherwise determined by the Board of Directors, hold office until the first meeting of the Board following the next annual
meeting of shareholders and until their successors have been elected or appointed and qualified. Each additional officer appointed or elected by the Board
of Directors shall hold office for such term as shall be determined from time to time by the Board of Directors and until his successor has been elected or
appointed and qualified. Any officer, however, may be removed or have his authority suspended by the Board of Directors at any time, with or without
cause. If the office of any officer becomes vacant for any reason, the Board of Directors shall have the power to fill such vacancy.
Section 2. Chairman of the Board. If appointed as an officer, the Chairman of the Board shall be the chief executive officer of the
Corporation and, in such capacity, shall have the general powers and duties of supervision and management of the Corporation. Whether or not appointed
as an officer, he or she shall preside at all meetings of shareholders and of the Board of Directors and shall be entitled to vote upon all questions.
Section 3. Chief Executive Officer. If the Chairman of the Board is not appointed as an officer, the Chief Executive Officer shall be the
chief executive officer of the Corporation and, in such capacity, shall have the have the general powers and duties of supervision and management of the
Corporation. He or she shall perform all duties and have all powers that are commonly incident to the office of chief executive officer or which are
delegated to him or her by the Board of Directors and, if appointed as an officer, the Chairman of the Board. In the absence of the Chairman of the Board,
the Chief Executive Officer shall preside at all meetings of the shareholders.
Section 3. The President. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall preside at all
meetings of the shareholders. Subject only to the direction of the Board of Directors, the Chairman of the Board (if appointed as an officer) and the Chief
Executive Officer, he shall have the general powers and duties of supervision and management of the operations and the administration of the Corporation,
and shall perform all such other duties as are properly required of him by the Board of Directors, the Chairman of the Board (if appointed as an officer) and
the Chief Executive Officer.
Section 4. The Vice Presidents. The Vice Presidents may be designated by such title or titles as the Board of Directors may determine, and
each Vice President in such order of seniority as may be determined by the Board shall, in the absence or at the request of the President, perform the duties
and exercise the powers of the President. The Vice Presidents also shall have such powers and perform such duties as usually pertain to their office or as are
properly delegated or assigned to them by the Board of Directors.
Section 5. The Secretary. The Secretary shall issue notices of meetings of shareholders and of directors when such notices are required by
law or these By-laws. He shall attend all meetings of the shareholders and of the Board of Directors and keep the minutes thereof. He shall affix the
corporate seal to such instruments as require the seal, and shall perform such other duties as usually pertain to his office or as are properly assigned to him
by the Board of Directors.
Exhibit 3.2
Section 6. The Treasurer. The Treasurer shall have the care and custody of all monies and securities of the Corporation. He shall cause to be
entered in records of the Corporation to be kept for that purpose full and accurate accounts of all monies received by him and paid by him on account of the
Corporation. He shall make and sign such reports, statements and documents as may be required of him by the Board of Directors or by the laws of the
United States, the State of New York or any other state or country, and shall perform such other duties as usually pertain to his office or as are properly
assigned to him by the Board of Directors.
Section 7. Temporary Transfer of Powers and Duties. In case of the absence or illness of any officer of the Corporation, or for any other
reason that the Board of Directors may deem sufficient, the Board of Directors may delegate and assign, for the time being, the powers and duties of any
officer to any other officer or to any director.
Section 8. Compensation. The compensation of all officers shall be fixed by the Board of Directors or a committee thereof. The
compensation of other employees shall be fixed by the Chief Executive Officer or other officers or employees, subject to any limitations prescribed by the
Board of Directors or a committee thereof.
ARTICLE V
Indemnification of Directors and Officers
Section 1. Right of Indemnification. Each director and officer of the corporation, whether or not then in office, and any person whose
testator or intestate was such a director or officer, shall be indemnified by the corporation for the defense of, or in connection with, civil or criminal actions
or proceedings, or appeals therein, in accordance with and to the fullest extent permitted by law.
Section 2. Other Rights of Indemnification. The right of indemnification herein provided shall not be deemed exclusive of any other rights
to which any such director, officer or other person may now or hereafter be otherwise entitled and specifically, without limiting the generality of the
foregoing, shall not be deemed exclusive of any rights, pursuant to statute or otherwise, of any such director, officer or other person in any such action or
proceeding to have assessed or allowed in his favor, against the corporation or otherwise, his costs and expenses incurred therein or in connection therewith
or any part thereof.
ARTICLE VI
Shares
Section 1. Certificated Or Uncertificated Shares. The shares of the Corporation may be represented by certificates or they may be
uncertificated shares. Unless otherwise provided by the articles of incorporation, the Board of Directors may provide by resolution that some or all of any
or all classes and series of the Corporation’s shares shall be uncertificated shares, provided that any such resolution shall not apply to shares represented by
a certificate until the certificate is surrendered to the Corporation.
Section 2. Certificated Shares — Signatures. If shares of the Corporation are represented by certificates, the certificates shall be signed by
the Chairman or a vice-chairman of the Board or the President or a vice-president and the Secretary or an assistant secretary or the Treasurer or an assistant
treasurer of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may
be facsimiles if : (1) the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee, or (2)
the shares are listed on a registered national securities exchange. In case any officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to hold his or her office before the certificate is issued, it may be issued by the Corporation with the same effect as if he or she
held the office at the date of issue.
Section 3. Certificated Shares — Required Statements. If shares of the Corporation are represented by certificates, each certificate
representing shares shall state upon its face: (1) the Corporation is formed under the
Exhibit 3.2
laws of New York; (2) the name of the person or persons to whom the shares are issued; (3) the number and class of shares, and the designation of the
series, if any, which the certificate represents. If the Corporation is authorized to issue more than one class of shares, then any certificate representing shares
issued by the Corporation shall set forth upon the face or back of the certificate, or shall state that the Corporation will furnish to any shareholder upon
request and without charge, a full statement of the designation, relative rights, preferences and limitations of each class authorized to be issued and, if the
Corporation is authorized to issue preferred shares in series, the designation, relative rights, preferences and limitations of each such series so far as the
same have been fixed and the authority of the Board of Directors to designate and fix the relative rights, preferences and limitations of other series.
Section 4. Uncertificated Shares — Required Notices. Within a reasonable time after the issuance or transfer of uncertificated shares, the
Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates under
Section 3 of this Article. Except as otherwise expressly provided by law, the rights and obligations of holders of uncertificated shares and the rights and
obligations of the holders of certificates representing shares of the same class and series shall be identical.
Section 5. Transfer of Shares.
(a) If shares of the Corporation are represented by certificates, the shares shall be transferable on the records of the Corporation by the holder
thereof, in person or by duly authorized attorney, upon the surrender of the certificate representing the shares to be transferred, properly endorsed.
(b) Whether shares of the Corporation are represented by certificates or are uncertificated, the Corporation shall be entitled to treat the holder of
record of any share as the owner thereof and accordingly not be bound to recognize any equitable or other claim to or interest in such share on the part of
any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of New York.
(c) The Board of Directors, to the extent permitted by law, shall have the power to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificated or uncertificated shares and may appoint one or more transfer agents and registrars of the
shares of the Corporation.
Section 6. Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning
the giving of a satisfactory bond or bonds of indemnity.
Section 7. Fixing Record Date. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action the Board may fix, in
advance, a date as the record date for any such determination of shareholders. Such date shall not be more than fifty (50) nor less than ten (10) days before
the date of such meeting, nor more than fifty (50) days prior to any other action. If no record date is fixed, the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall be at 5:30 pm, Buffalo time, on the day next preceding the day on which
notice is given, or if no notice is given, the day on which the meeting is held.
ARTICLE VII
Miscellaneous
Section 1. Corporate Seal. The seal of the Corporation shall be circular in form with the name of the Corporation and the year of its
Incorporation thereon, and such seal as impressed on the margin hereof is hereby adopted as the corporate seal of the Corporation.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be the calendar year unless otherwise provided by the Board of Directors.
Exhibit 3.2
Section 3. Amendments. Any By-laws may be adopted, repealed, altered or amended by the Board of Directors at any meeting thereof or by
written consent pursuant to Article III, Section II, provided that such proposed action in respect thereof shall be stated in the notice of such meeting or
request for written consent, and provided further that any amendment to the By-laws increasing or decreasing the number of directors of the Corporation
shall require the affirmative vote of a majority of the entire Board of Directors. The shareholders of the Corporation shall have the power to adopt, amend,
alter or repeal any provision of these By-laws only to the extent and in the manner provided in the Certificate of Incorporation of the Corporation.
ARTICLE VIII
Dispute Resolution
Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action
or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other
employee of the Corporation to the Corporation or the Corporation’s shareholders, (iii) any action asserting a claim arising pursuant to any provision of the
New York Business Corporation Law or the Certificate of Incorporation or By-laws of the Corporation (as either may be amended from time to time), or
(iv) any action asserting a claim governed by the internal affairs doctrine shall be the New York State Supreme Court for the County of Erie within the State
of New York (or, if the New York State Supreme Court does not have jurisdiction, the United States District Court for the Western District of New York
(Buffalo Division)), in all cases subject to the court’s having personal jurisdiction over any indispensable parties named as defendants. Failure to enforce
the foregoing provisions would cause the Corporation irreparable harm, and the Corporation shall be entitled to equitable relief, including injunctive relief
and specific performance, to enforce the foregoing provisions. Any person or entity owning, purchasing or otherwise acquiring interest in shares of the
Corporation shall be deemed to have notice of and consented to the provisions of this Article VIII.
Exhibit 21
COMPUTER TASK GROUP, INCORPORATED
SUBSIDIARIES OF COMPUTER TASK GROUP, INCORPORATED
The following is a list of all of the subsidiaries of the Registrant as of December 31, 2022. All financial statements of such subsidiaries
are included in the consolidated financial statements of the Registrant, and all of the voting securities of each subsidiary are wholly‑owned by
the Registrant:
Subsidiary
State/Country
or Jurisdiction
of Incorporation
Computer Task Group of Delaware, Inc.
Delaware
CTG of Buffalo, Inc.
New York
Computer Task Group of Canada, Inc.
Canada
Computer Task Group International, Inc.
Delaware
Computer Task Group Europe B.V. (a subsidiary of Computer Task Group International, Inc.)
The Netherlands
Computer Task Group (UK) Limited (a subsidiary of Computer Task Group Europe B.V.)
United Kingdom
Computer Task Group Belgium NV (a subsidiary of Computer Task Group Europe B.V.)
Belgium
Computer Task Information Technology Services Private Limited (a subsidiary of Computer Task
Group International, Inc.)
India
CTG ITS S.A. (a subsidiary of Computer Task Group IT Solutions, S.A.)
Belgium
CTG SAS (CTG France) (a subsidiary of Computer Task Group IT Solutions, S.A.)
France
StarDust SAS (a subsidiary of CTG SAS)
France
La Societé de Tests StarDust Inc. (a subsidiary of StarDust SAS)
Canada
Computer Task Group of Luxembourg PSF, S.A.
Luxembourg
Computer Task Group IT Solutions, S.A. (a subsidiary of Computer Task Group Luxembourg
PSF, S.A.)
Luxembourg
CTG LATAM SAS (a subsidiary of Computer Task Group International, Inc.)
Colombia
Eleviant Technologies, Inc.
Texas
Eleviant Technologies Private Limited (a subsidiary of Eleviant Technologies, Inc.)
India
Impiger Mobile, Inc. (a subsidiary of Eleviant Technologies, Inc.)
Texas
Eleviant Consulting Services, Inc. (a subsidiary of Eleviant Technologies, Inc.)
Texas
Eleviant Technologies, Inc. (a subsidiary of Eleviant Technologies, Inc.)
Canada
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 15, 2023, with respect to the consolidated financial statements and internal control over
financial reporting included in the Annual Report of Computer Task Group, Incorporated on Form 10-K for the year ended December
31, 2022. We consent to the incorporation by reference of said reports in the Registration Statements of Computer Task Group,
Incorporated on Forms S-8 (File No. 333-51162, 333-143080, 333-167461, 333-251430, and 333-264377).
/s/ GRANT THORNTON LLP
Cleveland, Ohio
March 15, 2023
Exhibit 31.1
CERTIFICATION
I, Filip J.L. Gydé, certify that:
1.
I have reviewed this report on Form 10-K of Computer Task Group, Incorporated;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 15, 2023
/s/ Filip J.L. Gydé
Filip J.L. Gydé
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, John M. Laubacker, certify that:
1.
I have reviewed this report on Form 10-K of Computer Task Group, Incorporated;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent functions):
a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 15, 2023
/s/ John M. Laubacker
John M. Laubacker
Chief Financial Officer
Exhibit 32
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States
Code), each of the undersigned officers of Computer Task Group, Incorporated, a New York corporation (the “Company”), does hereby certify
with respect to the Annual Report of the Company on Form 10-K for the year ended December 31, 2022 as filed with the Securities and
Exchange Commission (the “Form 10-K”) that:
(1)
the Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of
operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Computer Task Group, Incorporated and will be
retained by Computer Task Group, Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.
Date: March 15, 2023
/s/ Filip J.L. Gydé
Filip J.L. Gydé
Chief Executive Officer
Date: March 15, 2023
/s/ John M. Laubacker
John M. Laubacker
Chief Financial Officer